For those that read this blog, perhaps you have taken notice that I expect the Malaysian economy to take a dent this year. This is based on expectations that the US economy might experience an economy slowdown later in this year. With a slowdown in the US, demand for Malaysian goods in the US should go down. With worrying data on sub-prime mortgages, I do think the probability is little bit higher than otherwise. There are those that disagree with that prediction. One of the reasons cited to rebuke my prediction is the booming Chinese economy. I would like to prove how the Chinese economy, while important to the Malaysian export sector, is not as nearly as important as the US market.
Firstly, in 2006, the worth of Malaysian export to the US was approximately RM111 billion (roughly, USD32 billion). At the same time, export to the People’s Republic of China was less than half of that to the US. It stood at RM43 billion (roughly, USD12 billion). While the amount going to the Chinese market could increase — it increased by about 21% from 2005 — I do not think it is rational to expect the Chinese economy to be as important as the US market in 2007. Further, the given the size of the US economy, if a slowdown does occur, I do not think the Chinese economy will be able to cushion the entire fall in US demands for Malaysian goods. If the Chinese would to become our savior, each dollar fall in export to the US market needs to be compensated by a dollar worth of export to China or more, with all else being equal, of course.
Secondly, the argument that booming Chinese economy will prevent a slowdown in Malaysia ignores the fact that China is a major exporter to the US. The China exports USD288 billion. It has been estimated that 21% of Chinese export goes to the US in 2006; in the same year, about 19% of Malaysian export goes to the US. Needless to say, a US slowdown will affect China. Therefore, I doubt the Chinese would be our savior.
There are of course many other economies in this world and the US is just one of them. Yet, we would be digging our own grave if we underestimate the importance of the US economy to Malaysia. So, I hope that would put the booming Chinese economy argument to rest.