China slowdown means contrasting fortunes for Asia’s exporters

China's economic growth slowdown has triggered a stark contrast in fortunes for its trading partners across Asia, with northern neighbours suffering while economies in the southeast are broadly holding up.

The world's No. 2 economy is still dealing with a slump in consumption and output brought on by lockdowns, compounding the hit to demand from a global semiconductor slowdown.

Meanwhile, exports from most of Southeast Asia's top six economies, each of whom counts China as its No. 1 trading partner, are more resilient as their shipments are dominated by essential goods and commodities including palm oil and refined petroleum products.

With the world facing the prospect of weaker demand due to monetary policy favouring inflation-fighting over stabilising growth, a further slowdown by China would be cause for alarm.

From a broader standpoint, Asean export resilience in the face of a Chinese slowdown can be attributed to "pent-up demand that built up from earlier days in the pandemic," said Tamara Henderson, Bloomberg Economics' Asean economist. It "will fade as this source of demand becomes satiated and with China's economy now facing more strains."

Here's a closer look at the latest data on exports to China from North and Southeast Asian economies:

North Asia

Japan's exports to China, including electronics and semiconductor equipment, are under pressure, although the weakness of the yen has masked some of the decline. While Japanese exports to the regional giant climbed 12.8% in yen terms in July, data on shipments received by Beijing showed a 9.2% decline in dollar terms. The Bank of Japan said last month that exports to China were "clearly being pushed down due to the lingering effects of the lockdowns of Shanghai and other places."

South Korea saw initial exports – including for chips, displays, and refined oil – nearly stagnate in August as shipments to China fell 11.2%, official data showed. That follows July numbers in US dollar terms that displayed a 0.9% decline in Beijing's imports from Seoul. The weaker numbers are a sign that the economic pain from China-related fragility may worsen as Korean manufacturers play a sizable role in global supply chains. The August data, which shows daily shipments through the first 20 days of the month, is a barometer for growth and indicator of risks in the region. "South Korea's data was really quite terrible, especially from the drastic reduction in exports to China," said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. "All of this shows what we already knew, that China's demand for goods overseas – its imports – are very weak."

Taiwan posted a surprise drop in July export orders led by a 22.6% decline in orders from China and Hong Kong, which combined make up its second-largest source of demand after the US. Electronics and advanced chips make up around two-thirds of Taiwan's exports to China, thanks to the island's critical role in the semiconductor supply chain. While Taiwan has sought to reduce its trade reliance on China amid rising cross-strait tensions, China and Hong Kong still account for around 40% of its total exports.

Hong Kong's exports to the mainland fell 10.7% in local dollar terms in July, contributing to a plunge in its overall exports last month from a year ago. The government cited ongoing interruptions to flows across the border with China as one of the factors that pushed exports into a year-on-year contraction for the third consecutive month. Major exports from Hong Kong to the mainland include plastics, metal ores, and pharmaceutical goods. The city has cut its growth forecast twice this year, and now expects gross domestic product to potentially contract, in part due to interruptions to the flow of goods with the mainland.

Southeast Asia

Indonesia's total exports to China rose 17% in July from a year ago. Non-oil exports on the other hand advanced 40.9% during the same period, with only a 1.27% decline seen on a month-on-month basis. While the data are wobbly, it doesn't appear to show a cause for alarm in the region's largest economy, which counts palm oil and coal briquettes among its biggest exports.

Thailand counts China as its second-largest customer after the US, with the value of those exports continuing to grow even if there's been a deceleration this year. Thai exports to China, which include fruits and synthetic rubber, grew 25% last year to $37.3 billion, while growth in the first half of this year was only 0.8% to $18.5 billion. While data from the Commerce Ministry showed shipments contracted 2.7% in June after a 3.8% rise in May, fruits and rubber exports still grew while auto, auto parts and chemicals trade declined.

Singapore's total exports to China grew 3.8% in July in US dollar terms, data show. The city-state's goods sales to the world's second-biggest economy include machinery, and ethylene polymers used in plastic packaging.

Malaysia's shipments to China, which include refined petroleum products, have remained fairly strong, with double-digit year-on-year gains from December through May. After an easing to just over 4% in June from a year earlier, shipments rebounded to an almost 10% gain in July in ringgit terms, and 32.6% in US dollar terms.

Philippines' shipments to China is the only cause for worry among the Southeast Asia pack. Manila, which counts integrated circuits, office machine parts and nickel ore as its biggest exports to China, saw a 18.8% drop in June, after a double-digit contraction in May, according to latest official data. Numbers compiled by Bloomberg based on China's imports from the country showed a 12.8% drop in July. A further softening may be on the cards given electronics make up 56% of Philippines' total goods exports and are linked to a global tech cycle that has lately been in a funk, Nomura analysts wrote in a report earlier this month.

Vietnam's July shipments to China rose 6.6% from a year ago, snapping six straight months of contraction, according to Beijing's customs authority data compiled by Bloomberg. China's imports from the Southeast Asian nation include cotton yarn, phones and accessories, and computers and electrical products.

Disclaimer: This article first appeared on Bloomberg, and is published by special syndication arrangement.