## _wp16170

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---

### Introduction and context
- China’s growth is slowing to more sustainable levels and the economy is rebalancing, with consumption becoming the main growth driver and investment slowing.
- China’s slowdown and rebalancing are likely to generate spillovers to other countries through direct and indirect channels.
- ASEAN-5 economies covered: Indonesia, Malaysia, the Philippines, Thailand, and Singapore — close geographic proximity to China, on average quite open to trade, involved in production chains centered on China, fairly open capital markets, and large exporters of commodities (raw or processed).

### Channels of transmission and exposures
- Three primary channels considered:
  - Trade (including value-added linkages and participation in production chains).
  - Commodity prices (fuel, metals, agricultural products).
  - Financial markets (direct exposures and amplification via global financial volatility).
- Key exposure metrics (2011 TiVA and 2014–2015 data):
  - Exports to China: between 10 and 14 percent of total merchandise exports in 2014 for the ASEAN-5.
  - Exports to China as a ratio to GDP (2014): Indonesia 2 percent; Singapore 17 percent.
  - Value-added linked to China’s domestic demand (2011 TiVA):
    - Malaysia: 8 percent of GDP.
    - Singapore: 6 percent of GDP.
    - Thailand: 5 percent of GDP.
    - Philippines: 4 percent of GDP.
    - Indonesia: 3 percent of GDP.
  - China accounts for 50 percent of global demand for metals.
  - China’s service imports: 22 percent of merchandise imports (4 percent of GDP) in 2015; more than half of China’s service payments were foreign travel.
- Financial exposures:
  - Stocks of FDI and portfolio investment in China < 1 percent of GDP for Indonesia, the Philippines, and Thailand (2014); China's FDI stock > 1 percent of GDP only in Malaysia (2014).
  - Singapore has large bilateral linkages via portfolio and FDI.
  - VIX spikes in August 2015 and January 2016 triggered global financial volatility and capital outflows in ASEAN-5.

### First-round trade-impact (value-added) findings
- With China’s domestic value added embedded in final domestic demand accounting for 80 percent of China’s GDP:
  - A 1¼ percent decline in China’s domestic demand induces a 1 percent fall in China’s GDP.
  - Equivalent impacts on ASEAN-5 value added (based on 2011 TiVA) from a 1¼ percent decline in China’s domestic demand:
    - Indonesia: 0.04 percent.
    - Malaysia: 0.1 percent.
  - Rebalancing scenario (reallocating 1 percent of GDP from investment to consumption; lowering investment and increasing consumption by 2 percentage points) yields impacts:
    - Essentially zero in Indonesia and Thailand.
    - -0.02 percent in the Philippines and Singapore.
  - Illustrative combined transition scenario (2 percent fall in China’s GDP plus reallocation of spending from investment to consumption by 10 percent of GDP) would lower:
    - Indonesia’s GDP by 0.1 percent.
    - Thailand’s GDP by 0.1 percent.
    - Malaysia’s GDP by 0.3 percent.
    - The Philippines’ GDP by 0.3 percent.
    - Singapore’s GDP by 0.4 percent.
- Caveat: these are first-round effects; multiplier, commodity-price, and financial-channel amplifications, and policy responses, can alter final outcomes.

### Empirical GVAR results (1981Q1–2013Q1 estimation augmented with FSI and oil prices)
- A 1 percent permanent fall in China’s GDP (one-off fall in growth by 1 percentage point) produces after one year:
  - Malaysia: 0.35 percent GDP fall.
  - Singapore: 0.35 percent GDP fall.
  - Indonesia: 0.3 percent GDP fall.
  - Thailand: 0.2 percent GDP fall.
  - Philippines: impact not statistically significant.
- Global growth (excluding China) falls by 0.23 percentage points in the short run.
- Oil prices fall by around 3 percent in the long run.
- A one standard deviation increase in the financial stress index (FSI) over the first year produces:
  - Output falls in the ASEAN-5 between 0.18 and 0.51 percent below pre-shock levels (statistically significant for all ASEAN-5).
  - Oil prices fall by about 6.5 percent in the first quarter.

### FSGM model-based scenarios (shocks calibrated to generate a 1 percentage point decline in China’s growth in the first year)

Scenario 1 — Private Demand Shock (lower investment due to financial stress)
- First-year GDP impacts (Figure 16, in percent):
  - World excluding China 1/: -0.10
  - Emerging Asia 1/: -0.12
  - China: -1.00
  - Thailand: -0.38
  - Singapore: -0.32
  - Philippines: -0.26
  - Malaysia: -0.26
  - Indonesia: -0.15
- Commodity price responses in the first year:
  - Real oil prices: -1.7 percent
  - Real metal prices: -2 percent
  - Real food prices: -0.05 percent (recovering quickly afterwards)
- Transmission notes:
  - Philippines' impact amplified through major trading partners despite low direct trade exposure to China.
  - Example: United Kingdom and United States growth falls by 0.05 percentage points in the first year, with GDP levels increasing above the baseline from the second year due to lower commodity prices.

Scenario 2 — Tradable Supply Shock (permanent slowdown in China’s tradable goods sector TFP growth)
- China’s real imports fall by 2 percent (versus 4 percent in Scenario 1).
- First-year GDP impacts (Figure 17, in percent):
  - World excluding China 1/: -0.04
  - Emerging Asia 1/: -0.05
  - China: -1.00
  - Thailand: -0.32
  - Singapore: -0.26
  - Philippines: -0.01
  - Malaysia: -0.07
  - Indonesia: -0.11
- Commodity price responses:
  - Real oil prices: -1 percent in the first year, -0.5 percent in the second year, stabilizing at 2 percent below the baseline in the long-run.
  - Real metal prices: -1.8 percent in the first year, -0.5 percent in the second year, stabilizing at 2.5 percent below the baseline in the long-run.
- Country-specific note:
  - Indonesia suffers the largest impact among ASEAN-5 in this scenario due to persistent fall in oil prices.

Scenario 3 — Policy Shock (rebalancing via public spending composition)
- Design: increase in public general transfers fully funded by lower public investment in the FSGM (reflecting hukou reform, urbanization, pension and health insurance expansion while ensuring fiscal sustainability).
- China macro outcomes:
  - China’s imports fall by 6 percent in the first year and are 2 percent below the baseline in the long-run.
  - China’s current account balance rises and its currency appreciates.
  - China’s consumption increases by 10 percent above the baseline in the long-run.
  - China’s investment rises only by 0.8 percent above the baseline in the long-run.
- First-year GDP impacts (Figure 18, in percent):
  - World excluding China 1/: -0.13
  - Emerging Asia 1/: -0.19
  - China: -1.00
  - Thailand: -0.46
  - Singapore: -0.45
  - Philippines: -0.36
  - Malaysia: -0.51
  - Indonesia: -0.20
- Commodity price responses:
  - Real oil prices and real metal prices: -2 percent in the first year, returning to the baseline by the third year.
  - Real food prices: -0.1 percent in the first year and remain there afterwards.
- Cross-country effects:
  - Malaysia, Singapore, and Thailand experience the largest first-year growth falls (0.5 percentage points) among ASEAN-5.
  - United States and Euro Area: GDP falls of less than 0.1 percentage point in the first year but rise above the baseline after the second year due to lower commodity prices.

Scenario comparisons — key quantitative summaries
- Malaysia: growth falls between 0.4 and 0.5 percentage points in response to a 1 percentage point fall in China’s growth (consistent across scenarios and methods).
- Singapore and Thailand: growth falls between 0.2 and 0.5 percentage points.
- Indonesia: growth falls between 0.15 and 0.3 percentage points, largely via indirect effects through lower commodity prices.
- Philippines: mixed results — empirical approach finds an insignificant impact; model-based approach finds impacts ranging between 0.2 and 0.4 percentage points.
- Financial channel risk: GVAR indicates spikes in the VIX could have large effects across ASEAN-5, especially in economies with more open capital accounts (Malaysia, Singapore, and Thailand), amplifying spillovers.

### Recent developments, amplification mechanisms, and opportunities
- Recent export and commodity patterns:
  - ASEAN-5 goods exports slowed since 2011 and declined significantly in 2015; except for Thailand, declines reached double digits.
  - Early-2015 fall in export values due to commodity-intensive groups; since mid-2015, decline broadened to manufacturing groups.
  - Singapore and Thailand: lower export volumes accounted for half of the fall in export values in 2015.
  - Indonesia: lower export prices accounted for all the decline in export values during the first three quarters of 2015; volumes contributed afterwards.
  - Malaysia: lower export prices accounted for all the fall in export values since late-2014; export volumes rose in 2015 while export prices in U.S. dollars fell broadly in line with the exchange rate.
- Financial market events and amplification:
  - VIX spike in August 2015 triggered capital outflows, currency depreciation, stock market declines, and increases in CDS spreads across ASEAN-5.
  - Malaysia experienced the largest exchange rate pressure; Indonesia saw pressures in August that eased after October as capital inflows resumed.
  - Currency depreciation can stress firms with significant foreign currency debt and may lead to self-sustained capital outflows if depreciation expectations become entrenched.
  - Tightened domestic financial conditions, poor trade performance, and low commodity prices can reduce investment and financial intermediation, creating second-round effects that further depress commodity prices and exports.
- Opportunities:
  - Evidence of goods trade rebalancing: ASEAN-5 expanding exports to China into new goods and, in several cases, gaining market share in those goods (except Singapore).
  - Services and tourism: increased Chinese foreign travel supports travel receipts; Thailand stands out for the size of the tourism impact relative to GDP.
  - Policy implication: ASEAN-5 could capture new export opportunities by targeting non-traditional consumption goods demanded by China and marketing tourist attractions to the Chinese market.

### Policy-relevant implications and recommendations
- Monitor financial market volatility (VIX) and capital flow dynamics given their potential to amplify shocks.
- Advance structural and export diversification policies to capture China's shifting import demand toward consumption goods and services (tourism).
- Preserve fiscal and macro-financial buffers to manage second-round effects via domestic financial conditions.
- Recognize relative vulnerabilities:
  - Closer trade linkages to China (Malaysia, Singapore, Thailand) and net commodity exporters (Indonesia, Malaysia) face larger spillovers.
  - Indirect channels (commodity prices, global financial volatility) can substantially amplify direct trade effects.

*Source: Content derived from the provided IMF working paper excerpt.*

### References .............................................................................................................

### _wp16170 - References

### Introduction and context
- China’s growth is slowing to more sustainable levels and the economy is rebalancing, with consumption becoming the main growth driver and investment slowing.
- China’s slowdown and rebalancing are likely to generate spillovers to other countries through various direct and indirect channels.
- The ASEAN-5 economies—Indonesia, Malaysia, the Philippines, Thailand, and Singapore—are in close geographic proximity to China, are on average quite open to trade, and are involved in production chains for which China is the processing hub or final destination.
- These countries have fairly open capital markets and export large amounts of commodities, either raw or processed (such as refined petroleum in Singapore and petrochemicals in Thailand).

### Evidence on spillovers and magnitudes
- Duval and others (2014): The average impact of a 1 percent fall in China’s GDP is 0.3 percent for a median Asian economy and 0.15 percent for a median non-Asian economy.
- Ahuja and Malhar (2012): A 1 percent decline in China’s fixed investment reduces:
  - Indonesia’s GDP by 0.1 percent
  - Malaysia’s GDP by 0.6 percent
  - the Philippines’ GDP by 0.2 percent
  - Thailand’s GDP by 0.4 percent
- Hong and others (2016): Report results on combined shocks (a 1 percent fall in investment combined with a 1 percent rise in consumption in China) but the sentence in the source is incomplete and does not provide the numeric reduction.

### Channels, scenarios, and analytical scope (as reflected in figures and appendix)
- The content lists multiple figures analyzing trade, financial volatility, tourism, commodity exposures, and direct/indirect transmission mechanisms between China and trading partners, including:
  - Real GDP growth and nominal GDP composition for China.
  - Trade performance, commodity prices, and China’s import of services.
  - Global financial volatility and exchange rates; portfolio fund flows and VIX relationships.
  - ASEAN-5: composition of merchandise exports by trading partner, trade in value-added with China and among ASEAN-5, travel receipts and Chinese tourists, net commodity exports and terms of trade, direct financial exposure to China, export growth contributions by trading partners and by economic category, export volumes and prices, domestic financial conditions, tourist arrivals and travel receipts.
- Counterfactual scenarios and shock exercises highlighted in figures and appendix:
  - Direct impact of a 1.25 percent reduction in China’s domestic demand.
  - Average GDP responses in the first year following a negative GDP shock in China.
  - Average GDP responses to an increase in global financial market volatility over the first year.
  - Implications of a negative China GDP shock for the global economy.
  - China’s Private Demand Shock (Scenario 1), Tradable Supply (Scenario 2), and Government’s Budget Composition (Scenario 3) (Appendix I).

### Key analytical takeaways for ASEAN-5 exposure
- ASEAN-5 economies are particularly exposed to China through:
  - Trade links and participation in value-added production chains centered on China.
  - Commodity export channels (raw and processed commodities).
  - Financial channels given fairly open capital accounts and documented portfolio flows linked to global volatility.
  - Tourism receipts, notably from Chinese tourists, as indicated by figures on travel receipts and tourist arrivals.

*Source: _wp16170 - References (IMF PDF).*

### 0.1 percent in Malaysia and Singapore, 0.07 percent in the Philippines, and 0.05 percent in

### _wp16170 - 0.1 percent in Malaysia and Singapore, 0.07 percent in the Philippines, and 0.05 percent in Indonesia and Thailand. Thus, rebalancing from investment to consumption in China, even with unchanged total domestic demand, would lower growth in the ASEAN-5 economies.

### China’s transition: slowdown, rebalancing, and global effects
- Real GDP growth averaged 10 percent during 2000-11 and has moderated to under 7 percent since 2015 as China transitions to slower but more sustainable growth.
- Composition shifts: the share of industry in GDP is falling, while that of services is increasing; tentative signs of rebalancing from investment to consumption are present.
- Trade effects:
  - China’s trade in U.S. dollars decelerated since 2011, with both exports and, even more so, imports declining substantially in 2015.
  - The decline in nonfuel commodity prices has been attributed in large part to a slowdown in China’s demand and reassessment of future demand.
- Financial effects:
  - The VIX spiked in August 2015 when China’s stock market prices fell sharply and the renminbi fixing mechanism was adjusted, causing renminbi depreciation vis-à-vis the U.S. dollar; another flare-up occurred in January 2016.
  - These events triggered global financial volatility and led to currency depreciation in many emerging market economies.

### ASEAN-5 exposures to China — channels and magnitudes
- Three transmission channels considered: trade, commodity prices, and financial markets.
- Trade channel:
  - Exports to China ranged between 10 and 14 percent of total merchandise exports in 2014 for the ASEAN-5.
  - Exports to China as a ratio to GDP vary substantially: 2 percent for Indonesia to 17 percent for Singapore (2014).
  - Value-added linked to China’s domestic demand (2011 TiVA data):
    - Malaysia: 8 percent of GDP.
    - Singapore: 6 percent of GDP (noting large re-exports and processing trade).
    - Thailand: 5 percent of GDP.
    - Philippines: 4 percent of GDP.
    - Indonesia: 3 percent of GDP.
  - For most ASEAN-5 (except Thailand), exports are more linked to investment than to consumption in China; the Philippines and Singapore are notably more exposed to China’s investment demand.
  - Services trade:
    - China’s service imports amounted to 22 percent of merchandise imports (4 percent of GDP) in 2015.
    - More than half of China’s service payments were accounted for by foreign travel.
    - Tourism importance in ASEAN-5: large share in Malaysia, Singapore, and Thailand; Thailand has seen the largest sector growth since 2010 and received the highest number of Chinese tourists in 2013 according to Chinese data.
- Commodity-price channel:
  - China accounts for 50 percent of global demand for metals.
  - Lower growth in China has put downward pressure on prices of fuel (including oil and coal), metals, and agricultural products (including rice and rubber).
  - Net commodity exporters (Indonesia and Malaysia) experienced adverse terms-of-trade impacts; net commodity importers (Philippines, Singapore, and Thailand) experienced positive terms-of-trade impacts.
  - Oil price dynamics: oversupply contributed to sharp fall in oil prices since late-2014.
- Financial channel:
  - Direct financial linkages to China are limited for ASEAN-5 except Singapore.
  - Stocks of FDI and portfolio investment in China are less than 1 percent of GDP for Indonesia, the Philippines, and Thailand; China’s FDI stock exceeds 1 percent of GDP only in Malaysia (2014).
  - Singapore has large bilateral linkages via portfolio and FDI.
  - A more important channel is global financial conditions: spikes in the VIX in August 2015 and January 2016 coincided with capital outflows from ASEAN-5 similar in size to the mid-2013 taper tantrum episode.
  - EPFR flows cover only mutual funds and omit other institutional investors; balance of payments data suggest Indonesia and the Philippines suffered smaller capital outflows during 2015 than during the taper tantrum episode in 2013.

### Quantifying potential impacts — methods overview
- Three approaches used:
  1. First-round effects through trade using value-added exposures (OECD TiVA 2011 data).
  2. Empirical dynamic multi-country Global Vector AutoRegressive (GVAR) model (1981Q1–2013Q1 estimation, augmented with a financial stress index (FSI) and oil prices).
  3. Model-based simulations using the IMF’s Flexible System of Global Models (FSGM), calibrated so shocks generate a 1 percentage point decline in China’s growth in the first year.

### First-round trade-impact findings (value-added approach)
- With China’s domestic value added embedded in final domestic demand accounting for 80 percent of China’s GDP:
  - A 1¼ percent decline in China’s domestic demand induces a 1 percent fall in China’s GDP.
  - Equivalent impacts on ASEAN-5 value added would range from 0.04 percent in Indonesia to 0.1 percent in Malaysia (based on 2011 TiVA).
- Rebalancing scenario: reallocating 1 percent of GDP from investment to consumption (lowering investment and increasing consumption by 2 percentage points) yields impacts ranging from essentially zero in Indonesia and Thailand to -0.02 percent in the Philippines and Singapore.
- Illustrative combined transition scenario: a 2 percent fall in China’s GDP plus reallocation of spending from investment to consumption by 10 percent of GDP would lower:
  - Indonesia’s GDP by 0.1 percent.
  - Thailand’s GDP by 0.1 percent.
  - Malaysia’s GDP by 0.3 percent.
  - The Philippines’ GDP by 0.3 percent.
  - Singapore’s GDP by 0.4 percent.
- Caveats: these are first-round effects; multiplier, commodity-price, and financial-channel amplifications, as well as policy responses, can alter final outcomes.

### Empirical GVAR results
- A 1 percent permanent fall in China’s GDP (one-off fall in growth by 1 percentage point) produces:
  - After one year, GDP falls of:
    - Malaysia: 0.35 percent.
    - Singapore: 0.35 percent.
    - Indonesia: 0.3 percent.
    - Thailand: 0.2 percent.
    - Philippines: impact not statistically significant.
  - Global growth (excluding China) falls by 0.23 percentage points in the short run.
  - Oil prices fall by around 3 percent in the long run.
- A one standard deviation increase in the financial stress index (FSI) over the first year produces:
  - Output falls in the ASEAN-5 between 0.18 and 0.51 percent below pre-shock levels (statistically significant for all ASEAN-5).
  - Oil prices fall by about 6.5 percent in the first quarter (affecting commodity-exporters adversely).
- Interpretation:
  - Countries most exposed are those within regional supply chains and commodity exporters.
  - The Philippines’ lack of statistical significance reflects data noise from frequent boom-bust cycles, offsetting commodity effects, and stable remittances.

### Model-based (FSGM) analysis — scenario design and rationale
- FSGM: semi-structural, multi-region, general-equilibrium model with region-specific modules; private consumption and investment have micro-foundations; trade, labor supply, and inflation use reduced-form representations; monetary policy follows a standard reaction function; fiscal policy anchored by a debt rule.
- Shocks calibrated to generate a 1 percentage point decline in China’s growth in the first year.
- Scenario 1 described: Private demand shock from lower investment due to financial stress (corporate leverage and higher corporate risk premium), causing some rebalancing from investment to consumption as corporate profitability falls more than household income.
- FSGM captures trade and commodity-price channels in this scenario (no direct financial channel in FSGM); countries with large direct trade links and commodity exporters experience the largest spillovers, with Malaysia suffering the largest impact among ASEAN-5 in this scenario.

*Italicized source attribution:* _Content derived from the provided IMF working paper excerpt._

### 0.38 percentage points, Thailand’s by

### _wp16170 - 0.38 percentage points, Thailand’s by

### Scenario 1 — China's Private Demand Shock: impact overview
- First-year GDP impacts (Figure 16, in percent):
  - World excluding China 1/: -0.10
  - Emerging Asia 1/: -0.12
  - China: -1.00
  - Thailand: -0.38
  - Singapore: -0.32
  - Philippines: -0.26
  - Malaysia: -0.26
  - Indonesia: -0.15
- Commodity price responses in the first year:
  - Real oil prices: -1.7 percent
  - Real metal prices: -2 percent
  - Real food prices: -0.05 percent (recovering quickly afterwards)
- Transmission notes:
  - Philippines' impact amplified through major trading partners despite low direct trade exposure to China.
  - Countries with low trade exposure to China and net commodity importers may have mild negative impacts or benefit (example: United Kingdom and United States growth falls by 0.05 percentage points in the first year, with GDP levels increasing above the baseline from the second year due to lower commodity prices).
- Reference: Appendix I shows medium-term effects of this shock.

### Scenario 2 — Supply shock: lower productivity growth in the tradable goods sector
- Assumptions:
  - Permanent slowdown in China’s tradable goods sector TFP growth calibrated so that GDP growth falls by 1 percentage point in the first year.
  - Agents foresee the slowdown when making consumption and investment decisions; investment shifts partially to consumption.
- Import and spillover magnitudes:
  - China's real imports fall by 2 percent in this scenario (versus 4 percent in Scenario 1).
  - Spillovers to ASEAN-5 are smaller than in Scenario 1 due to lower import intensity of the drivers.
- First-year GDP impacts (Figure 17, in percent):
  - World excluding China 1/: -0.04
  - Emerging Asia 1/: -0.05
  - China: -1.00
  - Thailand: -0.32
  - Singapore: -0.26
  - Philippines: -0.01
  - Malaysia: -0.07
  - Indonesia: -0.11
- Commodity price responses:
  - Real oil prices: -1 percent in the first year, -0.5 percent in the second year, stabilizing at 2 percent below the baseline in the long-run.
  - Real metal prices: -1.8 percent in the first year, -0.5 percent in the second year, stabilizing at 2.5 percent below the baseline in the long-run.
- Country-specific note:
  - Indonesia suffers the largest impact among ASEAN-5 in this scenario, with growth falling by 0.11 percentage points in the first year due to persistent fall in oil prices.
- Reference: Appendix I for medium-term impacts.

### Scenario 3 — Policy shock: changes in government budget composition (rebalancing via public spending)
- Scenario design:
  - Increase in public general transfers fully funded by lower public investment in the FSGM.
  - Objective reflects hukou reform, urbanization plans, and strengthening pension and health insurance while ensuring fiscal sustainability.
- Macroeconomic outcomes in China:
  - China’s imports fall by 6 percent in the first year and are 2 percent below the baseline in the long-run.
  - China’s current account balance rises and its currency appreciates.
  - China’s consumption increases by 10 percent above the baseline in the long-run.
  - China’s investment rises only by 0.8 percent above the baseline in the long-run.
- First-year GDP impacts (Figure 18, in percent):
  - World excluding China 1/: -0.13
  - Emerging Asia 1/: -0.19
  - China: -1.00
  - Thailand: -0.46
  - Singapore: -0.45
  - Philippines: -0.36
  - Malaysia: -0.51
  - Indonesia: -0.20
- Commodity price responses:
  - Real oil prices and real metal prices: -2 percent in the first year, returning to the baseline by the third year.
  - Real food prices: -0.1 percent in the first year and remain there afterwards.
- Cross-country effects:
  - Malaysia, Singapore, and Thailand experience largest first-year growth falls (0.5 percentage points) when China’s growth declines by 1 percentage point.
  - Philippines growth fall: 0.36 percentage points (first year).
  - Indonesia growth decline: 0.2 percentage points (first year).
- External benefits:
  - Countries that do not trade much with China and are net commodity importers (example: United States and Euro Area) experience GDP falls of less than 0.1 percentage point in the first year but see GDP rise above the baseline after the second year due to lower commodity prices.
- Reference: Appendix I for medium-term impacts.

### Summary of scenario comparisons and key quantitative findings
- General result: Direct first-round trade effects from China’s slowdown and rebalancing imply modest impacts on ASEAN-5, but empirical and model-based approaches (including GVAR) find larger spillovers when accounting for indirect channels.
- Malaysia:
  - Growth falls between 0.4 and 0.5 percentage points in response to a 1 percentage point fall in China’s growth (consistent across scenarios and methods).
- Singapore and Thailand:
  - Growth falls between 0.2 and 0.5 percentage points.
- Indonesia:
  - Growth falls between 0.15 and 0.3 percentage points, largely via indirect effects through lower commodity prices.
- Philippines:
  - Mixed results: empirical approach finds an insignificant impact; model-based approach finds impacts ranging between 0.2 and 0.4 percentage points.
- Financial channel risk:
  - GVAR indicates spikes in the VIX could have large effects across ASEAN-5, especially in economies with more open capital accounts (Malaysia, Singapore, and Thailand), amplifying spillovers through trade and commodity prices if China’s slowdown coincides with global financial volatility.

### Recent developments in ASEAN-5 (empirical evidence and mechanisms)
- Exports and commodity price patterns:
  - ASEAN-5 goods exports slowed since 2011 and declined significantly in 2015; except for Thailand, declines reached double digits.
  - Except for the Philippines, exports to China account for only a small portion of the overall decline in export growth since mid-2015; declines in exports to ASEAN-5 partners played a larger role.
  - Lower commodity prices explain only part of the fall in export values:
    - Early-2015 fall in export values was fully due to commodity-intensive groups.
    - Since mid-2015, fall in export values became broader based with manufacturing groups also declining.
  - Net commodity exporters (Indonesia and Malaysia) saw larger falls in export values than the Philippines and Thailand.
  - In Singapore, the large fall in export values cannot be fully attributed to commodity prices.
- Export volume vs price contributions in 2015:
  - Singapore and Thailand: lower export volumes accounted for half of the fall in export values.
  - Indonesia: lower export prices accounted for all the decline in export values during the first three quarters of 2015; volumes contributed afterwards.
  - Malaysia: lower export prices accounted for all the fall in export values since late-2014; export volumes of all categories rose in 2015 while export prices in U.S. dollars fell broadly in line with the exchange rate.
- Financial market developments:
  - The spike in the VIX in August 2015 triggered capital outflows, currency depreciation, stock market declines, and increases in CDS spreads in ASEAN-5.
  - Malaysia experienced the largest exchange rate pressure; Indonesia saw pressures in August that eased after October as capital inflows resumed.
  - Currency depreciation can stress firms with significant foreign currency debt and may lead to self-sustained capital outflows if depreciation expectations become entrenched.
- Amplification mechanism:
  - Tightened domestic financial conditions, poor trade performance, and low commodity prices can reduce investment and financial intermediation, creating second-round effects that further depress commodity prices and exports across trading partners.

### Opportunities: goods trade rebalancing and tourism
- Goods trade rebalancing evidence:
  - Exports classified as "China a key importer" (goods where China’s share in those exports is higher than China’s share in total exports from that country in that month) show that China is changing the composition of its imports from Malaysia, the Philippines, and Thailand toward new types of goods.
  - ASEAN-5 economies are not only expanding exports to China into new goods but are gaining market share in those goods (except Singapore, where exports to China of either type are performing poorly).
  - For the Philippines and Thailand, there is an overall rebalancing of exports consistent with China’s rebalancing; not observed for Malaysia.
  - Strength in non-traditional exports to China goes beyond the overall performance of Chinese imports of those goods (except for Thailand), indicating shifts in sourcing rather than broad increases in Chinese imports.
- Services and tourism:
  - China’s transition has increased demand for consumption goods and services such as foreign travel.
  - Monthly tourism data show the trend increase in Chinese visitors to the region was sustained in 2015 and early-2016, with Thailand a standout.
  - The spike in Chinese travel payments had the most visible impact on Thailand relative to GDP.
  - Malaysia’s ringgit depreciation likely reduced the dollar value of tourism receipts.
- Policy implication for ASEAN-5:
  - ASEAN-5 economies could capture new export opportunities by targeting non-traditional consumption goods demanded by China and marketing tourist attractions effectively to the Chinese market.

### Conclusion and policy-relevant implications
- Channels of spillovers from China’s slowdown and rebalancing: trade, commodity prices, and financial markets.
- Exposure metrics:
  - Exposure to China’s domestic demand through value added trade varies from 3 percent of GDP in Indonesia to 8 percent in Malaysia.
  - Direct effects alone imply that a very large fall in China’s demand would be required to lower ASEAN-5 GDP by 1 percent; however, indirect effects can amplify impacts.
- Relative vulnerability:
  - Countries with closer trade linkages to China (Malaysia, Singapore, and Thailand) and net commodity exporters (Indonesia and Malaysia) are most vulnerable.
  - Malaysia is consistently among those with larger spillovers (growth decline between 0.4 and 0.5 percentage points for a 1 percentage point fall in China’s growth).
  - Singapore and Thailand: growth declines between 0.2 and 0.5 percentage points.
  - Indonesia and the Philippines: less affected due to more limited trade linkages.
- Risk amplification:
  - Spillovers could be substantially larger if China’s slowdown coincides with increased global financial market volatility.
- Outlook:
  - While China’s slower but more sustainable growth over the medium term should be beneficial globally, near-term negative spillovers to trading partners are likely.
  - ASEAN-5 recent data are broadly consistent with these findings, though country-specific and global factors also play significant roles.
- Policy considerations:
  - Monitor financial market volatility (VIX and capital flow dynamics) given its potential to amplify shocks.
  - Advance structural and export diversification policies to capture China's shifting import demand toward consumption goods and services (tourism).
  - Preserve fiscal and macro-financial buffers to manage second-round effects via domestic financial conditions.

*Source: IMF staff estimates and analysis in the provided content unit.*

### Appendix I: Impact of a Shock in China to Private Demand (Scenario 1), Tradable

### Appendix I: Impact of a Shock in China to Private Demand (Scenario 1), Tradable

### References

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*Source: Appendix I, pages 33–34.*

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