Philippines less exposed to China export pressure – Moody’s

MANILA, Philippines —  The Philippines is among the ASEAN-5 economies less vulnerable to rising competition from Chinese exports, although some local manufacturing segments remain exposed to margin pressures, Moody’s Ratings said.

In a report, Moody’s said Malaysia and the Philippines are “more insulated” from China’s export reorientation, while Indonesia and Thailand face the largest share of high-risk sectors due to their industrial composition.

“The Philippines has the second-largest share of low-risk sectors, with most of its manufacturing base in the low-to-medium range,” Moody’s said.

The debt watcher said higher-risk readings in the Philippines are concentrated in coke and refined petroleum as well as basic and fabricated metals, which account for a relatively small share of total output.

“Lower aggregate vulnerability reflects more contained direct trade exposure to China rather than broad-based industrial competitiveness,” Moody’s said.

Moody’s said China’s export redirection is credit negative for highly exposed local manufacturing segments in the ASEAN-5, which covers Indonesia, Malaysia, the Philippines, Thailand and Vietnam.

The rating agency said stronger Chinese export flows intensify import competition, compress prices, weigh on profit margins and slow industry upgrading across exposed sectors.

“The ASEAN-5, long a beneficiary of China’s growth and supply-chain integration, has navigated earlier trade frictions largely from the sidelines,” Moody’s said. “But this positioning is becoming harder to sustain as Chinese export pressures broaden across sectors.”

Moody’s said risks to the operating performance of affected manufacturers could rise over the next five to 10 years as Chinese export competition expands across industries.

Across the region, Moody’s said electrical and optical equipment as well as machinery face the highest displacement risks due to intense competition and limited domestic capital goods capability.

High import penetration and strong export similarity with China suggest that ASEAN-5 producers are competing directly with Chinese exporters in several third markets, Moody’s said.