PHL to see limited impact from China’s reopening
CHINA’S REOPENING may bring a surge in tourists to Southeast Asia, but this may not have a big impact on the Philippine economy, analysts said.
“Though China’s reopening will bring more tourists to Southeast Asia in general, this will likely have only second-order impacts on the Philippine economy overall,” Vincent Conti, senior economist at S&P Global Ratings, said in an e-mail.
The reopening of China’s borders last month lifted hopes of many Southeast Asian countries, including the Philippines, that Chinese visitors will flock to tourists spots once again.
In a separate report, S&P said emerging markets (EMs) that have previously received significant numbers of Chinese tourists “could benefit significantly as travel picks up after a couple years of virtually no outbound Chinese tourism.”
“The EMs that will benefit the most from China’s lifting of COVID-19 restrictions are those that are exposed to China’s consumption, especially tourism-related. These are mostly EMs in Asia, and include Thailand and Vietnam,” S&P said in a Feb. 1 report titled “Which Emerging Markets Benefit the Most From a Reopening in China.”
In the case of Vietnam, Thailand, and the Philippines, S&P said that at least one in every five tourist arrivals came from China before the coronavirus pandemic.
Tourists from China accounted for 21.1% or 1.74 million of the 8.26 million total arrivals in the Philippines in 2019 or before the pandemic. In 2022, there were only 39,627 Chinese visitors to the Philippines, making up 1.49% of the 2.65 million total arrivals.
Unlike other tourism-driven economies, Mr. Conti noted the Philippines is “more domestically driven,” particularly by household consumption. In terms of demand, household consumption was the biggest contributor to GDP last year, driven by restaurant and hotel spending.
Tourism contributed 12.7% to Philippine GDP in 2019, based on data from the local statistics authority. This shrank to 5.2% of GDP in 2021, reflecting the impact of the pandemic.
“The potential for a renewed flood of Chinese tourists entering the country, and supporting demand certainly poses an upside risk,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in an e-mail.
Mr. Chanco said this will provide a cushion for the expected slowdown in private consumption growth in the Philippines this year.
The Tourism department is targeting to attract 4.8 million international visitors this year, with the Chinese market as a priority.
President Ferdinand R. Marcos, Jr. last month ordered the extension of e-visas for travelers from China, India, Japan and South Korea.
China’s economic recovery is expected to also blunt the impact of slower Philippine export growth, “as weaker demand from developed countries like the US will still dominate the overall story,” he added.
“The good news is that, unlike most other trade-dependent countries in ASEAN (Association of Southeast Asian Nations), the Philippines doesn’t depend on exports as much for economic growth,” Mr. Chanco said.
Meanwhile, Ateneo de Manila University Economics Professor Leonardo A. Lanzona said China’s reopening will likely increase demand for oil, which will result in higher pump prices.
“Hence, just considering the likely effect on gasoline, the overall impact of its reopening will be generally negative,” he said in an e-mail.
The Philippines could have revived its manufacturing and trade sectors while China was under a strict lockdown, but this “possibility is now lost,” Mr. Lanzona added.
“Despite the cheaper imported goods from China and the increased tourist revenues, the premature deindustrialization that had always been affecting us because of China will again be felt, offsetting whatever positive returns we may receive. The Philippines needs to focus on its service sector and its adaptation of new technology in order to survive this,” he said.
S&P said that emerging markets in Asia that are closely linked with China’s manufacturing sector will benefit by its reopening.
“The loosening in mobility restrictions in China could also eventually ease any remaining supply-chain disruptions, potentially benefiting EMs with significant manufacturing linkages with China,” it said.
“In addition, supply-chain linkages tend to be high in the computer and electronics sector. Vietnam, Thailand, Malaysia, and the Philippines have sectors with large supply-chain linkages with China that represent a higher share of their economy,” it added.
However, it noted that most countries with higher supply-chain linkages with China, such as Vietnam, Thailand, the Philippines, Malaysia, and Mexico, were already reporting manufacturing output “well above pre-pandemic levels.”
The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) rose for a third straight month to 53.5 in January from 53.1 in December. This was the Philippines’ highest PMI reading since 53.8 in June 2022.
“Growing international client numbers and stronger demand from China helped revive exports for the first time in 11 months,” S&P Global said in the January Philippine PMI report.
The Philippines had the second-highest PMI reading among six ASEAN member countries, just behind Thailand (54.5) and ahead of Indonesia (51.3). — Luisa Maria Jacinta C. Jocson