March 06, 2002
Export-driven Asia looks within itself for growth
Reuters Singapore , 05-03-2002
Export-driven Asia is vulnerable to US business cycles, but growing trade within the region should give an additional boost to its recovery this time around, analysts said.
With recent data showing a pick-up in intra-regional trade, accounting for half of Asia's total from just a fifth a decade ago, even a gradual recovery in the United States would help spur a rebound in regional exports and growth.
Even though some of the intra-regional trade is eventually destined for global markets, a growing part is due to rising domestic demand for Asian goods like electronics.
"If the US recovery is decent, then the pick up in intra-regional trade ought to further boost the ability of Asian economies to grow," said Salomon Smith Barney's regional strategist David Simmonds.
As more tariff and regulatory barriers fall, domestic consumption rises and regional economies climb up the value-chain, growth in intra-regional trade has the potential to shift into even higher gear, Simmonds said.
That could help ease some of the pain from future US downturns or another shock like the September 11 attacks.
ROOM FOR GROWTH
"There is considerable room for growth in intra-regional trade, just because trade partners are becoming more open now," said Standard Chartered Bank's head of economic research Steve Brice.
"In terms of global risk they would still want to increase their penetration into the US market but as a percentage of total trade they would want that exposure to fall," he added.
There is a growing consensus that the US economy is emerging from recession, with consumer spending picking up and the manufacturing sector marking its first expansion in 18 months.
And fourth quarter regional data had shown Asian economies already pulling off their lows, even before there was conviction about the onset of a US recovery.
That gives credence to the argument that the domestic cycles of individual Asian economies influence regional trade as much, if not more, than US cycles.
"Intra-regional trade reflects overwhelmingly, more than 75 per cent of it, business cycles in Asia and not cycles in the United States," said chief economist at BNP Paribas in Hong Kong, Andrew Freris.
CHANGING PRIORITIES
The World Bank in its March 2001 East Asia Update estimates that trade among the intra-ASEAN+5 (Association of Southeast Asian Nations plus Hong Kong, Taiwan, China, Korea and Japan) trade is nearly half their total trade.
That represents a steady rise in intra-regional trade from less than 20 per cent in the early 1990s.
By contrast, analysts estimate that only 22 per cent of non-Japan Asia's exports went to the US in 1999, with Japan shipping 29 per cent of its exports to the US.
Even though the US stands out as the region's biggest trading partner, most analysts see a clear shift in trading priorities towards other Asian countries.
"That is very much the reality, that your growth markets are no longer America and necessarily Europe," Brice said.
"Your market is becoming more regional, so lots of companies and lots of governments are repositioning themselves."
REDUCED SENSITIVITY
Brice said a large portion of intra-regional trade was still stimulated by the US. "But we are also saying that there is reduced sensitivity to the US factor. So if the US economy is doing well, the intra-regional trade will do even better."
Singapore and Taiwan have seen exports to their regional counterparts improve at a much faster pace than with the US, Europe or Japan -- Asia's three major markets.
Singapore's exports to the US were down 16.5 per cent in January, but they posted decent gains with China, Hong Kong and Taiwan.
Taiwan's seasonally adjusted export orders were up 2.4 per cent in January as against previous month. The rise came from Japan 20.5 per cent, Europe 1.4 per cent, and Hong Kong including China 6.1 per cent. Orders from the US dropped 1.2 per cent.
During last year's export downturn, Korean exports to Asia fell less, at 13.5 per cent, versus a 16.4 per cent drop with the United States.
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