Looking East

Only China and In­dia do­ing well

Finweek English Edition - - Economic Trends & Analysis - GRETA STEYN gre­tas@fin­week.co.za

TO SOUTH AFRICANS still reel­ing from the news of a deeper-than-ex­pected re­ces­sion, the eco­nomics news out of Asia might seem en­vi­able. It was re­ported re­cently that Ja­panese fac­tory out­put jumped, Chi­nese man­u­fac­tur­ing out­put ex­panded and In­dia grew faster than ex­pected in first quar­ter 2009. But dig a lit­tle deeper and it’s clear all isn’t well in Asia. In fact, some economies are in dire straits in­deed. And oth­ers, though grow­ing, have lost a ma­jor amount of mo­men­tum against pre­vi­ous years.

Let’s start with Ja­pan. The head­line news at end-May – that Ja­panese fac­tory out­put had jumped by 5,2% in April – sounded good, but that in­crease was from the pre­vi­ous month. Com­pared with a year ago Ja­panese in­dus­trial pro­duc­tion was still down in dou­ble dig­its. That’s also the story with Ja­pan’s GDP, which was down 15% in the first quar­ter of this year.

The Ja­panese econ­omy is one of the world’s ma­jor “sur­plus economies” – which means it runs a trade sur­plus with the rest of the world. Though Ja­pan’s suc­cess un­til the end of the Eight­ies was built on this ex­por­tled growth model, the Ja­panese econ­omy has hardly been a model to fol­low since the bub­ble burst in the Nineties and has been es­pe­cially hard hit by the global re­ces­sion due to its re­liance on ex­ports.

China – the world’s lead­ing sur­plus econ­omy – is still grow­ing, de­spite a pre­cip­i­tous plunge in its ex­ports. China’s econ­omy grew more slowly than usual over the first quar­ter and job­less­ness in­creased. How­ever, fairly strong in­vest­ment and con­sumer spending helped pre­vent fall­ing ex­ports from drag­ging down eco­nomic out­put even fur­ther. China’s gross do­mes­tic prod­uct was 6,1% higher in first quar­ter 2009 than a year ear­lier. First quar­ter growth rate com­pared with a 6,8% growth rate in fourth quar­ter 2008.

China mea­sures growth on a year-onyear ba­sis and not on the quar­ter-on-quar­ter, sea­son­ally ad­justed and an­nu­alised ba­sis that’s the norm in coun­tries such as the United States and South Africa. On a quar­terly an­nu­alised ba­sis, the pic­ture in China looks dif­fer­ent, with growth ac­tu­ally ac­cel­er­at­ing in the first quar­ter from the fourth quar­ter.

It’s im­por­tant to note China’s eco­nomic growth rate is fall­ing from strato­spheric dou­ble-digit lev­els and that, even though the rate is still com­fort­ably pos­i­tive, the fall in growth has brought pain with it to Asia’s ex­port­ing gi­ant. Mil­lions of work­ers have lost their jobs in fac­to­ries man­u­fac­tur­ing goods for ex­port. Some re­ports even put the num­ber of newly un­em­ployed work­ers at 100m.

Still, China’s growth rate has come in higher than some had ex­pected, given its ex­treme re­liance on ex­ports. Rea­sons for its bet­ter-than-ex­pected per­for­mance in­clude a mas­sive in­fra­struc­ture-spending pro­gramme by its gov­ern­ment and mea­sures to spur do­mes­tic con­sump­tion. Some com­men­ta­tors have been scep­ti­cal about the sus­tain­abil­ity of China’s growth rate in the face of weak global de­mand, say­ing there are lim­its to the Chi­nese state’s largesse and that there’s a dan­ger of over-in­vest­ment tak­ing place and over­ca­pac­ity de­vel­op­ing.

Other Asian sur­plus economies have had a far more mis­er­able time of it than China. As the graph shows, the economies of Sin­ga­pore, South Korea and Thai­land recorded sig­nif­i­cant falls in GDP in fourth quar­ter 2008. The In­ter­na­tional Mon­e­tary Fund says GDP in emerg­ing Asia (ex­clud­ing China and In­dia) plum­meted by no less than 15% on a sea­son­ally ad­justed and an­nu­alised ba­sis in fi­nal quar­ter 2008, with the IMF fore­cast­ing an av­er­age de­cline for that cat­e­gory of Asian coun­tries of 2,9% for this year.

In­dia is a coun­try less de­pen­dent on ex­ports: in fact, it’s a deficit coun­try. But its growth rate has sur­prised on the up­side. In­dia’s econ­omy grew 5,8% in the first three months of this year com­pared with the same pe­riod last year. Though that’s a sharp de­cline from the 8,6% growth rate in first quar­ter 2008 eco­nomic ac­tiv­ity in In­dia came as a wel­come sur­prise to those watch­ing for the green shoots of re­cov­ery glob­ally.

In­dia was helped by a strong construction sec­tor – again demon­strat­ing the im­por­tance of in­fra­struc­ture spending in keep­ing economies go­ing dur­ing re­ces­sion. It was also helped by pos­i­tive growth in agri­cul­ture, which turned around from con­trac­tion in the pre­vi­ous quar­ter.

On bal­ance, Asia (ex­clud­ing China and In­dia) is in dire straits. China and In­dia are grow­ing stronger than ex­pected, helped by in­fra­struc­ture spending.

Chi­nese fac­tory work­ers have lost jobs.

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