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Oxford Business Group

Oxford Business Group

Oxford Business Group (OBG) is a global publishing, research and consultancy firm, which publishes economic intelligence on the markets of the Middle East, Africa, Asia…

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China’s Economic Rebound Reshapes Emerging Markets

  • China’s growth is being powered by the services sector as industry lags.
  • New supply chains forged during pandemic are shaping trade.
  • Agriculture and energy are prime areas for export-oriented emerging markets.
  •  Chinese tourists are increasingly visiting countries in South-east Asia.

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 (y-o-y), but the uneven nature of its recovery is sending mixed signals for emerging markets.

The strong performance, which exceeded the expectations of many analysts, was powered by 5.4% expansion in the services sector, including a 10.6% spike in retail sales in March, as pent-up demand and high domestic savings drove market activity.

Recovery has not been even across all sectors, however, with China’s industrial sector growing by 3.9% in March, which was still up from 2.4% in January and February.

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.

New supply chains

As China’s exports to developed markets such as the EU, Japan and the US have slowed amid recent geopolitical and trade competition, the country has turned to South-east Asian markets that are part of its Belt and Road Initiative.

Shipments to ASEAN surged by 35.4% y-o-y in March, lifting overall exports by 14.8%. ASEAN’s share of China’s overseas direct investment tripled from roughly 5% in 2016 to more than 15% in 2021, signalling the growing strategic importance of these markets.

Chinese export growth will affect emerging markets in different ways, potentially outcompeting certain countries.

During China’s economic slowdown last year, Myanmar and the Philippines saw their exports rise as they gained market share in the US and other developed countries as part of businesses’ China+1 strategy to diversify production capacity.

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%.

Last year Vietnam posted a record trade surplus of $94.9bn with the US and, thanks to 15 new free trade agreements, its total exports rose by 10.6% to $372bn, helping to fuel 8% GDP growth.

Equity markets support this trend. Anticipating China’s reopening, emerging market securities attracted $65.7bn in January, the highest since January 2021, while foreign funds acquired $17.6bn in Chinese equities in the same month, the largest amount since December 2020.

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.

Export bump

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.

The opening of border crossings with Vietnam has already seen agricultural exports – as well as prices – surge in 2023. In February prices for white-fleshed dragon fruit from Vietnam were up 10% since the Lunar Holiday in January and three-fold y-o-y. Overall, fresh fruit exports from Vietnam to China are expected to reach $5.59bn in 2023, up from $5.04bn in 2022.

Exports will help redress the country’s trade deficit with China, which grew from $54bn in 2021 to a record $60.2bn in 2022, as imports from China rose by 6.6% to $117.9bn.

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.

Commodity-exporting countries are likely to benefit from China’s recovery, as GDP growth correlates with demand for hydrocarbons, metals and minerals. Chinese oil demand reached its highest monthly level since June 2020, importing 12.3m barrels per day (bpd) in March, up from 10.1m bpd in March 2022.

Malaysia has already seen the benefit of this surge: its oil exports to China were up 144% y-o-y in the first two months of 2023, reaching 0.65m bpd. Russia surpassed Saudi Arabia to become China’s top supplier during this period, as its exports rose from 1.57m bpd to 1.94m bpd. Saudi Arabia contributed 1.72m bpd, down from 1.81m bpd.

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.

Calling all tourists

Tourism-oriented countries in South-east Asia are set to see a significant increase in Chinese holiday seekers, as flight restrictions, visa constraints and entry rules targeting Chinese citizens have prompted them to forego trips to traditionally popular destinations like Australia, Canada, Europe, Japan and South Korea.


During the Lunar New Year in February, Bangkok, Singapore, Kuala Lumpur, Chiang Mai, Manila and Bali were among the top destinations for Chinese travellers, powering 640% y-o-y growth in foreign travel from China.

Thailand is the top destination in South-east Asia for Chinese tourists, with hotel bookings in Bangkok rising 33-fold during this year’s holiday period. The country already saw a rise in total foreign tourist arrivals, from 400,000 in 2021 to 11m in 2022. This is expected to more than double to 25m in 2023, with the Thai government projecting more than 5m visitors from China.

Meanwhile, Malaysia aims to attract 16m foreign visitors in 2023, of which 5m are projected to come from China, though high travel costs and a lack of flights could make these targets difficult to meet. Nevertheless, the country’s Ministry of Tourism recently signed agreements with two Chinese tour agencies to bring 450,000 visitors this year.

China was the Philippines’ second-largest tourism market in 2019, with 1.7m visitors. The country is targeting 4.8m Chinese tourists this year after welcoming 2.6m in 2022. Its Ministry of Tourism launched the Bisita, Be My Guest programme to encourage Filipinos to invite more Chinese guests, especially to take advantage of the country’s ecotourism offering.

By Oxford Business Group

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  • Mamdouh Salameh on June 05 2023 said:
    Despite deliberate and futile attempts by Western media to shift the blame for the decline in oil prices from fears of a global banking or financial crisis triggered by a shaky US banking system to so-called slowdown in China’s manufacturing sectors, China’s economy is projected to grow in 2023 by 5.2%-6.5% compared with 1.6% for the United States and 1% for the EU powered by fast expansion in the services sector and other sectors of the economy including tourism.

    As such China’s economy isn’t only the driver of the vibrant and fast-growing ASEAN economies where Chinese direct investments have tripled from roughly 5% in 2016 to more than 15% in 2021 but is also the driver of the global economy.

    Meanwhile, the UAE’s exporting 65,000 tonnes of LNG to China paid for in Chinese yuan on the Shanghai Petroleum and Natural Gas Exchange is a significant development signifying the surging petro-yuan in oil and gas trade and the inevitable acceptance very shortly by Saudi Arabia and other Gulf Cooperation Council (GCC) members of the petro-yuan as payment for China's oil and gas imports.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment

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