China-ASEAN Economic Ties: Balancing Growth amid Middle-Income Challenges and Opportunities

The introduction of a free trade area between the Association of Southeast Asian Nations (ASEAN) and China (ACFTA) in 2012 brought China to a leading economic position in Southeast Asia (this was manifested in a significant, almost 2.2-fold, increase in the volume of trade) and turned it into a driving force of ASEAN’s economic prosperity. However, this increased economic interdependence creates challenges for both China and ASEAN: on the one hand, China seeks to make the transition from a high-income country to sustainable economic development in the ASEAN region, and on the other hand, ASEAN has concerns about excessive economic dependence on China. This situation requires a balance to be struck to avoid repeating the historical patterns seen in Japan in the 1960s and 1980s. This article examines the investment, trade and geopolitical relations between China and ASEAN in a historical retrospective of 2010-2022, assesses their economic dependence and the mechanisms of political-economic relations, identifies the factors that caused China’s rapid economic breakthrough, and outlines directions for overcoming the most modern challenges that have place in the context of this relationship through formulation of suggested frameworks. The article considers 2 research questions, for the solution of which the G/T (Grounded Theory) approach was used and a qualitative analysis of the 12 most relevant sources was carried out (limitation of their number – according to the concept of theoretical saturation), selected primarily through online databases, websites, international organizations’ data, analytical reviews, and scientific papers. RQ1: Identify the root causes of the problems faced by ASEAN middle-income countries in their engagement with China. The article identifies the following 3 main reasons through the empirical review analysis: 1) dependence of middle-income ASEAN countries on financial assistance, especially from China; 2) a noticeable decrease in unity in the ASEAN region; 3) China’s lack of recommendations on the advisory policy of economic development in the ASEAN countries. RQ2: development of recommendations for middle-income ASEAN countries to increase their ability to pave independent paths to sustainable economic development and reduce their economic dependence on China, taking into account the review of the balance of power in political relations with the United States and China. Using the qualitative analysis tool ATLAS.ti (version 24) for the G/T approach, it was concluded that to overcome the syndromes of lower-middle-income trap (LMIT) and higher-middle-income trap (HMIT), ASEAN economies should implement the following spontaneous strategies: infrastructure development, improvement of basic education and promotion of science and technology. In addition, it is important to raise awareness of political tensions between China and the US, apply the techniques of thoughtful diplomacy, fine-tuned policy formulation, and shared vision to establish a diplomatic balance between China, the US, and Japan in the context of geopolitical risk management.