Focus China’s slowing growth to impact Malaysia’s exports

Focus China’s slowing growth to impact Malaysia’s exports
Business & Markets 2013
Written by Shalini Kumar of theedgemalaysia.com
Friday, 02 August 2013 17:18

KUALA LUMPUR (Aug 2): China has driven Asia’s growth for the past decade. But new drivers mean new risks. China has slowed and will mainly affect exports from Malaysia, according to a report issued by DBS Group Research today.

China is Malaysia’s second largest export market accounting for about 12.6% of the total export share in 2012. Key export products include electronics components, transport equipment and palm oil.

“The tourism industry will probably be the worst affected within the services sector if Chinese tourist arrivals start to decline. As it is, the overall growth rate of tourist arrivals has been moderating over the last three years,” said DBS in its report.

“Chinese tourist arrivals have been bucking the trend and clocked double digit growth for the last three years. In 2012, tourist arrivals rose by 24.7% from 2011. Moderation in tourism will surely affect Malaysia’s tourism industry,” it added.

In contrast, the impact on foreign direct investments (FDI) is expected to be limited.

“Although investment from China surged 144% in 2012 to register RM2.3 billion, it accounts for just 1.2% of the total FDIs into Malaysia. hence, a decline in FDIs from China is unlikely to affect Malaysia significantly,” it said.

However, domestic demand is expected to remain resilient, albeit facing some moderation in coming quarters.

DBS expects the ongoing Economic Transformation Programme to continue to drive investment growth while a buoyant labour market remains supportive of private investment growth.

“Juxtaposed with the belief that the tightening in China is deliberate and unlikely to spiral out of hand, the net impact on the Malaysia economy is unlikely to be threatening.”

Meanwhile, M&A Securities Research also believes that while China is an economic power, the impact of its slowing growth on Malaysia is muted, despite conventional belief.

“China’s government yesterday said that it will keep its economic growth within a “reasonable” range, not growing too fast and not growing too slow. We respect the Chinese government’s economic think tank which has managed China’s economy the past two decades while avoiding the pitfalls of either a deflation or stagflation or mere recession,” said the research house in a note yesterday.

China’s GDP growth for 2Q13 is at 7.5%, which is below its average for the last six years of 8.9%.

“However, we are of the view that it is still within the reasonable range. We believe that the reasonable range set by the Chinese government for its GDP growth is between 6-10% as a double digit GDP growth will bring stagflation while a 6% GDP growth may mean stable inflation for China,” said M&A.

“Malaysia has a small trade deficit with China as imports cancelled out exports meaning dependence on China for GDP growth is negligible compared to major nations,” it added.

Malaysia’s trade deficit with China is -RM3.1 billion, compared to the nominal value of Malaysia’s GDP at RM941 billion.

“Despite some amateurish suggestions that the Chinese economy is in trouble, we are of the view that the slightly slower GDP growth coupled with the relatively benign consumer perfomance index for China at the moment is just the right tonic that the Chinese economy needed.”

“There are signs that there is a slight weakening going forward for the Chinese economy for the next one year but it is not a catastrophe,” said M&A.

China’s Purchasing Managers’ Index improved slightly to 50.3 in July from 50.1 in June, which shows that its manufacturing sector activities are improving.