China Remains Central To Asian Trade, Says S&P Global Ratings

China remains central to Asian trade, with gains in some countries at the margins on a regional scale, said S&P Global Ratings.

Its global chief economist, Paul Gruenwald, said China's share of global markets is broadly unchanged since 2014.

“What has moved, and this is interesting, is the composition of China's exports. They are falling into the developed markets but rising to the emerging markets,” he said, adding that export shares of most Asian emerging markets have been flat.

Gruenwald said this in his presentation, “Global macro: The landing begins” at Asia-Pacific Financial Institutions Virtual Conference 2024.

He noted that Vietnam and Mexico have benefited from trade diversion while Hong Kong and Singapore have been the biggest winners out of it.

“The benefit to Vietnam and Mexico is immeasurable, and it will move the needle on Mexicans and Vietnamese gross domestic product (GDP),” he said.   

Gruenwald said the United States (US) economy was still reasonably strong, led by services and private investment.

“Last week, we had good payrolls but maybe, a little bit softer than recent trends. (Gross domestic product) growth is going about 2.0% in the US (for the third quarter of 2024). Certain indicators are pointing to a very consistent slowing but still steady growth.

“We certainly see a deceleration of activity but not the typical drop-off that we would see after steep rate hikes. We think the US Federal Reserve (Fed) will go for 25 basis points next week and another 25 by the end of the year,” he added.

The Fed is widely expected to lower interest rates at its next meeting on 17th  and 18th September. The American central bank will hold its final two meetings for 2024 on Nov 6th-7th November and 17th-18th December.

Regarding the upcoming US presidential election, S&P Global Ratings said recent informal polls and contacts suggested little perceived difference in the US-China relations whatever the election outcome.

Gruenwald said a Kamala Harris administration was seen as more of a continuity of Joe Biden's, with possible better relations with allies and less volatility in the economy.

Gruenwald said China's economic growth would likely miss the official 5.0% target in 2024 on the back of slowing economic momentum.

“We have weak inflation numbers. Yesterday, there were some strong trade numbers. So, these patterns of weak domestic demand and strong exports are continuing. The property downturn is still a drag.

“The (Chinese) authorities, I would say, are modest and surgical with their policy interventions to balance market discipline with supporting the property sector with things like lowering down payments and easier interest rates,” he added.

China's exports grew 8.7% in August, the fastest pace since August 2023, but imports increased by just 0.5%. 

“We will be watching for the reactions of the authorities in the coming months to see if they do more.

“Consumers' sentiment remains quite weak in China. Remember that consumers' spending is about 40% of GDP, so that is a structural issue,” Gruenwald added.