Chinese slowdown could set back other Asian economies, ADB warns

17 Mar 16

Bold action will be needed from policymakers across developing Asia to counteract China’s slowdown, which could knock a third of a percentage point off growth in the rest of the region for the next two years, the Asian Development Bank has warned.

The ADB cautioned that, while unlikely, a worst-case scenario where China’s growth drops steeply could translate into a 1.8% decline elsewhere in developing Asia.

The bank also said today that analysis had shown sluggish growth and diminishing prospects around the world are threatening east Asian bond markets, with yields of local currency bonds set on a downward trajectory throughout the start of 2016.

Shang-Jin Wei, the ADB’s chief economist, said the gradual slowdown in the Chinese economy at least is expected to continue into the medium term.

“While this will have a negative knock-on effect for many other economies in the region, others can also benefit from Chinese households’ increased willingness and ability to consume and a shift to a more service-orientated economy in China.”

Countries such as Bangladesh, Cambodia, India, Myanmar and Vietnam for example could see a growth in industrial activity as China withdraws from low-end segments of the manufacturing sector, such as garments.

Those able to tap the steadily rising demand for goods and services will also be in a good position going forward, the ADB said, and countries will need to pursue bold economic reforms to attract new investment in these areas.

As Asia and the Pacific regions grapple with the economic slowdown and other challenges like income inequality and climate change, the bank is urging countries should pursue deeper development partnerships which could offer new funds and ideas.

A report by the ADB’s Independent Evaluation arm, which provides feedback on the development effectiveness of the ADB’s work, found that governments, the private sector, civil society and financial institutions need better coordination and more effective financing.

Vinod Thomas, director general of Independent Evaluation at the ADB, said the Paris climate change agreement, the 17 Sustainable Development Goals, and establishment of two new multilateral development banks mean there is more room for all to play a crucial role.

“Knowledge and financial collaborations need to be scaled up, but equally, approaches need to be harmonised to keep costs down,” he said.

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