Asia as a whole is growing faster than China for the first time in 22 years, according to a new World Bank forecast, demonstrating the disruptive impact of Beijing's zero-Covid policy.
East Asia and the Pacific ex-China will see economic growth accelerate 5.3% in 2022, the World Bank forecasts, up from a 2.6% pace of growth last year. The 23-nation region includes Southeast Asia but not India and its South Asian peers.
China, on the other hand, is rapidly decelerating, able to eke out 2.8% growth in 2022, per the new forecast. That's down from a heady 8.1% pace in 2021, when China was the first major economy to open up from the pandemic. Last year was the strongest showing for the Chinese economy since 2011.
China's growth sank to 2.2% in 2020, when it suffered its heaviest hit from the pandemic, although China was nevertheless one of a handful of economies to end the year by growing rather than shrinking.
China had been leading Asia in terms of growth, as it has for decades. This would mark the first time since 1990 that the pace of the Chinese economy is slower than that of its neighbors.
Although Covid case counts are low in China, one positive test in a housing complex or office or on public transport is enough to send reams of "close contacts" into compulsory quarantine. There are sporadic lockdowns across the country, with officials penalized if they allow the coronavirus to proliferate in their locale. That hits production, shipments and consumption.
There's an economic recovery under way in most Asian nations. However, an unsettled global picture promises disruption as those impacts filter along the supply chain.
"As they prepare for slowing global growth, countries should address domestic policy distortions that are an impediment to longer-term development," World Bank vice president Manuela V. Ferro said in the bank's statement.
While Asian central bankers and governments responded swiftly to ward off the worst economic impacts produced by Covid-19, they now face multiple challenges including inflation, rising interest rates and in particular an extremely strong U.S. dollar.
The World Bank indicated that economic performance across Asia "could be compromised by slowing global demand, rising debt and a reliance on short-term economic fixes to cushion against food and fuel price increases."
Costs for food, fuel and finance have been rising in Asia, the World Bank notes, so global deceleration and policy distortions could contribute to those distortions in ways that could hurt the region's growth.
For now, higher commodity prices and rising export shipments have been supporting Asian growth.
World Bank joins the chorus
The World Bank joins the Organization for Economic Cooperation and Development (now with a 3.2% forecast for China in 2022), the Asian Development Bank (3.3%) and numerous private-sector economists in downgrading China's growth prospects. The Chinese Communist Party in March forecast growth of "around 5.5%," though there is scant hope of that.
Earlier this month, the investment bank Nomura estimated that 20.7% of China's 1.4 billion population were under some form of movement restriction due to Covid rules. That covered 49 cities that account for 24.5% of national output, with Chengdu in central China hit particularly hard. The escalation in lockdowns prompted Nomura to slash its China GDP forecast to 2.7% for 2022.
The private research house T.S. Lombard has one of the most pessimistic forecasts on China, slashing its 2022 growth estimate to 1.6% from 2.5% in mid-September. "The officially reported number is likely to be significantly higher," head of China research Rory Green believes, with the Chinese authorities known for "massaging" numbers they don't like.
Besides China, Covid is also causing havoc in several tiny Pacific nations, in particular the Marshall Islands, the Federated States of Micronesia and Palau.
Besides the coronavirus, China is also contending with a cratering property market. Deleveraging forced by Beijing on the sector, the largest slice of China's economy at around 30%, caused fears about the viability of numerous developers, large and small. That has prompted would-be buyers to put any property purchase on hold while existing buyers who have put down deposits on under-construction flats have begun boycotting mortgage payments in protest unless the developers follow through on construction.
Other countries in Asia face their own reckoning as they contend with the strong U.S. dollar. Laos and Mongolia are currently most at risk, the World Bank states, because they were already struggling with high debt, often borrowed in dollars. The strong U.S. dollar and rising interest rates create a double whammy of rising payment costs.
Vietnam currently has the highest pace of economic growth in Asia, at 7.2%, and offers a convenient "China + 1" location as a manufacturing base for companies looking to diversify away from an overdependence on Chinese factories. Like China, Vietnam has avoided full-year economic contraction during the pandemic.
Including the Pacific island nations, Fiji should have the strongest growth in 2022, per the World Bank estimates, coming in at a heady 12.6%, but after shrinking 17.2% in 2020 and 4.1% in 2021.
Apple (AAPL) had been making the vast majority of its products in China. It has begun making some iPhone 14s in India, however, with a production line up and running in Chennai to serve Indian demand. It is the first time Apple has assembled a new iPhone outside China, although Apple has assembled some phones there since 2017.
A J.P. Morgan analyst report indicates that Apple wants to make one-quarter of all iPhone 14s in India by 2025. It would also like to make one-quarter of all Apple products outside of China by the same year, up from only 5% now. It will be making iPads and Apple Watches in Vietnam.