After three years of rolling Covid-19 lockdowns and trade disruptions, China posted faster-than-expected GDP growth in the first quarter of 2023, at 4.5% year-on-year, but the uneven nature of its recovery is sending mixed signals for emerging markets.
China’s growth is being powered by the services sector as industry lags.Agriculture and energy are prime areas for export-oriented emerging markets.After three years of rolling Covid-19 lockdowns and trade disruptions, China posted faster-than-expected GDP growth in the first quarter of 2023, at 4.5% year-on-year , but the uneven nature of its recovery is sending mixed signals for emerging markets.
China has powered global economic growth for decades, with emerging markets exporting raw materials to China and importing refined products at cheaper prices. However, given the country’s transition from a manufacturing-driven economy to a services-oriented one, trade between China and many emerging markets may take on a different shape in the years to come.
At the same time, developed markets that have forged new supply chain relationships with players like Vietnam and Thailand are not reversing course. China’s share of US imports of manufactured products from 14 low-cost Asian source countries fell from 53.5% in 2021 to 50.7% in 2022, even as overall imports from this cohort rose by 11%.
However, appetite for Chinese equities has since reversed, with the MSCI China Index trailing its Emerging Markets excluding China Index in terms of performance and capital inflows.Overall, export-oriented emerging markets with close trading relationships with China such as Vietnam and Malaysia − whose exposure to Chinese consumption is 4% and 3% of GDP, respectively − will benefit directly from China’s recovery.
Meanwhile, China’s largest trading partner Malaysia is proactively looking to expand their bilateral relationship. Prime Minister Anwar Ibrahim visited China in April, securing $555.3m in potential exports of durian, food and beverages, iron products and palm oil. Prime Minister Anwar also announced that China will invest $38.6bn in Malaysia, including in the automotive and petrochemical industries.
Meanwhile, the UAE reached a milestone with China in energy trade in March, sending 65,000 tonnes of liquefied natural gas paid for in Chinese yuan on the Shanghai Petroleum and Natural Gas Exchange.
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