China's reopening will spur a rebound in its economic growth, which in turn will affect economies and businesses across Asia-Pacific through direct trade, inflation, commodity prices, investment flows and supply chains, said Moody’s recently.
Economies with large direct trade and investment exposure to China, and companies in sectors related to consumer goods, tourism and construction, will benefit the most, the firm noted
"Pent-up demand from China will provide a modest boost to growth across APAC. Trade in the region in consumer electronics, engineering, travel, gaming and some commodities will increase following China’s reopening," said Lillian Li, a Moody's Vice President and Senior Credit Officer.
That said, the positive effects of China’s reopening could be outweighed if global growth weakens more than expected because of financial market tightening, banking sector turmoil and heightened geopolitical tensions, the credit rating agency warned.
Inflation in China will have a limited impact on the region amid global monetary policy tightening, according to Moody’s.
Signs of disinflation and slowing growth in the global economy will likely more than offset price inflation from China's rebound, consequently reducing the likelihood or magnitude of monetary tightening by APAC central banks, the firm predicted.
Improving investment confidence will attract inflows, with China and emerging Asia to benefit, Moody’s said.
China's investment in Asian countries covered by the Belt and Road Initiative, which declined by half from 2018 levels during the pandemic, will likely increase, the firm estimated.
But financial tightening, geopolitical tensions and uncertainty arising from the recent bank turmoil in the US (Aaa stable) and the EU (Aaa stable) will complicate investment flows, Moody’s noted.
Supply chain shifts and production diversification will continue amid heightened geopolitical tensions between China and the US, with ASEAN and India increasingly supplying the US market substitutes for Chinese products, the firm pointed out.
Meanwhile, concerns will continue to rise over the efficiency and productivity of new production bases in Southeast Asia, said Moody’s, adding that supply chain shifts will be subject to security, cost and efficiency considerations.
