Impact of China reopening seen limited for Asia-Pacific banks
THE reopening of China’s economy is expected to benefit only a few banking systems in the Asia-Pacific (APAC), Moody’s Investor Service said.
“Benefits will be smaller for banks in other parts of the region because China’s economic recovery will be led by domestically oriented services and consumption, while the global economic slowdown and the effects of elevated inflation and higher interest rates in most APAC economies will loom large,” it said in a report on Tuesday.
Among the banking systems that will see only “small” benefits from China’s reopening are those of the Philippines, Bangladesh, India, Japan, South Korea, Malaysia, Pakistan, Taiwan, Vietnam, Indonesia, China, Australia, and New Zealand.
“These economies are also less reliant on exports to mainland China for overall expansion,” Moody’s said.
“A broader recovery of domestic consumption in China that can lead to greater demand for imports from other economies will be more gradual. This is because the Chinese consumers remain cautious on spending due to concerns on their income stability and the country’s weakening exports,” it added.
With spending remaining moderated, Moody’s also noted that there will likely be no significant increase in demand from China, which would not benefit commodity-producing economies such as Australia, Indonesia and New Zealand.
“This means China’s reopening will provide little upside for banks in those countries, which have already benefited from sharp rises in commodity prices,” it said.
It also highlighted the lack of significant impact from easing travel restrictions in China.
“Positive effects of the end to travel restrictions by the Chinese government will also be modest for Asia-Pacific economies and their banking systems in general because apart from Hong Kong, Macau and Thailand, the region as a whole does not rely on Chinese visitors or tourism significantly for economic growth,” it added.
However, the report noted that the reopening will benefit the banking systems of Hong Kong, Macau, Mongolia, and Thailand, given their “close economic ties to China through shared borders or tourism.”
“Multinational banks with sizable operations in Hong Kong and mainland China will also benefit,” it added.
Moody’s said that banks in Hong Kong, Macau, Mongolia and Thailand will benefit most from the normalized movement of goods and travelers.
“Hong Kong’s exports will improve as restrictions on truck movements between Hong Kong and mainland China are lifted, while tourism in Hong Kong will rebound when Chinese visitors return. Mongolia’s exports to China will recover after the latter relaxed border controls,” it said.
“Thailand and Macau will get relief from the return of Chinese tourists, who were key to tourism prior to the pandemic. This will ease pressure on the banks’ asset quality,” it added. — Luisa Maria Jacinta C. Jocson