U.S. vs. China: Who Matters More In Asia?

The author is Standard Chartered Bank Asian macroeconomics research team

The news flow since May 2013 has hit growth expectations around the region through the double whammy of softer growth in China and signals of quantitative easing tapering in the US.

For the second half of 2013, we see China’s growth staying broadly similar to that during the first half. We predict that the U.S. is likely to accelerate after the softest point of the year, which is likely to have been the second quarter this year, which we estimate to be 0.9% quarter-over-quarter.

The swing in expectations of demand from the world’s two largest economies still matter significantly to the regions most open to international trade. This is true even as we see more growth coming from domestic demand in Asia.

But the big question we ask regarding external linkages is: Which matters more for which country?

We first try to examine how the relative importance of the U.S. and China has evolved over time for the rest of Asia ex-Japan.

We find that China is by no means the only story. For many countries, particularly for India and the Philippines, the relationship with U.S. growth is more dominant. Of course, this does not mean India’s growth is as exposed to the U.S. as Hong Kong is to China.

China has grown in importance relative to the U.S. over the past few years, particularly for countries in Northeast Asia and Singapore. A reviving US might help to offset slower trend growth in China.

We think China’s trend growth rate has come down to just over 7% and will not continue to deteriorate beyond this. Based on our 2014 U.S. and China forecasts, we think the two countries will have the following impact on other Asian economies:

A positive 1.1p% for Malaysia;
A positive 0.8% for Taiwan and Hong Kong;
A positive 0.5% for Singapore;
A positive 0.4% for Korea.

On balance, our forecast of a moderate easing in China’s growth and a reasonable improvement in U.S. growth is still positive for Asia.

(The article has been edited for clarity)

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