[OPE] Asia's export economies in free fall

From: <glevy@pratt.edu>
Date: Sun Feb 15 2009 - 13:06:37 EST

---------------------------- Original Message ----------------------------

Subject: Fw: Asia's export economies in free fall
"Antonio Pagliarone" <antonio.pagliarone@fastwebnet.it>

Date: Sun, February 15, 2009 11:10 am

Asia's export economies in free fall
By John Chan
14 February 2009
Staggering falls in exports across Asia have
shocked economic analysts and ended all claims that the global slump may
be nearing its bottom. The IMF's growth forecast for Asia this year is
just 2.7 percent-less than a third of the 9 percent growth rate of 2007.
The prediction is a full percentage point less than during the 1997-98
Asian financial crisis.

IMA Asia analyst Richard Martin
commented in the Australian: "It's a bit like watching a train wreck
in slow motion. North Asia is suffering the biggest collapse in demand
since World War II." Westpac bank's Richard Franulovich said that the
"speed of the decline embedded in the latest Asia data is on par with
the collapse in the US during the 1930s Depression."

Japan, the world's second largest economy, is already in recession and
still declining. Japanese exports fell 35 percent in December from a year
earlier, as the global demand for its cars, electronics and capital goods
dried up. Industrial production plunged a record 9.6 percent, month on
month, in December.

Bank of Japan chief economist Kazuo Momma
warned this week that the economy was facing an "unimaginable"
contraction, as analysts estimated that there was an annualised rate of
contraction of 10 percent in the last quarter of 2008, even worse than the
US. The government warned that 125,000 irregular workers, mainly in
manufacturing, will lose their jobs in the six months to March, but an
industry estimate put the figure far higher at 400,000.

the so-called "workshop of the world," is being hit particularly
hard. Exports declined for the third consecutive month in January, falling
17.5 percent from a year earlier, after a 2.8 percent decline in December.
Imports plunged even further-43.1 percent, twice as much as December's
21.3 percent year-on-year drop, the General Administration of Customs said
on Wednesday.

Because many of China's imports are inputs into
the country's manufacturing exports, the sharp decline in imports
indicates further falls in industrial activity. Imports of machinery and
high-tech goods fell by roughly 40 percent, also spelling disaster for the
countries that sell such components for Chinese factories to assemble.
Shipments from Japan fell by 43.5 percent from a year earlier; those from
South Korea were down 46.4 percent and from Taiwan, 58 percent.

Although many economists are predicting that China will still grow at
5-6 percent this year, these figures are no more reliable than the
previous claims that China would continue to expand at a near-record pace.
More than 20 million migrant workers have lost their jobs so far, with
some analysts warning of 50 million more job losses if the economy
deteriorates further.

India, the other economy previously
touted as a possible bulwark against world depression, is suffering as
well. Exports fell 24 percent in January. According to official data, one
million Indian workers in the export sector have lost their jobs since
September, when the global financial crisis erupted in the US. Textile,
gem and jewellery workers have been worst affected. Another half a million
workers are expected to lose their jobs by March.

better known for its IT outsourcing services, India has become a major
Asian exporter in recent years. Its exports increased from 16.9 percent of
India's GDP in 2002-03 to 24.8 percent in 2007-08. Export industries
employ 150 million workers, the second largest sector after farming.
India's economic growth for the fiscal year ending in March is officially
projected to be 7.1 percent-down from 9.1 percent last year.

For the next fiscal year, economists believe the Indian growth rates
will be near 6 percent at best. Citigroup estimated a growth rate of just
5.5 percent. Although India is less dependent on exports than most East
Asian countries, its financial position is much weaker. New Delhi's public
debt stands at 75 percent of its GDP, compared to just 18.5 percent in
China, leaving less room for large stimulus packages.

Korea's plight is equally stark. Exports, the main driving force of the
economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun
warned on Tuesday that the fourth largest economy in Asia would shrink by
about 2 percent this year-a sharp revision from the previous official
forecast of 3 percent growth. According to Yoon, this would mean the loss
of 200,000 jobs in 2009. Even this figure is too optimistic compared to
the IMF's forecast of 4 percent negative growth. Credit Suisse has
projected as much as a 7 percent contraction.

Taiwan, the
sixth largest Asian economy, saw its exports fall 44.1 percent in January
from a year earlier-the biggest fall since records began in 1972. Imports
plunged 56.5 percent in the same month. For an economy where exports
account for 70 percent of GDP, the impact is devastating. Morgan Stanley
has sharply revised down Taiwan's growth rate this year to minus 6
percent-down from the previous positive 0.5 percent. CLSA, a Hong
Kong-based brokerage house, last week predicted an even greater
contraction-11 percent.

The export-dependent economies of
South East Asia are also suffering. The IMF's projection for Philippines
is just 2.25 percent this year, down from 4.6 percent last year and 7.1
percent in 2007. The official predication for Singapore, the region's
trade and financial hub, in 2009 is a contraction of 5 percent-the deepest
recession since the city-state was founded in 1965. Malaysia's exports in
December plunged 14.9 percent from a year earlier, with exports to the US
falling by 30 percent. Analysts expected the Malaysian economy to grow by
just 1-1.5 percent in 2009, far lower than the government's target of 3.5
percent. Indonesia's central bank predicts the country's economy will slow
to 4-5 percent in 2009 compared to 6.2 percent for 2008.

saving rates and relatively secure financial institutions have not
prevented the Asian economies from suffering massive losses. After the
financial crisis of 1997-98, Asian countries strove to increase their
exports in order to build large foreign currency reserves as a shield
against further such financial shocks. As a result, however, they have
merely swapped dependence on global finance for reliance on global demand.

Credit Suisse analyst Cem Karacadag has estimated that net
exports account for two-thirds of GDP in Hong Kong and Singapore, almost
half in Malaysia and Thailand and one-third in Taiwan and South Korea. He
calculated that, even without taking into account secondary impacts, every
10 percent fall in exports would cut 2 percentage points of growth in
South Korea and Taiwan, and up to 7 percentage points in Hong Kong and

Over the past decade, the export share of Chinese
GDP doubled to 40 percent. With a vast supply of heavily-policed cheap
labour, combined with infrastructure developed by the state, it became a
final assembly point for transnational corporations. They supplied
factories in China with components, raw materials and capital goods made
elsewhere in Asia, transforming the region into a giant export machine. It
appeared that China had replaced the US as the growth engine for many
Asian countries.

In fact, as Jong Wha-Lee of the Asian
Development Bank pointed out, the intra-regional trade disguised the fact
that 60 percent of the final demand for Asian goods still came from
advanced capitalist countries in North America, Europe and Japan. China's
exports to the United States and European Union fell by 9.8 percent and
17.4 percent, respectively, in January. As the demand in the West has
collapsed, the booming intra-trade, which involved mainly components,
inputs and capital goods, has quickly evaporated.

The Korea
Times complained last week: "China has been emerging as the biggest
threat to the Korean economy" because the "high dependence on
China has made the country particularly vulnerable to the emerging China
risk". Korea's exports to China, much of them for re-export, fell 33
percent in December, and 46.4 percent in January, compared to a year
earlier, due to the accelerating drop in global demand for
"Chinese" goods.

Chinese officials have been loudly
talking up the prospect of sparking a "rebound" by stimulating
infrastructure spending and ordering state banks to increase lending. But
analysts are sceptical that the state spending will boost private
investment. The Morgan Stanley China economist Wang Qing told the Wall
Street Journal: "Profits and profitability in 2009 will be very poor,
and this is the key reason why I do not expect much private
investment-especially in the manufacturing sector where China suffers from
an overcapacity problem." He estimated that manufacturing investment
would be zero this year, with a 12 percent drop in property investment.

The Financial Times on February 10 explained: "Most of
all, China cannot escape the broader global economic environment. The
government's fiscal stimulus was designed to keep the economy going until
Western consumers recover. Yet the recent indications are that the global
economy could be in for a more prolonged slump than first thought."

The same conclusion can be applied to all the stimulus
packages across Asia. Most Asian countries are largely cheap labour
platforms whose exports outweigh their relatively small domestic markets.
Confronted by the global slump, each is trying to export more, which means
taking market share at their neighbours' expense. This is causing rising
trade tensions. India has started 17 investigations into Chinese imports
since October, and imposed restrictions on Chinese steel, textiles and
petrochemicals. In January, India banned Chinese toys imports for six
months to protect its own toy industry.

Apart from pitting
their "own" workers against other workers in neighbouring
countries, the Asian elites have no understanding of, let along solution
for, the economic crisis. Some have turned to the gods for answers. During
the Chinese New Year a senior Hong Kong official selected a fortune stick
on the city's behalf. It was the unluckiest, 27. "A fortune teller at
Che Kung temple, shrouded in incense and consulting the heavens for
inspiration, declared it meant Hong Kong could not isolate itself from
global financial turmoil," the Financial Times reported.

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