BY TENGKU NOOR SHAMSIAH TENGKU ABDULLAH

KUALA LUMPUR: As Malaysia prepares to host the 47th ASEAN Summit and Related Summits beginning tomorrow (Oct 26–28) in Kuala Lumpur, the region’s economic direction is once again in focus.

The meetings, themed “Inclusivity and Sustainability,” will convene more than 30 heads of state and government — among them U.S. President Donald Trump, Chinese Premier Li Qiang, European Council President Antonio Costa and Indian Prime Minister Narendra Modi — for high-stakes talks on growth, trade, and regional stability.

Amid this backdrop, leading economist Alicia García-Herrero, Chief Economist for Asia-Pacific at Natixis, told TNS News that ASEAN’s next phase of growth will be shaped by tightening dollar liquidity, China’s expanding use of the renminbi (RMB) in regional trade, and the green-technology boom transforming Southeast Asia’s manufacturing landscape.

García-Herrero, speaking ahead of the summit, cautioned that global liquidity conditions are changing faster than expected. “There are two main issues here,” she said. “One is financial, and the other is related to green technology.”

She explained that ASEAN economies could face greater pressure from a potential U.S. dollar shortage, as the Federal Reserve reviews its swap and repo lines with emerging markets.

“The Fed might actually eliminate these swap lines — and that’s something we need to discuss. The only country in ASEAN that currently has a swap line is Singapore, while the others have access to the so-called repo line,” she said.

“This is quite important in light of a potential dollar shortage. It’s an issue for Malaysia, but even more so for Indonesia, given the weakness of the rupiah and the potential instability of its bond markets,” she added.

According to García-Herrero, this is also why Bank Indonesia has refrained from cutting interest rates despite easing cycles elsewhere. “There’s a lot of potential fragility coming from a weak currency,” she said. “Having access to U.S. dollars is very important — not just through reserves, but external dollar liquidity as well.”

In the absence of broad dollar liquidity, García-Herrero believes China could seize the opportunity to expand the use of its currency for regional trade settlements. “China might use this opportunity to further push the use of the renminbi (RMB) for trade settlements,” she said.

“They’ve already tried this with Australia, with companies like BHP and Rio Tinto,” she explained. “While there’s no official confirmation, reports suggest that China has been encouraging major exporters to use RMB instead of the U.S. dollar.”

She added that this pattern could deepen across ASEAN. “There are quite a few ASEAN economies — not Singapore, but the more developing ones — that have started using RMB for settlements. I think China might even expand RMB swap lines to make these countries feel that this is a safe bet.”

Such a shift would not only strengthen China’s financial footprint in ASEAN but also accelerate the bloc’s transition toward a more multipolar currency landscape, where the U.S. dollar’s dominance gradually wanes.

Turning to the region’s green-technology transition, García-Herrero said ASEAN’s rise as a manufacturing hub for clean technology — including electric vehicles (EVs), solar components, and renewable-energy systems — represents a major opportunity for countries like Malaysia, Thailand, and Vietnam.

“Frankly, it’s all about bypassing tariffs,” she said. “Whether it’s electric vehicles into Europe or green-tech products assembled in ASEAN to be exported to the U.S., that’s where the opportunity lies.”

However, she warned that this advantage could prove short-lived if the U.S. enforces stricter trans-shipment tariffs on products assembled in ASEAN using Chinese components. “It all depends on the U.S. imposing these trans-shipping tariffs — as they’ve done in the case of Vietnam,” she said.

“But as you see, Vietnam’s exports continue to boom because the U.S. has been unable to identify these trans-shipped items. If Washington finally manages to do so effectively, it would be a big deal for ASEAN — and not a positive one,” she cautioned.

“If that happens, China would likely stop assembling in ASEAN altogether. So the green-tech story is fine — until countries react to it. And that might happen sooner than expected.”

As Malaysia chairs this year’s summit, García-Herrero said the country has a unique opportunity to raise monetary resilience and regional financial safety nets as a key agenda item. “I think Malaysia would want to raise the issue of the Fed potentially eliminating repo arrangements, which means ASEAN countries would need to discuss alternative liquidity lines,” she said.

For García-Herrero, this is about future-proofing ASEAN’s financial stability. “With the U.S. tightening its financial conditions and China expanding RMB settlements, ASEAN must ensure it isn’t caught between two financial systems without adequate buffers,” she added.

As the 47th ASEAN Summit opens in Kuala Lumpur tomorrow, García-Herrero’s analysis offers a timely reminder of the region’s delicate balancing act — between dollar dependence and renminbi integration, between green-tech opportunity and tariff risk.

“The future of ASEAN’s economic resilience will depend not only on growth but on its ability to secure liquidity, diversify trade, and adapt to the new global financial order,” she added.

About Alicia García-Herrero
Alicia García-Herrero is the Chief Economist for Asia-Pacific at Natixis and a Senior Fellow at BRUEGEL, the Brussels-based economic think tank. Based in Hong Kong, she is a leading authority on global macroeconomics, capital flows, and financial stability in Asia. García-Herrero regularly advises multilateral institutions and governments on China’s economic strategy and ASEAN’s regional integration.

TNS NEWS