Sunday, 1 March 2009

Asia also reliant on the West - no surprise

As readers of this blog may be sick of reading about - China's continued reliance on the West has been greatly underestimated. By definition the same applies to the rest of Asia.

Why? Because a large proportion of China's import of intermediates is from the rest of Asia. The FINAL goods are then exported to the West.

If China's exports fall then so do Asia's exports to China (and any exports that go directly to the West). There will be some very large GDP falls coming up in Asia.

The FT get round to reporting this news. Of course it "smells a lot of just supply-chain dynamics”. That is because it is and has been for years.

Once over priced property prices start falling the real meltdown will start. Asian banks are looking mightily unattractive at the moment. Any rebound will be further away than is suggested here in my opinion.

Asia trade suffers as Chinese imports fall [FT]

Asia, whose economic resilience was in part meant to be guaranteed by booming regional trade, is confronting growing signs that such trade remains much more dependent on western demand than previously hoped.

Michael Buchanan, Asia chief economist at Goldman Sachs, says the dramatic fall in Chinese imports from other Asian countries in January shows that Chinese consumers have not replaced their US and European counterparts. Instead, he says a lot of intra-Asian trade still “smells a lot of just supply-chain dynamics” feeding exports to other regions.

In January, exports from Taiwan and South Korea to China fell by 50 per cent and 33 per cent year-on-year respectively. South Korea said on Sunday its overall exports fell less rapidly in February than in January. But it will release only on Monday a breakdown of shipments to China and elsewhere.

More bad news is expected to follow, at least until the second quarter, as most export-focused Asian companies cut jobs and manufacturing capacity because of anaemic western consumer demand. Government stimulus packages, heavily geared towards infrastructure spending, will only gradually help Asia recover, rather than act as an overnight cure.

Asia’s most open economies – Japan, South Korea, Taiwan, Hong Kong and Singapore – are suffering the most. Each of them is set to see their economies contract this year. In Hong Kong and Singapore, the problems are compounded by a furious race to expand a financial sector that is now bleeding jobs and triggering a tumble in high-end property prices.

Among Asian nations, only the Philippines and Indonesia have a lower ratio of exports to gross domestic product now than in 2001. Some economists are warning that other Asian nations should stop counting on intervention from Beijing to lift the region out of its economic quagmire.

“There is a sense in Asia that as long as China continues to grow relatively quickly, then the rest of Asia will benefit . . . China is now the most important market for many Asian export-oriented economies, but it appears to us that China’s economic stimulus plan will support domestic investment, which is not necessarily import-intensive,” says James McCormack, Fitch’s head of Asian sovereign ratings.

Nevertheless, many economists are still expecting a regional rebound in the second half. Some of the optimism stems from a belief that the recent slowdown was in part self-induced.

A year ago, authorities were facing surging oil and food prices, which convinced them to review their traditional bias towards growth and worry more about inflation. But having raised interest rates aggressively, they were confronted with a worldwide credit meltdown, so that “at a time when they should have been infusing liquidity to strengthen financial sector fragility, they actually constrained it,” says Subir Gokarn, Asia chief economist at Standard & Poor’s.

The good news, Mr Gokarn and others note, is that central banks, other than Japan’s, have room to cut rates further and feed into an Asian banking system that still has plenty of liquidity and has not suffered anything like the subprime-induced losses of western banks.

Furthermore, Asia will reap great long-term benefits from additional infrastructure spending, because of years of under-spending and a booming urban population.

Despite some concerns about how efficiently the money will now be spent, “Asia is one of the very few regions of the world where there is a really valid case for expanding infrastructure,” says Glenn Maguire, Asia chief economist at Société Générale.


No comments: