Wed, May 25, 2022


Testing times in China but US economy warming up

CHINA STARTED 2016 with a 7 per cent plunge in stock prices on Monday, raising the spectre of major economic challenges in the new year. Among the major issues are China’s over-capacity and rising non-performing loans (NPLs) amid global economic uncertain

Officially, China’s GDP could slow to an annual rate of 6.9 per cent in 2016 from more than 7 per cent. The official figures are, however, still a very bullish projection compared to estimates of western investment banks such as Goldman Sachs, which suggest that China’s growth rate would more likely be in the range of 3 to 5 per cent this year.
According to Christopher Balding, an associate professor of Peking University’s HSBC Business School, who closely monitors the Chinese economy, fiscal measures and monetary tools will be used to stimulate China’s domestic economy to help offset a likely drop in Chinese exports, which were flat in 2015.
At present, exports account for around 25 per cent of China’s GDP, while domestic consumption accounts for about half of GDP.
As an export-led economy for several decades, China has shifted to rebalance its economy with a focus on boosting domestic consumption.
For Thailand, the consequences will be mixed. Given that China is currently the largest market for Thai exports, accounting for about 10 per cent of total shipments, a Chinese slowdown would be negative for a recovery in the Thai export sector, which endured a contraction last year.
However, there is some indication that Thai shipments to other major markets such as the US may pick up due to a stronger economic outlook following last month’s hike of the Fed fund rate – the first increase in nine years.
US GDP is poised for a stronger growth rate of 2.4 per cent this year.
While the prospects of Thai exports to China may not be encouraging, Chinese companies will likely accelerate investment projects and acquisition of assets in Thailand, especially those for import substitution, natural resources, agriculture, hightechnology manufactur?ing, and property investment, as it diversifies the economy to reduce depend?ence on exports.
Because of rapid economic development over the past few decades, China has also faced the challenge of high wages, prompting some western firms to shift their production to Mexico to serve consumers in North America.
Rising wages in China have also boosted the attractiveness of manufacturing facilities in Asean countries, including Thailand.
In addition, the Thai tourism industry should continue to benefit from an increase in Chinese tourist arrivals, which reportedly totalled seven million last year. The number of outbound tourists from China is expected to post double-digit growth this year.
New target groups for Thai tourism should include middle-upper income travellers from China, who would be less affected by an economic slump.
Among their favourite destinations in Asia are Thailand, Japan, Korea and Malaysia.
Overall, China’s economic challenges and rebalancing ought to be well understood, so as to take advantage of new opportunities and minimise potential risks.
In the end, China’s role in helping to drive global economic growth may be reduced, as the US economy regains strength and becomes a more powerful locomotive in this year.

Published : January 05, 2016