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Slowing growth in China has sparked warnings of contagion spreading to Asia, where falling consumer demand and a slowdown in manufacturing have hurt neighboring countries with close ties to the world’s second-largest economy.
South Korea’s manufacturing slump has extended to its longest period in nearly half a century, while other major exporters in the East Asian region have also been hit by sluggish demand.
South Korea, Asia’s fourth-largest economy, is seen as a pioneer of the region’s technology supply chain, which has helped fuel global growth for decades.
The country’s July exports fell at the steepest pace in more than three years, led by smaller shipments of computer chips to China, while purchasing managers’ indexes on Friday showed factory activity fell in August for the 14th straight month, the longest decline in August. Survey history.
Readings in Japan – where activity fell for the fifth month in a row – and Taiwan also pointed to a contraction in factory output and noted weak foreign demand.
Concerns have increased in recent weeks after China’s economy slid into recession, raising concerns about weak consumption, a weak currency, a fragile real estate sector, and unsustainable levels of local government debt.
In a sign that slowing global demand is weighing more heavily on the Chinese economy, China’s manufacturing sector contracted for the fifth straight month in August, official data showed on Thursday.
“To borrow the old adage, when China sneezes, Asia catches a cold,” said Vincent Cui, an analyst at Gavical Research Group in Beijing. “As Chinese policymakers resist calls to boost weak growth through stimulus, the repercussions will be felt across the region.”
Cui warned that the trade and finance centers of Hong Kong and Singapore would be most vulnerable to China’s weakness, given that Chinese demand represents 13% and 9% of GDP, respectively.
The South Korean Ministry of Finance has formed a special working group to monitor the economic situation in China, and the country has announced a new national holiday in an attempt to boost consumption.
“Korea is unlikely to see a recovery any time soon, unless the Chinese economy turns around quickly,” said Park Chung-hoon, head of research at Standard Chartered Bank in Seoul, also citing challenges from US-China tensions and Chinese import substitution.
The Australian economy has proven its resilience during a period of trade tension with China, which implemented tariffs on a number of goods ranging from coal to barley to lobster, many of which will be removed in 2023.
However, the country now appears vulnerable to the economic distress of its largest trading partner, with the Australian dollar falling to its lowest levels against the US dollar in 10 months as growth expectations in China decline.
The country’s largest companies, including miner BHP, have also begun reporting potential concerns about their outlook if China does not succeed in stimulating growth.
Vietnam, a major exporter of clothing, textiles, shoes, wood materials as well as electronics, reported that its exports in the second quarter fell 14 percent from a year earlier, indicating a slowdown in industrial production this year.
Malaysia’s growth rate hit its slowest level in nearly two years, data this month showed, as it also faced a slowdown led by its main trading partner.
The Thai economy also grew at a much slower pace than expected in the second quarter, affected by internal political instability and lower levels of tourism from China.
While Asia faces immediate pressure, Gavical analysts warn that more pain will come to other regions as well.
“With China’s economy weakening, foreign suppliers who have increased their supply of raw materials and machinery are facing difficult times. The collapse of China’s real estate market will not reverse quickly, and conditions may worsen before they improve,” they said.
Additional reporting by Leo Lewis in Tokyo, Mercedes Royle in Singapore, Nick Fields in Sydney and William Langley in Hong Kong
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