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China woes

The rapid expansion of the Chinese economy fuelled economic growth throughout Asia, driving commodity exports from Indonesia, Malaysia, Vietnam and Australia, as well capital goods exports from the Philippines, Korea and Thailand.

Over the next few weeks we will be focusing our attention here on the BankerBay blog on investment trends and new business opportunities in the major Asian economies. We’ll be examining the BankerBay deal database in order glean insight into which sectors and which Asian markets look to be most promising for new investment opportunities.

But the BankerBay deal database alone doesn’t tell the complete story about the changes that are currently roiling and transforming the economies throughout Asia. If you want to understand new investment opportunities in Vietnam and the Philippines today, it’s best to start by taking a look at what’s happening in China, which for better or worse has emerged as the major bell weather and trendsetter for economic conditions throughout Asia.

No matter how much Donald Trump may like to think otherwise, over the past twenty years China has clearly established itself as the powerhouse of international demand, accounting for an astounding total of nearly 43% of the world’s entire imports in 2014 – increasing from just 15% since the turn of the millennium. The rapid expansion of the Chinese economy fuelled economic growth throughout Asia, driving commodity exports from Indonesia, Malaysia, Vietnam and Australia, as well capital goods exports from the Philippines, Korea and Thailand.

But for the last few years, the Chinese economy has been undergoing a major rebalancing, as growth has dramatically slowed and it shifts away from a primary reliance on lower value exports, heavy industry and an investment based economy towards expansion of its domestic consumption. And this rebalancing in China has triggered major changes for China’s key trading partners, as has been noted by a recent report from the IMF, as well as other market analysts.

China’s rebalancing involves not only lower growth but also a shift from heavy industry and construction to more advanced manufacturing and services in production, and from investment and export to consumption in final demand. This in turn is shifting opportunity and creating some significant challenges, particularly for other emerging market economies in Asia that have been export-oriented and were helping to fuel China’s boom.

According to the IMF and a number of other observers, there are two significant developments in China directly affecting the broader Asian economy:

1) China’s growth slowdown is accompanied by its economy becoming less import intensive as China’s competitiveness improves and its services sector structurally outperforms the industrial sector; and

2) China now poses greater export competition to other more advanced economies in the region as its exports move up the global value chain.

Analysts see these trends as having very divergent impact across the rest of Asia. Most at risk may be intermediate goods manufacturers in Taiwan and Korea who stand to lose export opportunities to Chinese manufacturers. In contrast, low-cost manufacturers in countries such as Vietnam may be in position to pick up export market share as the Chinese industry shifts away form low-end to higher value end products.

So the rebalancing of the Chinese economy will continue to have ripple effects across Asia in the coming years. As we take a closer look at investment opportunities throughout Asia over the next few weeks, it’s important to keep in mind that a major shift in the region is still underway, with a new set of winners and losers likely to emerge as a result of new flows in business and trade.

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