South-east Asia has always been strategically and economically crucial for Europe. Recent developments suggest that European policy-makers believe this to be more true now than ever before. 

In December 2022, the EU said it would invest €10bn into countries across the Association of Southeast Asian Nations (Asean) by 2027. The commitment forms part of the EU’s Global Gateway, a programme to foster infrastructure development around the world, which is widely seen as a counter to China’s Belt and Road Initiative. 

The package will focus on investments in crucial areas, such as energy, transport, digitalisation, education and promoting trade and sustainable value chains. Asean countries will welcome this European support as a balance to the geopolitical rivalry between the US and China. 

The push into Asean underlines broader concerns in some European countries about dependency on China. For instance, the share of German exports going to China has grown from just over 1% in 2000 to more than 7% in 2021, according to IMF data. 

The importance of the Chinese market for German companies will, in some cases, drive further investment in China, including from chemical giant BASF. But in other cases it will push businesses to diversify their sales to other growing Asian markets. 

The EU is also making concerted efforts to develop strategic partnerships with other major powers in Asia, including India, Japan and South Korea. A free trade agreement (FTA) has stood since 2011 between the EU and South Korea, where European companies are heavily invested in sectors such as electronics, automotive and pharmaceuticals. 

A more recent economic partnership agreement with Japan, that came into force in 2019, has also removed some tariffs and other trade barriers. EU exports to Japan grew by 6.6% in the year following the agreement. Japanese exports to Europe grew by 6.3% in the same period.

At the same time, the fourth round of EU–India FTA negotiations will be held in Brussels in mid-March 2023. This has the potential to grow bilateral trade and investment in key sectors such as professional services, financial services and telecommunications. 

Elsewhere in Asia, FTA negotiations between New Zealand and the EU also concluded in June 2022, with the agreement expected to come into force around 2024. The EU has also signalled its aim to cooperate more with Australia, most notably in energy and critical minerals, which have become increasingly important in response to Russia’s invasion of Ukraine and challenges in the Indo-Pacific region. 

In a joint statement after meeting in November 2022, EU and Australian leaders noted the “importance of Asean centrality and Asean‑led architecture in underpinning regional stability and prosperity”.

Amid growing geopolitical tensions between the US, Europe and China, increased Europeanisation of south-east Asia seems increasingly likely.

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asian market research and investment/trade promotion services. 

E-mail: lawrence@asiabizstrategy.com

Lawrence’s previous columns: 

• The glimmers of light for Asia in 2023
• Vertical integration is back on the agenda
• The nuance of remote working’s spoils
• Less regulation, more collaboration

This article first appeared in the February/March 2023 print edition of fDi Intelligence.