The latest indignity for China’s flawed recovery

By Daniel Moss

China’s disappointing recovery appears to be suffering another indignity.

Neighbours whose economic fortunes were supposed to be tied to the heft of the country’s rebound from the pandemic seem to be doing pretty well without it. Far from being pushed into a slump, some bellwethers had a thoroughly respectable year.

Bullishness about China was abundant when President Xi Jinping began to dismantle COVID zero at the end of 2022.
Bullishness about China was abundant when President Xi Jinping began to dismantle COVID zero at the end of 2022.Credit: AP

Singapore, which had been dogged for part of 2023 by fear of recession, finished strongly. South Korea’s economy closed out December with solid momentum. Markets across Asia have been obsessed with when the Federal Reserve will begin to cut interest rates; the prospect of the People’s Bank of China further reducing borrowing costs is met with a yawn.

Even the slight strengthening in the yuan can be attributed as much to Fed chair Jerome Powell as Beijing’s efforts to put a floor under the expansion.

This isn’t the way things were meant to be. Bullishness about China, and its ability to propel the rest of Asia, was abundant when President Xi Jinping began to dismantle COVID zero in the closing months of 2022.

Prospects for the region were considered intimately linked to Beijing. But as China’s rebound faded, it became commonplace to proclaim that this implied bad tidings for regional economies. That they didn’t bomb suggests there is a broader shift at work.

There was no shortage of people telling me Asia was China and China was Asia. It might be time to question that assertion.

Perhaps Asia’s economic fate isn’t tethered so strongly to China after all. Or, if it is, there are at least some important nuances. Some thinking looks out of date. As a reporter arriving in Washington in 1998, the common refrain was that where Japan goes, so does the rest of Asia. I was sceptical: South-East Asia enjoyed six years of dizzying expansion after Japan’s property bubble burst around 1990. Before leaving the US to undertake my current assignment in Singapore, there was no shortage of people telling me Asia was China and China was Asia. It might be time to question that assertion.

Goldman Sachs Group had a wake-up call. It anchored hopes for a strong 2023 in part on a buoyant China — and the prospect that such encouraging conditions would translate into an epic year for emerging markets, generally.

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“The first lesson is that you want to treat EM and EM ex-China differently,” Kamakshya Trivedi, Goldman’s head of global currency, rates and emerging-markets strategy, said in December.

Also instructive was the resilience of developing economies in the face of factors that ought to have brought them undone: rate rises in the US, a muscular dollar, and slackening Chinese growth, he said.

Reports this week bear out that reasoning: Singapore, a small economy wedded to the ebbs and flows of global commerce, grew faster than anticipated in 2023. In the fourth quarter alone, gross domestic product gained 2.8 per cent from a year earlier. Exports, so vital for the city-state, returned to growth in November, and factory output, which had been languishing, enjoyed a spurt.

The news from Seoul was also refreshing. Exports emerged from a slump as the year drew to a close; in December, they jumped 5.5 per cent, handily beating economists’ forecasts. Adjusted for working days, shipments climbed an impressive 14.5 per cent. South Korea is a critical player in the global technology ecosystem, and the data may point to something more fundamental than a pick-up in the economy.

“The US has once again passed China as South Korea’s biggest export market,” wrote Hyosung Kwon at Bloomberg Economics. “This may signal a lasting shift in the shape of supply chains — not a blip.”

It’s not like China’s struggles are having zero impact on the rest of Asia. The latest purchasing managers’ indexes suggest factories aren’t having the best of times. Most of them saw a retreat in new orders and tepid customer appetite. But the point is, some of the most important economies in this part of the world are doing OK — or better — despite their larger neighbour’s woes.

The health of China’s economy will always be a factor in how the region fares, in much the same way that Canada and Mexico depend greatly on the US. But it’s worth remembering that China is one of a range of issues, not the sole determinant. That’s hardly an earth-shattering observation, but one that got a bit lost over the years in fawning over its ascent.

Time for a recalibration. Now that would be a big export.

Bloomberg

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