Nowadays, what is bad news for China never is bad news for China alone. Forming the basis of the regional economy, a host of ASEAN countries is at risk of following suit. ASEAN – China trade has grown rapidly over the last decade, increasing more than 10-fold from just 40 billion USD in 2000 to 450 billion USD by 2015. China, today, is by far ASEAN´s largest trade partner, heading the trade pyramid of a number of ASEAN countries. While this regional interdependence did, to a certain degree, limit ASEAN´s exposure to the 2008 global financial crisis, the vulnerability to economic slowdown in China is high.
The manufacturing sector – China´s growth engine – is stuttering for the first time in decades, achieving a year-on-year industrial production growth rate of just 6.1%, less than half its regular growth rate of 12.7% (1990 – 2015). The impacts on the regional economy are palpable.
As lower inner-Chinese demand and the unloading of overcapacities on the world markets cause global coal prices to plummet, ASEAN giant Indonesia finds its thermal coal sector struggling. Furthermore, more than 13% of neighbouring Malaysia´s exports were destined to China in 2015. The country’s manufacturing sector, in particular, relies heavily on demand from the Chinese market. The electrical and electronics industry, a core pillar of the Malaysian economic structure, is highly exposed to any slowdown in the Chinese market as almost half of its yearly exports are headed for China. Other ASEAN economies also highly vulnerable to Chinese crisis include the Philippines, Thailand and Singapore.
Moreover, with Chinese economic slowdown riddling the region, macroeconomic weaknesses faced by the ASEAN nations could develop from worries to major risks, including bubbles in the real estate markets in the bigger cities, high levels of household debt in Malaysia and Thailand as well as large non-performing loan ratios in the Vietnamese banking system.
Nevertheless, a reorientation of the Chinese economy towards more services and consumption-led growth could also free potential for the ASEAN economies. As companies currently manufacturing in China are looking for cheaper destinations once the country moves further up the value chain, the ASEAN economies are ideally positioned to benefit. However, the greater diversification of their trading partners will be of essential importance for the ASEAN countries to reduce their vulnerability to both Western and Chinese economic crisis. The upcoming Trans-Pacific Partnership allows for such diversification. The renewal of region-to-region free trade agreements with the EU is a further pressing issues. ASEAN knows that and has beefed up its efforts, signing a range of free trade agreements over the recent years. For international investors, both the growing number of free trade agreements as well as ASEAN´s regained interest in trading partners other than China offer significant opportunities.