According to a Maybank Kim Eng analysis released on Friday, the five major economies in the ASEAN region—excluding Singapore—could expand more quickly than China's next year as a result of structural and cyclical factors as well as Beijing's pursuit of a "zero-Covid-19" strategy.
"China may be entering into a structurally slower-growth phase, with the shift towards more inclusive and socialist policies," Maybank economists said.
The ASEAN-5 countries of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are expected to increase by 5.6 percent in 2019.
They also noted that this was much higher than their 5 percent forecast for China, whose GDP has consistently outperformed ASEAN over the past 30 years.
With 7% of the region's projected growth, the Philippines, Vietnam, and Indonesia are expected to take the lead. According to Maybank, this will be driven primarily by cyclical factors like ASEAN countries' willingness to reopen their various economies despite rising immunization rates.
With about 73 percent of its population fully immunized, China has one of the highest immunization rates in the world, but it is beginning to decline. It is also pursuing a "zero Covid-19" strategy, enforcing instant lockdowns and limits on movement in areas where minor outbreaks take place.
According to Maybank, this will certainly make supply chain disruptions and logistical bottlenecks worse combined with the country's current energy problems.
Maybank said: "We expect Thailand to reach 70 percent full vaccination rate by January 2022, Indonesia by April 2022, the Philippines by May 2022, and Vietnam by June 2022. Malaysia's vaccination rate will likely exceed 70 percent by the end of October."
Due to expensive Covid-19 budgetary measures, ASEAN countries are facing a major public debt overhang, but business and consumer debt have not expanded as significantly during the epidemic and over the past ten years, according to Maybank.
Tax reforms are being implemented in Indonesia and the Philippines, and incentives for foreign investment are being strengthened.
In contrast, China's total debt, at 287 percent of GDP, and corporate debt, at 159 percent, are far greater than those of Asean and will restrain future growth, according to Maybank.
Further dampening of investment and growth is predicted as a result of the Chinese government's crackdown on real estate lending, shadow banks, and the fintech sector. This is done to reduce systemic and leverage concerns.
Since the sector contributes for around 28 percent of GDP and 27 percent of all loans, the property limits are likely to have an impact on the rest of the economy.
There is still lots of opportunity for growth in ASEAN's tech adoption and penetration rates, according to Maybank, but China's growth has begun to plateau despite being quick over the past ten years.
As a result, ASEAN is becoming more appealing for fintech investments as China's industry develops. In ASEAN, there is a sharp increase in technology investment, and more domestic unicorns are coming public, especially in Indonesia.
Instead, the government's crackdown on the IT industry has caused a "bloodbath" in Chinese tech stocks this year, according to Maybank, which also predicted that the government's five-year plan will result in more controls for businesses in the future.
Due to its aging population and weak labor force development, China also faces increased growth pressures, although ASEAN is better off in the long run due to its more favorable demographics.
The rearrangement of manufacturing supply chains towards ASEAN, a structural trend that will strengthen with the economic liberalization, will be supported by favorable demographics, according to Maybank.
Due to the fact that most of ASEAN's industrial wages are far lower than those in China, ASEAN has also grown more alluring in terms of wage competition.
"The US-China tech and trade war will continue under the Biden administration. MNCs (multinational corporations) will continue to diversify and reduce the risks and shocks from any escalation in trade tensions," it said.
However, as China makes up a fifth of ASEAN's overall commerce, a significant downturn there could be detrimental to ASEAN. This is greater than the US (11.5%) and Japan (7.7%%) combined.
Even while outward investment to ASEAN was already plateauing before the pandemic, falling to a 3-year low of US$13 billion in 2019, China is one of the biggest sources of foreign direct investment for ASEAN.
As a result, Maybank predicted that ASEAN will turn to travelers from other nations to fill the gap left by Chinese tourists. This is because of its pursuit of a "zero-Covid-19" policy, which could postpone the opening of borders for outbound tourism to restart.
Source: BusinessTimes.com.sg, Nikkei Asia