Southeast Asia's 'China plus one' strategy is delivering less than its boosters expected. The region has attracted billions of dollars in factory investment, but the most valuable parts of production remain outside its grasp.
A key problem is that the region is still stuck in low-skill assembly. As Meng-Chun Liu of the Chung-Hua Institution for Economic Research said, 'China plus one has been a net gain for Southeast Asia, but a conditional and uneven one.' It brought 'factories, exports and jobs,' Liu said, 'but not the design, core components and process know-how that captures most of the value.'
Vietnam, the region's standout performer, is a case in point. The country focuses mainly on final assembly before export, while still relying on Chinese suppliers for inputs. Apple, even as it shifts final assembly to Vietnam and India, still depends on Chinese suppliers for batteries, optics and enclosures.
Christopher Tang of UCLA's Anderson School of Management said these jobs are 'largely low-skill assembly roles,' which limits the creation of high-value industries. That leaves Southeast Asia with more employment, but less leverage in the global market than policymakers hoped for.
The imbalance is showing up in trade flows as well. Vietnam's GDP grew 8.0% in 2025, up from 7.1% in 2024, and exports to the U.S. jumped 28.1% to $153.2 billion. But imports from China also climbed nearly 30% to roughly $183 billion. In other words, the region is gaining activity while China still supplies much of the value behind it.
Malaysia has found a niche in semiconductors, and data center investment now equals nearly 18% of GDP, the highest share globally, according to HSBC analysts. Yet Malaysian Foreign Minister Datuk Seri Mohamad Hasan warned at the UN General Assembly that 'The Global South cannot simply become a destination for data centers, while decisions about AI are made elsewhere.'
The market has already voted on the limits of the old factory migration story. China is no longer simply handing off lower-end manufacturing; it is trying to keep the full supply chain at home and sell into Asia. That means Southeast Asia is fighting not just for jobs, but for the right to move up the value ladder.
For investors, the story is straightforward: factories matter, but margins matter more. Countries that only assemble goods will keep getting volume, while the countries that control design, inputs and logistics will keep the power. Capital rewards the latter.
