Growing Trade Raises Asean’s Dependency on China

A look at how a China slowdown could affect Southeast Asian economies.

China's President Xi Jinping Visits Malaysia

Xi Jinping, China’s president, left, speaks as Najib Razak, Malaysia’s prime minister, looks on during a joint news conference at the Prime Minister’s Office in Putrajaya, Malaysia, on Friday, Oct. 4, 2013. Xi signed agreements today to boost economic cooperation and defense ties with Malaysia as U.S. President Barack Obama scrapped his tour of the region. Photographer: Goh Seng Chong/Bloomberg *** Local Caption *** Xi Jinping; Najib Razak

Goh Seng Chong/Bloomberg

Hard landing or soft? For much of the world, China’s economic prospects loom increasingly large over their own. Nowhere is that truer than in Southeast Asia.

China has been growing trade with the countries of the Association of Southeast Asian Nations for several years, making the region highly dependent on the Middle Kingdom.

Among the Asean group Malaysia enjoys the largest trade ties with China, with two-way trade rising 5.3 percent, to $94.8 billion, in 2012, says consulting firm Dezan Shira & Associates, citing figures from the most recent China Statistical Yearbook. Malaysia’s exports to China, which include palm oil, electronics components and transportation equipment, fell 6.1 percent in 2012, to $58.3 billion, but imports from China jumped 30.8 percent, to $36.5 billion, narrowing the country’s trade surplus. In 2012, Thailand was No. 2 in exports to China, with $38.6 billion, followed by Indonesia ($32 billion), Singapore ($28.5 billion), the Philippines ($19.6 billion) and Vietnam ($16.2 billion). With the exception of Vietnam, which saw its China exports surge 45.9 percent in 2012, most Asean countries saw very sluggish growth.

A China slowdown could hit Indonesia hard because the country is a big supplier of commodity exports such as coal, palm oil and rubber, says Christopher Wood, chief equity strategist at brokerage CLSA in Hong Kong. China is Indonesia’s second-largest customer for coal after India; its imports of Indonesian coal grew by 12 percent in 2013.

Countries that supply more consumer goods may feel less pain because China’s domestic consumption is expected to remain robust even if its industrial sector slows. “Thailand is really not affected, and the Philippines is affected the least,” Wood says.

For Thailand the biggest impact of a China slowdown might be on its vital tourist sector, says Sethaput Suthiwart-Narueput, who heads the Thailand Future Foundation in Bangkok. An estimated 3 million Chinese tourists visited Thailand in 2013 thanks in part to the popularity of Lost in Thailand, a 2012 comedy that was filmed near Chiang Mai in northern Thailand and became the first Chinese movie to gross more than 1 billion yuan ($162 million) at the domestic box office. Thailand has passed Hong Kong as China’s favorite tourist destination. Tourism accounts for nearly one in five jobs in Thailand.

China’s slowdown could actually be a boon for some Asean economies, contends Tim Condon, Singapore-based head of Asian financial markets research at Dutch bank ING. “I’m thinking we’ll see a renaissance in Southeast Asian manufacturing as a consequence,” Condon says, adding that he expects low-wage jobs to move from China to countries like Cambodia and Vietnam. In Vietnam the average monthly wage stands at $185, and in Cambodia it’s just $75, well below the average rate of $253 in China’s special manufacturing zone of Shenzhen.

Vietnam is well placed to benefit from the wage differential because factories in the country’s north can easily ship assembled electronics and others goods across the border into southern China.

Get more on emerging markets.