As China's economy slows, what does this mean for the rest of emerging Asia? China accounted for 60% of Asia ex-Japan's GDP in 2012, up from 41% in 2002, says investment bank Morgan Stanley.
As China's domestic economy flourished during and after the global credit crisis, thanks to the investment boom, it became an important source of demand for Asian exporters. China and Hong Kong took 24% of the rest of Asia's exports by 2010. The figure has fallen to round 23%, but is still up significantly from 19% ten years ago.
So with Chinese demand for Asia's exports set to slow, who will be hit? Singapore is top of the list, as a fifth of its exports, worth over 30% of GDP, go to Hong Kong and China. Taiwan sends almost 40% of its exports to Hong Kong and China, but Korea (30%) may be more at risk, as its exports are used for Chinese consumption and investment, reckons Morgan Stanley. Taiwan's tend to be sent on. Malaysia and Thailand's exports comprise around 12%-14% of their GDP.
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China will also affect Asia through commodity prices: it still accounted for 50% of the growth in demand for raw materials last year. That means Australia, Malaysia and Indonesia, the three net commodity exporters in the region, are especially exposed. The safest bet if China crash lands appears to be India, a big, domestically driven economy with scant connection to the Middle Kingdom. Its exports to China and Hong Kong account for a mere 1.5% of GDP and it doesn't export raw materials.
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Asia isn't merely struggling with a Chinese downturn, however. As Capital Economics, a consultancy, notes, demand in the developed world is subdued, which is largely why exports from emerging Asia have been falling in year-on-year terms for the past year. "The biggest drag is still from Europe."
Another problem, as Andy Mukherjee points out on Breakingviews.com, is the US Federal Reserve's intention to slow down, and ultimately stop, its money-printing programme. The prospect of a stronger dollar and higher interest rates in America "will reduce the money that has been flooding Asia in search of yield". And tighter American money implies higher interest rates everywhere since debt is priced off US Treasuries. The headwinds facing Asia are gathering strength.
