Who’s riding on China’s bubble?

China’s government is trying to deflate a massive credit bubble and to steer away from a growth model based on debt-fuelled investment and exports, to one based more on domestic consumption and services.

Whether China’s landing ends up being hard or soft, it will have a major impact on the rest of the region. So which countries in the vicinity will suffer most from a Chinese slowdown?

As Morgan Stanley points out, China now accounts for 55% of the output of Asia (excluding Japan) and a quarter of the region’s trade – 25% of the region’s exports now head to China, up from 14% in 2001.

On this front, Singapore, Taiwan and Korea, in that order, are the most exposed. Singapore’s exports to China and Hong Kong amount to almost a quarter of its overall foreign sales, and 33% of GDP.

Taiwan’s figures are 40% and 25% respectively; and Korea’s 30% and 15%. Korean and Taiwanese exports to China, combined, fell by 2.3% year-on-year in May.

There is also “a tight linkage” between the region’s export and investment growth, notes Morgan Stanley, so subdued exports will undermine domestic momentum.

Hong Kong, Singapore and Taiwan, major regional financial centres, have rapidly increased their loans to Chinese firms in recent years. China’s subdued commodity demand is a headwind for the region’s three net commodity exporters, Indonesia, Malaysia, and Australia.

The country with the least China exposure is India, as it has a large domestic market and isn’t a net seller of raw materials. India’s exports to China and Hong Kong comprise just 1.5% of its national income.

• Stay up to date with MoneyWeek: Follow us on TwitterFacebook and Google+

MoneyWeek magazine

Latest issue:

Magazine cover
Party's over for Putin

The only portfolio safe from Russia's rout

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Hedge fund manager Hugh Hendry: 'It felt like the sun rose only to humiliate me'

In a series of three short videos, Merryn Somerset-Webb talks to Hugh Hendry, manager of the Eclectica hedge fund, about everything from China to the US, Europe, and Japan.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.


19 December 1932: BBC World Service begins

The first royal Christmas message by George V gave the fledgling World Service an early boost six days after it was founded in 1932.