Asia's exporters confront changing global economy

So far this year, exports from East Asia - from South-east Asia across to Japan - have fallen an average of around 5 per cent in US dollar terms. Poor performers include Indonesian coal, Malaysian palm oil, Singapore pharmaceuticals and South Korean
So far this year, exports from East Asia - from South-east Asia across to Japan - have fallen an average of around 5 per cent in US dollar terms. Poor performers include Indonesian coal, Malaysian palm oil, Singapore pharmaceuticals and South Korean cars (above).PHOTO: REUTERS

Policymakers from Bangkok to Seoul considering new strategies

JAKARTA - In the good old decades, many Asian governments could stick to a simple economic strategy - ramp up exports, and reap solid growth rates.

Now, export-led growth no longer serves the region well and Asia is struggling to overhaul that economic model as it waits for world trade to recover.

And the rebound "is going to be capped", says HSBC economist Fred Neumann, because of changes in the world economy, including how US consumers are "much more frugal" than a decade ago.

Asian exports to the United States have risen this year, but Mr Neumann says such growth now is driven more by investment in software development and shale- oil drilling than by activity that pulls in imports.

Stalled global trade talks and the shrinkage of manufacturing supply chains that stretch from China, the world's workshop, are making policymakers from Bangkok to Seoul consider new models as exports may never again grow rapidly as in the 2000s.

"The global trade pattern has changed," Mr Paiboon Kittisrikangwan, a deputy governor at Thailand's central bank, told Reuters last week. The patchy recovery in advanced economies isn't producing the same import demand as before, he said.

South Korean Finance Minister Choi Kyung Hwan has called for a "strategic change" by exporters to target Chinese consumers rather than factories. Indonesian Trade Minister Rachmat Gobel, when pressed on what he is doing to boost exports, says he will seek more access for local goods in Western markets.

So far this year, exports from East Asia - from South-east Asia across to Japan - have fallen an average of around 5 per cent in US dollar terms. Poor performers include Indonesian coal, Malaysian palm oil, Singapore pharmaceuticals and Korean cars. "Things are not looking up," said Mr Neumann of HSBC, citing persistently weak export orders and purchasing managers' indexes. "They all point towards no pickup."

Economists had hoped temporary factors such as Chinese New Year and the US winter weather might explain weakness. But Mr Dan Martin at Capital Economics said these cannot explain the still-weak numbers, which are "something to worry about more than we did before".

Some of the weakness reflects the strength of the US dollar, which means earnings booked in local currencies are worth less when reported in US dollars. However, concern is rising that rather than another cyclical slowdown from which demand will bounce back, Asian exporters face something structural - and there will be no return to strong growth.

China's 2001 accession to the World Trade Organisation (WTO) "led to a burst of supply-chain integration and trade creation in the global economy", said Mr Neumann. As China's manufacturing centres boomed, shipping goods to the West's spendthrift shoppers, supply chains stretched out across the region as factories sucked in high-end components. This specialisation lifted Asia's productivity growth, too.

But these days, things are different. The dispersion of supply chains looks to be ending and "might even go into reverse as China starts to make more of those components", said Mr Martin. The biggest falls in Asian exports this year have been in shipments to China and other emerging markets.

Today, there's no prospect of another China-like opening to rescue struggling exporters. The pace of world trade liberalisation has stalled. Talks over a US-led Trans-Pacific Partnership (TPP) seem to be going nowhere.

And there is no sign of another WTO-sponsored Doha round to prise open new markets. In the United States, a rule of thumb used to be that each percentage point of GDP growth produced 2 percentage points of import growth. But now the ratio is about one-to-one, said Mr Neumann.

In Thailand, where the central bank now expects exports to fall for a third straight year, deputy governor Paiboon says: "We need to do some soul-searching as to whether we can continue to rely on external demand to the extent we have so much in the past."

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 23, 2015, with the headline 'Asia's exporters confront changing global economy'. Print Edition | Subscribe