China might focus more on domestic demand and reduce its reliance on exports to drive its economy in the post-COVID-19 era, which would affect Taiwan and South Korea the most, Australia and New Zealand Banking Group (ANZ) said on Friday.
China, which absorbs more than 40 percent of Taiwanese exports, might follow a domestic-focused growth path following the COVID-19 pandemic due to lingering trade tensions with the US and mounting deglobalization risks, ANZ said.
China’s GDP last quarter contracted 6.8 percent, with all components — including net exports — tumbling, because of drastic lockdowns and other measures to contain the virus, it said.
Its economic growth has slowed from a peak of 10 percent in 2012 to 6.2 percent last year, ANZ said.
The contribution of consumption and investments has lost traction over the past decade, while a reduced reliance on exports to drive growth also grew conspicuous, it said.
Although exports surprisingly gained 3.5 percent year-on-year last month on the back of electronics sales, uncertainty is rising amid renewed tariff threats from the US, ANZ said.
More than half of China’s imports — mostly high-tech goods — come from Taiwan, South Korea, the Philippines and Malaysia, it said.
These economies form the pillars of the electronics supply chain across Asia and play a pivotal role in China’s goal toward technology-driven growth, it said.
A structural policy change would have profound implications for major trade partners and the effects would be evident in the next two to three years, ANZ said.
The economies with close trade links to China are the most vulnerable: Taiwan and South Korea, it said.
Their exports are highly reliant on China, reflecting their deeply integrated parts in regional supply chains, especially in the electronics sector, ANZ said.
China last month accounted for 44.4 percent of Taiwanese exports, while markets elsewhere took a hit from the pandemic, according to Ministry of Finance data.
Supply chains in Asia are tightly interconnected, making individual economies interdependent on one another, and they revolve around China, a major trading partner for almost all of them, it said.
In the short term, these economies would continue to play disproportionately large roles in China’s growth aspirations, ANZ said.
In addition, they are well-placed to reap positive spillover effects from China’s foray into new sectors, such as technology and 5G, it said.
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