Wednesday, February 26, 2020

Meltdown of China's stock could effect Thai exports

Jul 09. 2015
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By Erich Parpart,
Petchanet Prat

The 30-per-cent decline in the value Chinese stocks over the past three or four months is considered severe from the standpoint of a small and vulnerable economy like Thailand's, Finance Minister Sommai Phasee said yesterday.

"There are not that many Thais investing in Chinese shares. But this is a sizeable crisis that reflects the possibility of a further slowdown in China, as it would be hard to see [its gross domestic product] expand by more than 6 per cent this year," he said, noting that last year’s GDP growth was 7.1 per cent.

"I have said many times that a 1-percentage-point slowdown in China would surely effect Thailand via further contraction in exports," he said.

The Chinese market accounts for 12-13 per cent of Thailand’s exports. If China is making less money and its people have lower incomes, then they will produce less and their demand for raw materials will go down, which will surely affect the Kingdom’s export sector.

Since the export future is looking bleak, the role of government spending, which accounts for 23 per cent of GDP, will become more critical for Thailand, he said. The state budget deficit should be pumped up to 4 per cent of GDP by fiscal 2016 to increase the role of fiscal policy in stimulating the economy.

The fiscal 2015 deficit is Bt250 billion of the Bt2.575-trillion budget, which is equivalent to about 2-3 per cent of GDP.

"We have high reserves and public debt is low at 43 per cent to GDP, so we still have room to increase the deficit in 2016," Sommai said.

Dramatic sell-off

Thanavath Phonvichai, director of the Economic and Business Forecasting Centre of the University of the Thai Chamber of Commerce, said the dramatic sell-off of stocks should not hit the Chinese economy as a whole, as that country still has strong economic fundamentals and high foreign reserves.

"The economic slowdown of China and the strengthening of the Chinese yuan would only cause short-term investors to panic [and flee] to the US stock market.

"However, China still has good economic fundamentals. It projects growth of 6.8 per cent this year," he said, dismissing fears of a bursting bubble.

Chinese stocks yesterday rebounded by around 6 per cent, as Beijing’s increasingly frantic attempts to arrest a sell-off that has roiled global financial markets finally appeared to gain some traction, according to Reuters.

By the close of trading, the CSI300 Index of the largest listed companies in Shanghai and Shenzhen had raced up 6.4 per cent, while the Shanghai Composite Index bounced back 5.8 per cent for its biggest daily percentage gain in six years.

China’s malfunctioning stock markets remained semi-frozen, however, with the shares of around 1,500 listed companies – or around US$2.8 trillion of stock – suspended, and some analysts said it was too early to call the endgame.

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