INCREASING headwinds have led economists to shave their growth projections for economies several times this year. But amid the uncertainty, there is a consensus that Asia has emerged as a defensive harbour and that South-east Asia will drive growth. However, when China reopens its borders or relaxes its zero-Covid policy remains a major wildcard for 2023. General expectations are for China to reopen its borders after March, when the political reshuffling at the National People's Congress (NPC), one of the Two Sessions, is over. A reopening will help boost consumption hit by harsh lockdowns and China's economy.
Any relaxation of China's strict policies and border controls in 2023 could fan the reopening tailwinds from China tourists returning to Asean - especially to Thailand, Vietnam and Malaysia. The mainland accounted for more than 20 per cent of Asean's visitor arrivals before the Covid-19 pandemic. Visitors from China made up the dominant share of 2019 arrivals in Vietnam, Thailand and Singapore. The biggest tourism boost will be to Thailand, where tourism receipts from China alone accounted for 3.1 per cent of its gross domestic product (GDP) in 2019.
A revival in China import demand would help cushion the fall in Asean's exports as growth in the United States and the European Union slows on aggressive tightening and supply shocks from the Russia-Ukraine war. Singapore, Vietnam and Malaysia will see the largest boost to their economies from a recovery in China import demand. Economists at Maybank Securities estimated that a 1 per cent increase in China's growth will add 1.1 basis points to Hong Kong's headline GDP growth; 0.6 basis point to Singapore, Taiwan and Vietnam; 0.5 basis point to Thailand and Malaysia; 0.3 basis point to Indonesia and 0.1 basis point to the Philippines.
A recovery in exports to China will improve Asean's bilateral trade balances with China. So far this year, except for Singapore, all Asean countries are running merchandise trade deficits with China. Vietnam, Thailand and the Philippines have the largest bilateral trade deficits.
China's investment and construction contracts in Asean have fallen to US$12.2 billion in 2021 and US$7.1 billion in the first half of this year. This compares to the peak of US$31.4 billion in 2018 pre-pandemic, based on data compiled by China Investment Tracker. An easing of border restrictions could see more Chinese foreign direct investments and capital flows into the region. Indonesia, Laos, Cambodia, Malaysia, Singapore, Thailand and Vietnam may benefit from a revival of China's Belt and Road Initiative.
The Hong Kong and Chinese stock markets have soared last week on every rumour of China reopening, with more wagering it is just a matter of time despite recent outbreaks and repeated messages by authorities that China will stick to its zero-Covid strategy. It is unclear how strong China's "revenge spending" will be as consumer confidence has plunged. Surveys of Chinese consumers have shown that shopping habits have been altered by the pandemic, unemployment and the housing bust. Chinese consumer preference is to save more, and direct spending to essentials rather than luxury products and travel. Adding to the uncertain outlook is the possibility that energy demand and prices could surge when China reopens. This could worsen global inflation pressures and force central banks to further tighten.