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The winners and losers

Srinivas Mazumdaru
January 12, 2016

China's growth slowdown and economic restructuring have negatively affected many other Asian economies. But some suggest that they also present opportunities for several countries. DW examines.

Symbolbild Börse China
Image: GettyImages/AFP/G. Baker

China's weakening growth and volatile stock markets have drawn global attention in recent months, sparking concerns about their impact on the already fragile global economy. The World Bank projects the world's second-largest economy to expand at a rate of about 6.7 percent in 2016, its slowest pace in over two decades.

The slowing growth is partly attributed to the Chinese government's efforts to reconfigure the country from an export-reliant economy to one driven by domestic demand.

In addition to the economic restructuring, authorities are striving to tackle years of resource misallocation - which have led to overcapacity concerns in some sectors - by bolstering efforts to climb the global value chain.

But the transformation has also severely affected other Asian economies due to their heavy exposure to China.

The worst affected

Particularly hard hit are commodities exporters such as Malaysia, Australia and New Zealand. As China strives to rebalance its economy towards domestic consumption, the demand for raw materials supplied by these countries - such as iron ore, copper and coal - has plummeted, thus contributing to the global slump in commodities prices.

Australien Bergbau
Commodities exporters like Australia have been particularly hit by China's changing growth modelImage: AFP/Getty Image

Analysts say exporters will have to adapt to China's changing growth model. "The remedy is to diversify their economies away from commodities and into other offerings for a still growing China," says David Forrester, an independent economist and an expert on the currencies of commodities-exporting countries.

This view is shared by John Rutledge, chief strategist at investment firm Safanad. "2016 will be another very tough year for commodities exporters," he told DW, adding that this group of countries will have to put their energy into doing businesses with China's consumer sector. "I know this is easier said than done, however."

Much of the focus of China's slowdown has been concentrated on its negative impact on commodities. However, its effect is felt not only by exporters of natural resources, but also by suppliers of technology such as Japan and South Korea, and providers of capital such as Hong Kong and Singapore.

As a result, a recent report released by the Australia and New Zealand (ANZ) Banking Group concluded that Singapore could be among the worst affected by the Chinese downturn. The Southeast Asian city state ships 15 percent of its overall exports to China. The bank's economists estimate that every one percentage point decline in Chinese expansion would erase 1.4 percentage points of Singapore's growth.

Kambodscha Textilfabrik Phnom Penh
Southeast Asian nations such as Cambodia are expected to pick up the bulk of lower-value-added production from ChinaImage: picture-alliance/dpa

The slowdown in China could also act as a destabilizing force for the region as a whole, said Carlos Casanova, an economist and Asia expert at BBVA Research in Hong Kong. "Slowing growth momentum together with fears concerning the sustainability of China's corporate sector debt, have put significant downward pressures on the Chinese currency renminbi," he told DW.

"Smaller emerging economies in particular have been struggling with the devaluation of the renminbi since August, and they have been following suit to safeguard the competitiveness of their exports," he added.


Still, it's not entirely gloomy. Some economists suggest that China's restructuring and growth downturn also presents opportunities for several economies in the region, especially as China continues to exit many labor-intensive sectors.

For instance, Casanova says that countries could try to increase their global market share in sectors where China is retreating, particularly in lower-value-added manufacturing, such as the processing of minerals and metals, textiles and apparel.

In this context, Southeast Asian economies could capture some of the overcapacity that China is trying to outsource, say experts.

Glenn Maguire, ANZ chief economist for South Asia, Southeast Asia and the Pacific, says the younger and populous Mekong economies, now falling under the multilateral architecture of the Association of Southeast Asian Nations (ASEAN) Economic Community, are expected to pick up the bulk of lower-value-added production as China commences de-industrializing.

"The connectivity of the Mekong frontier economies (Myanmar, Cambodia and Laos) with India to the west, China to the east and the rest of the ASEAN to the south seem most well placed for this dynamic," he told DW. "What we refer to as 'The Great Migration South' is already occurring, with production platforms seeking cheaper labor in the ASEAN and Mekong."

But for South Asian countries like India to capture some of China's excess capacity, experts underline, it is essential that they invest in infrastructure and implement policy reforms to become more competitive and strengthen their manufacturing sector.

A need to adapt

Economist Maguire says the winners from China's slowdown can be split into two categories: The relatively undeveloped economies that pick up the lower-value-added industrial production China dispenses with, and the higher-income advanced economies that start to enjoy a greater exposure to the Chinese middle and upper-middle classes.

These economies are bound to profit from China's transformation into an important source of demand for consumer goods and services.

But as economist Forrester points out, what the Chinese economy will actually need in terms of goods and services from the rest of the world is already changing.

"China will need financial, medical tourism and educational services as its economy matures and its population ages. It will also want higher-end food and other consumption goods as household incomes continue to grow," he said, stressing that economies wanting to export to China have to start offering goods and services in these areas.

The risk of timing

At the same time, analysts warn about the slow pace of transformation occurring in other economies in the region. They note that China is rebalancing its economy faster than that of the rest of Asia.

This means that it will probably take Asian suppliers of commodities (Myanmar, Laos, Malaysia and Indonesia) and Asian capital goods exporters (South Korea, Taiwan and Japan) longer to restructure the supply side of their economies and create new exports markets aligned to the new China than it is taking China to actually rebalance into a services economy, said ANZ analyst Maguire.

"The speed and efficiency with which China is rebalancing could leave a multitude of excess capacity if they do not transform alongside and at the same pace as the Chinese."

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