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Across Southeast Asia, green transition efforts are increasingly being articulated through broader strategies of industrialisation. With green industrial policies framed as economic opportunities, renewables are no longer just a technocratic response to climate change, but tools for Southeast Asian states to pursue structural transformation and enhance competitiveness. But interdependence with China makes these transition strategies feasible and vulnerable at the same time.

Southeast Asian states are increasingly leveraging intensive manufacturing of climate-related sectors, such as electric vehicles (EVs), battery materials and solar panels, to accelerate economic growth. Indonesia’s resource nationalist policy has shifted from concentrating resource wealth among domestic companies towards deregulating higher value-added activities to facilitate the integration of domestic companies and state capital into key sectors in global value chains.

Southeast Asia’s green industrialisation commitments emulate the Chinese model, now popularised in the region as a ‘green growth’ agenda. ASEAN remains a primary destination for Chinese green manufacturing investment, with Vietnam, Malaysia, Thailand and Indonesia constituting four of the top five destinations for Chinese green investment by project count in 2024. In Indonesia, over 30 Chinese-led projects are concentrated in battery material production. In Vietnam, Malaysia and Thailand, Chinese investment is concentrated in solar.

Many observers interpret China’s role in Southeast Asia’s green transition through a geostrategic, state-centric lens, with Chinese investments viewed as a means for Beijing to weaponise industrial dependencies. But these investments are really a response to the pathways of capitalist development in China. How the green transition unfolds in the region will likely depend on the direction of China’s capitalist development.

The contradictions in China’s accumulation regime often result in crisis tendencies. Overcapacity is one contradiction of China’s development, characterised by a highly efficient production system that generates large volumes of output but comes at the cost of severely compressed profit margins. China’s development model increasingly centres on three strategic sectors, termed the ‘new three’ — EVs, batteries and solar panels — replacing the ‘old three’ — clothing, home appliances and furniture — that once underpinned China’s exports.

The new three is rooted in low-cost domestic supply chains and consistent government supports driving economies of scale, such as the 2007 National Climate Change Program and the Made in China 2025 initiative launched in 2015. China’s domestic economy recorded a sharp increase in fixed-asset investments in 2022 and 2023 in sectors central to the new three, including non-ferrous metal ore mining and processing and EV and electronic manufacturing. Chinese battery manufacturers continue to dominate more than 60 per cent of global EV battery production.

But the rapid expansion of the new three has generated the new contradiction of ‘involution’, marked by overcapacity, aggressive pricing strategies and entrenched deflation. Severe overcapacity and intense price wars in China’s solar industry resulted in losses in photovoltaic manufacturing of around US$40 billion in 2024. A similar pattern of margin compression is evident in the Chinese EV sector — profit margins continue to plunge sharply, with only three of 130 companies — BYD, Li Auto and Geely — recording profits as of mid-2025, albeit with thin margins.

But Beijing’s crackdown on involution — a new initiative to address the issue of excessive competition among firms and persistent deflationary pressures — has unwittingly propelled green transitions across Southeast Asia by generating waves of outward manufacturing investments in new three sectors. These investments benefit from long-standing economic interdependencies with ASEAN countries, the prevailing structure of low-cost production and government subsidies across Southeast Asia.

The internationalisation of China’s new business groups resembles the early years of the Belt and Road Initiative, when China’s economy grappled with a housing glut and deep factory-gate deflation. But the anti-involution push is reshaping the key conditions for ASEAN countries to transform productive structures. Thailand and Indonesia have emerged as important nodes in China’s EV manufacturing network. BYD has begun exporting EVs produced at its Rayong facility in Thailand while building a US$1.3 billion manufacturing plant in Indonesia.

China’s anti-involution push coincides with pressures within Southeast Asian political institutions to address economic crises and environmental sustainability. These institutions have long depended on economic growth as a source of legitimacy, making short-term growth measures politically indispensable.

Yet the internationalisation of China’s new business groups generates new contradictions in the regional economy. While emerging as new production hubs, Southeast Asian countries have simultaneously turned into key markets for absorbing the oversupply of new three products, as Chinese automakers aggressively capitalise on EV incentives rolled out by Southeast Asian government to improve profit margins. In the first seven months of 2025, China exported 3.7 million vehicles, one-third of which were EVs, with Southeast Asia accounting for the largest share of Chinese EV imports.

Green transition efforts have sustained, if not expanded, extractivism by reproducing high-intensity resource extraction justified by the climate crisis. Strong demand for the new three and the surge in the technology and artificial intelligence sectors have unleashed demand for critical minerals, exacerbating the environmental and social crisis driven by dwindling pipelines for new mines.

In 2024, China imported 129,500 metric tonnes of rare earth elements, worth around US$1.5 billion, with Myanmar supplying 34 per cent of the total. Myanmar’s conflict-affected regions have emerged as ‘green energy frontiers’ in the pursuit of the new three. Indonesia has rapidly expanded nickel mining, with output feeding mainland Chinese producers of battery precursors, battery packs and EVs. Green transitions feature a continued uneven distribution of environmental destruction.

The internationalisation of China’s new three and their underlying contradictions have amplified open and competitive global markets, one of the pillars of Southeast Asia’s economic security. China’s trade with ASEAN outpaces global trade growth, growing by 7.4 per cent in 2025, supported by new three supply chains.

But green transitions in Southeast Asia are likely to be closely bound up with the trajectory of Chinese capitalist development — with shifting priorities of accumulation, contradictions and crises rendering future outcomes highly uncertain. Any modernisation of production or capitalist expansion that does not reconcile these contradictions or genuinely support the energy transition risks deepening economic insecurity in the region.

Trissia Wijaya is McKenzie Research Fellow at the Asia Institute at the University of Melbourne.

This article draws from the author’s presentation at the Southeast Asia Regional Geo-Economic Update, held at The Australian National University on 2 December 2025.