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Slowing growth in China is raising warnings of contagion in Asia, where slumping consumer demand and slowing manufacturing have hurt neighboring countries that enjoy close ties with the world’s second-largest economy.
South Korea’s manufacturing slump has extended into its longest in nearly half a century, while other big East Asian exporters have also been hit by slow demand.
South Korea, Asia’s fourth-largest economy, is seen as a pioneer of the region’s technology supply chain, which has helped underpin global growth for decades.
The country’s exports fell in July at the sharpest pace in more than three years, led by smaller shipments of computer chips to China, while purchasing managers’ indices on Friday showed that factory activity fell in August for the 14th consecutive month, the longest drop in August. Survey date.
Readings in Japan – where activity fell for the fifth month in a row – and Taiwan also indicated contraction in factory output and noted weaker foreign demand.
Concerns have grown in recent weeks after China’s economy slipped into recession, raising concerns about weak consumption, a weak currency, a fragile real estate sector, and unsustainable levels of local government debt.
In a sign that slowing global demand is weighing more heavily on the Chinese economy, China’s manufacturing sector contracted for the fifth consecutive month in August, official data showed Thursday.
“To borrow the old adage, when China sneezes, Asia catches a cold,” said Vincent Tsui, an analyst at Gavecal Research Group in Beijing. “With Chinese policymakers resisting calls to boost weak growth through stimulus, the repercussions will be felt across the region.”
Cui warned that the trade and finance hubs of Hong Kong and Singapore would be most vulnerable to China’s weakness, given that Chinese demand accounts for 13 percent and 9 percent of GDP, respectively.
South Korea’s Finance Ministry set up a special task force to monitor China’s economic situation, and the country declared a new national holiday in an effort to boost consumption.
“Korea is unlikely to see a recovery anytime soon, unless the Chinese economy transforms quickly,” said Park Chung-hoon, head of research at Standard Chartered Bank in Seoul, also noting challenges from US-China tensions and Chinese import substitution.
Australia’s economy has proven resilient during a period of trade tension with China, which has applied tariffs on a number of commodities ranging from coal to barley to lobsters, many of which will be loosened in 2023.
However, the country now appears vulnerable to the economic malaise of its largest trading partner, with the Australian dollar dropping to its lowest level against the US dollar in 10 months as growth prospects in China recede.
The country’s largest companies, including miner BHP, also began reporting potential concerns about their outlook if China fails to spur growth.
Vietnam, a major exporter of clothing, textiles, footwear and wood materials as well as electronics, reported that its exports in the second quarter fell 14 percent from a year earlier, indicating a slowdown in industrial production this year.
Data this month showed that Malaysia’s growth rate hit its slowest level in nearly two years, as it also faced a slowdown led by its main trading partner.
The Thai economy also grew at a much slower-than-expected pace in the second quarter, weighed down by domestic political instability and lower levels of tourism from China.
And while Asia faces immediate pressures, Gavekal analysts warn that more pain will come for other regions as well.
As the Chinese economy weakens, foreign suppliers who have increased their supply of raw materials and machinery are facing hard times. They said that the collapse of the real estate market in China will not be reversed quickly, and conditions may worsen before they improve.
Additional reporting by Leo Lewis in Tokyo, Mercedes Ruehl in Singapore, Nick Fields in Sydney and William Langley in Hong Kong
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