ASEAN-China Free Trade Agreement a runway for future deal-making for Australian businesses

The agreement, first initiated in 2002 between 10 Association of Southeast Asian Nations (ASEAN) countries and the People’s Republic of China, was upgraded at the ASEAN Summit in Kuala Lumpur, Malaysia.

Negotiations around the upgrade predate the second Trump administration, but gained greater importance after the introduction of heavy tariffs placed on ASEAN member states by the US. China has been ASEAN’s largest trading partner since 2009, while ASEAN has been China’s since 2020. The volume and value of trade between the two continues to increase.

With ASEAN-China trade already exceeding US$980 billion annually, the changes contained within the upgrade will accelerate capital flows and strategic partnerships across Asia-Pacific. ACFTA 3.0 introduces nine new cooperation areas, including digital economy, green economy, supply chain connectivity, and competition and consumer protection.

While ACFTA focuses on ASEAN-China ties, which Australia is not a part of, Chinese corporations and ASEAN investors seeking growth and diversification will look to Australia for stability, resources and innovation.

The Department of Foreign Affairs predicts that ASEAN’s collective GDP will reach A$10 trillion by 2030, and Australia has three regional and four bilateral free trade agreements with the region.

Australia’s leadership in renewable energy and its reserves of critical minerals, such as rare earths essential for electric vehicle batteries, make it a prime target for international investment, which could lead to a rise is acquisitions and joint ventures, particularly in the mining and energy infrastructure sectors.

The digital economy focus of ACFTA 3.0 will also drive demand for capabilities in artificial intelligence, cybersecurity and fintech. Australian tech firms can offer such capabilities for regional integration, while also creating opportunities for further investment in data centres and the energy infrastructure required to support these facilities.

Australian renewable projects and carbon neutral initiatives will draw significant interest as it aligns with ACFTA 3.0’s focus on sustainability, leading to investors prioritising ESG-compliant businesses. 

Chinese and ASEAN manufacturers diversifying production will seek upstream security. Australian businesses, particularly in agriculture, logistics and food processing can position themselves as attractive options to strengthen supply chains.

Closer collaboration between Australia and ASEAN can lead to economic advancement, alongside assisting in Australia’s energy transition and increased political security. With the recent upgrade to the ACFTA signalling deeper regional cooperation, Australian businesses may be in for a busy season of deal-making and cross-border opportunities.

Co-written by EJ Yeoh of Pinsent Masons.