Cheap Chinese goods are flooding South-east Asia. Can the region turn the tide?

BANGKOK – Factory workers in Muar, known for its abundant high-quality rubberwood sourced from end-of-life-cycle rubber plantations, are working speedily to polish ready-to-assemble furniture pieces and arranging them into flat-pack boxes.

The hive of activity in the coastal town in north-western Johor, Malaysia’s biggest furniture manufacturing hub, belies the confluence of pain points that are contributing to an undercurrent of foreboding and gloom.

There is a well-founded sense of urgency: While some orders to the United States have already been halted, others are being expedited to ensure shipments are made before the full force of US President Donald Trump’s “reciprocal tariffs” take effect when the 90-day pause ends in July.

Even as negotiations on tariff adjustments continue apace, the industry fears a blunting of demand from a market that accounted for half of Malaysia’s RM9.89 billion (S$2.99 billion) wooden furniture exports in 2024.

Yet Malaysia’s furniture producers, such as Ms Candice Lim, founder of Natural Signature, are also being forced to simultaneously contend with increasingly stiff competition from China. That challenge began in earnest back in 2019 when furniture was among the categories of Chinese goods hit with tariffs during Mr Trump’s first administration, resulting in Chinese manufacturers who found themselves priced out of the US searching for new buyers, including in Malaysia.

“Faced with the first wave of tariffs, Chinese competitors slashed costs across raw materials, rent, and salaries to stay afloat,” said Ms Lim, who employs more than 100 mostly migrant workers at its Muar operations. “Their ‘pile it high, sell it cheap’ strategy enabled them to sell directly to consumers through Taobao,” the 56-year-old told The Straits Times, referring to the popular e-commerce platform owned by Chinese tech giant Alibaba.

An influx of Chinese output, upending industries and local economies like Muar’s, is a phenomenon playing out across much of South-east Asia. It will likely be exacerbated if the Trump administration persists with its hefty tariffs regime on Beijing, even as Asean economies grapple with the fallout from their own respective reciprocal tariffs levied by Washington.

In Indonesia, South-east Asia’s largest economy, industry associations and trade unions say about 250,000 workers in the garment and textile sectors were laid off between 2022 and 2024 – with another half a million at risk in 2025. Textiles giant Sritex, which employs about 50,000 workers and sews clothes for global brands like Uniqlo, Zara and H&M, entered bankruptcy proceedings earlier in 2025, blaming “an oversupply of textiles in China” for its financial demise.

In Thailand, about two-thirds of the ceramics and handicraft factories in Thailand’s northern Lampang province have shuttered in the past five years, leaving only 89, according to local industry associations. An influx of Chinese electric vehicles (EVs) has hit incumbent Japanese automakers hard, causing production cuts and thousands of job losses among the local Thai auto parts manufacturers that service them.

The common denominator is China, where a post-pandemic economic malaise and real estate slump has resulted in dispirited consumers and weak domestic demand.

Among Beijing’s vaunted solutions has been to double down on investment in manufacturing and exports, propelling China’s total trade surplus to a record high of just under US$1 trillion (S$1.3 trillion) in 2024, driving nearly one-third of its gross domestic product growth for the year.

The Biden administration, however, had kept on tariffs that Mr Trump imposed during his first term, and with much of the West throwing up barriers to keep out big-ticket Chinese items like EVs, steel and solar panels, much of the excess production capacity has been spilling into South-east Asia, even before the Trump administration’s newest trade war salvos.

But it is lower-value goods like garments, shoes, manufacturing components, as well as the myriad packages sent by China’s e-commerce giants such as Temu and Taobao direct to consumers, that are wreaking particular havoc with local industries.

With trade going in the opposite direction not keeping pace, China’s trade surplus with Asean member countries has more than doubled from US$90 billion in 2021 to US$190 billion in 2024. The 10-nation regional grouping, to which some Chinese factories have been relocating to avoid tariffs, surpassed the US and the European Union to become China’s largest export market in 2023. Chinese exports to Asean surged 21 per cent year on year to US$60.4 billion for the month of April.

How low can you go?

The weakness of its home market and rising trade barriers in high-paying Western economies has led Chinese factories to compete more aggressively on price, taking in lower profits just so they can keep production lines turning over.

“For any given product, there is no lowest price – only lower prices,” said Mr Fen Ni, a salesman at furniture-maker Fujian Provincial Yao Hua Foreign Trade, which counts the US as its largest market.

Ever since Mr Trump first began ratcheting up levies on Chinese imports in 2018, American buyers have been bargaining down prices, which factories have “no choice” but to swallow, he said. “There are too many factories in China, and if you don’t do it, somebody else will.”

Today, the selling price of the tables and cabinets which his company makes in the south-eastern city of Fuzhou are lower than that of five years ago, he said.

Faced with mounting tariffs from the US, factories in China have also had to sell their wares to a more diverse range of buyers just to stay afloat.

Depending on Chinese consumers to digest this stock is not a workable solution, many say. “The domestic market is even more involuted (fiercely competitive),” said Ms Cooby Yu, sales manager at a Shenzhen-based furniture maker. “There is not much demand, because the property market isn’t doing well.”

To keep production lines running, the manufacturing industry has doubled down on expanding sales into other markets. South-east Asia is one such destination: Although its consumers are less affluent than those in the US, the region is well-connected with China via land, sea and air routes.

At Shaoxing Sinewy Garment in eastern Zhejiang province, manager Zeng Da has seen the profit margins of his company’s activewear narrow from 20 per cent to 5 per cent in 2025. It is trying to sell more cheaply to buyers in Indonesia, Malaysia, the Philippines and Thailand to make up for a shortfall in American orders, which used to make up half of the company’s business.

“It’s not about wanting to sell more to South-east Asia per se… but about opening up other markets now that US orders have halted,” he said in early May. “To feed the workers, everyone is squeezing profits thinner and thinner. You can’t not have orders.”

The manufacturing industry accounted for almost 16 per cent of Chinese jobs in 2023.

Apart from the region, Chinese producers have also been casting a wide net from Europe and the Middle East to Latin America and Africa, eyeing whomever will buy their goods. In the process, they are giving South-east Asian exporters a run for their money.

“Everyone is squeezing into the European market,” said Mr Wu Guangwei, general manager at Cao County Lianyun Arts and Crafts, a furniture-maker in Shandong who is pivoting into this market following the US tariff hikes in 2025. Apart from Chinese competitors, he also has to take on furniture-makers from Malaysia, Vietnam and Indonesia.

With “less meat and more wolves” in the European market, his company has had to slash prices by between 20 and 25 per cent to remain competitive, and is even willing to bear a slight loss to keep production lines turning. Already, the company has had to let go of temporary workers who would otherwise sit idle.

Honed by cut-throat rivalry at home, Chinese factories remain the most competitive in the world, producing on a vast scale and at high speed, leaving the incumbent South-east Asian producers trailing in the dust.

Chinese manufacturers say that they benefit from complete supply chains and a workforce in their own country which, although more expensive than in much of South-east Asia, can in many instances be more productive.

In South-east Asia, factory workers are often paid by the hour, and therefore have less incentive to be efficient, said Mr Zeng, the garment-maker. But in China, his workers are paid by the number of pieces they produce.

“The challenge that everyone else has is that the Chinese market is just so formidable. The competition is incredibly fierce in China, so any product that emerges at the end of that competition is very good at whatever it is, and it has low cost attached to it. So that’s very hard for any firm anywhere that makes goods to compete with,” said Dr Deborah Elms, head of trade policy at the Hinrich Foundation.

Specialising in particleboard furniture and living room sets, Muar-based manufacturer Goh Song Huang said Malaysia’s furniture industry is at a disadvantage compared with China, due to strong Beijing support for China’s export-oriented home furnishing sector.

“The Chinese government provides tax rebates that support China’s manufacturers’ margin. Malaysian manufacturers, on the other hand, do require a higher margin to survive in response to escalating cost,” the 33-year-old told ST.

Chinese suppliers are also willing to offer a longer credit term to their clients, which Malaysian manufacturers are unable to match, Mr Goh added.

China has, since 1985, offered its manufacturers tax rebates on exported goods, boosting their competitiveness in foreign markets. In December 2024, amid rising international concerns about an oversupply of Chinese goods flooding into foreign markets, Beijing removed or cut back on rebates for certain items, including aluminium, copper and solar products.

‘Illegal practices’

Vendors at well-trodden textile markets in the Indonesian capital Jakarta such as Senen and Tanah Abang have reported a glaring drop in foot traffic in recent years.

In several spots around Senen market, vendors display protest banners pointing the blame. “Chinese textile products in the market have killed Indonesia’s MSMEs (Micro, Small and Medium Enterprises),” reads one.

Trade unions and industry associations say much of the Chinese textiles flooding into the market are imported illicitly without paying Customs and other taxes, enabling them to be sold at far lower prices than locally made products. The illicit imports lack proper labelling, do not use the Indonesian language as required by regulations, and are often knock-offs of well-known brands’ products.

“We are asking for these illegal practices to stop – because how can we survive? We pay our workers’ salaries, yet suddenly there are products in the market that are 20 to 30 per cent cheaper, simply because they bypass… taxes,” said Mr Ian Syarif, deputy chairman of industrial relations at the Indonesian Textile Association, at a public parliamentary hearing on April 28.

Mr Ian said the illicit trade was likely to be exacerbated due to a “demand shock” that will occur as exporter countries hit by Trump administration tariffs look for alternative markets, with Indonesia being one of the larger established ones.

Washington has consistently accused Beijing of deliberately fuelling China’s overcapacity through anti-competitive behaviour, such as its industrial subsidies that have led to over-investment and “production capacity untethered from global demand”.

China, meanwhile, has resolutely rejected the accusations and says its support of its domestic industries through subsidies and other policies is standard practice globally, including in the US. Beijing says the US’ criticism and calls for punitive measures are merely attempts to hinder China’s progress in moving up the economic value chain.

US-China trade negotiations held in Geneva over the weekend of May 10 and 11, however, have yielded a major de-escalation between the rival parties, with the US reducing its total tariffs on China from 145 per cent to 30 per cent, and Beijing lowering its corresponding tariffs by the same amount, from 125 per cent to 10 per cent. These tariff cuts will last 90 days as both sides thrash out a longer-term deal.

The unexpected tariff deal has prompted renewed optimism from other affected countries, including those in South-east Asia, that they can negotiate significant reductions to their respective US-imposed levies.

As it is, the once-thriving furniture industry in Muar has been languishing. Export volumes decreased from 7,000 to 8,000 containers in 2021 to 5,000 to 6,000 containers in 2024, according to Mr Steve Ong, president of the Muar Furniture Association, which represents more than 800 member companies. As well as the direct competition from China, Mr Ong said that an increasing number of Chinese companies have shifted manufacturing operations to Vietnam.

“Chinese factories are now flourishing in Vietnam, where labour and raw material costs are significantly lower,” Mr Ong told ST. “They can take (away) our orders, but we can’t counter this trend.”

Natural Signature’s Ms Lim said the 30 per cent price gap compared with her competition has forced her to slash her prices and profit margins in an effort to stay competitive. She is also focusing on differentiating the firm as a premium brand with quality products.

Despite the challenges, Mr Ong said the simmering trade war between the US and China could end up presenting new opportunities for Malaysian exporters, if they are able to maintain more favourable tariff conditions compared with China and other competitors in the region.

“With relatively lower tariffs, our export market could potentially expand two or even four times,” he said. However, the local industry continues to grapple with a chronic shortage of labour, which is crucial to its operations.

“Fewer Malaysians are willing to work in factories,” Mr Ong said. “We support the government’s push for automation to reduce reliance on foreign labour, but in the short term, skilled migrant workers remain indispensable.”

Mr Khoo Yeow Chong, managing director of Dynamic Furniture, agreed the ongoing tariff war presents a significant opportunity for Malaysia’s furniture sector to gain a stronger foothold in the US market, if its tariffs are lower than competitor countries’.

The Trump administration had on April 2 unleashed a wave of “reciprocal tariffs” on the world’s exports to the US – including Malaysia (24 per cent), Thailand (36 per cent) and Indonesia (32 per cent) – before announcing a 90-day pause on April 9 for all countries except China.

However, the Selangor-based Mr Khoo expressed concern over the ease with which foreign investors, including China, can currently enter the Malaysian market and also urged the government to focus on attracting high-value, premium-end manufacturers instead of becoming a destination for low-cost dumping.

“I want to see high-value-added goods coming in – products that can command a premium price, not the low-end items flooding the market and that compete with us,” he said.

The flow of Chinese goods into South-east Asia has been facilitated by the advent of free trade agreements like the Asean – China Free Trade Area and the Regional Comprehensive Economic Partnership, and fuelled further by the explosion of China’s world-leading e-commerce market and the upgraded railways and ports that have streamlined logistics.

The flood of discounted Chinese products has posed dilemmas for leaders in Asean countries who increasingly find themselves sandwiched in the middle of US-China trade tensions and being wary of being seen to favour one side over the other.

Domestic retailers and manufacturers, especially in lower-value traditional sectors such as Indonesian garment factories, meanwhile, are looking for their governments to take stronger action against what they consider unfairly subsidised competition from China.

Underlining the political importance of being seen to protect local jobs and industries, Indonesian President Prabowo Subianto has threatened to sink ships that smuggle textiles into the country, and has also personally pledged efforts to rescue textile giant Sritex.

‘It’s not a lost cause’

Asean governments have generally been wary of singling out China, particularly as they prioritise wooing infrastructure investment and knowledge transfer in advanced tech industries from Beijing.

Hinrich’s Dr Elms says rather than compete head-to-head with China across full supply chains, Asean countries could identify segments of a supply chain to specialise and differentiate themselves, seek to move higher up the value chain, and also tailor products and marketing to their home markets. Governments should look to ease access to loans and capital for the region’s small businesses, as well as improve infrastructure.

“It’s very unsettling, especially for developing countries that see this as an important pathway, like manufacturing employs people, and if they’re not going to be manufacturing domestically in the way that they were, then what are they going to be doing,” she said. “But I don’t think it’s a lost cause.”

Malaysia is shifting towards certified sustainable timber products to improve its appeal to the international market, said Deputy Minister of Plantation and Commodities Chan Foong Hin.

“With increasing global emphasis on sustainability, Malaysia is leveraging its certified forests such as the Malaysian Timber Certification Scheme – Programme for the Endorsement of Forest Certification and Forest Stewardship Council to market and export a wider range of certified timber products beyond just rubberwood,” Datuk Chan told ST.

Furniture-makers hope that Muar’s enduring reputation for reliability will help it prevail over mixed customer experiences from online purchases.

Malaysian graphic designer Lydia Song, 32, was thrilled when she placed an order for two wooden cabinets from Taobao in early March. She envisioned the perfect addition to her newly purchased condominium unit.

However, the excitement quickly turned to frustration when only one cabinet arrived after several weeks, disrupting her home decoration plans. Despite multiple attempts to resolve the issue via online customer support, her complaint remained unresolved as of April 25.

“I paid RM1,000 for two beautifully designed cabinets. The reviews and comments were promising. I couldn’t find similar hardwood quality in local stores,” she said.

“But after this experience, I wouldn’t be buying large furniture online again from Taobao.”

And despite its setbacks, Indonesia’s textile industry is attempting to regroup, with several major textile companies opening in or relocating to emerging industrial areas to reduce overheads.

Iwaba Sejahtera Garmen opened its premises in 2024 in the secluded village of Ciburuy, about an hour’s drive from the provincial capital of Bandung. Inside the modest garment factory, about 20 workers were busy sewing, cutting, and ironing stacks of red-and-black flannel shirts ready for market.

Factory manager Ms Eriska, who like many Indonesians goes by one name, said the workers are hired on a contract basis depending on order levels, with staff numbers ranging from 20 to 50 at any one time.

“Most of our orders come from social media platforms like Shopee and TikTok,” she added.

Another aspiring entrepreneur in the garment business is Ms Sani Sadyani, founder of clothing label Glory Nine Degrees which was launched in 2020.

“We started with just a phone, a motorbike, and a passion to sell customised apparel to potential buyers,” she recalled.

Today, her label chalks up average annual sales of 800 million rupiah (S$63,000) to 1 billion rupiah, including modest export quantities to Timor-Leste, the Netherlands and the US.

“The orders from Timor-Leste may be small, but they keep coming back,” Ms Sani told ST at her workshop studio in Bandung, West Java.

Correction note: In an earlier version of the story, we said that Ms Candice Lim’s firm name is Nature Signature instead of Natural Signature. This has been corrected.

• Philip Wen is regional correspondent at The Straits Times, covering South-east Asia from his base in Bangkok.
• Lu Wei Hoong is Malaysia correspondent at The Straits Times, specialising in transport and politics.
• Stania Puspawardhani is Indonesia correspondent for The Straits Times, based in Jakarta.
• Joyce ZK Lim is The Straits Times’ China correspondent, based in Shenzhen.

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