Slowing US demand and rising commodity prices are not only hurting China’s manufacturers. Southeast Asia – China’s big supplier of semi-finished products and commodities – has taken a hit as well. Cheung Tai-Hui, regional head of economic research, Southeast Asia at Standard Chartered, spoke with CHINA ECONOMIC REVIEW about China’s evolving role in the Southeast Asia-China-US trade triangle.
Q: What are the major trade trends you have seen between China and Southeast Asia over the past few years?
A: If you look at China’s trade with Southeast Asia, obviously the growth has been significant. Asian trade with China is growing at a pace of three to four times that of Asian trade with the US. That’s a reflection of two things: China’s growing demand for Asia’s output and the changing role of China and Asia’s supply chain. That has been ongoing for 5-10 years, with China becoming more of the final point of assembly for exports coming out of Asia. This includes China’s demand for commodities from the likes of Indonesia. It’s not just about importing semi-finished products.
Q: What are some of the big commodities flowing into China from Southeast Asia?
A: With Indonesia and Malaysia being the top two palm oil producers in the world, obviously that flow is significant. As a result of demand from China, both countries have had surprisingly healthy trade performance this year.
Q: What has this year told us about the decoupling debate?
A: This time last year, a lot of people were very optimistic about Asia, talking about it decoupling from the US and Europe and how China and India will be the support for the rest of Asia. Now we’re starting to see some of these perceptions severely corrected. Asia is still selling to the US and developed markets. And in China, while domestic consumption is rising, it’s not sufficient to offset a slowdown in developing economies. China is becoming the top export destination for many Asian economies, but in reality, it’s more of a middleman, rather than a final consumer for Asian exports.
Q: Do you see China’s role changing from middleman to end-user?
A: I think so. There will be a growing role for China and India as end-users of Asian exports. We’ve seen income growth in China rising at a double-digit pace for years and many consumers can now afford up-market or mass-market products.