China Economy

China's economy is recovering. That's good news for Southeast Asia

Key Points
  • "While numerous challenges remain, the uptick would rekindle hopes that China's economy can help to pull others along," Wellian Wiranto of OCBC Bank said this week.
  • China on Thursday said its GDP grew by 3.2% for the second quarter of 2020, rebounding from the contraction driven by the coronavirus crisis in the first quarter.
  • The wider Asia-Pacific region may also be entering the recovery phase as pandemic restrictions are eased, said Steve Cochrane, chief Asia Pacific economist at Moody's Analytics.
Pedestrians wearing face masks walk along a road in the Central Business District in Beijing on July 16, 2020.
Wang Zhao | AFP | Getty Images

Southeast Asian nations will likely benefit from China's economic rebound as the country commands a "lion's share" of regional exports, one economist said this week.

China on Thursday said its gross domestic product grew by 3.2% for the second quarter of 2020, compared to the same period a year ago. The country's GDP shrank by 6.8% in the first quarter, when lockdowns were in place due to the coronavirus outbreak. Analysts were expect GDP to grow only 2.5% for the April to June quarter.

"While numerous challenges remain, the uptick would rekindle hopes that China's economy can help to pull others along," Wellian Wiranto, an economist at OCBC Bank, wrote in a note on Thursday.

"The fact that China commands a lion's share of ASEAN exports ... takes on extra importance now," he said, referring to the Association of Southeast Asian Nations.

That dependence on China was a "painful liability" in the first quarter, but the recent uptick has now turned it into a "key asset," he added.

Global trade is not going to be a strong lift for the region, it will be a modest lift.
Steve Cochrane
chief Asia Pacific economist, Moody's Analytics

Southeast Asian countries ship 18.8% of their exports to China, the note said. China's recovery will not "save the day" for these countries, but would make a slight difference given that other export destinations — such as the U.S. — are still working to control the coronavirus situation.

Signs of rebound

The wider Asia-Pacific region may also be entering the recovery phase, said Steve Cochrane, chief Asia Pacific economist at Moody's Analytics.

"We troughed back in May," he told CNBC's "Squawk Box Asia" on Monday, noting that economies in China, Australia and New Zealand are improving. That's because activity is restarting as lockdowns and restrictions are eased, removing supply-side constraints, he said.

Not everyone is so positive.

Vishnu Varathan, head of economics and strategy at Mizuho Bank, said the economic pick-up in the first half of 2020 may have been "flattered" by various factors such as "speculative" property investment and the fact that China was one of the first countries to emerge from lockdowns.

"The recovery ahead will, in all likelihood, be hampered by lingering waves of pandemic risks colliding with fresh flare up in U.S.-China tensions, and sheer uncertainty," he wrote in a note on Thursday.

Cochrane of Moody's Analytics agreed that social distancing and other risks will remain a point of friction.

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"Global trade is not going to be a strong lift for the region, it will be a modest lift," Cochrane said.

In particular, he said economies such as Taiwan and South Korea, that export high-tech equipment to China, will profit.

ANZ Bank said in a note on July 15 that demand from China for South Korean products has improved, but other major markets are "still struggling."

"South Korea's exports for computers, medication and bio-health have benefited from the pandemic, but their gains were more than offset by slumps in exports, such as petroleum products and autos, that were hit particularly badly by global lockdowns," ANZ analysts wrote.

Still, "early signs" of a rebound are emerging and the pace of decline in exports should gradually ease since global containment measures are past their peak, the analysts wrote. Exports to the U.S. and Vietnam have returned to growth, while autos are recovering. 

"Other indicators, such as South Korea's manufacturing PMI (purchasing managers' index) new export orders, and global trade indicators such as goods carrying vessel movements also suggest that the worst is behind us," ANZ said.