♠ Posted by Emmanuel in China,Credit Crisis,Development,Japan,Southeast Asia at 1/02/2009 09:30:00 AMIndia's Commerce Minister Kamal Nath once wryly noted that while WTO's Doha Round was not dead, it was definitely between intensive care and the crematorium. With some exaggeration and a side helping of hyperbole, the same can be said of Asia's export-led growth model. Export-led growth models work a treat--as long as you have someone to export to. With a global slowdown in place, many Asian economies are feeling the pinch, but more on that later. Something that has always struck me is how malleable the rise of Asia has been to commentators of varying persuasions on the political-economic spectrum. Robert Wade and Alice Amsden are among those who saw their rise as a vindication of government-industry collaboration at a time when laissez-faire policies were all the rage. Speaking of which, the late Milton Friedman found something worth lauding in Hong Kong, whose success as an "Asian tiger" he put down to high levels of economic freedom, nevermind the apparent contradictions. Meanwhile, the World Bank published a report on The East Asian Miracle attributing these countries successes to following a neoliberal agenda including "limited price distortions."
To be sure, there have been critics as well. Paul Krugman described the Asian miracle as a myth. For him, there is no "miracle" in preternaturally high investment rates since the real story lies in the lack of productivity gains made by these countries over time. He said: "Asian growth, like that of the Soviet Union in its high-growth era, seems to be driven by extraordinary growth in inputs like labor and capital rather than by gains in efficiency." All this brings us to the current time where an even more important question is being asked of how export-led economies fare when formerly bountiful export markets are becoming much less so. When economic activity worldwide is growing at a healthy clip, these nations' higher share of exports to GDP is welcome. When the opposite holds true, well, let us sample some reports from the front. On Singapore:
Singapore said on Friday the economy could contract by up to 2 per cent this year, raising fears that the city-state could be facing its worst downturn since independence in 1965. The ministry of trade and industry cut its forecast after the economy contracted by 2.6 per cent in the fourth quarter of 2008 from a year earlier, a significantly sharper fall than the market had expected.It's similar for South Korea:
Singapore, whose economy is highly dependent on global trade, already looks set to become the poorest performer among south-east Asian economies this year and one of the worst in Asia, alongside Taiwan...Private economists also revised downward their forecasts, with Citigroup predicting that the economy could shrink by 2.8 in 2009.
All of Singapore’s manufacturing industries are suffering, with a 9 per cent fall in the sector from a year ago. Exports of electronics fell for a 20th consecutive month in November. Singapore’s oil rig builders, the world’s leaders, reported that they received no new orders in the fourth quarter as global oil demand weakened.
South Korea’s President Lee Myung-bak on Friday called for a “government of economic emergency” as exports plunged for a second consecutive month, pushing Asia’s fourth-biggest economy closer to the brink of recession. Exports, the bedrock of Korea’s industrial economy, slid 17.4 per cent in December after a revised 19 per cent fall in November, the Ministry of Knowledge Economy said...Meanwhile, Chinese manufacturing has declined for five straight months. The story in China has been one of imperiled, marginally profitable enterprises relying on generous state-provided incentives for utilities, credit, etc. now having to deal with slowing global demand. The drying up of trade finance isn't helping, either:
Slumping exports have an immediate impact on the country’s factories and the government is steeling itself for a wave of unemployment with a raft of public works programmes intended to create hundreds of thousand of jobs...Carmakers Hyundai and Kia have had to reduce shifts, LG Electronics has laid off workers abroad and memory-chip maker Hynix is reducing its number of executives by 30 percent.
Failing businesses and bad loans will also rattle a banking system that is seen as one of the most precarious in Asia. Although outside observers are worried by heavy household debt and Korea’s high loan-to-deposit ratios, the financial authorities insist the situation remains “manageable”.
"Trade finance is collapsing," said Victor Fung, the chairman of the Li & Fung Group, the giant supply chain management company that connects factories in China with retailers in the United States and Europe. "We've got orders we can't ship right now." Fung estimates that 10,000 of the 60,000 factories in China owned by Hong Kong interests have closed or will close in the coming months.And which Asian country is a candidate for faring worst in 2009? Why, the granddaddy of all growth miracle stories, postwar Japan. GDP figures for Q4 2008 should provide a glimpse:
Other business leaders say that the toll may be even higher and that factory closings are an even bigger problem among mainland Chinese businesses because these tend to be smaller and more poorly capitalized than those owned by Hong Kong businesses.
Government statistics show that Chinese exports slipped 2.2 percent in November when calculated in dollars, after seven years of rapid growth. But dollar figures do not come close to capturing the real depth of the downturn. Convert the export figures into China's own currency, a much better measure of the effect on the Chinese economy, and exports plunged 9.6 percent in November. Factor in inflation over the past year and the plunge was 11.4 percent.
Indications are that the December data will be even worse.
Japan's economy will probably shrink at an annual 12.1 percent pace this quarter, the sharpest drop since 1974, as exports collapse, Barclays Capital said. Gross domestic product in the three months ending tomorrow [31 December 2008] will fall at almost three times the 4.1 percent rate previously predicted, said Kyohei Morita, chief Japan economist at Barclays in Tokyo, after reports last week showed industrial production and exports posted the biggest declines on record in November.What is glaring to observers like yrs. truly is Asia's continuing inability to spur domestic demand. Even the Great Paulsonio recognizes that Asia's bias towards savings and investment in export-geared industries has its limitations. From what I can gather, I'm afraid that there is no Plan B involving the creation of Asian domestic demand, the Holy Grail of remedying global economic imbalances which have imperiled the fate of the world economy. More on this later, but there should be enough here to rethink platitudes about export-led growth. At the start of 2009, it appears the more they export, the harder they will fall.
“Given the speed and the length of the contraction, this recession could be the most severe in the postwar era,” Morita said. “We expect negative growth will continue for a fifth straight quarter to the April-June period of 2009.”
It has often been said that current events signal the demise of Anglo-Saxon style capitalism. Can anyone say that the Asian export-led model is faring much better? Another development shibboleth may be biting the dust.