Weak Chinese Demand Leaves Asian Economies on Shaky Ground

Surveys indicated that factories in Asia had significantly varied performance in January last year, as weak Chinese demand left regional economies on fragile footing at the start of 2024.

The global manufacturing purchasing managers’ index “Caixin/Standard & Poor’s” remained at 50.8 points in China in January, unchanged from last December, surpassing the 50-point mark that separates growth from contraction.

The reading contradicts an official Chinese survey that showed a contraction in manufacturing activity for the fourth consecutive month. The contraction pressures were also a lingering scourge in the world’s second-largest economy, indicating underlying weakness in demand.

These indicators collectively indicate that the performance of the Chinese economy remains weak, supporting market expectations for further policy support measures this year.

The image varied for Asian economies, with some better able to withstand the impact of weak demand from China compared to others.

In January, factory activity expanded in South Korea for the first time in 19 months, thanks to the improvement in demand for goods in major markets such as the United States and China.

However, activity contracted in Taiwan and Malaysia, while expanding at a slower pace in the Philippines, as indicated by survey studies.

Toro Nishihama, Chief Economist for Emerging Markets at the Dai-Ichi Research Institute, stated that for countries like South Korea, the blow resulting from the weakness in Chinese demand has been somewhat offset by the flexibility of exports to the United States. However, both external and domestic demand appear weak in China. This means that the global economy lacks a major driver for growth, which is not promising for Asian economies.

Manufacturing activity in Japan contracted for the eighth consecutive month in January, with decreases in production and new orders, warning some analysts of the impact caused by the suspension of production in “Daihatsu,” a subsidiary of the giant automaker “Toyota.”

The production plan of the “Toyota” group has a crucial impact on the Japanese economy as it affects numerous parts suppliers scattered throughout the country.

Data on Wednesday showed that Japan’s industrial output increased in December, but manufacturers surveyed by the government expect a 6.2% decrease in production in January, with a government official pointing to the impact of the suspension of production at “Daihatsu.”

The International Monetary Fund revised its growth forecasts for Asia on Wednesday, expecting an expansion of 4.5 percent this year, driven by strong US demand and support from anticipated stimulus measures in China.

However, the fund stated that the recovery will be uneven among economies, and Japan is likely to experience a growth slowdown of 0.9 percent, unlike the expected expansion of 6.5 percent in India.

The International Monetary Fund expects the Chinese economy to grow by 4.6 percent this year, slowing down from 5.2 percent in 2023.