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Trade war

Asia's exports to China plunge as economy stumbles

Companies reshape supply chains to avoid trade war's impact

Construction vehicles at the 2018 China Import and Export Fair in Guangzhou. Exports to the country from the rest of Asia are declining as its economy slows and production shifts elsewhere.   © Reuters

TAIPEI/TOKYO -- Asian exports to China are contracting as its economic slowdown reverberates throughout the region's supply chains, a trend that is likely to accelerate as companies grapple with the fallout from the trade war between Beijing and Washington.

Many businesses are already starting to relocate production in order to avoid U.S. tariffs on China-made goods. This in turn is sapping Chinese demand for raw materials and components and raising concerns about the potential impact on the Asian economy as a whole.

Japan's exports to China in January sank 17.4% on the year to 958.1 billion yen ($8.65 billion), Japan's Ministry of Finance said Wednesday. This marks the second straight month of decline, with the trend accelerating quickly from December's 7% drop.

Shipments to China fell for a wide range of products, except for a handful like automobiles. Chipmaking equipment tumbled about 25%, while such items as electronic circuits plunged roughly 39%. Chemical products and metals also fell about 10% after brisk sales last year. Overall exports to China fell 14% in real terms in January compared with the October-December average, Nomura Securities estimates.

That this year's Lunar New Year holiday, which essentially grinds business to a halt in China, fell on an earlier date may have contributed to the slowdown in January. Even so, many experts agree that shipments to China are taking a nose-dive.

Other Asian countries with close economic links to China face similar patterns. South Korean exports to China in January slid 19% on the year, a steeper rate than in the previous two months of decline. A slump in semiconductors, which compose a fifth of its China-bound shipments, was likely a key factor.

Demand is softening as global information technology companies shelve investments in data centers and adjust inventories, said South Korea's Ministry of Trade, Industry and Energy.

Taiwan's mainland-bound shipments, which make up 40% of its total, also fell for the third consecutive month in January by 7.5%. This was likely caused by weak demand for parts sent to factories assembling smartphones and servers in China.

Singapore suffered a 25% plunge amid a slump in computer components and integrated circuits. Thailand saw a second straight monthly drop in December, declining 7.3% on weaker exports of IT components. Vietnam was the odd man out, with its first increase in three months in January.

China accounted for 15% of global gross domestic product in 2017, up from 2% in 1990. Its growing weight means that economic shifts there and the impact of its trade war with the U.S. are rippling far across Asia.

"With China shipping fewer servers and similar products to the U.S., Chinese demand for Japanese electronic parts is also plummeting," said Junichi Makino at SMBC Nikko Securities. He added that the downward spiral in trade could accelerate, with China at its center.

Meanwhile, Taiwanese exports to the U.S. soared 21.2% last month. Pegatron and other Chinese companies shifted some production to the island to avoid additional U.S. tariffs on Chinese goods, including electronics.

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