China Turns to ASEAN as US Market Access Narrows, with Pinglu Canal Accelerating Trade and Logistics Shifts

Pinglu Canal's official opening presents ASEAN with a double-edged sword
As China's dependence on US trade declines, can ASEAN offer a way forward?
China accelerates logistics expansion in the Arctic and South China Sea

The official opening of China's Pinglu Canal is raising expectations of stronger logistics links between southwestern China and ASEAN. Inland cargo that previously had to detour through Guangdong can now reach the Beibu Gulf directly, potentially cutting the cost and time required to transport Chinese goods to Southeast Asia. Combined with rising Western trade barriers against China, the new route could accelerate Beijing's push into ASEAN markets.

China's Pinglu Canal Begins Full Operations

According to a September 28 report by Hong Kong's South China Morning Post (SCMP), the Pinglu Canal officially opened on September 16. It is the first large-scale artificial waterway built by the Chinese government since the founding of the People's Republic in 1949. Stretching 134.2 kilometres, the inland canal begins at the mouth of the Pingtang River in the Xijin Reservoir in Hengzhou, under Nanning in the Guangxi Zhuang Autonomous Region. It then passes through Lingshan County in Qinzhou before reaching the Beibu Gulf. Construction began in August 2022 and involved dredging and widening sections of existing rivers and reservoirs, as well as building new channels where needed. The total project cost was 72.7 billion yuan, approximately KRW 14.7 trillion. All dates are local.

The project was designed to address the geographical constraints facing southwestern China. Previously, goods produced in inland areas of Guangxi and neighbouring southwestern regions had to travel east along the Xijiang river system towards Guangdong, pass through ports around Guangzhou, and then enter the South China Sea. Without a large waterway directly linking the river network to the sea, cargo had to make a substantial detour despite the southwestern region's proximity to the Beibu Gulf. The Pinglu Canal connects the Xijiang and Qinjiang river systems, allowing inland cargo to reach Qinzhou port and the Beibu Gulf directly. This shortens the waterborne route from southwestern China to ASEAN by around 560 kilometres. Guangxi authorities estimate that the shorter journey will reduce logistics costs by roughly 18–30%.

Closer Links with ASEAN Markets

The canal's opening has strengthened expectations of further growth in China–ASEAN trade, which is already expanding rapidly. China has remained ASEAN's largest trading partner for 17 consecutive years, while ASEAN has held the same position for China for six consecutive years. According to China's General Administration of Customs, bilateral trade reached 5.95 trillion yuan, approximately KRW 1,202.4 trillion, in the first eight months of this year, up 20.6% from the same period a year earlier. Last year, annual trade exceeded $1 trillion, approximately KRW 1,354.1 trillion, for the first time.

Improved logistics centred on the Pinglu Canal are expected to create opportunities for ASEAN businesses seeking to expand in China. One example is Trung Nguyên Legend, Vietnam's largest coffee brand, which is increasing its store network in the Chinese market. According to SCMP, the company has used both road and sea transport to bring beans harvested on Vietnamese farms into China, but circuitous routes and shipping delays have impeded expansion. A new international container route linking Nanning with Cần Thơ, a major city in Vietnam's Mekong Delta, was launched alongside the canal, offering a way to ease these logistical burdens. The Nanning–Cần Thơ service began operating on September 16, coinciding with the canal's opening. Its first container vessel departed Nanning port on September 24 and subsequently reached Cần Thơ via the Pinglu Canal, the Beibu Gulf and Vietnam's Hậu River.

Table 1. Effects of the Pinglu Canal on China–ASEAN Trade

Concerns over Widening Trade Imbalances

Within ASEAN, however, there are concerns that the Pinglu Canal could deepen regional trade imbalances. According to China's General Administration of Customs, Chinese exports to ASEAN rose 25.8% year on year to $546 billion, approximately KRW 739.3 trillion, in the first eight months of this year. Imports from ASEAN amounted to just $316.7 billion, approximately KRW 428.8 trillion. ASEAN's merchandise trade deficit with China therefore approached $229.3 billion, approximately KRW 310.5 trillion, over the period. The imbalance appears to reflect China's efforts to channel excess production of low-priced goods into the relatively accessible ASEAN market as a property downturn and weak consumption constrain its domestic recovery.

The Pinglu Canal lowers the cost of moving machinery, automotive parts, chemicals and materials from southwestern manufacturing centres such as Chongqing, Sichuan and Yunnan to ASEAN markets. That makes a further near-term improvement in the price competitiveness of Chinese goods likely. ASEAN stakeholders consequently argue that the canal's benefits should not be concentrated on expanding Chinese exports. An official at the Guangzhou office of Thailand's Board of Investment (BOI) told SCMP that the canal should promote “two-way trade” between China and ASEAN, stressing that it should also expand routes for Thai durian, rice and electronic components to reach China's inland markets. The official also warned that Thailand's trade imbalance with China could worsen if Chinese manufacturers operating in Thailand use the canal to procure machinery and components from the mainland more quickly and cheaply.

US Continues to Raise Barriers against China

For China, meanwhile, ASEAN could become an important alternative market to fill the export gap created by Western trade barriers. According to the US Census Bureau, the US merchandise trade deficit with China totalled $91.2 billion, approximately KRW 123.5 trillion, in the first seven months of this year. That was around 29% below the $128.8 billion, approximately KRW 174.4 trillion, recorded a year earlier. US imports of Chinese goods also fell by around 19% over the same period to $156.4 billion, approximately KRW 211.8 trillion. These declines reflect higher US trade barriers against China. Donald Trump's second administration has imposed substantial additional tariffs on Chinese products while maintaining separate high tariffs and export and investment restrictions on strategic products such as electric vehicles, semiconductors and drones. Tensions eased somewhat after a recent US–China summit, when the two countries agreed to reduce tariffs on $30 billion, approximately KRW 40.6 trillion, of non-sensitive goods each. However, AP and other international media expect the measures to lower the average US tariff on Chinese products only modestly, from around 22% to approximately 20%.

The centre of gravity of Chinese exports is consequently shifting rapidly from the United States towards Asia. An analysis of Chinese customs data by the McKinsey Global Institute (MGI), an economic and business research organisation, found that the US share of China's total exports fell by 1.8 percentage points year on year in the first half of this year. ASEAN's share rose by 0.8 percentage points over the same period. An international trade expert said that rising US barriers against China were giving Chinese companies a stronger incentive to pursue ASEAN as an alternative market. The expert added that the opening of the Pinglu Canal could accelerate this shift by reshaping logistics networks serving ASEAN.

China Expands Its International Logistics Network

China's expansion of its external logistics network extends beyond the Pinglu Canal. To the north, scheduled container services linking China and Europe via the Arctic Ocean have begun operating. Last September, a container vessel sailed from Ningbo–Zhoushan port to Felixstowe in the United Kingdom via the Northeast Passage along Russia's northern coast. Since last month, Chinese shipping company Sea Legend has deployed multiple vessels on the same route to provide scheduled services during the summer navigation season. This year's route loads cargo at Ningbo and other Chinese coastal ports before crossing the Arctic and calling at major northern European ports, including Felixstowe, Rotterdam in the Netherlands, Hamburg in Germany and Gdynia in Poland. The Ningbo–Felixstowe journey takes around 18–20 days, compared with approximately 40 days on the conventional route through the Suez Canal. The New York Times described it as China's first scheduled Arctic container service.

To the south, Yangpu port in Hainan, situated in the central South China Sea, is being expanded as a separate international transshipment hub. The port currently operates around 68 scheduled container routes, including 38 international services linking major ASEAN ports, the Middle East and the US east and west coasts. Chinese authorities are expanding deep-water berths and shipping channels capable of accommodating 200,000-tonne container vessels, with plans to raise annual container-handling capacity to 12 million TEU by 2035. A TEU is a twenty-foot equivalent unit, representing one container 20 feet long, eight feet high and eight feet wide. Major logistics infrastructure involving Chinese companies is also being built on the Malay Peninsula. Malaysia's 665-kilometre East Coast Rail Link (ECRL), being constructed by China Communications Construction Company (CCCC), is designed to connect Kuantan port on the eastern coast, facing the South China Sea, with Port Klang on the western coast, facing the Strait of Malacca. The Kota Bharu–Gombak section is scheduled for completion by the end of this year, with services potentially beginning as early as December. The western section extending to Port Klang is targeted for completion in late 2027, followed by full operations in early 2028.