Asia to feel the pain of China slowdown, hard landing unlikely: S and P

Asia to feel the pain of China slowdown, hard landing unlikely: S and P

Martin Abbugao, Agence France-Presse, Jeju, S.Korea

Asia will feel the pain of a slowdown in the giant Chinese economy, international credit ratings agency Standard and Poor's said Friday, but stressed that a hard-landing that would wreak havoc on the region is unlikely.

The pace of a state-engineered slowdown to cool China's overheating economy is expected to cast a shadow over the Asian Development Bank (ADB) annual meeting that starts here on Saturday although it is not on the official agenda, bank sources said.

China's strong appetite for raw materials and other goods have increasingly made the country a major export market for many of its Asian neighbours.

However, the analysts from Standard and Poor's told a news briefing on the sidelines of the ADB conference that a drastic slowdown in the Chinese economy was unlikely although it cannot be totally ruled out.

"There will be pain with any slowdown in China," said Standard and Poor's credit analyst Chew Ping.

"The pain will be spread in certain sectors particularly companies, even banks (within China) but we do not think that this will translate into a system-wide meltdown or crash.

"Also, the pain will be shared with external partners as well. China's imports from the Asian countries have increased tremendously so any slowdown will be felt not just across Asia but also globally."

The World Bank, in a study released this year, said China and its special administrative region of Hong Kong accounted for 25 percent of South Korea's total exports, about 35 percent of Taiwan's and 12-13 percent of Malaysia's and Thailand's.

Standard and Poor's said the likely scenario in China is for a "soft-landing", which means the economic expansion will be slowed to between seven and eight percent this year from over nine percent in 2003.

Any growth below that range would be considered drastic.

Chew and his colleague at Standard and Poor's, John Bailey, said there is overheating in the Chinese economy but only in certain sectors such as cement, steel, autos, property, aluminum and telecommunications equipment.

They pointed out that the overheating was not system-wide as there is also under-investment in other sectors such as power, water and transportation.

Chew said that unlike in the 1990s, Chinese authorities had taken action earlier to cool the economy and their measures now are gradual and targeted at the affected sectors.

"In addition, the economy is in the hands of officials who are more aware of the challenges facing them and of the consequences of their actions than were their predecessors.

"The challenges currently facing China, while still formidable, are more manageable than those of the 1990s," he said.

Bailey added: "It is inevitable that growth will lose some momentum but no collapse is expected."

Takahira Ogawa, another Standard and Poor's analyst, said the economic recovery in the United States and Japan, and signs of a rebound in Europe would make up for some of Asia's loses in case of a slowdown in China.

Chinese authorities have taken steps to curb bank lending as part of a string of measures to calm soaring investment by local governments, which is contributing to the overheating and over- investment in some sectors.

China's cabinet, the State Council, ordered a stop in approvals for new steel, aluminum and cement projects this year and called for a review of ongoing investment projects, including commercial offices, golf courses and shopping malls.

It also wants an end to the process of converting farmland for use in infrastructure projects.