Abstract

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After manyyears of rapid expansion, China’s growth is slowing to more sustainable levelsandis rebalancing, with consumption becoming the main growth driver. This transition islikely to have negativeeffectsonits trading partnersin the near term. This paper studies the potential spilloversto the ASEAN-5 economies through trade, commodity prices, and financial markets. It finds that countries with closer trade linkageswithChina (Malaysia, Singapore, and Thailand) and net commodity exporters (Indonesia and Malaysia) would suffer the largest impact, with growth falling between 0.2and 0.5percentage points in response to a decline in China’s growth by 1percentage pointdepending on the model used and the nature of the shock.The impact could be larger if China’s slowdown and rebalancing coincides withbouts ofglobal financial volatility. There are also opportunities from China’s rebalancing, both in merchandise and services trade, and there is preliminary evidence that someASEAN-5 economies are already benefiting from these trends.