Outlook 2026: The China-Southeast Asia connection

As China’s economic growth rate eases in recent years, Chinese enterprises continue to reach out beyond the mainland borders, seeking meaningful sales and profit in sectors ranging from food & beverage to advanced manufacturing. Its large-scale food processing technology infrastructure is an asset to supply chain resilience, ensuring reliable output across different product categories.

“Into 2026, more Chinese companies will aim to build and enhance their globalized supply chains – sourcing raw materials or building factories directly in foreign countries,” said Mr. Sam Gao, a founding partner of Top Guide Advisory Shanghai, and currently an advisor to DFP Capital (a Lever VC shareholder), as well as senior consultant for Charisma Partners.

Sam Gao is a founding partner of Top Guide Advisory Shanghai, an advisor to DFP Capital (a Lever VC shareholder), and a senior consultant for Charisma Partners.

“A classic success story is that of Yili Dairy and Mengniu Dairy, the leading dairy giants in China. They report faster growth (from a small base, of course) in overseas markets like Indonesia and Russia. About 25 years ago, these companies began by sourcing powdered milk from Australia and New Zealand. Today, they operate dairy farms and factories directly in those countries, targeting local consumers as well as expanding into Southeast Asia, particularly Indonesia and Vietnam,” he said.

Southeast Asia as market destination

Both its geographic proximity and rising consumer demand make Southeast Asia the center of China’s market expansion. “Catering chains will continue to enter select foreign markets to diversify their geographical distribution by establishing outlets,” Mr. Gao said. In fact, according to Momentum Works, over 60 Chinese F&B brands opened 6,100 outlets in the region as of December 31, 2024*. The number is growing.

To combat intense competition and to gain immediate entry into these markets, companies are using mergers and acquisitions to their advantage. “Chinese enterprises will make active M&As overseas to gain entry or market share in foreign countries, Mr. Gao said. “Meanwhile, foreign products continue to enter the Chinese market. Cheese, for example, was traditionally not part of the Chinese diet, yet companies such as Fonterra and leading domestic dairy producers have expanded cheese production to meet rising demand. Individuals and families are consuming more cheese, which has gained increasing acceptance in Chinese cuisine, bakeries, and the milk tea industry. Other foreign products that have already become widely embraced in China include coffee, pizza, hamburgers, and sandwiches,” he said.

This exchange – Chinese firms acquiring overseas assets and foreign products gaining traction in China – for one, underlines the importance of regulatory compliance important to consumers in different parts of the region such as Halal certification, US FDA approval, etc.

“Chinese companies also consider joining the World Economic Forum’s Global Lighthouse Network, which inspires manufacturers to develop, replicate, and scale innovations in manufacturing by creating opportunities for cross-company learning and collaboration, according to Mr. Gao.

Demographics and consumer demand

Meanwhile population dynamics are changing in China. The birthrate has been declining (standing at 9.54 million in 2024 from 12 million in 2020), while the number of single people is increasing. These shifts are influencing what consumers buy, particularly in food and beverage. Manufacturers will therefore introduce more small portion sizes for the local market in the coming years, Mr. Gao said.

This particular demographic trend happening in China is also prompting Chinese companies to turn their attention to Southeast Asia whose younger populations, rapid urbanization, and expanding consumer base offer them growth that will offset the impact of smaller households and changing consumption patterns back home in China.

Harnessing expertise in technology

Advanced technologies are enabling China to sustain its competitive edge. In the food & beverage sector, automation and robotic technologies are deployed in processing plants and industrial kitchens. For example, AI-powered robots designed to prepare meals, streamline packaging, and ensure food safety compliance, are enhancing efficiency, Mr. Gao said.

“Chinese companies will make further efforts to adopt automation, robots and AI-related products and services that will reduce cost and improve profit margins. The fact that China itself is a leading manufacturer of robots in the world makes it convenient for them to adopt robots. But it should be mentioned that robots currently available in the market remain limited in functionality, and robot manufacturers will be compelled to invest in research and development to create applications more relevant to real-world needs—better yet, robots capable of disrupting and replacing conventional processes,” Mr. Gao said.

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*[Press Release] Chinese F&B Brands have opened more than 6,100 outlets in Southeast Asia: Momentum Works Report. https://thelowdown.momentum.asia/press-release-chinese-fb-brands-have-opened-more-than-6100-outlets-in-southeast-asia-momentum-works-report