The two most significant developments in 1995 in terms of their implications for Southeast Asia were the deterioration of U.S.–China relations and the expansion of ASEAN. The first clouded the hitherto rosy prospects for East Asia while the latter highlighted the very rapid changes in regional relations since the end of the Cold War.

U.S.–China relations, difficult even before over issues like human rights, trade, intellectual property rights, exports of missile and nuclear technology, plummeted after the U.S. government granted President Lee Tenghui of Taiwan a visa to make an unofficial visit to the United States. As China conducted missile firing tests and other military exercises to exert pressure on Taiwan, there were concerns that military conflict, which could also involve the United States, could erupt through accident or miscalculation. Such a development could constitute a significant setback to the economic dynamism of the East Asian region.

ASEAN expanded to include Vietnam into its fold and steps were being taken to bring into the regional organization the remaining three countries of Southeast Asia — Cambodia, Laos and Myanmar — within the next few years. Vietnam had been an observer at ASEAN meetings since 1992 when it had also signed ASEAN's Treaty of Amity and Co-operation (TAC). In 1995 Cambodia also signed the TAC and became an observer, while Myanmar became an observer even though it has not signed the TAC. Laos has been both an observer and a TAC signatory since 1992, but so far constrained from full membership by a shortage of English language speakers.

At the same time, ASEAN was pushing ahead with its Free Trade Area whose original target to reduce tariffs on manufactured goods to 0–5 per cent by the year 2008 has since been brought forward to 2003. The Fifth ASEAN Summit held in Bangkok in December 1995 saw the signing of a framework agreement on financial services, but an agriculture tariff reduction programme was marked by contention as Indonesia placed fifteen products on the temporary exclusion list.