How could a sharp slowdown in China affect growth prospects for the rest of Asia?

The threat of a sharper than expected economic slowdown in China could damage Asia’s growth prospects, according to analysts.

While optimism is rising over continuing trade talks between the United States and China, they have yet to reach a deal and remain far apart on key structural issues. If the conflict were to intensify, China’s challenge would be to cushion its economy from a fall.

China’s latest data on foreign trade, gross domestic product growth and the purchasing managers’ index suggest the economy will continue to slow, at least for the next month or so, meaning a hard landing is not anticipated for now.

A sudden shock to the economy would add to challenges from increasing protectionist tensions in the Asia-Pacific, a region which is highly dependent on global demand. As companies and manufacturers shift supply chains to lower cost countries, that may make the markets most reliant on Chinese demand more sensitive to a slowing Chinese economy.

“We will have a slowdown in Asia-Pacific growth in the first quarter because of trade uncertainties between the US and China. Most companies do not invest when they worry about the future and they delay investment,” said Mahamoud Islam, Asia-Pacific senior economist at Euler Hermes. “The fact that they are delaying investment is impacting demand for goods and global trade.”

China accounts for about a third of global growth and about two-thirds of Asia-Pacific growth, Islam said.

If US-China tensions were to rise, small open Asian economies reliant on trade would be more vulnerable. This would include Hong Kong, South Korea, Singapore and Taiwan, especially in the electronics and semiconductor sectors, Islam said.

Larger economies such as India were more resilient and less reliant on trade, which provided stronger domestic bases for growth, he said.