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When China Sneezes Does ASEAN Catch a Cold?

When China Sneezes Does ASEAN Catch a Cold? by Sohrab Rafiq
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This paper looks at the effects of a China slowdown on Emerging Market Economies (Indonesia,Malaysia, and Thailand) and Frontier Developing Economies (Cambodia, Lao P.D.R., andVietnam) in ASEAN. The main finding is that the impact of China growth shocks on ASEANhas risen since the global financial crisis. A one percent decline in China’s growth implies a0.3 percent reduction in growth for ASEAN EMEs and 0.2 for FDEs. An important componentof inflation is also shared between ASEAN and China. These magnitudes are double what theywere two decades ago due to stronger trade and financial linkages. Finally, a slowdown in China,while having real effects, also has a financial impact via slower credit growth and lower equityprices. This is in line with the existence of both portfolio balance and signaling channels, inwhich ASEAN market participants absorb news on China economic activity as an indicator overdomestic growth prospects.
International Monetary Fund; November 2016
22 pages; ISBN 9781475556780
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Title: When China Sneezes Does ASEAN Catch a Cold?
Author: Sohrab Rafiq