Thais unscathed by slowing China

China’s slowdown may not significantly upset Thailand's growth as expected as the Chinese economy seems on course to meet its 7.5% growth target this year, say economists.

Qu Hongbin, HSBC’s Greater China economist, said the Chinese economy is expected to grow between 7.4% and 7.5% this year even though it is difficult for full-year economic growth to achieve last year’s 7.7% growth ratio.

China’s exports last month fell to its lowest levels since 2008, contracting 18.1% from a year earlier.

"February’s new lending and total social financing (TSF) data softened more than expected due to the Chinese New Year holiday, last year’s high-base and relatively weak external demand, but monetary growth for the first two months of 2014 has remained largely supportive for gross domestic product growth to be in line with the 7.5% target," said Mr Qu.

"With rising disinflationary pressures, the People's Bank of China also has room to fine-tune policy to support growth."

TSF is a new concept constructed by the Chinese central bank to reflect the magnitude of liquidity support from the entire financial system to the real economy, which refers to the total amount of financing that the real economy can access via the financial sector during a given period.

A larger fiscal deficit focusing on social welfare, the environment and infrastructure construction should also support China's economic growth as well as stable domestic consumption and steady income growth.

This together with the budget and tax reforms that are expected to be imposed this year will help to boost long-term fiscal sustainability.

China is a major market for Thai exports, but the marginal Chinese economic slowdown will not have too much of an effect on the Thai economy, and it will continue to be the main driver of exports for Asia, which expects to benefit from the recovery of global markets, said Mr Qu.

Kobsak Pootrakul, an executive vice-president of Bangkok Bank, said it is too early to be alarmed about China’s economic slowdown, as its economy is undergoing a transitional phase and its imports remain sound despite last month’s contracted export figure.

Further assessment has to be made based on China’s economic data in March, he said, adding that Thai exports will grow by 5-7% this year on the back of the depreciated baht and global economic recovery.

Meanwhile, Charl Kengchon, the managing director of Kasikorn Reseach Center, said China’s 7.5% target growth is a challenge, as the country has some unresolved economic problems such as the shadow banking system, financial institutions reform and local government debt. He expects growth of 7.2% to 7.3% this year.

Thai agricultural commodities shipped to China is the main concern, as China could reduce its imports due to its economic slowdown.

However, for Chinese investment in Thailand to continue to rise, it will depend on how soon domestic political conflicts can be resolved.

Devendra Joshi, HSBC's Asia-Pacific equities strategist, said Thai equities are considered underweight as negative factors such as the political turmoil, slowing economic growth and inflated expectations have taken a toll on consumer and business confidence and contribute to a rocky stock market outlook this year.

"Multinational corporation clusters are increasingly diversifying outside Thailand due to the country’s political situation, and recent bouts of severe flooding are likely to put sustainability of the country’s earlier foreign direct investment-driven manufacturing growth into question,” said Mr Joshi.

"Mutual fund flows suggest investors have trimmed Thailand exposure in the past three months but are still modestly overweight relative to neutral benchmark weightings. If political uncertainty persists there's risk of more outflows from the equities market."

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