Asian businesses are turning their growth focus to trade within the region, as the year-long US-China trade war disrupted traditional export relations and weighed on future investments, according to a report on corporate sentiment by HSBC.
Of the Asian business leaders surveyed, 55 per cent said they are focused on expanding their intraregional trade and business activities in the next five years, HSBC said. More than half of the companies surveyed in mainland China said they were aiming to expand in the Asia-Pacific region as they seek growth in the next three to five years, HSBC said.
“Asia is renowned for its diverse economic landscape, but what we’re seeing now is that shifts in global trade policy are reshaping the contours of that landscape,” HSBC’s regional head of commercial banking for Asia-Pacific Stuart Tait said. “Businesses continue to internalise geopolitics and protectionism, and are unified in their focus: intra-Asian expansion.”
The report interviewed more than 9,100 companies in 35 countries globally in August and September.
The trade conflict between the world’s two biggest economies has raged on for more than a year, cutting into global trade and forcing companies to consider whether to shift parts of their supply chain away from China to avoid hundreds of billions of dollars of tariffs imposed by the United States.
US President Donald Trump announced that a framework for a “substantial phase-one deal” had been reached between the two countries last month, but an agreement has yet to be signed. China is pressing the Trump administration to eliminate tariffs set to go into effect in mid-December and lift additional tariffs imposed in September before signing the deal, Politico reported on Monday, citing three people familiar with the discussions.
Chinese President Xi Jinping and Trump are expected to agree to a mini deal by year’s end, but issues about intellectual property, technology and other issues will continue to simmer, Bank of America said.
“While any deal would boost business confidence, the lagged effects of the trade war’s uncertainty shock should continue to weigh on the global economy,” Bank of America Securities economists Ethan Harris and Aditya Bhave said in a research report on Friday. “We still expect only 3.2 per cent global growth next year.”
The world’s businesses remain confident despite the slowing global economic environment and headwinds from increasing protectionism and geopolitical uncertainty created by the trade war and Britain’s plans to leave the European Union, or Brexit.
More than half of businesses surveyed globally are more optimistic than they were a year ago and 79 per cent said they expect sales to increase over the next 12 months, HSBC said.
“It’s clear that those businesses that feel in control of their own destiny, able to expand into new markets and influence growth with investment in people and technologies, are much more confident than those facing tangible external risks,” HSBC said. “Of the 12 per cent of companies that expect their businesses to shrink next year, the single largest threat they identify is an uncertain political environment, which is strongly felt in South America, Asia-Pacific and the Middle East and North Africa.”
In mainland China, 79 per cent of business leaders said they believed governments in their most important trading markets are becoming more protective of domestic businesses, according to the report. That’s higher than the 65 per cent surveyed worldwide last year and 71 per cent of the Asia-Pacific respondents.
As a result, 41 per cent of Chinese companies said they were developing local relationships and partnerships overseas, compared with 26 per cent of companies globally. Of those surveyed, 30 per cent of Chinese companies said they are planning to alter their trade routes to cope with the changing geopolitical landscape.
At the same time, businesses in Hong Kong are looking to expand internationally as months of protests and civil unrest this summer have weighed on the city’s economy, which had already been pushed into a technical recession in the third quarter by the trade war.
On Monday, Standard Chartered cut its forecast for Hong Kong’s economy, saying it now expects gross domestic product (GDP) to contract by 1.5 per cent in 2019 and by 0.3 per cent in 2020.
“Hong Kong’s very weak advance third-quarter GDP estimates confirmed a long-feared technical recession, but also shed light on the entrenched damage caused by the perfect storm – the escalating US-China trade war, China’s slowing economy and worsening local political clashes,” Kelvin Lau, senior economist for greater China at Standard Chartered, said in a research note.
Of the 350 businesses in Hong Kong surveyed by HSBC, 44 per cent said they expected to grow sales by expanding into new markets over the next three to five years. The Asia-Pacific region is a key focus for expansion, with 67 per cent of Hong Kong business leaders saying they expected to expand in the region in the next five years.
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