Promoting Free Trade and Open Cooperation between ASEAN and China

On May 20, 2025, the ASEAN-China Special Economic Ministers' Meeting was convened virtually, culminating in the announcement that negotiations for the ASEAN-China Free Trade Area (ACFTA) 3.0 upgrade had been successfully concluded. 

A Pivotal Trade Link Between ASEAN and China

Established in 2002 and entering into force in 2010, the ACFTA has been instrumental in enhancing trade and investment flows between ASEAN and China. Over the years, it has facilitated the reduction or elimination of tariffs on more than 90% of traded goods, fostering economic integration and making China ASEAN's largest trading partner.

After nearly two decades, ACFTA was upgraded once in 2015 to expand its scope and strengthen economic cooperation. However, in response to the rapid changes in the global economy, the strong development of digital technology, the trend of green transformation, and the demand for flexible supply chains, ASEAN and China recognized the necessity to further upgrade the agreement to suit the new context.

In November 2022, at the 25th ASEAN-China Summit, both sides officially launched negotiations to upgrade ACFTA to version 3.0. After nearly two years and nine rounds of negotiations, on May 20, 2025, at the Special ASEAN-China Economic and Trade Ministers’ Meeting held online, both sides announced the completion of the ACFTA 3.0 negotiations, opening a new chapter in the economic cooperation between ASEAN and China.

Elevating Trade and Investment Relations

ACFTA is one of the largest free trade areas in the world, covering a region with a population of over 2 billion people and a total GDP exceeding 22 trillion USD. Since its establishment, ACFTA has facilitated trade between ASEAN and China by reducing or eliminating tariffs on more than 90% of goods.

The current upgrade agreement includes nine new chapters, covering digital economy, green economy, supply chain connectivity, standards and technical regulations and conformity assessment procedures, customs procedures and trade facilitation, sanitary and phytosanitary measures, competition and consumer protection, small and medium enterprises, and economic and technological cooperation. This agreement is expected to be officially signed before the end of 2025, becoming a comprehensive, modern trade agreement that brings balanced benefits to all parties.

Professor Feng Gui from Guangxi Academy of Economic and Financial Sciences (China) stated that the completion of ACFTA 3.0 negotiations is proof of cooperation across the Southern Hemisphere; ACFTA 3.0 will also significantly enhance ASEAN-China cooperation related to industrial capacity, technology, and trade; while promoting economic growth and industrialization of ASEAN countries.

Ma Jianchun, Chairman of the China World Trade Organization Research Association, believes that ASEAN-China cooperation sends a clear and important signal to the world that multilateralism and free trade remain the keys to global development.

Alvin Ang, Senior Researcher at the Brunei Strategic and Policy Studies Centre, said that small economies like Brunei participate in trade agreements not only to seek foreign capital but also to gain guidance and support to ensure these investments yield meaningful outcomes. ACFTA 3.0 is expected to bring greater integration opportunities for ASEAN countries, which are primarily small and medium-sized economies.

Sharing the same view, Tengku Zafrul Abdul Aziz, Malaysia’s Minister of Investment, Trade, and Industry, emphasized the belief that this milestone “will serve as a crucial driver for ASEAN’s sustainable growth and competitiveness.” In the context of a global economy facing many challenges, strengthening ASEAN’s economic capacity through regional integration remains a priority for the Association.

ACFTA 3.0 in the Context of Global Trade Competition

Amid escalating trade tensions with the United States, especially due to the tit-for-tat tariff policies under U.S. President Donald Trump, this agreement not only consolidates China’s position in the region but also brings numerous opportunities for ASEAN countries.

The completion of negotiations between China and ASEAN took place against the backdrop of ongoing global trade tensions. In April 2025, the U.S. imposed retaliatory tariffs on most of its trading partners, with the highest tariffs reaching 145% on Chinese goods, and 46%, 49%, 32%, and 24% respectively on goods from Vietnam, Cambodia, Indonesia, and Malaysia.

Although these tariffs have been temporarily suspended for 90 days (until July), uncertainty and concern continue to loom over the region. In this context, ACFTA 3.0 is seen as a strategic tool for China and ASEAN to mitigate the impact of U.S. protectionist policies.

Digital infrastructure is expected to strengthen connections between China and ASEAN. China’s experience in developing digital infrastructure could also support technology for ASEAN countries, while creating more opportunities for small and medium-sized enterprises.

For China, the agreement helps reinforce its role as a regional economic hub, especially as exports from China to the U.S. face pressure from tariffs. It is estimated that China’s merchandise export value to the U.S. reached about 438.95 billion USD in 2024, a figure that would decline significantly if the Trump administration decides to reinstate tariffs on Chinese goods..

Meanwhile, trade with ASEAN, China’s second-largest trading partner, could partially offset these losses. In 2024, China’s exports to ASEAN reached 586.52 billion USD, a 12% increase. Sectors such as e-commerce and green energy, emphasized in ACFTA 3.0, promise to open new markets and boost bilateral investment.

For ASEAN, the agreement offers opportunities to diversify markets and reduce dependence on the U.S. For example, Vietnam, one of the countries heavily affected by U.S. tariffs (46%), can leverage ACFTA 3.0 to increase electronics exports, which reached 126.5 billion USD and accounted for more than one-third of the country’s total export value in 2024.

Similarly, countries like Indonesia and Thailand, which are currently negotiating tariffs with the U.S., may find a channel to enhance economic stability through closer cooperation with China.

Some Challenges Ahead

Although ACFTA 3.0 brings many prospects, its implementation still faces several challenges:

First, the lack of unity within ASEAN could weaken the effectiveness of the agreement. Malaysia, as the ASEAN chair, has called for a unified front against U.S. tariff policies. However, member countries are prioritizing bilateral negotiations with Washington rather than pursuing a collective solution. This may lead to intra-regional competition, reducing ASEAN’s collective strength.

Second, the increasing dependence on China could put some ASEAN countries at a geopolitical disadvantage. Yet, leaning too heavily toward the U.S. might isolate ASEAN countries from China. Meanwhile, strengthening relations with Beijing requires ASEAN countries to maintain a strategic balance to avoid excessive dependence.

Moreover, the effectiveness of ACFTA 3.0 depends on the ability of member states to implement and ratify the agreement. Although negotiations have been completed, signing and deploying the agreement require consensus and close coordination—something ASEAN often struggles with due to diverse economic and political interests, especially amid tensions in the South China Sea and differing national interests within the organization.

To fully leverage ACFTA 3.0, China and ASEAN need to focus on building common standards in new areas such as the digital economy and the green economy. 

Conclusion

As two major developing economies, ASEAN and China will open their doors together by establishing the Free Trade Area 3.0 and expanding comprehensive cooperation in emerging fields and new quality productivity. This will provide important institutional guarantees for promoting the construction of the vast ASEAN-China market, while also creating long-term momentum for building the ASEAN-China community with a shared future, fostering shared prosperity and development for both sides.