The slowdown in Chinese growth will deliver a blow to those Asian economies that fuel the furnaces of the world’s second largest economy, experts have warned.
A one percentage-point fall in Chinese gross domestic product (GDP) would wipe out a third of all economic growth across the Asean region, Asian Development Bank economist Changyong Rhee said. “Even a modest slowdown in China will have a major impact on most Asian economies,” he told Emerging Markets.
Rhee pointed to Malaysia, a key exporter of palm oil and agricultural products, as being particularly vulnerable to slowing demand in the People’s Republic. Other nations were “particularly sensitive to China’s growth model”, Rhee warned, highlighting the other major sovereign growth turbines of Southeast Asia, notably Singapore and Indonesia, as well as Hong Kong and South Korea.
The ADB expects economic growth will slow slightly in Malaysia this year, to 5.3%, from 5.6% in 2012. Taiwan, another economy inextricably linked to China, is also showing signs of slowing. The island nation, which exports everything from semiconductors to medical equipment to the Chinese mainland, saw its economy grow 1.5% in the first three months year-on-year, down from 3.7% in the previous quarter, and well below the market consensus expectations of 3.1%.
China sent shivers around the world earlier this week when it posted disappointing manufacturing figures, matching declines across key sectors seen as indicators of China’s core underlying strength.
Power generation – a key metric for gauging growth in the mainland - rose just 2.1% in March, according to data from the National Statistical Bureau, the weakest positive growth rate in six months.
While official steel production is at record highs, analysts doubt the veracity of those data. Anne Stevenson-Yang, co-founder and research director at Beijing-based financial consultancy J Capital Research and a respected China-watcher, noted that steel demand “barely moved” upward in the first four months of the year.
Experts said there was no immediate cause for alarm. Rhee insisted he was not worried about China’s growth rate falling into mid-single-digit territory any time soon. The ADB, he said, still believed China could “easily achieve” economic growth of 8% this year.
However others pointed to a long-term downward trend on the mainland. Rising labour costs and the ongoing appreciation of the renminbi, China’s currency, are starting to crimp Chinese exports. Li-gang Liu, chief China economist at ANZ in Hong Kong, said some Chinese companies, notably manufacturing and exporting heavy industrial equipment, were being “pounded” by increasingly competitive Japanese rivals.
Chinese leaders are seeking to rebalance the economy by diversifying towards services and retail spending, and away from old-fashioned heavy manufacturing.
But this rebalancing will take time. China’s struggling is cause for concern both at home and across the region, ANZ’s Liu told Emerging Markets. He picked out nations dependent on exporting natural resources to China as those most vulnerable, notably Malaysia and the commodity and energy-exporting nations of Australia and Indonesia.
“If China’s economic activity slows further, demand for commodities will fall not just in volume terms but in value terms as well. For major Asian exporting nations dependent on China, this would be a serious double-whammy.”
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