A more regionally anchored Asean+3

China sits at the centre of this transformation.

Conventional trade statistics tend to obscure China’s importance as a consumer because so much of what Chinese households buy is assembled domestically from imported components. Value-added analysis corrects for this, revealing China as a major destination for final demand – not just a way station for goods heading elsewhere.

The scale of Chinese consumption drives this. Consider automobiles: China is now the world’s largest market, accounting for nearly a third of global vehicle sales – more than the US and the European Union combined. It leads global adoption of electric vehicles, reshaping automotive supply chains from batteries to semiconductors. Or smartphones: China is home to over a fifth of the world’s users, about four times the US’ share.

These examples illustrate why regional supply chains have reoriented. Across product categories, China’s end-market position is not marginal but central, reshaping production decisions across the region.

Two decades ago, Japan was the anchor of Asia’s supply networks. Today, China has taken on that role, not merely as a production hub, but also as a source of final demand that pulls regional supply chains towards it.

When a South Korean chipmaker or a Japanese parts supplier decides where to locate production, they are increasingly thinking about proximity to Chinese consumers, not just Chinese factories.

Japan now sends more than four times as many auto parts to China as to the US and EU combined. Nearly half of Asean+3’s electronics intermediate exports now flow to China. These goods enter as components, but the final buyer is often a Chinese household.

Crucially, this is not a story of one-way dependence on China. The relationship is mutually reinforcing.

Japan and South Korea supply high-technology inputs – chips, displays, precision components, and capital equipment. Asean provides midstream manufacturing and assembly capabilities. China contributes scale, increasingly sophisticated production, and now substantial final demand.

The result is a regional production and demand system where each part strengthens the others. Other Asean+3 economies have become the largest source of final demand for Chinese exports, too – a mutual dependence that distinguishes the current regional architecture from earlier configurations where demand flowed primarily outwards to Western markets.

Asean itself, with nearly 700 million consumers and rapidly expanding middle classes, is emerging as a major market in its own right.

The region is now a significant destination for goods from China, Japan, and South Korea. It is the largest source of final demand for Chinese exports after the US. Asean represents one of the fastest-growing demand bases in the global economy.

What this means for the region

This structural shift has measurable consequences for how shocks propagate.

Our scenario analysis shows that a decline in Chinese domestic demand now affects the rest of Asean+3 five times more than it would have two decades ago. Conversely, sensitivity to US demand shocks has declined relatively for most regional economies. The region’s business cycles have become more synchronised with each other than with the rest of the world.

None of this implies immunity to US trade policy. Tariff escalation carries real costs, and global factors remain significant. But it does suggest a degree of resilience that the conventional “factory for the West” characterisation would not predict.

The region’s demand base is now more regionally anchored and less dependent on extra-regional markets than at any point in the past two decades.

For policymakers and businesses, the implications are significant.

Strategies premised on serving Western demand need updating. Supply chain decisions should account for the gravitational pull of Asian consumption. And assessments of regional vulnerability to trade tensions should recognise that Asean+3 has built something it did not have before: a regionally anchored demand system, combining China’s unparalleled market scale, Asean’s diversity and dynamism, and the technological sophistication of Japan and South Korea.

The economic map has been redrawn. At its centre now stands Asean+3 – not merely as the world’s workshop, but as its most important market.