US growth won’t help Asian exporters if China slumps
An HSBC analyst raised an interesting question this morning: “If China continues to soften, but the US picks up speed, where does this leave Asian exporters?”
Conventional thinking has always been that a strengthening US economy was automatically good news for Asian exporters. But if the Chinese economy began to tumble, it would outweigh faster US growth, said Frederic Neumann, HSBC co-head of Asian economic research.
“A decade ago, the answer would have been straightforward: swings in US demand dominated,” he said.
“Nowadays, with China being the second-largest economy in the world, and growing at breakneck speed, things are a little trickier. It may well turn out that a tumble on the mainland would outweigh faster US growth.”
Neumann pointed out that looking simply at the direction of exports exaggerated the importance of demand on the mainland.
“Lots of goods that are shipped to China are used for re-exports and ultimately end up on US shelves. Statistically, it's almost impossible to strip this stuff out of the data,” he said.
That made it tricky to work out the importance of China’s demand and how it would behave should there be a drastic slowdown in the mainland economy.
Applying different approaches to estimate the relative importance of Chinese and US growth for Asian exporters, Neumann found that mainland re-exports mattered less and Chinese demand mattered more than before.
Chinese output growth has become more important than before the global financial crisis, “though not for all countries in equal measure”.
Then there was Europe, Asia’s biggest export partner, where the growth rate was more stable and less relevant for analyzing swings in Asian shipments.
Neumann’s conclusion? China matters.
“China has grown hugely in importance over recent years, but the US clearly remains a vast market as well. Still, the drag from a one percent slowdown in Chinese growth would outweigh the gains of a stronger US for most Asian exporters,” he said.
“Luckily, we don’t expect Chinese growth to tumble. But if it did, don't expect everyone else to shrug it off.”