For the First Time in 30 Years, China Is Growing Slower Than the Rest of Asia.
Vietnam benefits in particular from the country's new attractiveness to multinationals due to Xi Jinping's inflexible zero-COVID policy.
Just some weeks before the start of the 20th National Congress of the Chinese Communist Party, Xi Jinping is facing a brutal economic cooling in China. In their new study unveiled Wednesday, September 21, 2022, on the economic outlook in the region, economists from the Asian Development Bank (ADB) estimate that the growth of the second largest economy in the world will finally reach only 3.3% in 2022 and will not rise above 4.8% in 2023.
“If we exclude China from our statistics, the rest of emerging Asia should grow by at least 5.3% this year and next,” writes Albert Park, chief economist of the bank, before pointing to a strong symbolic transition. “For the first time in more than three decades, the rest of Asia will grow faster than China,” he said.
At the beginning of 2022, before Beijing ordered the closure of its large industrial areas for weeks in the name of Xi Jinping’s zero-COVID strategy, the ADB experts did not consider this scenario. They still saw China's GDP growing by nearly 5% in 2022 and 2023.
But the rigidity of the Communist government in the face of the epidemic has since destabilized production and depressed Chinese consumers. “Several obstacles are preventing China's growth from recovering quickly,” the bank summarizes. Household demand remains fragile. “Their savings, especially those of migrant workers and microenterprises, have suffered from income losses,” the analysts point out.
The real estate market also remains fragile and local governments do not have sufficient resources to, once again, support activity by financing major infrastructure projects. This deterioration in domestic demand comes at a time when Chinese exports will be penalized by the economic slowdown in the West and the rapid rise in commodity prices.
Solid activity in Vietnam and Indonesia
In the rest of emerging Asia, the shock is less severe. Governments everywhere have adopted more flexible “Living with the Covid” strategies, and have, for example, stopped imposing heavy quarantines on their populations. Tourists have also returned to Bali, Bangkok, and Luang Prabang.
The Asian Development Bank has thus revised upwards its growth prospects for Southeast Asia. The GDP of this area will grow by 5.1% this year and at least 5% in 2023.
In the region, Vietnam, which benefits from the arrival of many multinationals cooled by their difficulties in China, will see its GDP grow by 6.5% this year and 6.7% next year. In the Philippines, growth will approach 6.5% in 2022. It will reach 6% in Malaysia and 5.4% in Indonesia.
In addition to these good performances, the ADB notes, however, that several countries are still not benefiting from a healthy recovery, often because of endemic difficulties. In Sri Lanka, where the economic crisis has been coupled with a serious political crisis, the economy is likely to contract by 8.8% in 2022 and by a further 3.3% in 2023, according to the bank, which is warning the entire region of the possible deterioration of the international situation.
The experts mention a persistence of inflation which would force the capitals to tighten monetary policy, an escalation of the conflict in Ukraine, or the emergence of a new variant of COVID. “Several risks that could push growth down are on the horizon,” concludes Albert Park.
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