China demand driving Asia export rebound
Philippine bananas, Indian cotton and New Zealand lamb have at least one thing in common. They’re all objects of resurgent Chinese demand.
Despite periodic threats by Donald Trump to go head to head with Xi Jinping on trade, China’s consumer power is kicking Asia’s export engine into gear, moving the world’s fastest-growing economies.
Shipments to China from around the region have risen sharply in both value and volume, ending what economists at Australia & New Zealand Banking Group described as Asia’s two-year “trade recession”.
Higher commodity prices are lifting export values for countries such as Indonesia and Malaysia while rising oil prices have boosted Singapore and India. The planned launches of the new Samsung Galaxy S8 smartphone and the Apple iPhone 8 are fuelling demand for semiconductors and other components made in South Korea and Taiwan.
“Asian exports have staged a significant rebound,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore.
In Japan, exports are underpinning a modest economic recovery, with shipments to China, its biggest customer, jumping 28% in February, helping total exports rise the most in two years. South Korean exports rose the most in five years during the same month, thanks to accelerating shipments to China, which jumped by nearly a third from a year earlier.
Indian exports to China rose by nearly half in December from a year earlier, driven by shipments of cotton, ores and zinc. The figure compares with a 5% drop in overall Indian exports, and pares the 7.7% decline in Indian exports to China for the full year.
“Non-oil exports from India have really perked up over the last six months,” Arvind Subramanian, India’s chief economic adviser, told Bloomberg Television. “It’s a steady upward trend.”
New Zealand’s shipments to China grew 12% in the three months to February, driven by demand for beef, lamb and milk powder, according to ANZ. There’s more to come. New Zealand wants to upgrade an existing trade deal with China, and Australia has signed a beef-export pact with Beijing.
In Southeast Asia, exports from Thailand and Malaysia to China in January rose by nearly a third from a year earlier. Indonesian exports to China jumped almost 44% in February from a year earlier while those from Singapore soared 65% the same month.
“China has more than doubled their imports of bananas in the last few months so, we’re okay,” Philippine Finance Secretary Carlos Dominguez said in an interview.
To be sure, the sustainability of the export recovery is far from assured. Though volumes are up, much of the rebound reflects higher commodity prices,, and seasonal effects can provide a gloss to overall numbers. Beijing faces a challenge as it tries to rein in excessive debt and leverage while shifting the economy away from a reliance on stimulus.
“You should expect China to slow this year,” said Mark McFarland, chief economist for Asia at Union Bancaire Privee in Hong Kong.
Then there’s Donald Trump. While he has toned down threats of dramatic trade action against China, his administration appears committed to shrinking a yawning trade deficit through tariffs on the country’s goods or other punitive measures. Heightened trade tensions between the two largest economies could spill over to the rest of Asia given the region’s tightly knit supply chain and the US position as by far the world’s largest consumer market.
“We’re a little worried about the US,” Dominguez said. “We’re not sure where they’re going.”
A reluctance among companies to invest, excess capacity and rising levels of debt also limit the prospects for a fullblown, export-driven recovery.
Still, firming demand in East Asia is consistent with global trade volume growth of more than 5% year-on-year in February, the fastest pace since 2011, according to Capital Economics.
The China-driven rebound in exports is part of the reason Asia’s expansion will probably exceed 5% in 2017 and 2018, compared with about 3.5% for the world, according to the International Monetary Fund.