MAS' MD sounds optimistic note on China

Mr Menon gave a lecture, organised by the Official Monetary and Financial Institutions Forum, in London on May 5.
Mr Menon gave a lecture, organised by the Official Monetary and Financial Institutions Forum, in London on May 5.

The managing director of the Monetary Authority of Singapore, Mr Ravi Menon, has sounded a note of optimism on China, saying that fears over the country's economic slowdown and its impact on the region are "overblown".

Mr Menon was giving a lecture organised by the Official Monetary and Financial Institutions Forum, a dialogue and research organisation, in London on May 5.

China's vast size and importance to many world markets makes it a major concern for many other countries around the world, he noted.

In 2014, 43 countries ranked China as their top export market, higher than the comparative figure for the United States, at 31.

"The recent slowdown in the Chinese economy and volatility in its financial markets have, therefore, sparked fears that the Chinese economy was headed for a 'hard landing' and that it would drag down much of Asia with it," he said.

"But much like the dreams of a vast insatiable market two centuries ago, today's fears are understandable but overblown."

China's slowdown and volatility are occurring as it is in the midst of "an unparalleled economic transition", Mr Menon noted.

"It is grappling with the challenge of managing a growth slowdown, addressing vulnerabilities in its financial system and implementing structural reforms - all at the same time."

China's resulting weakening growth has been blamed for dragging down exports across Asia, but Mr Menon said it is misleading to attribute Asia's weak export performance solely to China's slowdown.

After all, while emerging Asia's nominal exports to China fell by 4 per cent last year from the year before, the decline in the region's exports to advanced economies and other emerging markets has been even sharper, he said.

He added that China's rebalancing could bring more positives to Asia in the medium term, spurring trade, boosting investment and expanding regional production networks, he added.

First, he said: "Demand for final consumption goods will increase as China's middle-class grows, stimulating imports of consumption goods even as trade in intermediate goods slows."

Second, direct investment will increasingly be an area where China's impact on the region is felt. Since late last year, China has emerged as a net exporter of direct investment.

Third, a new regional production network could emerge in Asia, Mr Menon said.

Indonesia and the economies in Indochina, with favourable population dynamics, are well-placed to absorb the labour-intensive and lower value-added jobs that China is shedding as wage costs rise.

Meanwhile, the Chinese push to finance infrastructure construction in less developed Asian countries, as part of its One Belt One Road plan, will greatly enhance these countries' attractiveness as nodes in the Chinese manufacturing network, he said.

A version of this article appeared in the print edition of The Straits Times on May 12, 2016, with the headline 'MAS' MD sounds optimistic note on China'. Print Edition | Subscribe