SINGAPORE — While China’s economy continues to grow much faster than those of Japan and most Western countries, according to official figures, the country’s mix of slowing imports, wobbly stock markets and a weakening currency is a growing concern for Southeast Asian countries that have grown increasingly dependent on trade with Asia’s largest economy.
China’s official 7% annual rate of growth in gross domestic product in 2015 is the lowest in a quarter century, down from the 7.4% posted in 2014. It leaves Southeast Asian countries vulnerable to slowing Chinese growth, six years after Beijing signed a landmark trade agreement with the 10-country Association of Southeast Asian Nations.
As China’s economy expanded to become the world’s second biggest, trade between Southeast Asia and China grew, as the latter sought raw materials for massive infrastructure and city building.
However, since riding out the 2008 financial crisis that brought several Western economies close to ruin, China has slowly tried to shift the basis of economic growth from investment to domestic consumption. As a result, China’s demand for commodities has declined.
Jia Qingguo, Dean of International Studies at Peking University, said that “the Chinese economy and the Southeast Asian economies are integrated, and the slowdown in the Chinese economy will affect Southeast Asia in a negative way.”
Chinese government data released on Jan. 13 showed imports for December 2015 down 7.6% on the previous year. “China will import less as China has to cut down production,” Jia told the Nikkei Asian Review.
Singapore sends almost 15% of its exports to China, according to Australia’s ANZ Bank, and could be hit if the Chinese economy suffers a hard economic landing. The bank projected that a 1% annual drop in China’s GDP growth rate would pare 1.4% from Singapore’s growth rate. That would be a hefty blow to ASEAN’s wealthiest economy per capita, which grew at 2.1% in 2015.
Some economists argue that as many of Singapore’s exports to China are for re-export to the West; even so, Singapore’s economy — though dependent on trade — will nonetheless fare better than much bigger Southeast Asian countries that export commodities to China.
Laos, Malaysia and Myanmar all export natural resources to China, as does Indonesia, by far the biggest economy in ASEAN. Though Indonesia has been coming to terms with reduced commodity exports to China in recent years, after enjoying a long commodity boom, recent devaluations of the Chinese currency will make it still more difficult for Indonesia to sell coal, palm oil, rubber and other goods to China.
“It will impact Indonesian exports to China, as the weakening of the yuan means commodities will become more expensive to export to China,” said Siwama Dharma Negara, a visiting fellow at the Institute of Southeast Asian Studies in Singapore.
In 2013 China overtook Vietnam to become the leading investor in Laos, where mining and hydropower make up over 60% of the country’s exports. Laos too is vulnerable to a slowdown in China, said Buavanh Vilavong, a Laotian economist at Australian National University.
“The expansion of extractive industries is an example of the way in which rapid economic growth has made Laos more vulnerable to external shocks,” he said.
After stock market turbulence in mid-2015 and early 2016, China has allowed the yuan to fall by 5% against the dollar, a signal that it may opt for competitive devaluations to make its exports more competitive — but raising concerns that other countries could react in a similar way. The devaluations came despite pledges from officials such as Premier Li Keqiang that China would not engage in “continuing devaluations.”
But some economists have argued for years that the Chinese currency is overvalued, suggesting there is plenty of scope for further devaluations. Concerns about the yuan have also fed into jitters on other issues. For example, suggestions that Beijing is spending heavily to prop up the currency are gaining credence after December saw the biggest monthly drop in China’s foreign exchange reserves, still the world’s biggest at $3.3 trillion.
Perceived mismanagement and ad hoc policymaking in China are reminiscent of the 2008 global financial crisis, when speculatiive and irresponsible mortgage lending went unchecked by authorities in the U.S.
“People are not sure how the policymakers are approaching this issue and what the strategy is, so there is a dent in the credibility of the policymakers when it comes to the yuan,” said Manu Bhaskaran, CEO of Centennial Asia Advisors, an economic advisory firm.
China is a one-party state run by the Communist Party, which is now focused on an anti-corruption crackdown apparently intended to centralize power further around President Xi Jinping.
Some economists question the accuracy and transparency of Beijing’s official GDP numbers, adding to market uncertainty by claiming that China’s real annual growth might be as low as 2%. Other economists were puzzled by trade data released on Jan. 13 that showed exports to Hong Kong, technically part of China, were up by 10%. At face value, the figures appear to show that the city-state imported more from China in December 2015 than did the U.S.
Discussing the Chinese economy on CNBC TV, Harvard University economist Kenneth Rogoff said “we don’t know what’s going on, it’s hard to know how quickly this could reverse.”
The Royal Bank of Scotland warned on Jan. 12 that China’s economic turbulence portends a “cataclysmic year” ahead for the world economy, with RBS saying that stock markets could fall by up to 20% and the price of oil could slide to $16 a barrel. Standard Chartered, another bank, predicted a possible low of $10 per barrel.
Some economists have described these doomsday scenarios as overly pessimistic, but uncertainty about China, where policy changes have often come with scant warning, means that neighboring markets are jumpy.
“The Indonesian financial market is very vulnerable to negative rumors in Chinese economic development,” said Negara.
While commodity exporters and traders are concerned about China, the turbulence could benefit consumers and other sectors of the region’s economies.
“Oil prices and commodities have fallen, so it’s a net positive for the world economy as more people buy those than sell those,” said Bhaskaran.
Household spending in China is holding up and the reduction in commodity prices should mean that hundreds of millions of Chinese consumers will have more money to spend — within China and outside.
According to China’s Tourism Research Institute, the country had 61.9 million outbound visitors in the first half of 2015, an increase of 12.1% compared with the same period in 2014. “China’s tourism numbers are strong,” Bhaskaran said, suggesting that tourism-oriented economies in Southeast Asia, such as Malaysia and Thailand, will continue to benefit from a growing influx of visitors from their giant northern neighbor.