Pacific buffered from falling Chinese markets
Pacific island countries are reasonably sheltered from plunging stocks in China but concerns remain.
A Pacific region economist says Pacific island countries are reasonably buffered from the effects of the plunging Chinese stockmarket.
Emma Veve of the Asian Development Bank says the slowdown in China's economy and the devaluation of its currency even eases the way for countries heavily reliant on imported fuel and concessionary Chinese loans.
But she told Sally Round falling stockmarkets worldwide are a concern for the many trust funds in the region.
EMMA VEVE: Commodity producers like Timor and PNG will be getting lower prices for their products but for the rest of the Pacific who are big importers of fuel for example they'll start to benefit from these things so in that respect there'll be some good flow on effects though they'll take a little while to come through the markets. I think the other area where the Pacific will feel the effects is through the tourism market. Now globally Chinese tourists have been growing very very quickly and that's also the case in some of the Pacific countries. Countries like Fiji, Palau are quite strongly reliant on tourism from China and that's been certainly a source of growth in their tourist numbers. Now I think our feeling is that the market for Chinese tourists is huge so that while some of the tourists who may have come to these Pacific islands before may be put off by what for them will be higher prices with their lower exchange rate and the negative economic environment in China might make them a bit worried about it being expensive, what we'll see is it'll be a different group of Chinese tourists coming through. I think that the Pacific still offers some unique attractions that certainly some of the Chinese tourism market will always be interested in paying to see so I don't think the shock through tourists will be that great either. So it's really the commodities that are a concern for just a few countries and as the global impacts start to pan out what we will need to keep a watch on is the trust funds in the Pacific and those with a higher exposure to equity investments. Quite a few of the trust funds have invested in stock markets at least to just a small extent to try and spread their risk structure so those trust funds might lose out with some downward trends in the stockmarkets.
SALLY ROUND: How many Pacific Island countries would be exposed in this way?
EV: Quite a number. Probably over half the Pacific Islands have trust funds, around about half of them but also when you've got superannuation funds in the countries, many of them invest some of their funds if not all of their funds offshore to get a good return on them. Pretty much all of the countries to various degrees have some exposure to the global financial market. These are the sort of swings and roundabouts that you expect of investments in the stockmarket so we'd expect to see them over a longer period of time pick up again.
SR: China has made various pledges recently to Pacific Island countries for example easier access to its own market, removing tariffs on commodities. Is China likely to change these promises at all?
EV: No, I think China is highly unlikely to change these promises. For China, the Pacific sales into their markets are always going to be miniscule although the Chinese market will become more and more important for the Pacific countries. So I think backing away from promises like that will just cause relationship issues and not provide any economic benefits to China at all. And I think with the size of the market in China there will always be a place for some Pacific products there. Chinese growth is still really really good by the rest of the world's standards. You're looking at 7 percent-plus growth.
SR: What about the concessional loans that China has offered to countries in the region. Might these be affected?
EV: I think the loans that are already in place, I think the benefit for the country will be with the devaluation of the exchange rate, these loans will be more affordable for the Pacific countries to pay back when the time comes. Certainly if the economic adjustments continue in China, China might think about whether to progress with small loans to the Pacific but again the Pacific is very small compared to the Chinese economy so it wouldn't be a priority for government to be worrying about.
SR: And in terms of the mining and the extraction industries that Chinese firms are involved in particularly in Papua New Guinea, how might these industries be affected?
EV: This is where the strongest most immediate impact will be felt. With a slowdown in growth in China, there'll be less demand for the products of these companies operating and indeed any companies operating in the mining sector in PNG. So you'd expect certainly some slowdown in the mining sector growth in PNG as you're seeing in countries such as Australia. So I think that's certainly to be expected and something that the Government will need to build into their forecast in terms of reduced revenue from their mining sectors. It will be important for the Pacific to also look at the flow on effects into the rest of South East Asia and into developed country markets through stock exchange impacts. That might have a longer term effect on the Pacific but I think the Pacific in this case is quite luckily buffered to some extent from the immediate impacts of the economic changes in China.
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