Who’s riding on China’s bubble?

Fallout from China's massive credit bubble could spread to several of its neighbours.

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.

Recommended

I wish I knew what an emerging market was, but I’m too embarrassed to ask
Too embarrassed to ask

I wish I knew what an emerging market was, but I’m too embarrassed to ask

This week's “too embarrassed to ask” explains what emerging markets are, and why you might want to invest in them.
9 Sep 2020
Bullish investors return to emerging markets
Stockmarkets

Bullish investors return to emerging markets

The ink had barely dried on the US-China trade deal before the bulls began pouring into emerging markets.
27 Jan 2020
Beware the hidden risks when investing in emerging markets
Investment strategy

Beware the hidden risks when investing in emerging markets

Emerging markets look cheap compared with developed countries, but earnings may be less trustworthy.
23 Dec 2019
How long can the good times roll?
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019

Most Popular

Will a second wave of Covid lead to another stockmarket crash?
Stockmarkets

Will a second wave of Covid lead to another stockmarket crash?

Can we expect to see another lockdown like in March, and what will that mean for your money? John Stepek explains.
18 Sep 2020
Here’s why you really should own at least some bitcoin
Bitcoin

Here’s why you really should own at least some bitcoin

While bitcoin is having a quiet year – at least in relative terms – its potential to become the default cash system for the internet is undiminished, …
16 Sep 2020
IAG's share price is ready for take-off - here's how to play it
Trading

IAG's share price is ready for take-off - here's how to play it

The owner of British Airways has had a turbulent year, but is now worth a punt. Matthew Partridge explains the best way to play it.
8 Sep 2020