On October 28, 2025, ten ASEAN leaders and Chinese Premier Li Qiang signed CAFTA 3.0 in Kuala Lumpur, extending trade cooperation to the digital and green economies. Three weeks earlier, a Chinese Coast Guard vessel fired water cannons at a Filipino patrol boat near Scarborough Shoal.
These two events occurring in the identical month weren’t a coincidence. The South China Sea carries greater than $3 trillion in global trade annually, sits atop disputed oil and gas reserves and is claimed by China to just about 90 percent of its waters through a nine-dash line that overlaps the exclusive economic zones of 4 ASEAN member states.
At the identical time, for the primary time in 2025, the entire value of ASEAN-China trade exceeded $1 trillion. Tension and dependence have grown in parallel, which is why it’s so difficult for the region to decide on which side it’s on.
What is definitely in query
China’s claims to the South China Sea are based on a nine-dash demarcation line first published by the federal government of the Republic of China in 1947. The line covers almost 90 percent of the ocean and directly overlaps the exclusive economic zones of the Philippines, Vietnam, Malaysia and Brunei.
Although Indonesia shouldn’t be officially a celebration to the sovereignty dispute, the nine-dash line extends to Indonesia’s EEZ within the North Natuna Sea, and plenty of incidents have occurred on this area between Chinese ships and Indonesia’s Bakamla Maritime Security Agency. Jakarta has consistently rejected the nine-dash line as having no legal basis, while maintaining that it doesn’t recognize any overlapping sovereignty claims.
On July 12, 2016, the Permanent Court of Arbitration in The Hague ruled that China’s historical nine-dash claims were inconsistent with UNCLOS and had no legal effect.
China rejected the ruling, and on the ninth anniversary of the choice, a spokesman for China’s Ministry of Foreign Affairs called it “just a bit of waste paper that is against the law, invalid and non-binding.”
The dispute doesn’t exist only on paper. Physical incidents occurred in 2025:
- Philippines: On August 11, 2025, a Chinese Coast Guard vessel pursuing the Philippine Coast Guard patrol vessel BRP Suluan near Scarborough Shoal collided with a PLA Navy warship that crossed its path. Manila condemned the “dangerous maneuvers” and stated that “the Philippines bears no responsibility for the collision of the PLAN vessel with the CCG vessel.”
- Vietnam: In May 2025, Vietnam sent diplomatic notes to each China and the Philippines protesting their actions on Sandy Cay, which Vietnam claims is a component of the Spratly Islands. Foreign Ministry spokesman Pham Thu Hang stated that “Vietnam calls on relevant parties to respect Vietnam’s sovereignty, abide by international law, and contribute to maintaining peace and stability within the East Sea.”
- Malaysia: Defense Minister Khaled Nordin told reporters that “any ASEAN member state won’t give you the option to face any challenge, especially if it comes from a superpower.”
Why economic cooperation continues
Despite this, ASEAN-China trade has only increased. Total bilateral trade exceeded $1 trillion in 2025, and China’s trade with ASEAN increased by 15.4% year-on-year in the primary quarter of 2026, in line with data from the China General Administration of Customs.
China has been ASEAN’s largest trading partner since 2009, while ASEAN has been China’s largest trading partner since 2019. CAFTA 3.0, signed in October 2025, added nine latest chapters covering the digital economy, green economy and provide chain connectivity. Since the unique CAFTA agreement entered into force in 2010, bilateral trade has increased greater than fivefold, from USD 192.5 billion in 2008 to USD 982 billion in 2024.
Unequal relationship
This relationship shouldn’t be evenly distributed across ASEAN, and the imbalance shapes each country’s political position on the negotiating table:
- Cambodia: In 2024, FDI from China reached USD 3.4 billion, accounting for about 75% of the country’s total FDI inflow.
- Laos: Debt repayments to Chinese banks alone are expected to achieve $700 million annually by 2028. The IMF projects Laos’ public debt will reach 126.7% of GDP by 2029, with many of the borrowing coming from China.
- Indonesia: China has been Indonesia’s largest trading partner for over a decade. Indonesia’s exports to China are dominated by minerals, while China accounts for 40 percent of Indonesia’s non-oil and gas imports.
- Vietnam, Philippines and Malaysia: All three are characterised by significant trade dependence on China, while actively deepening defense cooperation with the United States and other regional partners.
It is that this imbalance that makes consensus inside ASEAN on the South China Sea almost inconceivable: countries most financially tied to China are likely to resist supporting confrontational statements, making the ten-member bloc rarely speak with one voice.
What options remain
Nevertheless, ASEAN-China negotiations on a Code of Conduct for the South China Sea continued throughout 2025. The Philippines, as ASEAN Chair in 2026, is predicted to insist on concluding these negotiations before the tip of the 12 months.
This pattern is what the diplomacy literature calls hedging: not fully aligning with either China or the United States, while maintaining economic ties with each. Ships are rammed within the sea, trade agreements are signed on land. For most ASEAN members, the choice of ending their partnership with China shouldn’t be a practical option, no less than not within the near term.
