China may be at odds with several Southeast Asian nations over territorial claims in the South China Sea, yet when it comes to economic policy, what’s good for China is also good for its neighbors.
Here’s how China’s intensifying efforts to stimulate Asia’s No. 1 economy could help Southeast Asian exports, currencies and tourism.
1. Exporting nations
China was the largest single trading partner of the Association of Southeast Asian Nations in 2013, according to the latest data available.
Singapore, Malaysia and Vietnam stand out as the three economies with the highest direct trade exposure to China, while that of the Philippines and Indonesia is more marginal, said Glenn Maguire, a Singapore-based economist at Australia & New Zealand Banking Group Ltd.
“We continue to focus on the likelihood of China stimulus aligning with a return of the U.S. consumer, a potent combination for the open trading economies of Southeast Asia that should see exports and production inflect upwards in the second half of the year,” he said.
Resource providers Thailand, Malaysia and Indonesia would benefit from stronger Chinese demand, according to Wai Ho Leong, a Singapore-based economist at Barclays Plc.
2. Tourism boost
While commodity prices will likely remain under pressure due to increased supply in many sectors and “the only gradual rebound in housing construction in China,” improving confidence in the mainland and stronger growth should boost Chinese tourism, according to Frederic Neumann, co-head of Asian economics research in Hong Kong at HSBC Holdings Plc.
“This has become a boom sector in Asia, with mainland tourists increasingly heading to Thailand, Malaysia and elsewhere,” he said.
The People’s Bank of China decision to cut the main reserve-requirement ratio this week by the most since the global financial crisis could benefit the Singapore dollar and Malaysia’s ringgit, according to ANZ.
The Singapore dollar will benefit against its U.S. counterpart from any strength in the currencies that make up the trade-weighted basket used by the island’s central bank to set its exchange rate policy, ANZ analysts said.
“In Southeast Asia, we think that the SGD will likely benefit from improved risk sentiment in general,” ANZ strategists Khoon Goh and Irene Cheung wrote in a note this week. The ringgit could “benefit indirectly should commodity prices stay supported by the PBOC RRR cut.”
Economists are mixed on how much of a boost Southeast Asia will get.
“China’s stimulus will only provide a marginal boost to Southeast Asia,” said HSBC’s Neumann. “Undoubtedly, the pro-active stance by Chinese officials of late has helped to boost sentiment across Asia, reducing the tail risk that the mainland economy is facing. But the transmission to growth elsewhere in Asia is likely to remain marginal.”