China – Exerting its influence over Asia

Paris, 16/02/17

 

By 

Aidan Yao, 

Senior Economist (China) - AXA IM R&IS

and 

Shirley Shen,

Economist - Non China Emerging Asia - AXA IM R&IS

Assessing China’s economic and financial spill-overs in the region

 

Key points

  • The economic and financial influence of China on the rest of Asia has grown in recent years, thanks to its rising economic power and growing trade and investment ties with other countries.
  • Significant, albeit uneven, trade exposure means that Asia is vulnerable to China’s economic slowdown. However, not every country stands to lose from China’s economic rebalancing, given their different sector exposures.
  • Financial market correlations between China and Asia have risen markedly, as the former liberalises the capital account. Our analysis revealed a significant and growing influence of China on other Asian markets since the liberalisation of the RMB.
  • Aggregating economic and financial  market linkages, we estimate that a 1 percentage point (pp) decline in China’s GDP could lower Asia’s growth by up to 0.4pp. The impact on developed-market economies is smaller but statistically significant for the US and EU.
  • Results of this study mean that some of Trump’s economic policies – on trade and FX (e.g. labelling China a currency manipulator) – could have a far-reaching impact on the rest of Asia, even if they are designed to affect only the Sino-US relations.