Can Asean ride on China's second-quarter economic rebound?

China on Thursday surprised the world with a second-quarter economic rebound, dodging a recession and outperforming economists' expectations. This is a sign of hope not only for the world's second-largest economy, analysts say, but for Southeast Asian nations that rely heavily on China for growth.

The 3.2 per cent expansion it reported beat analysts' median forecast of 2.4 per cent, and saw China recover from a 6.8 per cent dip in the first three months of the year " the first contraction since the end of the Cultural Revolution in 1976.

The results point to China as the first major economy to show recovery from the damage caused by the Covid-19 pandemic, while the United States, Japan and European nations are still struggling to reopen their economies.

"The fact that China commands a lion's share of Asean exports would thus take on extra importance now," he said, referring to the 10-member Association of Southeast Asian Nations. "The more recent upturn as evidenced by the second-quarter GDP print has now turned shipping most of your stuff to China [into] a key asset."

Most Asean member states count China as their largest or second-largest export partner, and they are poised to inherit the advantages of its growth, Wiranto said. According to figures from Maybank, China accounted for 17.3 per cent of Singapore's total exports last year, with Indonesia (16.6 per cent), Vietnam (15.7 per cent) and Malaysia (14.2 per cent) following closely behind.

China's economy recovered from a 6.8 per cent dip in the first three months of the year, the first contraction since the end of the cultural revolution in 1976. Photo: Reuters alt=China's economy recovered from a 6.8 per cent dip in the first three months of the year, the first contraction since the end of the cultural revolution in 1976. Photo: Reuters

Analysts feel this could help cushion the pandemic's impact on Southeast Asian nations, most of which are set to be badly hit. Singapore, which released its second-quarter flash estimates earlier this week, saw growth plunge more than 40 per cent quarter-on-quarter and is expected to clock its worst economic showing since independence in 1965. Indonesia, Southeast Asia's largest economy, is projecting full-year growth to come in at 0.9 to -1.9 per cent.

China's National Bureau of Statistics on Thursday also released figures on industrial production " a gauge of manufacturing, mining and utilities " that rose by 4.8 per cent in June after a 4.4 per cent rise in May.

Nick Marro, the global trade lead of The Economist Intelligence Unit, said this "normalisation" of China's factories was particularly important for the region as it could boost industries ranging from electronics to machinery to textiles.

"[These] are all big drivers of Asean trade growth, and so ensuring the flow of raw materials or intermediate components from China is a critical part of the wider regional economic recovery," he said.

Marro added that the infrastructure support China had committed to as part of its coronavirus relief measures would also drum up some import demand for related commodities, and carry opportunities for regional energy producers.

Higher Chinese demand for energy commodities, for example, would boost business for support producers in Indonesia, and a stronger recovery in electronic linkages from the mainland would benefit other firms in Malaysia, Vietnam and the Philippines, he said.

Still, other economists struck a more cautious tone, saying China's economic rebound is only part of a more complex equation.

While China's supply side has recovered, analysts say household consumption is still under pressure. Photo: Xinhua alt=While China's supply side has recovered, analysts say household consumption is still under pressure. Photo: Xinhua

Song Seng Wun, an economist at CIMB Private Banking, said despite China's impressive second-quarter numbers, a closer look revealed that retail sales " an indicator of consumer confidence and domestic demand " remained in negative territory, contracting by 1.8 per cent.

"Asean will benefit from China's consumption or economic recovery, but then again it might not entirely be what they hoped for," he said. "Household consumption is still under some pressure in China although the supply side has recovered."

This could be due to the periodic emergence of coronavirus infections there, Song added, which had instilled some form of wariness among consumers. He also questioned whether the economic recovery could be sustained, adding that a square-root-sign recovery was more likely than a V-shaped recovery.

Lee Ju Ye, an economist at Maybank Kim Eng, also took a less optimistic view of China's second-quarter numbers. While she said they might bolster Asean's export numbers to an extent, she did not expect the region to "enjoy a full spillover effect" of China's improvement.

Lee pointed to how there were still border restrictions in place, which meant the tourism sector would barely make gains. "Tourism is a key factor for countries such as Thailand and Vietnam, where Chinese tourists account for a large share of total arrivals," she added.

Though she is hopeful the worst is over for China and that consumer confidence will correspondingly climb from here, she has reservations as to whether Chinese tourists will immediately travel once borders are opened.

It took about three years after the September 11 terrorism attacks in 2001 for tourism numbers to recover, Lee explained, saying she felt it would likely take the same duration this time.

"I wouldn't think the positive effect [of China's growth] will be very significant unless tourism starts to resume, but at least it's a bit of good news when the rest of the world is entering recession," she said.

This article originally appeared on the South China Morning Post (SCMP).

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