Southeast Asian Traders Are Paying the Cost of China’s Border Policies

Foreign ministers of the Association of Southeast Asian Nations (ASEAN)—minus a representative from military-occupied Myanmar—met this week for an annual retreat in Phnom Penh, Cambodia. While Myanmar’s absence drew much international attention, bloc leaders were also concerned with developing a coordinated economic response to ongoing trade and travel barriers, as Southeast Asia’s largest market, China, continues to remain largely closed.

China’s strict coronavirus policy has left land borders tightly sealed and caused huge backlogs at ports. Southeast Asian traders, farmers, and business owners are struggling to get their goods into the region’s largest market—with no sign of a return to normal on the horizon.

Southeast Asian countries, particularly Thailand, are important suppliers of raw goods, such as rubber and electrical parts, which are vital to China’s construction and auto industries. In agriculture, Vietnam and Myanmar accounted for more than half of China’s rice imports in 2020, and Thailand is a major supplier of raw construction materials. It also has a growing semiconductor industry, which China has great demand for.

Recent photos have shown huge swaths of farmland covered in rotting fruit and trucks loaded with vegetables stopped at border checkpoints, barred from crossing into China’s southern cities, which were ordered into new lockdowns following the latest spike in COVID-19. The city of Baise, bordering Vietnam, went into lockdown early February, and several cities in the border province of Yunnan shut down last fall. Although several checkpoints have reopened, cross-border trade remains uncertain.

Fresh fruit, vegetables, and other perishable goods—like seafood, which wholesalers need to keep frozen as it’s moved from the southern coasts to up north—have been the biggest casualty. But the impact goes beyond that, suggesting that—at least for Southeast Asia—China’s isolation from the outside world is not sustainable.

China is keeping a close watch on the trucks and truckers hoping to exchange crops for cash—making trade uncertain. The Chinese central government is requiring coronavirus testing before entering truckers arrive, and in some cases, shipping containers holding the commodities must be purchased from China—at great cost to sellers from Myanmar, Vietnam, and Laos.

Although China reopened several borders to its southern provinces last November, which had been closed for months, the central government introduced a slew of new restrictions, from daily entry quotas to border disinfection stations, that make it more challenging to move goods across checkpoints. Increasing uncertainty has made sellers weigh the possibility that any trip could end in border rejection.

All this has made dealing with China extra expensive, a burden shoved onto traders in Myanmar and other border states, explained Jared Bissinger, a Washington-based development economist focused on Myanmar and Southeast Asia.

If a trader has made it to the border, they’ve already incurred a significant cost, Bissinger said. “You’ve already committed to selling.” It’s not easy to change course by transporting fresh goods to another country, especially from the main gateways that offer a passageway into China but are located far from everyone else. As a result, wholesalers have begun to factor in the jacked-up costs and pare down their demands, leaving farmers without a market.

“Traders aren’t making money; therefore, traders aren’t buying; therefore, people aren’t planting,” Bissinger outlined. “It’s going to trickle back.”

Sellers are struggling to get into China, but tourists are also struggling to get out—dealing a serious blow to Southeast Asian economies. With long quarantine times on both entry and return, Chinese tourists have all but stopped flocking to countries like Thailand, which before 2020 saw well over 10 million tourists from China per year, according to data from Chinese travel website .

Bigger players, mostly large companies in the private sector, were more affected by the 1997 Asian financial crisis. This time, workers who rely on daily wages as well as small businesses that rely on tourism and people who have the financial ability to spend can’t sustain the long disruption to revenue. They’re the ones that will be hurt the most, said international business expert Pavida Pananond.

Isolation has been costly from China—economic growth has slowed, and it’s already suffered from the global supply chain crisis. But unlike its Southeast Asian counterparts, China was not dependent on its neighbors, said Shehzad Qazi, managing director of private data collection platform China Beige Book.

Despite having to deal with tighter restrictions on trade, China’s importance in Southeast Asia won’t change. China was the region’s largest trading partner long before the pandemic, and businesses have no reason to turn away from their most important market now.

But the restrictions indicate Southeast Asia needs to think of more technologically sophisticated ways of doing business, said Pananond, who is also a professor at Thammasat Business School in Bangkok. It’s something Pananond expects to be a top priority for ASEAN, especially if it hopes to stay neutral with China—and the West.

In recent months, the United States has signaled that it wants to build up power in the Indo-Pacific. In doing so, it seems to want to split ASEAN down the middle, said one insider on U.S.-ASEAN business relations who spoke to Foreign Policy on the condition of anonymity.

The Biden administration’s new Indo-Pacific economic framework—where the White House has committed to strengthening relationships with Singapore, Malaysia, Indonesia, and Vietnam; deepening ties with big players like the Philippines and Thailand while excluding ASEAN’s current chair and increasingly close China ally, Cambodia—could be worrisome for ASEAN, especially when the group is striving toward unity.

And China depends on Southeast Asia too. These smaller countries are China’s most immediate sphere of economic influence as well as political power, Pananond said, adding that as Chinese President Xi Jinping faces a tricky period of cementing his power at this year’s critical party conference, the central government will not ice out its Southeast Asian partners.

As for ASEAN, half of the countries have upcoming elections, and this week’s meeting was sure to include a substantial amount of domestic posturing, Pananond said. But with maintaining an equitable and competitive economic environment as one of ASEAN’s main goals, recovery efforts and a response to China—individual and coordinated—will almost certainly be at the top.

But while China’s zero-tolerance policies have disrupted trade, halted tourism, and shifted power dynamics significantly, public opinion of China’s commitment to eradicating the virus is relatively positive. There’s greater tolerance across Southeast Asia for lockdowns and mandates as opposed to in the West. Vietnam once imposed its own zero-COVID-19 policy, but it was scrapped last fall as the highly transmissible omicron variant became difficult to contain. And Thailand suspended its quarantine-free policy—which —in December 2021 as omicron spiked, though the mandate has now been lifted.

One point of friction is China’s vaccine program—a necessity for the country’s eventual reopening. China originally required visitors to have received Chinese-made vaccines, before adding some select U.S.-manufactured vaccines to the list. That may be one outcome of the ASEAN meeting—a united front on vaccines, both equitable distribution and a push for shared acceptance at borders.