Sign of the Times - Asian exports shifting to new markets

From Financial Times:

Asian exports shifting to new markets
By Raphael Minder in Hong Kong

Published: April 1 2008 05:33 Last updated: April 1 2008 17:13

East Asian nations are successfully shifting exports away from the US to other developing countries, Europe and oil-rich markets in the Middle East, the World Bank said on Tuesday.

Whether Asia’s many export-driven economies would be able to reduce their reliance on the US, traditionally their biggest market, has driven much of the recent debate over the global impact of a US slowdown

But Vikram Nehru, the World Bank’s chief economist for east Asia and the Pacific, which excludes Japan and Australia, said on Tuesday the shift was taking place faster than expected. “I didn’t expect such a rapid shift towards non-US markets as we are seeing,” he told the Financial Times. “That is a sign of very adept marketing, as exchange rates and incentives change.”
Mr Nehru said east Asian exporters had been nimbly using their currency positioning “somewhere in the middle” between a falling dollar and a rising euro, with the eurozone now a more attractive target for their shipments.

While annual export growth from emerging east Asian nations initially slowed from 22 per cent in January of last year to 15-16 per cent in the third quarter, it has since rebounded to 18-19 per cent.

The World Bank also said more sophisticated domestic production was allowing China to source more of its input needs internally.

“If this trend continues and if other east Asian economies are able to exploit these new opportunities in China’s domestic market then, over time, China is also likely to become an increasingly independent growth pole for the rest of east Asia,’’ the bank said.
South Korea on Tuesday reported that exports in March rose at their fastest annual pace in five months. The stronger than expected trade figures prompted Goldman Sachs to raise its exports growth forecast for South Korea this year to 10 per cent from 9.8 per cent, “on the back of a weaker Korean won and ongoing export diversification”.

Still, the World Bank lowered its 2008 regional growth forecast to 7.3 per cent, compared with a previous estimate of 8.2 per cent, amid a global economic slowdown. East Asian growth is expected to be 7.4 per cent in 2009.

Strong fiscal positions and foreign exchange reserves gave most east Asian countries the means to stimulate their economies by offering tax incentives and other measures if a global slowdown became more pronounced, the bank said.

However, it warned that rising inflation posed a more immediate threat to east Asian countries than a slowdown or any further credit squeeze linked to the collapsed US subprime market. “In virtually every east Asian country, inflation is climbing to uncomfortable levels while monetary and credit growth is difficult to contain owing to substantial capital inflows.’’

South Korea and Indonesia on Tuesday both reported higher than expected inflation data.
Indonesia’s annual inflation rate accelerated to 8.2 per cent, its highest level since September 2006, while South Korean consumer prices in March rose 3.9 per cent to match a three-year high set in January. Asian countries already struggling with double-digit inflation include Cambodia, Vietnam and Sri Lanka.

Vikram Nehru, the World Bank’s chief economist for East Asia and the Pacific, said in an interview: ”I didn’t expect such a rapid shift towards non-US markets as we are seeing. That is a sign of very adept marketing, as exchange rates and incentives change.”
Mr Nehru said East Asian exporters had adjusted well to their currency positioning ”somewhere in the middle” between a falling dollar and a rising euro, which is making European markets more attractive.

While annual export growth from emerging East Asian nations slowed from 22 per cent in January of last year to between 15 and 16 per cent in the third quarter, it has since rebounded to between 18 and 19 per cent.

The World Bank also highlighted the extent to which more sophisticated domestic production is allowing China to source more of its input needs internally. ”If this trend continues and if other East Asian economies are able to exploit these new opportunities in China’s domestic market then, over time, China is also likely to become an increasingly independent growth pole for the rest of East Asia,’’ according to the World Bank’s latest regional report. ”The character of intra-East Asian trade flows is likely to undergo structural change over time.”

Confirming the resilience of exports from the region, South Korea on Tuesday reported that exports in March rose at their fastest annual pace in five months. The stronger-than-expected trade figures prompted Goldman Sachs to raise its export growth forecast for South Korea this year to 10 per cent from 9.8 per cent, ”on the back of a weaker Korean won and ongoing export diversification.”

Still, the World Bank on Tuesday lowered its 2008 growth forecast for the region, which excludes Japan and the Indian subcontinent, to 7.3 per cent, down from the 8.2 per cent level predicted last November. It said east Asian growth should reach 7.4 per cent in 2009.
The Korean trade data indicated that exports to the US remained surprisingly robust, a key consideration for the country’s technology companies. In its report, the World Bank said that world demand is ”likely to be reflected in weaker East Asian export growth in the coming months.”

”However there is little in the data so far to suggest a steep high-tech-led downturn of the 2001 type,” it said.

A strong fiscal position and high foreign exchange reserves could also give most East Asian countries the means to stimulate their economies with one-shot measures such as tax relief if the economic slowdown becomes more pronounced, the bank said.

The World Bank warned that inflation was a more immediate threat to East Asian countries than the global slowdown or a further credit squeeze linked to the collapse of the US subprime market. ``In virtually every East Asian country, inflation is climbing to uncomfortable levels while monetary and credit growth is difficult to contain owing to substantial capital inflows.’’

My Take: This is bad news for the Inland Empire since a good portion of our warehouse strength came from Asian imports. If China can easily substitute out of the United States and into the Euro-zone, then we would be hit a lot harder than if the option didn't exist; the Chinese would trade with the United States even if it was slightly unprofitable for them, since they had no one else to trade with. But they do have others to trade with and a strong Euro buys a lot more goods than a falling dollar. So it seems we should not pity the Chinese manufacturer just yet.