As China shifts towards a capital-export economy, ASEAN faces new challenges of economic coercion while considerings its fiscal and financial policies. ASEAN members must navigate the potential for fiscal unity with a stronger understanding of geoeconomic regional strategy to mitigate risks of reliance.
In Malaysia’s 47th ASEAN Summit, the ASEAN Economic Community (AEC) has released the AEC strategic plan 2026–2030, which will serve as the economic engine for the ASEAN Community Vision 2045. Under this blueprint, ASEAN will build upon its existing commitment to achieve a deeper single market, which remains the central vision of the AEC. Today, the world’s fourth-largest economy is focused on advancing financial market integration. However, a critical question regarding this financial integration is whether the progress and prospects of fiscal consolidation among the member states are feasible.
Fortunately, the prospects for enhanced tax and fiscal cooperation under the updated AEC Strategic Plan 2026–2030 have advanced significantly. The two aims of the Strategic Plan are the integration of fiscal policy, which aims to safeguard macroeconomic resilience & financial stability, and strengthening tax cooperation, which aims to strategically address issues of double taxation, tax avoidance, and evasion while promoting digital taxation.
Understanding the EU’s Fiscal Consolidation Dilemma
Given that the European Union (EU) serves as a model for ASEAN’s financial integration efforts, it is essential to examine the EU’s fiscal consolidation dilemma closely. Namely, that the EU is facing the collapse of the post-war order and with it, the flaws of its own fiscal policies. The collapse of the post-war order necessitates that Europe decouple from its reliance on partners who may use predatory business or lending practices while simultaneously supporting Ukraine, a move that requires significant resources. This new geopolitical era is thus very costly and complicated for a union that lacks a unified fiscal policy. These developments, as well as the chaos brought about by the COVID-19 crisis, have accelerated calls for fiscal unity among EU member states.
As such, the EU’s fiscal solidarity discourses on track to further collective fiscal integration. ASEAN can learn a valuable lesson from this: from the EU perspective, fiscal consolidation is more than just revenue or redistribution matters, but is instead about maintaining and leveraging geoeconomic positions.
Leveraging geoeconomic positions is vitally important for ASEAN to contemplate. After all, in the early discussions surrounding the Global Minimum Tax’s (GMT) release, ASEAN countries were likely to rely on Chinese investment. However, this behaviour comes with significant risks. One key reason lies in the current geoeconomic challenges, particularly the weaponisation of interdependence. There is no doubt that China, currently shifting to a capital-exporting economy, has practised economic coercion toward states across both the Global North and Global South. In other words, China’s potential to act with economic coercion requires crucial consideration by ASEAN when it decides its financial as well as fiscal policies.
From the perspective of global tax governance discourse, the case for weaponised interdependence is directly related to a country’s efforts to target and combat corporate tax avoidance, profit shifting, financial secrecy, or tax evasion by wealthy individuals. In that sense, if ASEAN intends to fortify its financial and fiscal resilience, anticipating and actively countering the strategic use of corporate tax avoidance and individual tax evasion as mechanisms of economic coercion is necessary.
Realizing China’s Corporations and Tax Havens
This strategic vulnerability is underscored by findings concerning how China’s global corporations and wealthy individuals work. Research has revealed that many Chinese Multinational Enterprises (MNEs) are deliberately structured so that their parent entities, often incorporated in tax havens, are not deemed Resident Enterprises (REs) for Chinese tax purposes. Specifically, one analysis found that nearly 79 of the largest Chinese MNEs with tax-haven-incorporated parent companies do not qualify as Chinese Resident Enterprises.
In light of both these profit-shifting behaviours and the risk of economic coercion, it is critical that ASEAN actively manages its reliance on China’s economic and financial engines. If the region’s single market projection is to genuinely flourish and secure its own financial and fiscal resilience, it must strategically reduce its dominant dependence on one external economic powers.
China’s Nature in Global Tax Governance
From a global political economy perspective, China’s transformation from a capital-importing state to a net capital-exporting power has led it to adopt a dual strategy. This approach reflects China’s strategic manoeuvring within what can be seen as the battleground of global tax policy. China uses the OECD-led liberal international tax regime to control corporate tax avoidance at home and employs bilateral and multilateral instruments, including BRITACOM under the Belt and Road Initiative, to negotiate in minimising tax liabilities for its expanding multinational enterprises abroad. It is not surprising from the Global Minimum Tax (GMT).
Moreover, such bilateral and China-based multilateral economic governance is a calculated means to minimise China’s overall cost for investment and capital movement. Under this approach, the impact of China’s tax strategies is not limited to Belt and Road Initiative jurisdictions; rather, it has a disproportionately significant effect on ASEAN’s financial and fiscal sovereignty.
Through this analysis, it is clear that ASEAN must contend with the circumstance that every effort toward deep trade and financial integration comes with a cost. This can be illustrated by the EU, which has achieved a nearly perfect single market yet still faces persistent chaos in consolidating its fiscal problems. Largely in response to geoeconomic realities, the EU must now debate the complexities of fiscal integration. The lesson for ASEAN, is that the path towards achieving trade and financial integration, along with fiscal and tax cooperation, must be navigated with a deep understanding of geoeconomic regional strategy in order to mitigate the looming risks ahead.
Andi Mohammad Ilham is a Graduate of the School of Government and International Relations, Griffith University. He is also a Tax Researcher & Policy Analyst at MMStax Consulting, Indonesia. His research area focuses on the International Political Economy of Global Tax Governance and Asia Regionalism with tax-trade-investment relations. Andi is currently an Associate Fellow at Helsinki Geoeconomics Society.
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