China cannot count on Southeast Asian exports to make up for the US slowdown

BEIJING – The latest trade data showed that China cannot easily rely on its neighbors as export markets amid a global slowdown.

Exports to the Association of Southeast Asian Nations are increasing. The 10-member bloc overtook the European Union during the pandemic to become China’s largest trading partner on a regional basis.

The data showed that exports to Southeast Asia fell 16% in May compared to a year ago, which led to a decline in total Chinese exports.

Exports to the US – China’s largest trading partner on a one-country basis – were down 18% from a year ago in US dollar terms in May. This is according to official figures reached through Wind Information.

At $42.48 billion, US exports in May were more than the $41.49 billion that China exported to Southeast Asia that month, according to customs data.

Bruce Pang, chief economist and head of research for Greater China at JLL, said Southeast Asia can’t fully make up for the loss from the US market.

ASEAN is made up of 10 countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam.

The United States is one market versus a group of 10 countries, Pang noted, adding that companies can also sell at higher profit margins in the American market.

Trade has been a major driver of China’s growth, especially during the pandemic.

Exports still account for about 18% of the economy, though that’s much less than the 30% they once had, Tao Wang, head of Asia economics and chief China economist at UBS investment bank, told reporters Monday.

Slowing global growth, especially in the US and Southeast Asia, does not bode well for the outlook for Chinese exports.

“We expect China’s exports to remain weak, as we expect the US economy to enter a recession in the second half while global destocking pressures continue to mount,” Lloyd Chan, chief economist at Oxford Economics, said in a note on Wednesday.

Companies in the US are also running through high unsold inventories in the second half of last year due to rising inflation.

US gross domestic product is expected to slow from 2.1% in 2022 to 1.6% this year, according to the International Monetary Fund.

The GDP of the Association of Southeast Asian Nations is set to slow to 4.6% this yearIt was down from last year’s pace of 5.7%, the International Monetary Fund said in April, when it cut its forecast for GDP growth for the region by 0.1 percentage point.

“The Great Recession in May confirms our suspicions that China’s monthly export data to some ASEAN economies — particularly Vietnam, Singapore, Malaysia and Thailand — may be somewhat distorted,” Nomura economists said in a note on Wednesday.

“Given the apparent downturn, exports to ASEAN have turned from a major driver into a drag, making a negative contribution of -2.4ppi to the headline growth in May.”

The United States and the Association of Southeast Asian Nations accounted for 15% of China’s total exports in May, according to CNBC’s calculations for wind information data.

The data showed that on an annual basis, the bloc has a slightly higher share, at 16% of China’s exports versus the US’s share of 14%.

“looks up, [China’s] Nomura analysts said exports are likely to contract further on a high base, exacerbating the global industrial slowdown and intensifying trade sanctions from the West.

The drop in exports comes as relations between the United States and China remain strained, and Beijing has sought to boost trade with developing nations in the Asia-Pacific.

“It’s 20 to 25 percent more expensive to sell a lot of things to the US, especially intermediate goods like machine parts,” Jack Zhang, assistant professor of political science at the University of Kansas, told CNBC in an email. .

“Promoting trade with developing countries has gained urgent importance with the closure of the US market and the collapse of the investment agreement between the European Union and China after the Ukraine war,” he said.

The 10-country bloc — along with Japan, South Korea, Australia and New Zealand — signed a free trade agreement with China in 2020. The Regional Comprehensive Economic Partnership, or RCEP, is the largest such deal in the world.

Beijing has said it also wants to join another trade bloc – the Comprehensive and Advanced Agreement of the Trans-Pacific Partnership. The US is not part of the CPTPP, while the UK announced a deal to join it in March.

Zhang said RCEP has boosted China’s trade with ASEAN, as well as shifting some labor-intensive industries to the region.

Meanwhile, he noted, “China is intensifying negotiations on the China-ASEAN Free Trade Agreement (CAFTA 3.0), and is exploring free trade agreements with Mercosur in Latin America and the Gulf Cooperation Council.”

The Mercosur trade bloc includes Argentina, Brazil, Paraguay and Uruguay.

CNBC channel Clement Tan Contribute to this report.