Why Chinese Growth Will Lag Other Asian Economies

The Chinese economy is forecast to grow at a slower pace than other Asian economies. This is because of China solving structural issues and putting the country on a more sustainable path, according to the World Bank.

The organization predicts that annual GDP growth in the region, excluding China, will recover from 4.8% in 2014 to 5.3% over the next two years. Chinese growth will steadily decline from 7.4% to 7.1% during the same time.

“East Asia Pacific will continue to have the potential to grow at a higher rate – and faster than other developing regions – if policy makers implement an ambitious domestic reform agenda.” according to Axel van Trotsenburg, vice president of World Bank East Asia and Pacific.

The report also states that Papua New Guinea will have the Asia Pacific region’s most dynamic economy in 2015. This is because of an increase in natural gas production and exportation, driving the country’s annual growth rate as high as 20% next year.

The World Bank believes that optimism from investors will help growth. But the outlook will vary between different countries. Low export prices and structural weaknesses mean that some nations will lag behind their peers.

Cambodia, Vietnam, and Malaysia are nations which are likely to increase their exports. This reflects their increasingly deep integration into regional and international markets.

However, Indonesia’s export performance will be lackluster. The nation’s export prices continue to stagnate because of poor infrastructure hurting its competitiveness and attempts to diversify its economy.

The frontier market of Papua New Guinea will outperform all other countries in Asia, says the World Bank.

Asian Economies Outside China Will Fare Best

Consumption continues to be a main driver of growth in Southeast Asia, but investment is falling. This raises questions about the region’s long term outlook.

Weak inward investment is mostly caused by issues which depend on each country. These include political uncertainty in Thailand and concerns of a property bubble in Vietnam and the Philippines.

Myanmar looks to benefit from two years of governmental reforms and re-engagement with the global community. The World Bank predicts the country will grow by 8.5% between 2015 and 2017. This is despite some steps backward before their presidential elections.

The report also notes that many East Asian economies are vulnerable to higher interest rates and changes led by the U.S. Federal Reserve. It clarifies that while government finances are not at risk from higher rates, households in more developed countries such as Thailand and Malaysia could potentially suffer.

Many countries in Asia, including China, are looking to spur domestic growth and shift away from their export-based economies. The World Bank suggests for them to improve education.

They mentioned schools and universities are not producing the types of skills demanded in the labor market. Countries must adopt new approaches to promote higher education and lifelong learning.

We recommend investing in countries outside China. Countries in Southeast Asia will see more sustainable long-term growth.