Chinese growth offering regional food for thought

Global economic performance post-pandemic will, for better or worse, be affected by the success or otherwise of China. Photo: Le Toan

Ballooning exports have helped China’s GDP grow a record 18.3 per cent in the first quarter of 2021, rebounding from the 6.8 per cent contraction in the same period last year at the start of the coronavirus pandemic.

Nikkei Asia reported that the figure released earlier this month by the National Bureau of Statistics topped median estimates. China’s GDP growth for January-March followed a 6.5 per cent gain in the final quarter of 2020.

The astonishing growth figure is the highest since China began to publish quarterly data in 1992. The greater demand by trading partners in the midst of the pandemic has fuelled both Chinese industrial production and investments.

Exports jumped 49 per cent during the quarter to $710 billion, while imports rose 28 per cent to $593.6 billion.

Exports to the United States and Europe in particular also surged. China’s trade surplus with the US grew to near-record levels late last year, while Eurostat reported that China was the only country to increase its exports to the EU in 2020, helping it overtake the US for the first time to become Europe’s largest trading partner.

China projected 6 per cent GDP growth for 2021 as a whole, as part of the first year of the government’s 5-year economic plan. Policymakers envision growth from domestic consumption driven by national development of advanced technologies. But economists expect growth to fall back in the coming quarters.

“There is a possibility that we may not sustain the rapid growth because of the economic condition in other countries,” Rui Mingjie, a professor of industrial economics at Fudan University in Shanghai, told Nikkei Asia.

DHgate, a Beijing-based international e-commerce service provider, said the demand for Chinese household goods, women’s apparel, and wearable devices jumped at least threefold during the first quarter.

The company, whose biggest export markets include the US, France, and Italy, expects the demand to grow with the coronavirus pandemic under control in some countries.

“In the next three quarters, outdoor equipment, consumer electronics, health and beauty, and pet products will grow faster,” said Diane Wang, chairwoman of DHGate.

Regional knock-on effects

Southeast Asian countries’ exports are meanwhile growing on the back of China’s sharp rebound from the pandemic, latest official statistics show, brightening the region’s economic picture.

For ASEAN, China’s growth pace is a key external factor, as most countries are entrenched in Chinese supply chains. China accounted for 14.2 per cent of total ASEAN exports in 2019 just before the pandemic hit, according to the ASEAN Secretariat, topping the US at 12.9 per cent and the EU at 10.8 per cent. Now China is providing a tailwind with brisk growth and a fairly steady outlook.

For example in Singapore, the city-state’s benchmark non-oil domestic exports grew 12.1 per cent in March compared to a year earlier, according to official data released a fortnight ago.

As for China-bound non-oil exports, the figure grew 46.4 per cent, surpassing a 17.3 per cent rise in February, thanks to an increase in machinery and petrochemicals. It is welcome relief for Singapore, which suffered a record 5.4 per cent GDP contraction last year.

In Indonesia, meanwhile, total exports grew over 30 per cent on-year in March – the highest rate in nearly four years – thanks to improving conditions in key trading partners, especially China. Indonesia’s statistics authorities said that during the three months through March, China remained the largest export destination.

Malaysia has yet to announce data for March, but exports to China grew over 35 per cent in February, “underpinned by higher exports of electronic products, petroleum, and liquefied natural gas,” the government said.

Thailand’s exports to China also increased 14 per cent in February.

Vietnam has also reported its March trade figures, showing a 24 per cent on-year increase in overall exports, according to global economic data forecasters CEIC.

In Q1 as a whole, Vietnam’s total export turnover from China hit $12.5 billion, up 34.3 per cent on-year, and the import turnover from the market reached $23.8 billion, up 47.3 per cent on-year. As much as 30.8 per cent of Vietnam’s imports are from China.

Across much of Southeast Asia, exports slumped early last year due to the pandemic lockdowns, except for essential supplies such as pharmaceutical products.

Some export-oriented economies, particularly Singapore and Thailand, had already been feeling the effects of a global trade slowdown due to US-China tensions.

On the other hand, the Regional Comprehensive Economic Partnership (RCEP) has raised hopes for greater trade momentum in the region. The 15-member trade accord, signed last November, encompasses ASEAN, Australia, China, Japan, New Zealand, and South Korea.

Just over a week ago China completed its official RCEP ratification process, becoming only the second country to do so after Singapore. The members of what would be Asia’s biggest trade pact expect it to take effect in January next year.

Resilient to shocks

Ge Hongliang, deputy director with the College of ASEAN Studies at Guangxi University for Nationalities, told Global Times, “Vietnam’s recent economic growth is directly related to China’s economy. From January to November 2019, before the pandemic hit, the trade volume between China and Vietnam reached $145.54 billion, up 8 per cent on-year. It indicated deepening ties between the two countries’ industrial chains.”

Financial data group VietnamCredit last year outlined some factors regarding the relationship between Vietnam and China’s economy.

“China is the second-largest economy in the world and shares a border of over 1,200km with Vietnam. Trade relations between the two countries are a necessity, and if there is a correct strategy, it will be beneficial for the development of both countries,” expert Henry Tran at Vietnam Credit said.

“However, in this relationship, Vietnam has always suffered from a trade deficit and the situation is not improving. The reason behind this is that Vietnam’s methods have hardly changed over the years as production always depends on imported inputs.”

However, there are also prospects for Vietnam to increase attraction of Chinese investors. Writing for the Asia and the Pacific Policy Society, Heimkhemra Suy, a Monitoring and Evaluation advisor based in Cambodia noted, “Chinese investors are more likely to invest in Vietnam rather than Cambodia because of the recent free trade agreement it signed with the EU, as well as Vietnam’s economic proximity, size, and competitive labour resources and productivity.”

These links between export-import and foreign direct investment in terms of China has concerned policymakers and experts, especially in the pandemic era and alongside US-China tensions, but most agree that Vietnam’s extensive international integration over the years remains the correct path forward.

Shifting diplomatic relationships around the world may also present new opportunities for Southeast Asia as a whole, as nations elsewhere also look to back away from reliance on just one market.

Countries like Australia have also been trying to seek out solutions to diversify its economy and rely less on the Chinese market, and that could eventually bring the former closer to Vietnam in terms of economic ties, according to Melbourne-based political analyst Grant Wyeth writing for The Diplomat.

“Last year clearly demonstrated why overreliance on China is a pressing problem, with Australian barley, beef, seafood, coal, and wine all targeted with either import bans or excessive tariffs,” Wyeth explained.

“While Vietnam may lack the population of the likes of India and China, its realignment over the past several decades away from a planning economy and towards an internationally-engaged mixed economy has afforded Vietnam sustained economic growth, and considerably increased its population’s living standards,” he added.

Facilitating the emergence of Asian economies has been a smart and thus far successful strategy for Australia, and forming a closer bond with Vietnam should be considered a priority, Wyeth added.

“Two-way trade between Australia and China, of course, will never realistically be matched but there is potential for further growth of Australia’s trade with Vietnam,” he said, pointing out that although there is not yet a bilateral agreement between the two nations, both countries are signed up to the RCEP as well as the Comprehensive Progressive Trans-Pacific Partnership, and also the ASEAN Australia-New Zealand Free Trade Agreement.