China slowdown not to affect India, says Credit Suisse

The expected slowdown in China's economy in 2005 will not have much of an impact on India, Taiwan and Thailand, according to global investment bank Credit Suisse First Boston (CSFB).

However, the slowdown was also unlikely to have a catastrophic affect on Asia's growth since the robust US projected GDP growth of 4 per cent in 2005 would serve a cushion against a slowdown in demand from China, CSFB said in a report on emerging markets.

India was expected to grow 6.9 per cent in 2005 because of lower oil prices and a relative insulation from China's industrial sector, it said.

According to CSFB, oil prices have been forecast to drop 13 per cent year-on-year in 2005, and remain at $27 per barrel in 2006.

This will help India, Korea, Phillipines and Thailand gain about 1-2 percentage points in GDP growth. In addition, iron ore, copper, and aluminium prices are also predicted to decline significantly next year.

The report said the growth in China's economy would slow down from 9.1 per cent year-on-year in 2003 to 8.8 per cent in 2004 and 6.9 per cent in 2005. Overall, fixed investment has been forecast to decline from 26.7 per cent year-on-year to 25 per cent in 2004 and 8 per cent in 2005.

The Chinese government has been trying to control the overheating of the economy by disciplining hyper-investment in sectors like steel, petrochemicals, automobiles, aluminium, cement, textile and container ports.

The lower import demand from China will mainly affect six product groups -- metals and minerals, petrochemicals, transport equipment, building materials, petroleum and gas, and industrial machinery, tools and equipment.

Incidentally, for India, Malaysia and Thailand, investment goods exports to China as a share of total exports is low at 3, 2.3 and 3 per cent, respectively.

In sharp contrast, Taiwan has the highest exposure in Asia of 27.8 per cent, while Hong Kong and South Korea have an exposure of 10 and 6.4 per cent, respectively.

With the slowing of fixed investment growth in China, the prices of key commodities, materials and investment goods such as alumina, copper, iron ore, cement, steel, machinery and equipment and energy are likely to decline as the country is one of the world's biggest consumer.

The lower prices would lead to higher consumption and investment spending across the whole of Asia assuming global prices of electronics do not fall.