China’s influence over Asia today is significant and growing. But it is, by no means, the only story in Asia. Perhaps due to China’s stellar rise, it is easy to overlook the substantial sway the US economy still holds over much of Asia.
Concerns over slower trend growth in China, along with the spectre of the US Federal Reserve’s ‘tapering’ of quantitative easing, has spooked global financial markets in recent months. On the positive side, though, China’s government is sticking close to its strategy of ensuring balanced and sustainable growth, and the US economy is recovering, helped by gains in the housing and labour markets.
China’s slowdown is likely to result in some moderation in Asia’s near-term growth. But any such short-term sacrifice should benefit both China and the rest of the region in the longer term. Such an outcome would be much more palatable than unabated over-investment in China, which may ultimately prove unsustainable and costly for the regional as well as the global economy.
Overemphasising the slowdown in China’s trend growth risks neglecting the mitigating effect of the US recovery. The US is still the world’s largest economy, and is almost twice the size of China in terms of nominal gross domestic output.
Given this, it is timely to assess the relative influence of both China and the US on various countries in Asia. Which Asian economies are more exposed to the US and which are more reliant on Chinese demand for growth? In a recent study, we examined these linkages through overall growth and the channels of trade, tourism and foreign direct investment. We found that Northeast Asia and Singapore are more exposed to China than to the US, while India, the Philippines and Indonesia lie at the other end of the spectrum. Note that this does not mean India is as exposed to the US as Hong Kong is to China. This is a relative ranking.
Our study shows that, in the past five years, China’s importance to Asia has grown relative to the US. Over a longer period, though, Asia is more exposed to US headline growth than to