CHINA’S economic linkages with economies in the South East Asian region are likely to increase further despite the economic powerhouse’s structural adjustment, the Asean+3 Macroeconomic Research Organization (Amro) said.
In a recent working paper on China’s economic linkages with the Asean, Amro said China’s structural adjustment will eventually benefit economies in the Asean region. However, it flagged risks for countries—including the Philippines —that rely on China’s market for their electronics exports.
“Along with rising incomes and an expanding middle class in China, there has been increasing demand for consumer goods in both quantity and quality.
Although improvement in technology and manufacturing capacity in China will help meet demand for some higher-end products, there will always be a gap between domestic demand and supply for many products,” the Amro report read.
“The gap will provide opportunities for Asean countries to export more to China, including tropical fresh fruits and vegetables, high-quality food products and specialty products from the region,” it added.
China is one of the biggest country destinations of Philippine exports as of May. The US is still the largest country export market of the Philippines during the month.
“In addition, there is still substantial room to attract more tourists due to China’s rapidly expanding middle class. All these indicate strong growing demand from China, with Asean firms who can meet the evolving change in China’s consumer goods benefiting the most,” Amro said.
In 2016 Chinese tourists accounted for 11 percent of the total arrivals in the Philippines.
But risks arise for the Philippines
Risks, however, arise for certain countries, particularly for those dependent on China for their electronics export market.
“In 2015 China announced an ambitious plan to upgrade its manufacturing—called Made in China 2025, with the aim to transform China from a manufacturing giant into an advanced manufacturing power by pursuing breakthroughs in developing new information technology such as high-end electronic parts and machinery,” Amro said.
“If China succeeds in implementing this plan, it will reduce its reliance on high-end electronic parts and machinery from Japan, [South] Korea and the Asean region,” it added.
The Philippines is the third-largest exporter of electronic and industrial parts to China in 2016, next to Vietnam and Malaysia. In 2008 the Philippines was the largest exporter of electronic and industrial parts to China, data from Amro showed.
On the other hand, Amro said China may increasingly rely on imports of lower-end manufacturing products, such as garments and footwear, as some firms have gradually moved from China to some developing Asean countries due to higher labor costs and stricter environmental- protection standards in China.
Amro’s recommendation is that policy adjustments should be considered to take advantage of the opportunities, as well as cope with challenges stemming from China’s increasing linkages and spillover effects.
“…weaker demand by China for electronic components and commodities will weigh on these sectors in Asean. Adjusting these industries should be a policy priority,” AMRO said.
“Nonetheless, overall trade and investment between China and Asean will increase further, and joint measures to facilitate local currencies for trade and settlement could be helpful,” it added.