Who Will Benefit from China’s Stimulus-.docVIP

Who Will Benefit from China?s Stimulus? Asian exporters are losing another important growth driver, China, as a result of the slowdown in investment in China. Talk of another possible round of fiscal stimulus from Beijing is bringing hope. A number of recent official comments have indicated that government policy will be fine-tuned to support growth. However, we argue that the new fiscal package is likely to be smaller in scale than the previous CNY 4trn stimulus of 2009, and more aligned with China?s 12th Five Year Plan. To gauge the impact of potential new stimulus on Asian economies, we look at the experience of China?s 2008-09 fiscal stimulus package. The package was announced in November 2008, and China?s investment and production activity started to respond in early 2009. Subsequently, Asia?s exports to China mainland(with the exception of India?s) grew strongly; this was especially true for Thailand, Indonesia and Taiwan. Relative to the relative sizes of their economies, Hong Kong, Taiwan and Thailand received the biggest lift from China mainland?s fiscal boost. On the FX front, isolating the impact of China?s 2009 stimulus from other influences – especially quantitative easing by the US Federal Reserve – is difficult. However, the announcement of the CNY 4trn package itself did not stop the drop in the ADXY (the measure of Asia ex-Japan currencies against the US dollar). The FX markets responded to the hard evidence of China?s faster economic growth rather than the announcement of the stimulus package. We expect the Indonesian rupiah (IDR), Korean won (KRW) and Singapore dollar (SGD) to outperform on another round of fiscal stimulus. This partly reflects the direct impact of increased demand from China, but also the fact that these currencies would benefit more from a general improvement in sentiment and risk appetite. Is a turnaround in China?s demand on the cards? Asia?s exports to China have slowed along with China?s growth 2012 ha