China's slowing growth a one-two punch for trading partners: S&P

SINGAPORE - China's ongoing economic slowdown will hit its commodity suppliers hardest – and the impact is not limited to Asia-Pacific but beyond, particularly in Latin America, says ratings agency Standard & Poor’s in a report released today.

“This comes on top of the hit to intermediate goods suppliers over the past decade as China began to "onshore" production of these inputs,” says S&P.

“The distinction between these two groups of trading partners is critical to understanding how China's evolving story plays out in global markets. A recent IMF publication said China's imports of manufactured goods have become less responsive to its GDP growth after the turn of the century. On the other hand, China's imports of commodities are more responsive.

"This suggests that not all China trading partners will be affected in the same way as Chinese growth slows," said Paul Gruenwald, S&P's Asia-Pacific chief economist. "What was a blessing before is now a curse."

As China slows to a new steady-state rate of growth, economies that export mainly commodities to China are worse off as their exports will fall faster, he says. On the other hand, exporters of manufactured goods to China, who have seen their exports fall sharply for a given rate of growth over the past decade or so, will be spared, at least in relative terms.

"With China's slowing growth, Australia is a clear 'loser', reflecting its commodity-intensive export basket and strong trade links with the country,"
Gruenwald says. S&P’s study identifies Chile as the hardest hit country in Latin America.

"China's onshoring of production hit Hong Kong, Singapore, South Korea, Taiwan, and other parts of the Asian supply chain hardest," Gruenwald says. “In our view, this process is largely complete.

“These structural changes to trade imply a need to rethink the likely foreign contribution to growth in a range of economies, as well as the rate of potential GDP growth itself.” www.standardandpoors.com (ATI).