China’s economic linkages with ASEAN have been rising with potential spillover effects through various channels such as goods and services trade, investments and financial markets, according to a report by the ASEAN+3 Macroeconomic Research Office (AMRO).
Goods trade is the “most important” channel, said AMRO. This is because ASEAN’s goods exports to China have been increasing continually and the value accounts for a significant share of GDP in several ASEAN countries.
In 1990, exports to China accounted for only 2 per cent of ASEAN’s total exports, but by 2016, the value increased to more than 12 per cent.
Measured by share of GDP, most ASEAN countries saw their exports to China rose to high levels in 2016, especially Vietnam (18 per cent), Malaysia (17 per cent), Thailand (9 per cent), Singapore (9 per cent) and Lao PDR (9 per cent).
In ASEAN’s total exports to China, consumer goods, and electronic and industrial parts have continued to rise, partly due to enhancing assembling capacity as well as the booming domestic demand in China.
ASEAN imports from China have also increased significantly in response to the growing consumers’ demand in ASEAN as well as the enlarging regional production networks.
Outward Direct Investments
China’s outward direct investments (ODIs) to ASEAN has increased steadily and are largely concentrated in manufacturing, wholesale and retail trade, as well as leasing and commercial services. China’s ODI to ASEAN has grown at a faster pace than Chinese ODI to other regions.
Regional financial centers have played an important intermediary role in facilitating China’s ODI to ASEAN. A sizable amount of ODI from China likely comes to ASEAN through Hong Kong, said AMRO. Within ASEAN, China’s ODI is much higher in Singapore than elsewhere (51 per cent of total Chinese ODI in ASEAN during 2014-2016).
China’s financial markets have an impact on ASEAN, mostly through the effects of market sentiments. So far, ASEAN investors’ portfolio exposure to China’s financial markets is quite limited and vice versa. Despite this, volatility in China’s financial markets has affected sentiments in ASEAN’s financial markets and led to greater volatility.
Chinese banks have been playing an increasingly important role in providing funding to ASEAN. Recently, backed by rising ODI, especially through the Belt and Road Initiative (BRI), Chinese banks have expanded their overseas business, especially in ASEAN.
Modelling China’s Spillover Effects on ASEAN
Results from the Oxford Economics model suggest that growth shocks in China will have a significant impact on ASEAN. Assuming China’s GDP growth will fall by 1.0 percentage point in 2020 before bouncing back, it will immediately lower China’s demand for imports of goods and services from the world, including from ASEAN. ASEAN-5 countries will see their exports fall by 0.3-0.6 per cent in 2020. At the same time, as most ASEAN countries are highly open to trade and exports comprise a large share of GDP, the impact on ASEAN’s GDP will be significant, ranging from 0.1 per cent to 0.6 per cent.
Future Impacts from China’s Structural Adjustment
- China’s economic linkages with ASEAN are likely to increase further in the medium term
- The Asian supply-chain centered on China is likely to evolve further, due to industrial upgrading and adjustment in China, which will provide opportunities but also challenges for ASEAN
- China’s consumption will rise further and benefit consumer goods producers and those who can better meet the rising demand from China
- The BRI will increase China’s linkages to ASEAN through rising ODI