China’s slowdown means conflicting fortunes for Asia’s exporters

A worker works on the production line of Jingjin filter press factory in Dezhou, east China’s Shandong province, 25 August 2022. (Photo by Reuters)

The slowdown in China’s economic growth has created a stark contrast in fortunes for its trading partners across Asia, with northern neighbors suffering while economies in the southeast are largely holding up.

The world’s second-largest economy is still grappling with a slump in consumption and production caused by lockdowns, compounding the collapse in demand from a global slowdown in the semiconductor industry.

Meanwhile, exports from most of Southeast Asia’s top six economies, each of which counts China as its No. 1 trading partner, are more resilient as their shipments are dominated by essential commodities and commodities, including palm oil and refined petroleum products.

As the world faces the prospect of weaker demand as monetary policy prioritizes fighting inflation over stabilizing growth, a further slowdown by China would be a cause for concern.

From a broader perspective, the resilience of ASEAN exports in the face of a China slowdown can be attributed to “pent-up demand built up from earlier days of the pandemic,” said Tamara Henderson, ASEAN economist at Bloomberg Economics. It “will fade as this source of demand is saturated and China’s economy now faces more stress.”

Here’s a closer look at the latest data on exports to China from Southeast and North Asian economies:

South East Asia

Thailand ranks China as its second largest customer after the United States, and the value of these exports continues to grow, although there has been a slowdown this year.

Thai exports to China, including fruit and synthetic rubber, rose 25% to $37.3 billion last year, while growing just 0.8% to $18.5 billion in the first half of this year fraud.

While Commerce Department data showed shipments fell 2.7% in June after rising 3.8% in May, fruit and rubber exports were still growing while trade in cars, auto parts and chemicals fell.

Indonesia’s total exports to China rose 17% yoy in July. Non-oil exports, on the other hand, rose 40.9% over the same period, with a month-on-month decline of just 1.27%.

Though the data is shaky, it doesn’t appear to be cause for concern in the region’s largest economy, which counts palm oil and charcoal briquettes among its top exports.

Data shows that Singapore’s total exports to China rose 3.8% in US dollar terms in July. The city-state’s sales of goods to the world’s second-largest economy include machinery and ethylene polymers used in plastic packaging.

Malaysia’s shipments to China, which include refined petroleum products, have remained fairly strong, with double-digit annual gains from December through May. After falling just over 4% in June year-on-year, shipments rebounded in July to gain nearly 10% in ringgit terms and 32.6% in US dollar terms.

Philippines shipments to China are the only cause for concern in the Southeast Asian pack.

Manila, which ranks integrated circuits, office machine parts and nickel ore among its top exports to China, fell 18.8% in June, after a double-digit decline in May, according to the latest official data. Figures compiled by Bloomberg based on China’s imports from the country showed a 12.8% drop in July.

A further slowdown could be on the cards as electronics make up 56% of the Philippines’ total merchandise exports and are linked to a global tech cycle that has faltered of late, Nomura analysts wrote in a report earlier this month.

According to Beijing Customs Agency data compiled by Bloomberg, Vietnam’s shipments to China rose 6.6% year-on-year in July, posting a six-month decline. China’s imports from the Southeast Asian country include cotton yarn, phones and accessories, as well as computers and electrical products.

North Asia

Japan’s exports to China, including electronics and semiconductor equipment, are under pressure, although yen weakness masked some of the decline.

While Japanese exports to the regional giant rose 12.8% in yen terms in July, data on shipments received from Beijing showed a fall of 9.2% in dollar terms. The Bank of Japan said last month that exports to China were “clearly being pushed down by the ongoing impact of lockdowns from Shanghai and elsewhere.”

South Korea saw initial exports — including chips, displays and refined oil — almost flat in August as shipments to China fell 11.2%, official data showed. This follows July figures in US dollars, which showed a 0.9% drop in Beijing imports from Seoul.

The weaker numbers are a sign that economic pain from China-related fragility could be worsening, as Korean manufacturers play a sizeable role in global supply chains.

August data, which shows daily broadcasts for the first 20 days of the month, is a barometer of growth and an indicator of risks in the region.

“South Korea’s data was really quite horrible, especially given the sharp drop in exports to China,” said Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis SA. “All of this shows what we already knew, that China’s demand for overseas goods — its imports — are very weak.”

Taiwan saw a surprise drop in export orders in July, led by a 22.6% drop in orders from China and Hong Kong, which together are the second largest source of demand after the US.

Electronics and advanced chips account for around two-thirds of Taiwan’s exports to China, thanks to the island’s crucial role in the semiconductor supply chain.

While Taiwan has sought to reduce its trade dependency on China amid rising cross-strait tensions, China and Hong Kong still account for around 40% of its total exports.

Hong Kong’s exports to the mainland fell 10.7% in local dollar terms in July, contributing to a yoy slump in total exports last month. The government cited continued disruptions to flows across the border with China as one of the factors causing exports to contract for the third consecutive month from a year earlier.

Hong Kong’s main exports to the mainland include plastics, metal ores and pharmaceutical goods. The city has lowered its growth forecast twice this year and now expects gross domestic product to potentially shrink, partly due to disruptions in the flow of goods to the mainland.

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