This is the time to breathe. True, the economic picture globally has not been rosy, nor has Asia sustained the momentum of the impressive comeback the region staged after the financial crisis, but the latest signs point to stabilizing growth that could provide Asia’s companies with some respite before charting the next steps for their business.
HSBC’s Emerging Markets Index (EMI) covering the second quarter of this year confirms that, after a strong rebound in the immediate aftermath of the global financial crisis, the pace of activity is fading, driven by weaker growth in manufacturing activity. HSBC’s EMI, which is based on 21 purchasing managers’ indices across 16 emerging markets, also reflects the rapid slowdown in global trade, exacerbated by supply chain disruptions caused by the recent events in Japan and spiraling commodities prices. Inflation weighed on business and consumer sentiment, impacting growth prospects in the first half of the year.
When economic headlines point south, month after month, it is easy to lose sight of the silver lining. The latest EMI readings underscore two positive signals.
First, even as exports continue to come under growing pressure, local activity in Asia is stabilizing. A closer look at the numbers shows that the new order to inventory differential has held its ground. This means that while Asian manufacturers and service providers have experienced a slowdown in manufacturing and export growth, new orders are likely to continue streaming in, albeit at a slower pace, as inventories appear insufficient to meet demand.
More importantly, HSBC’s EMI shows that prices of raw materials, as well as costs charged to consumers, are easing rapidly, especially in China, showing that the quantitative tightening measures that governments around the region have employed in recent months to manage inflationary risks are taking effect. With inflation cooling in many parts of Asia, more significantly in China, officials can once again turn on the stimulus tap and focus on lifting growth to the end of the year. Lower price pressures also bode well for exports as consumers regain the confidence to spend, resetting the cycle of growth.
As a soft landing sets the stage for a normalization of economic activity in the third quarter, there is room to ultimately re-accelerate growth, this time driven by new dynamics that will shape the global economy in the next few decades.
The prospects of growth for Asia are massive, but only if Asian companies can park any immediate ambitions of selling to US and European consumers at the same pace as in the past and instead set their sights on new opportunities in the emerging world.
Emerging markets trading and investing with and across other emerging markets — a phenomenon we would like to call “South-South,” could be the last great unexplored opportunity that could turbo-charge global economic growth while the West remains constrained by excessive debts. Asia sits right at the center of this opportunity, led by China.
South-South connections are nothing new to Asia. The original Silk Road linked China with India, Central Asia, Rome and the Arab world for more than 1,000 years. The new “Southern Silk Road” conjures up the possibility of casting the trade net wider to solidify linkages between the growing economies of Asia, the Middle East, Africa and Latin America in this century.
Three key trends present companies with opportunities to expand, change and recalibrate their business strategies to share in the growth promised by the emerging world as trade, investments and wealth shift East.
First, global trade will be shaped by demand for commodities, as well as demand from emerging market consumers. China, for example, is now the world’s biggest consumer of many metals and has become the biggest marginal consumer of oil. The rise in India’s imports partly reflects demand for Chinese-produced electronic goods. HSBC estimates that if South-South trade barriers are demolished, trade can be turbo-charged to boost China’s share of exports to India to 31.6 percent in 2050 from 4.5 percent last year. India’s share of exports to China could grow to 55.4 percent from 20.5 percent in the same period, while India’s exports to the Middle East are forecast to nearly double to 30.4 percent in 2050 compared with 18.5 percent last year.
Asian capital will also fund investments in emerging market infrastructure required for China, India and other markets to guarantee access to the raw materials they need to support further growth. China accounts for five of the world’s top 10 biggest container ports when 20 years ago not one Chinese port was in the top 20. China is set to invest in building railways, roads, ports and other infrastructure in Asia, Latin America and Africa, where it has interests in energy and natural resources.
According to the National Statistics Bureau, China’s overseas direct investments in Asia grew more than fivefold to US$40.4 billion in 2009 from US$7.7 billion in 2006, while China’s investments in Africa grew nearly threefold to US$1.4 billion in 2009 from US$520 million in 2006.
Asian companies should also position themselves to meet new consumer needs as emerging market demand will change future trade and retail landscapes. Until manufacturers recognize the huge potential that lies in first-generation consumers in the emerging world, car companies, for example, will continue to build heavy, over-engineered models for Americans and Europeans.
Chinese and Indian producers have already taken advantage of rising incomes in their home markets, enabling them to open up trade with the developed world and to create industries that produce goods for their newly affluent domestic households. Chery Automobiles, China’s top exporter among automakers, now has 16 production facilities in foreign markets, including Russia, Ukraine, Egypt, Iran, Indonesia, Uruguay and Brazil.
Asian businesses stand to benefit on many fronts from the opening of the Southern Silk Road as increased trade and investment with and across emerging markets are set to bring real and tangible rewards. The promise of a soft landing proffers a window for businesses to take a step back, take in some air and eventually take off with the new possibilities of the emerging world.
Frederick Neumann is the joint head of HSBC Asian Economics Research.
In an article published on this page on Tuesday, Kaohsiung-based journalist Julien Oeuillet wrote that “legions of people worldwide would care if a disaster occurred in South Korea or Japan, but the same people would not bat an eyelid if Taiwan disappeared.” That is quite a statement. We are constantly reading about the importance of Taiwan Semiconductor Manufacturing Co (TSMC), hailed in Taiwan as the nation’s “silicon shield” protecting it from hostile foreign forces such as the Chinese Communist Party (CCP), and so crucial to the global supply chain for semiconductors that its loss would cost the global economy US$1
Concerns that the US might abandon Taiwan are often overstated. While US President Donald Trump’s handling of Ukraine raised unease in Taiwan, it is crucial to recognize that Taiwan is not Ukraine. Under Trump, the US views Ukraine largely as a European problem, whereas the Indo-Pacific region remains its primary geopolitical focus. Taipei holds immense strategic value for Washington and is unlikely to be treated as a bargaining chip in US-China relations. Trump’s vision of “making America great again” would be directly undermined by any move to abandon Taiwan. Despite the rhetoric of “America First,” the Trump administration understands the necessity of
US President Donald Trump’s challenge to domestic American economic-political priorities, and abroad to the global balance of power, are not a threat to the security of Taiwan. Trump’s success can go far to contain the real threat — the Chinese Communist Party’s (CCP) surge to hegemony — while offering expanded defensive opportunities for Taiwan. In a stunning affirmation of the CCP policy of “forceful reunification,” an obscene euphemism for the invasion of Taiwan and the destruction of its democracy, on March 13, 2024, the People’s Liberation Army’s (PLA) used Chinese social media platforms to show the first-time linkage of three new
Sasha B. Chhabra’s column (“Michelle Yeoh should no longer be welcome,” March 26, page 8) lamented an Instagram post by renowned actress Michelle Yeoh (楊紫瓊) about her recent visit to “Taipei, China.” It is Chhabra’s opinion that, in response to parroting Beijing’s propaganda about the status of Taiwan, Yeoh should be banned from entering this nation and her films cut off from funding by government-backed agencies, as well as disqualified from competing in the Golden Horse Awards. She and other celebrities, he wrote, must be made to understand “that there are consequences for their actions if they become political pawns of
RSS