China’s upgraded trade pact with ASEAN promises deeper markets and tech ties, but rising regional dependence, local pushback and ongoing US-China rivalry could test the limits of its benefits, says researcher Genevieve Donnellon-May.

On 28 October 2025, during the 47th ASEAN Summit in Kuala Lumpur, China and the Association of Southeast Asian Nations (ASEAN) formally signed the ASEAN-China Free Trade Area (ACFTA) 3.0 Upgrade Protocol.

Concluded in October last year after negotiations began in November 2022, the agreement represents the most comprehensive revision since the ACFTA’s launch in 2010. It aims not only to strengthen bilateral trade and economic cooperation but also to cushion the region against external shocks — geopolitical, climatic and economic.

Expanding cooperation across nine areas, including the digital economy, green development, supply chain connectivity and support for micro, small, and medium enterprises (MSMEs), ACFTA 3.0 reflects a shift from traditional trade ties to stronger, multi-sector integration. 

China and ASEAN — two major players in the global south — together account for one-quarter of the world’s population and are among the world’s biggest economies. 

Genesis of ACFTA

Since ACFTA’s inception in 2010 — ASEAN’s first FTA with an external partner — bilateral trade has nearly tripled, from US$235.5 billion in 2010 to US$696.7 billion in 2023. In 2024, bilateral trade approached US$1 trillion. 

This growth has continued in 2025: during the first three quarters of this year, China’s total imports and exports with ASEAN countries reached 5.57 trillion RMB (US$382.37 billion), marking a 9.6% year-on-year increase and also accounting for 16.6% of China’s total foreign trade. 

China has been ASEAN’s largest trading partner for 16 consecutive years, while ASEAN has been China’s top trading partner for the past five. In 2023, China ranked as ASEAN’s third-largest source of foreign direct investment, behind the US and EU, at US$17 billion — a nearly 20% year-on-year increase.

Key tenets of ACFTA 3.0

Several aspects of ACFTA 3.0 stand out. Digital cooperation features prominently, aiming to facilitate e-commerce, build digital infrastructure and establish cross-border data flow mechanisms while addressing cybersecurity and privacy concerns. 

Green development is another central pillar. The agreement promotes collaboration on renewable energy, resource efficiency, and environmental standards, supporting ASEAN economies’ transition to low-carbon growth. 

Support for micro, small and medium enterprises (MSMEs) is another key feature, reflecting the agreement’s broader goal of promoting inclusive growth. MSMEs make up over 90% of businesses in ASEAN and employ the majority of the workforce, while in China, they similarly represent a substantial share of employment and economic output. 

By improving access to financing, technology transfer, and training, the upgraded ACFTA helps smaller enterprises on both sides integrate more effectively into regional and global supply chains.

Benefits for both sides

For Beijing, the benefits are clear. Amid strained US-China relations, Southeast Asia offers both a major market and a large production base to diversify risk and reduce exposure to Western trade restrictions. The upgraded pact allows China to expand export markets, secure critical raw materials — such as minerals from Indonesia and Thailand — and encourage manufacturers to offshore production to lower costs and bypass Western constraints. These measures consolidate China’s position as a reliable regional economic partner, counterbalance US influence, and boost intra-Asian trade amid global uncertainty.

The agreement also complements China’s broader regional initiatives, including the Belt and Road Initiative (BRI) and the Digital Silk Road — the latter which promotes digital infrastructure projects, including fibre optic networks, 5G cloud computing, and artificial intelligence-powered services — by integrating trade and investment facilitation alongside policy coordination. In doing so, it positions ASEAN as a testing ground for regional standards in digital governance while advancing China’s agenda in digital connectivity and technological influence.

Source: ThinkChina Newsletter

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