CLMV region not immune to China slowdown: Maybank

ALTHOUGH the CLMV bloc -- comprising Cambodia, Laos, Myanmar, and Vietnam -- is the fastest-growing sub-region in Asean, it is not immune to China's slowing growth, Maybank Kim Eng analysts Chua Hak Bin, Lee Ju Ye and Linda Liu said in an April 8 report. In their overview of the four countries' export, infrastructure and tourism outlook, China was a consistent presence.

The CLMV region has grown at more than 6 per cent annually over the past five years, outpacing the 4.6 per cent average annual growth of the Asean-5 (Indonesia, Malaysia, the Philippines, Singapore, and Thailand).

In the face of trade tensions between the United States and China, CLMV exports also appear to be holding up better than those of the Asean-5. Export growth in all four CLMV countries has yet to tip into contraction, unlike the Asean-5 average. Yet CLMV exports have nonetheless begun to slow. Although US imports from CLMV countries are holding up, China's imports from CLMV countries have weakened.

The Maybank economists highlighted Vietnam as being more integrated into the global electronics value chain and therefore more vulnerable to any weakening in global electronics demand. Although Vietnam's exports to China have been dragged down, entering contraction in late 2018, Vietnam appears to be benefiting overall from possible diversion of trade. Its exports to the US surged 26 per cent in February and 42 per cent in January. This was particularly the case for goods hit by US-China tariffs, including machinery, telephones, textiles and garments, and wood and wooden products.

Cambodia, Laos and Myanmar are less reliant on electronic exports, but the latter two "rely heavily on Chinese demand and will probably not be spared in the event of a prolonged US-China trade war or severe China slowdown", said the economists.

With the US-China trade war having prompted companies to review their supply chains and diversify their manufacturing bases away from China, the CLMV economies stand to benefit. China's Belt and Road Initiative (BRI) infrastructure push will also connect these countries with China at a rapid pace.

"CLMV hence stands to benefit from both western MNCs looking for alternative supplies and production bases, as well as from Chinese companies looking to reduce production costs and circumvent US tariffs," said the economists.

China's BRI push is part of a larger picture of infrastructure development in CLMV. The four countries have relied heavily on foreign funding for this, though Vietnam and Myanmar have more diversified funding sources than Laos and Cambodia, with the latter two becoming heavily dependent on China.

This is also reflected in total foreign direct investment inflows, noted the economists. China was the largest FDI source for Laos (78 per cent of total FDI) and Cambodia (23 per cent) but accounted for a smaller share in Myanmar (14 per cent) and Vietnam (6 per cent).

Finally, tourism is emerging as a strong growth driver for the CLMV economies, with tourists from China also driving the boom.

China visitor arrivals to each of the countries have seen a compound annual growth rate of over 20 per cent from 2013 to 2018, compared to overall arrival CAGRs ranging from 2.1 per cent for Laos to 15.4 per cent for Vietnam. They account for the largest share of visitors in Cambodia (33 per cent), Myanmar (17 per cent), and Vietnam (32 per cent), and the third-largest share in Laos (19.2 per cent).