US versus China – Who matters more in Asia?

• Hong Kong, Taiwan, Singapore and Korea are more affected by China, rather than US, linkages
• India, the Philippines, Indonesia, and Thailand are more exposed to the US
• We examine the linkages via overall growth, and the trade, tourism and FDI channels

US versus China – Who matters more?

The news flow since May 2013 has hit growth expectations around the region through the double whammy of softer growth in China and signals of QE tapering in the US. For H2-2013, we see China’s growth staying broadly similar to that in H1-2013, while the US’ is likely to accelerate after the softest point of the year, which is likely to have been Q2-2013 (we expect Q2 US GDP growth to be 0.9% q/q SAAR). The swing in expectations of demand from the world’s two largest economies still matter significantly to the region most open to international trade. This is true even as we see more growth coming from domestic demand. The big question we ask regarding external linkages is, which matters more for which country?

In this report, we examine how the relative importance of the US and China has evolved over time for the rest of Asia ex-Japan. We find that China is by no means the only story. For many countries, particularly for India and the Philippines, the relationship with US growth is more dominant (but note that this does not mean India’s growth is as exposed to the US as Hong Kong’s is to China). China has grown in importance relative to the US over the past few years, particularly for countries in Northeast Asia and Singapore. A reviving US might help to offset slower trend growth in China. We think China’s trend growth rate has come down to just over 7% and will not continue to deteriorate beyond this. Our 2014 US and China forecasts imply an overall impact (all else equal) of +1.1ppt for Malaysia, +0.8ppt for Taiwan and Hong Kong, +0.5ppt for Singapore, and +0.4ppt for Korea. On balance, our forecast of a moderate easing in China’s growth and a reasonable improvement in US growth is still positive for Asia.

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