China’s stability bodes well for Asia

“Stability in China’s economy, at the very least, will contribute towards economic stability in large swaths of territory in Asia,” ’’ said Pong Teng Siew, head of research at InterPacific Securities in Malaysia.
“It is a big buyer of commodities, which benefits Asia unless it turns to commodity producers elsewhere. Chinese capital is also a conduit for liquidity flows, although not via portfolio channels.”
China’s gross domestic product growth increased 6.9 per cent in |the second quarter from a year |earlier, matching the pace of ex-pansion in the first quarter, according to a Bloomberg report.
“Asia’s economic success has been largely attributed to its export-oriented strategy,’’ said Thomas Yong, CEO of Fortress Capital.
“Over the past decade, waning demand from the West has resulted in the rise of intra-regional trade, with demand mainly from China.
“A stabilised Chinese economy would not just benefit exporters, as developing countries can also expect inflows of foreign investment from China. This is especially when China has indicated its ambition to gain political traction in the region."
Chris Eng, head of research at Etiqa Insurance & Takaful, said the current trend pointed to a strong fourth quarter and continued hopes for an even better 2018.
“We have not considered the Chinese economy as a major risk and so far, we have been proven right. We still think the risks remain with developed economies that may even trigger the next financial crisis, if it happens,” Eng said.
“The outstanding risks lie in the aggressiveness of future US Fed interest rate hikes, President Donald Trump’s policies and geopolitical tensions,’’ said Danny Wong, CEO of Areca Capital.
“The main risk lies in China’s internal reform efforts, in particular, its corporate deleveraging process.”
The relentless buildup of risks caused by debt-fuelled investment is a development that was addressed by top leaders in Beijing recently.
“China has settled into what I would term as a metastable (having a slight margin of stability) state,” said Pong.
“If it attempts to stimulate its economy again and nudge it into a stronger phase of growth, it could find itself falling into a fresh round of less controllable instability.
“The setting up of a Cabinet-level committee to detect early signs of financial risk and prevent systemic risks underscores the seriousness of the authorities in keeping a tight rein on excessive leveraging.
“Sustaining growth and financial stability remain priorities to defuse market concerns on the overreliance on stimulus and credit expansion to support growth.
Lee Heng Guie, the executive director of Socio Economic Research Centre, said the Chinese Government “must not lose focus on reining in the country’s rapidly ballooning debt”.
That China’s economy has continued to hold steady indicates that the pace of economic restructuring has not tempered the underlying growth momentum, said Lee.
“What has been driving growth are selective government support, rapid credit growth and a relatively loose monetary policy.
“With a strong performance in the first half, China is on track to meet the official growth target of 6.5 per cent for this year,’’ Lee added.
Another analyst pointed to the strength of the Chinese currency. 
“One of the worries, prior to this stability that we saw in the first half of the year, was the possibility of the devaluation of the reminbi. Such a scenario would be detrimental to regional economies, especially those dependent on exports,’’ said Nor Zahidi Alias, chief economist of Malaysian Rating Corporation.
The stability of financial markets was also on investors’ minds in the first half.
“A weaker Chinese economy, for instance, will likely trigger more corporate defaults and the negative sentiment will reverberate across the region, affecting other bond markets,’’ said Zahidi.
“Coupled with the possibility of further rate hikes in the US, such a scenario will likely see global bond markets taking a hit. 
“Therefore, the recent numbers on Chinese economic growth provided relief to global investors.’’