China Slows, The Region Catches A Cold.

By Brett Hurll

3rd September 2023

In the intricate web of Asia's economic landscape, Bali and Busan stand as disparate nodes, each with its own unique set of challenges and opportunities. Bali, Indonesia's idyllic vacation hotspot, and Busan, South Korea's bustling port city, may seem worlds apart, but they share a common economic vulnerability: the decelerating engine of China's economy.

For years, China's meteoric rise served as a catalyst for economic growth across Asia. Countries in the region have become increasingly interdependent with the world's second-largest economy. However, the recent downturn in China's real estate market, marked by a 9% decline in property investment in the first seven months of this year, has sent ripples across the continent. Data released on September 7th indicates that China's imports have contracted by 7.3% year-on-year to August, a trend that has left its trading partners in a precarious position.

In the more affluent corners of Asia, the impact is palpable. Manufacturers of semiconductors and automotive components are grappling with financial setbacks. South Korea's exports to China plummeted by 20% year-on-year in August. In a bid to mitigate the fallout, the South Korean government has announced a financial package, including loans amounting to 181 trillion won ($136 billion), along with tax incentives and other relief measures. Meanwhile, Taiwan, whose exports to mainland China and Hong Kong have declined by 28% between January and July, finds itself in a similar predicament. Goldman Sachs estimates that nearly 10% of Taiwan's GDP is fueled by Chinese consumption and investment.

Optimists may argue that the worst is over, pointing to the stabilization in the year-on-year decline in China's imports. However, a recent survey by the Korean Chamber of Commerce and Industry paints a less rosy picture. Of the 302 domestic companies surveyed, nearly 80% anticipate that the downturn will persist. Absent a robust stimulus package from Beijing, these pessimistic forecasts are likely to materialize.

The tourism sector in South-East Asia is also languishing, far from its pre-pandemic vitality. Thailand, for instance, welcomed a mere 1.8 million Chinese tourists between January and July, a stark contrast to the 11 million it received in 2019. Countries like Cambodia, Laos, Malaysia, and Thailand, where tourism contributes significantly to the balance of trade, are feeling the pinch. China has historically been the largest source of tourists for these nations.

Yet, not all Asian countries are equally exposed to China's economic vicissitudes. According to Vincent Tsui of Gavekal Research, nations like India, Indonesia, and the Philippines have been somewhat insulated due to their limited industrial ties with China. This relative detachment has even buoyed their currencies against the dollar this year.

In a climate of economic uncertainty, there are, of course, outliers. Thailand's durian exporters have seen a 52% surge in Chinese imports of the fruit in the first seven months of this year. While new transport links are credited for this uptick, it serves as a reminder that not all sectors move in lockstep with broader economic trends. Unfortunately, the majority of Asia doesn't have the luxury of banking on durian exports.

As China navigates its economic slowdown, the ripple effects are being felt across Asia, from high-tech manufacturing hubs to sun-soaked tourist destinations. While some nations and sectors may find pockets of resilience, the broader outlook suggests that Asia's economic interdependence with China is both a boon and a bane—a reality that is becoming increasingly hard to ignore.