Malaysia, Indonesia and Thailand are likely to attract foreign investments as companies look to “deconcentrate risk away from China”, said Moody’s Analytics.
Moody’s said as global demand shifts away from China towards North America, the rest of Asia seeks new investments.
The Asia-Pacific economy is also slowing under the weight of weak global trade, the uncertainty of China’s economic recovery from the pandemic, high interest rates, and some tightening of fiscal policy, it added.
“The greatest impact upon the rest of Asia from the economic malaise in China is via trade. However, Asia will avoid a recession, but a new period of robust growth won’t likely commence until mid-2024.
“So while China will not be adding any heft to the Asia-Pacific economy this year, the region will manage to grow this year and next. Indeed, most of the economies of Southeast Asia and East Asia continue to expand. But the expansion is slowing,” the financial research firm said in a note.
Moody’s highlighted that the most significant factor holding back the Chinese economy is high debt and lack of demand within the property development industry.
It said China is stuck with an oversupply of units after policymakers discouraged investment in real estate three years ago, with construction, sales and investment in housing having plummeted with no end in sight.
“With sales volume down by over 50% from the peak, property developers sit deeply in debt and cannot raise additional funds in the bond market.
“And as much of the market had been driven by presales, developers have lost the ability to complete projects, leading to mortgage strikes by buyers.
“The industry has come nearly to a halt, limiting employment in construction and related industries, capping household wealth, reducing consumer confidence, and creating limited demand for construction materials and equipment in domestic and overseas markets,” it said.
Moody’s reckoned that as China’s housing and equity markets falter, falling household wealth creates few incentives to invest or spend.
Similarly, China’s businesses are still nervous and shy away from new investments, Moody’s noted.
It said there had been little change to the level of private investment over the past two years in China, while state-owned enterprises had raised investment by about 10% year-on-year since the start of 2022.
“The lack of any increase in private investment is concerning, because it is private investment that is the greatest job generator and the greatest contributor to productivity growth,” Moody’s said.
Moody’s said one of the key factors allowing the Asia-Pacific economies to expand is declining inflation, which had been ongoing since late last year.
The research house highlighted that one factor that would support the region would be a more rapid return of high-spending tourists from China, of which so far the return “had been incomplete”.
Among the top five of the Southeast Asian economies, none had seen tourist arrivals return to pre-pandemic levels of late 2019, it noted.
Nevertheless, some improvement is expected over the coming year, as China has just recently allowed group travel arrangements for overseas travel to all of Asia, “but it remains to be seen if the desire to travel and spend overseas returns to Chinese consumers”, it added.
