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China's Slowing Economy a Mixed Blessing for Asian Neighbors

  • Ron Corben

Employee works inside silk factory in Neijiang, Sichuan province, July 3, 2013.

Employee works inside silk factory in Neijiang, Sichuan province, July 3, 2013.

Economists say China's slowing economic growth may be a cause for concern for some of its neighbors in Asia, especially those that have become more dependent on China's booming economy in recent years.

This week Beijing announced that its economy grew 7.5 percent in the second quarter of the year (compared to 2012) -- a figure largely in line with observers’ expectations, but still a dramatic departure from years of near 10 percent growth.

This slowdown has been influenced partly by the continuing downturn in the international economy as well as Beijing’s policies to cool some economic sectors by tightening credit and allowing the value of China’s currency, the Renminbi, to rise.

The slowing Chinese economy has sent ripples of concern across the Asia Pacific. China's continued growth; largely due to government investment and easier credit, has been important for helping the region withstand the global financial crisis since 2008.

But Asian Development Bank principal economist Donghyun Park said the slower growth indicates China’s past policy of "growth at all costs" may have passed.

"The Chinese authorities are more than prepared to swallow or accept slower growth in exchange for greater stability down the road," the economist said. "That is why they are consciously, deliberately if you will, tolerated the tightening of the credit conditions in the interbank market. So the past mentality, the past way of thinking of a growth at all costs very fortunately and appropriately -- that's coming to an end."

In recent years, China’s government has helped spur investment and lending to keep its economy growing at nearly 10 percent per year -- a rapid expansion that lifted millions out of poverty, but also led to rising concerns over its environmental and social impact.

Now, with Beijing prepared to bring growth under control, regional economies, such as Australia and Indonesia, key beneficiaries of China's demand for raw materials, have already warned of slower growth in key industries.

ADB's Park said the outlook for the Asia Pacific is a mixed one in light of China's slower growth, but ultimately what is good for China is also good for its neighbors.

"The exact impact will differ from country to country," he noted. "Outward oriented export dependent economies will suffer more than Indonesia or the Philippines where domestic demand plays a greater role. Overall in the short term China's slowdown has negative ramifications but I think a more sustainable growth in China, but it's also a good thing for the rest of the region."

Doug Clayton, a senior executive of emerging market finance house, Leopard Capital, said China's rapid growth has led to new investment in economies such as Cambodia, as firms relocate due to China's higher costs. Clayton remains positive about China's impact on the region's economies.

"It bodes pretty well. China has this vast potential consumer market and if they develop it, I think South East Asia is a good supplier of things that China needs, whether its food products or electronic components or car parts," he said.

Clayton added that as China's economy further matures the outbound tourism market will be a boon for economies such as Thailand.

According to economists, China's many challenges include enacting steps to develop a stronger, sounder and more efficient financial system and moving further away from a growth policy based on excessive lending and investment.
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