Slowing China holds upside for investment-starved Asia

Outlook

China's economic slowdown has coincided with the emergence of Beijing's ambitious 'One Belt, One Road' initiative that aims primarily to build infrastructure through Eurasia, Africa and the Indian Ocean. In coming years, the two trends are likely to reinforce one another as China, especially its infrastructure firms, pursues productive investment opportunities overseas to replace dwindling opportunities domestically.

Countries most likely to benefit from Chinese investment will include Indonesia and Pakistan -- both have enormous infrastructure gaps and are part of China's Maritime Silk Road and Silk Road Economic Belt initiatives. Yet, those that are excluded -- notably India -- are also likely to prove attractive destinations for Chinese investment due to their robust growth, vast need and investor-friendly dispensations.

Impacts

• South and South-east Asian countries will also seek to attract manufacturing jobs shifting away from China.
• Compared with Japan, China faces greater reputational risks for constructing faulty infrastructure in countries such as India.
• Maritime rivalries between China and South-east Asian claimants will develop alongside closer investment relations.
• The decline in ASEAN's exports to China will pressure regional governments to find new sources of growth.