China’s economic swings cast a shadow over Asia, Auto News, ET Auto
SINGAPORE / SEOUL: China’s economic setbacks have clouded prospects for countries in its orbit, from South Korea to Thailand, as sharp slowdowns in factories and trade bottlenecks in the world’s second-largest economy hit Asia on both the supply and demand sides.
China’s gross domestic product weakened in the third quarter, according to this week’s data, with growth reaching its lowest level in a year, affected by power shortages, supply chain problems and a crisis of the real estate market.
For China’s trading partners, the slippage presents new risks for what is shaping up to be a bumpy global recovery from the pandemic crisis.
“Yes, growth elsewhere, namely in the United States and Europe, appears robust,” wrote Frederic Neumann, co-head of Asian economic research at HSBC. “But it was China that has been the main engine of growth in the region – and as it spits, Asian economies will lose much of their torque.”
HSBC’s analysis showed that Asia-Pacific economies, from South Korea to New Zealand, were much more correlated with changes in Chinese growth than with changes in US or European GDP.
For every percentage point that China added to its growth, the South Korean trade powerhouse reported about 0.7 points of additional growth, the bank’s economists said.
South Korea was by far the most sensitive to changes in Chinese growth, according to the analysis, followed by exporting countries Thailand and Taiwan.
An anticipated Chinese slowdown has already prompted Citi analysts to downgrade growth forecasts for the region’s economies, including South Korea, Taiwan, Malaysia, Singapore and Vietnam.
A Reuters business survey last week showed that a majority of Japanese companies feared a slowdown in China, Japan’s largest trading partner, would affect their businesses.
The slowdown is being felt across much of the Chinese economy, from retail sectors to factories, which have posted their weakest production growth since the start of the pandemic.
Auto sales in China fell 19.6% in September from a year earlier, industry data showed last week, dropping for a fifth consecutive month amid a prolonged global shortage of semiconductors and electricity shortage.
Likewise, sharp declines in new construction starts in the Chinese real estate market, due to regulatory crackdown, are emerging as risks for commodity exporters like Australia.
Iron ore prices have almost halved since hitting a record high in mid-May, as demand was affected by restrictions on steel production in China and slowing real estate.
Last week, mining giant Rio Tinto downgraded its forecast for iron ore shipments for 2021, mainly due to tense labor market conditions in Australia, but it also warned of headwinds of China’s regulatory crackdown.
Despite the risks associated with China, analysts say Asia will be able to prevent a sharp collapse in domestic demand, as improving immunization rates allows countries in the region to rid themselves of restrictions linked to the COVID-19.
Likewise, Chinese demand for certain goods, such as fuel and food, remains strong. This means that for now, central banks are unlikely to deviate from their general tendency to move away from the monetary parameters of the crisis era.
Singapore tightened its monetary policy last week.
Beyond the broader demand shock, complications for economies in Asia and elsewhere could come from worsening supply issues in China, such as the electricity crisis.
So far, Chinese manufacturers and exporters have yet to significantly pass on the higher costs caused by supply shortages of everything from coal to semiconductors.
But analysts warn that the picture around inflation is fluid.
While weaker demand could ease the pressure on prices, supply chain bottlenecks, if left unresolved, could create a ‘stagflation’ nightmare in which soaring prices s. ‘accompanied by stagnant growth.
“I think it could be a bit of a double whammy now. Because China is one of the economic engines of the region, any downturn can affect demand for regional goods and services,” said Selena Ling, head of research and treasury strategy. at OCBC Bank.
“Second, due to the current electricity crisis, in all likelihood policy makers will prioritize home (use) for winter demand over industrial activity. So this could exacerbate global supply chain disruptions. “