Asia monitors China’s economy amid fears of widespread negative impacts economy

In light of the increasing economic challenges facing China, Asian countries are closely following Beijing’s efforts to maintain the stability of their economy, according to what the Wall Street Journal said in a recent report.

The newspaper says that if China fails to achieve the desired stability, the negative effects are expected to spread across the region, affecting economies that have barely begun to recover from the effects of the pandemic and successive global crises.

China…an engine for regional economic growth

Over the past three decades, China has been the main engine of growth in Asia, playing a pivotal role in stimulating trade and investment.

But the economic challenges China faces today, including slowing growth, increasing debt and declining consumer confidence, have alarmed its neighbors who question whether China can return to the strong growth path it has become accustomed to.

Analysts at Nomura Bank pointed out in a note that what the world needs is Chinese stimulus that targets structural problems in the economy rather than “temporary stimulus” that may seek to achieve short-term growth goals.

They added that what really matters is addressing the fundamental issues facing the Chinese economy, including declining domestic demand and increasing youth unemployment.

Structural challenges

One of the most prominent challenges facing China – according to the Wall Street Journal – is the continuing decline in domestic demand, as consumers hesitate to spend amid economic uncertainty.

Harry Murphy Cruz, an economist at Moody’s Analytics, indicated in an interview with the newspaper that policies focused on enhancing consumer confidence and creating new jobs could play a decisive role in ensuring that China continues to purchase products from its Asian neighbors, which contributes to reducing economic risks to the country. The region as a whole.

Cruz added that stable demand in China could help support Asian countries’ exports, especially in areas such as technology and raw materials.

But he warned that any sharp slowdown in the Chinese economy could directly affect regional trade, especially with countries such as South Korea and Japan, whose economies depend heavily on exports to China.

Trade and tourism

The expected impacts are not limited to trade only, but also extend to tourism, according to the Wall Street Journal.

Cruz pointed out that China is a major source of tourism for most Asian and Pacific countries, such as Thailand, Singapore and Malaysia.

If Chinese families lose confidence in the economic situation, they will reduce their travel and tourism spending, which will negatively impact the economies of countries that rely heavily on Chinese tourism spending.

On the other hand, analysts warn that the slowdown in domestic demand within China may push Chinese companies to increase their exports at low prices, which may create fierce competition in regional markets, especially in the manufacturing sector.

Erica Tai of Maybank Investment Group reported that manufacturers in Southeast Asian countries such as Thailand are complaining about the influx of cheap Chinese imports, which is putting significant competitive pressure on local companies.

Stimulus expectations and financial markets

Meanwhile, financial markets in Asia are closely following the fiscal stimulus that China may provide, especially those related to the real estate sector.

According to Nomura Bank’s expectations, any financial stimulus targeting infrastructure projects or the rehabilitation of faltering housing projects in China may have a broad positive impact on the exports of Asian countries and contribute to raising the prices of basic commodities.

But on the other hand, fluctuations in financial markets remain a source of great concern for countries in the region. Asian financial markets have witnessed sharp fluctuations in recent weeks linked to Chinese policy announcements, which demonstrates the extent to which Asian markets are linked to economic developments in China.

Cruz explained that any decline in Chinese financial markets could quickly spread to regional markets, which could negatively affect regions such as Hong Kong, Taiwan and Singapore, whose economies are closely linked to trade with China.

Regional response

Despite the economic slowdown in China, some Asian countries were able to maintain strong growth levels thanks to strong domestic demand and increased foreign direct investment, according to the newspaper.

Analysts at the May Bank Group noted that countries such as Indonesia, Malaysia and the Philippines recorded outstanding economic growth thanks to increased domestic demand and a technological boom in their exports.

Despite these successes, the region still needs strong and sustained Chinese stimulation to overcome current challenges.

Cruz stressed the importance of China pursuing policies that support consumer confidence and address the major structural problems facing the Chinese economy.