Philippines among least affected by China property crisis

MANILA, Philippines — The Philippines is among the countries expected to be less affected by the stress in China’s property market crisis, according to the Association of Southeast Asian Nations Plus 3 (ASEAN+3) Macroeconomic Research Office (AMRO).

As ASEAN+3 has limited direct exposure to the distressed property developers in China, AMRO said in an analytical note, any spillover would likely be through the indirect channel of China’s slower economic growth and its demand for exports from the region.

With China being the second largest economy and serving as a major trade partner for many of those in ASEAN+3, it said any sharp deceleration in China’s economic growth would have significant impact on the real economy of its ASEAN+3 neighbors.

“Japan, Indonesia, and the Philippines are those expected to be less affected given that any drop in exports would be partially mitigated by sustained demand from their large domestic markets,” AMRO said.

Latest data from the Philippine Statistics Authority showed China was the country’s fourth biggest export market in July, accounting for $758.22 million or 12.33 percent of the total.

Meanwhile, China was the Philippines’ biggest source of imports in July, accounting for $2.64 billion or 25.5 percent of the total.

AMRO said Hong Kong is expected to be the most affected as a result of its close ties with mainland China both in terms of some direct exposure to the property sector and trade.

It said Vietnam and South Korea are also expected to be significantly affected given their high export reliance on China, particularly in intermediate goods trade.

AMRO also said any shock to China’s financial system would have the biggest impact on Hong Kong.

“Presently, financial spillovers from China to the other financial systems in the region would account for up to seven percent of respective financial system risks (Malaysia) and would be smallest for Indonesia and the Philippines,” AMRO said.

AMRO said not much can be done to prevent spillovers in the short-term, but some measures could be taken to mitigate the risk.

It said authorities need to ensure sufficient buffers in their foreign reserves and  well-capitalized banking systems.

AMRO  said strategies should be in place to guide their economies to a soft landing, should it become needed.

“Over the medium term, the aim should be to continue diversifying exports and export markets, and correspondingly for the financial system to eschew concentration risks and risky practices when lending domestically or overseas,” AMRO said.