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Friday 17 October 2008
Asia looks to its own consumers to bolster region’s economies
For years, Asians have been held up as an example to the world for their discipline in saving rather than spending. Now their leaders are trying to break them of that habit. PDF
Asia looks to its own consumers to bolster region’s economies
By Keith Bradsher 16 October 2008
GUANGZHOU, China: For years, Asians have been held up as an example to the world for their discipline in saving rather than spending. Now their leaders are trying to break them of that habit.
As Americans and Europeans pull back in what many expect to be a global recession, Asian consumers may be the last hope to preserve economic growth in part of the world – and even Asian consumers are becoming nervous about falling real estate prices and slumping stock markets in their own countries.
At the Canton Fair, the world’s largest export exposition, which opened here Wednesday, executives from across China, from manufacturers of chain saws to producers of stereo headphones, complained of rising costs and falling sales.
China’s customs agency said Monday that 52.7 percent of the country’s toy exporting companies had ceased operations in the first seven months of this year. Most of the 3,631 toy exporters that went out of business were small. Still, those closures came before the global economic picture was made even bleaker by a slump in bank lending and confidence in Western financial centers.
“It’s a disaster,” said Kevin Cao, the export manager of the HuangYang Bronze Co., a producer of aluminium wire whose exports have dropped by nearly half since July and which has had to cut a quarter of its work force.
Difficulties among Chinese exporters may seem incongruous, given that China announced Monday that its exports were 21.5 percent higher in September than a year earlier, and the country had a record monthly trade surplus of $29.3 billion.
But when adjusted for inflation and the Chinese currency’s rise against the dollar, Chinese exports actually fell 0.5 percent in August from a year earlier, and are likely to be flat for September, for which inflation data has not been released.
The gloom among suppliers at the Canton Fair on Wednesday suggests that shipments will slow further in the months to come.
This has all come as a shock to China’s huge export sector, which enjoyed annual growth – even with inflation and currency changes – of 20 to 30 percent a year through the summer of 2007.
But now order books are thinning. At the Ningbo Deye Domestic Electrical Appliance Technology Co., which makes space heaters and air-conditioners, orders have shrunk by half, said Allen Dong, the company’s export manager.
Many Chinese companies initially responded to weakness in United States sales last year by stepping up marketing in Europe. Chinese exports to Europe quickly surpassed those to the United States. That growth came to a screeching halt this summer as economic and financial troubles jumped the Atlantic to Europe.
Ningbo Deye’s exports to Europe were down 20 percent last month compared with a year earlier. It has shrunk its work force to 1,000, from 1,500 last year.
Some of the most striking drops in exports have occurred in shipments of consumer electronics, garments and toys to the United States, even as some Chinese producers are moving to Vietnam, partly because of lower wages there.
Over the last year, the Yangzhou Sure International Trading Co.’s sales of television remote controls have dropped more than 80 percent in the United States and sales to Europe have fallen 30 percent, said Allan Peter, the general manager.
But it is far from clear that Asians will pick up the slack in consumption. Most economists say current economic conditions will make it hard to persuade Asian consumers to replace Western buyers. For instance, homes and stocks are worth less here and food and energy prices — still high by historical standards — are eroding incomes.
“Consumer behaviour cannot be changed by the wave of a wand,” said Ifzal Ali, the chief economist of the Asian Development Bank. “Domestic demand-led growth is easier said than done.”
Stephen Roach, the chairman of Morgan Stanley Asia, calculates that even with more than a billion inhabitants apiece, China and India each have total personal consumption spending that lags that of Germany, which has 82 million people.
Political leaders across Asia are tailoring policies to change that. India has given generous raises to the country’s four million civil servants, hoping that they will spend some of the money. The government also encouraged banks to lend by reducing the amount of cash they are required to deposit with the central bank. China also has reduced bank reserve requirements, and has cut interest rates and lowered taxes.
Japan and Taiwan have increased government spending on all kinds of projects.
The difficulties in Asia now are completely different from the financial crisis that shook the region a decade ago. Much of the problem then lay in banks that failed after borrowing heavily. Those failures left corporations starved for credit and they had to drastically curtail operations — a predicament many fear for the United States and Europe now.
By contrast, most Asian banks have been more cautious in their lending since then. The contagion infecting Asian economies now is mainly economic, through trade. JPMorgan calculates the annualized rate of growth in Asian emerging markets in the second quarter compared with the first was 6.6 percent, and just 2 percent excluding China and India.
Most of the region’s economies appear to have slowed further in the third quarter.
At stake is not just economic growth, but also social stability. Japan’s previous prime minister resigned Sept. 1 as his country’s economy shrank. Malaysia’s opposition has attracted throngs of voters unhappy about inflation. Crowds protesting Thailand’s weak growth and fractious politics have blocked airport runways and the Parliament building. And candidates promising a minimum wage and other measures to shore up embattled workers won last month’s legislative elections in Hong Kong.
Though Asian leaders face an uphill struggle to shift from export-led growth to a dependence on domestic demand, businessmen say there is no choice.
In Chennai, India, Rafeeque Ahmed, the chairman of one of India’s biggest shoe exporters, laid off 800 of his 6,800 employees as exports weakened this year. Now his company, the Farida Group, plans to start selling to Indian stores in June and is exploring plans to open its own chain of Indian stores in 2010. “We feel like the whole world is now looking at India, so why aren’t we looking at India?” he said.
Similarly, Henry Ye, chairman of a large Chinese garment manufacturer, the Smartex Group, has bought a 60 percent stake in a chain of 300 clothing stores in east-central China. He wants to reduce his factories’ dependence on sales to Western retailers.
Ye has converted the original headquarters of his company in Xiamen, China, into a hotel to appeal to the growing numbers of Chinese who travel domestically. He has also set up a construction division to build homes.
“The U.S. dollar is still very, very weak” compared with China’s currency, Ye said. “The future for China is promising.”
Many economists say China is the Asian country least vulnerable to slowing exports.
Until this summer, the economy had double-digit growth. The government has a small budget surplus and modest debts, which give it a lot of room to cut taxes and spend more on big projects in response to factory closings and other problems that are starting to appear as companies move some manufacturing elsewhere in Asia.
Still, Western economists have been reducing their growth forecasts to 8 or 9 percent by early next year. That would be a bonanza for most countries, but could pose a problem for China, where officials are already struggling to find jobs for close to 20 million rural people who move to cities each year.
Factory closings have spread in and around Dongguan and Guangzhou, sprawling industrial cities in southeastern China. Zheng Peixi, 30, a waitress who works at a Thai restaurant in Guangzhou that has had a lot of empty tables lately, said she was eating out less and doing more window shopping than buying.
India, Japan, Taiwan and Southeast Asian nations with weaker demand at home and less solid government finances face greater troubles, though nothing as wrenching as the Asian financial crisis a decade ago.
Japan’s economy has already begun shrinking, economic growth in India has slowed to the weakest pace in nearly four years and economies elsewhere in Asia have decelerated noticeably. Malaysia, Singapore and Thailand are all looking at ways to finance increased government spending beyond what they had planned at the start of their fiscal years.
Americans and Western Europeans were conspicuous for their absence on the opening day of the Canton Fair. But they were partly offset by customers from South America, Russia, Africa, Asia and the Mideast, where the global financial crisis is only beginning to hurt.
A few exporters that sell only to emerging markets maintain they have not seen weakness in sales. Li Gang, sales manager of the Shanghai Pudong Import and Export Co., which specializes in exports of power saws to Eastern Europe and South America, said that the company’s order book was steady.
Other businesses, including rivals in the power tool business, said that no exporter had escaped the downturn. “Big or small, everyone has been affected,” said Dai Chao Yang, the general manager of the Shanghai Kedun Power Tools Co., which has experienced a 20 percent drop in exports this year.
But the market is not entirely bleak for the company. Half its sales are in China, and these sales are still rising.
1 comment:
Asia looks to its own consumers to bolster region’s economies
By Keith Bradsher
16 October 2008
GUANGZHOU, China: For years, Asians have been held up as an example to the world for their discipline in saving rather than spending. Now their leaders are trying to break them of that habit.
As Americans and Europeans pull back in what many expect to be a global recession, Asian consumers may be the last hope to preserve economic growth in part of the world – and even Asian consumers are becoming nervous about falling real estate prices and slumping stock markets in their own countries.
At the Canton Fair, the world’s largest export exposition, which opened here Wednesday, executives from across China, from manufacturers of chain saws to producers of stereo headphones, complained of rising costs and falling sales.
China’s customs agency said Monday that 52.7 percent of the country’s toy exporting companies had ceased operations in the first seven months of this year. Most of the 3,631 toy exporters that went out of business were small. Still, those closures came before the global economic picture was made even bleaker by a slump in bank lending and confidence in Western financial centers.
“It’s a disaster,” said Kevin Cao, the export manager of the HuangYang Bronze Co., a producer of aluminium wire whose exports have dropped by nearly half since July and which has had to cut a quarter of its work force.
Difficulties among Chinese exporters may seem incongruous, given that China announced Monday that its exports were 21.5 percent higher in September than a year earlier, and the country had a record monthly trade surplus of $29.3 billion.
But when adjusted for inflation and the Chinese currency’s rise against the dollar, Chinese exports actually fell 0.5 percent in August from a year earlier, and are likely to be flat for September, for which inflation data has not been released.
The gloom among suppliers at the Canton Fair on Wednesday suggests that shipments will slow further in the months to come.
This has all come as a shock to China’s huge export sector, which enjoyed annual growth – even with inflation and currency changes – of 20 to 30 percent a year through the summer of 2007.
But now order books are thinning. At the Ningbo Deye Domestic Electrical Appliance Technology Co., which makes space heaters and air-conditioners, orders have shrunk by half, said Allen Dong, the company’s export manager.
Many Chinese companies initially responded to weakness in United States sales last year by stepping up marketing in Europe. Chinese exports to Europe quickly surpassed those to the United States. That growth came to a screeching halt this summer as economic and financial troubles jumped the Atlantic to Europe.
Ningbo Deye’s exports to Europe were down 20 percent last month compared with a year earlier. It has shrunk its work force to 1,000, from 1,500 last year.
Some of the most striking drops in exports have occurred in shipments of consumer electronics, garments and toys to the United States, even as some Chinese producers are moving to Vietnam, partly because of lower wages there.
Over the last year, the Yangzhou Sure International Trading Co.’s sales of television remote controls have dropped more than 80 percent in the United States and sales to Europe have fallen 30 percent, said Allan Peter, the general manager.
But it is far from clear that Asians will pick up the slack in consumption. Most economists say current economic conditions will make it hard to persuade Asian consumers to replace Western buyers. For instance, homes and stocks are worth less here and food and energy prices — still high by historical standards — are eroding incomes.
“Consumer behaviour cannot be changed by the wave of a wand,” said Ifzal Ali, the chief economist of the Asian Development Bank. “Domestic demand-led growth is easier said than done.”
Stephen Roach, the chairman of Morgan Stanley Asia, calculates that even with more than a billion inhabitants apiece, China and India each have total personal consumption spending that lags that of Germany, which has 82 million people.
Political leaders across Asia are tailoring policies to change that. India has given generous raises to the country’s four million civil servants, hoping that they will spend some of the money. The government also encouraged banks to lend by reducing the amount of cash they are required to deposit with the central bank. China also has reduced bank reserve requirements, and has cut interest rates and lowered taxes.
Japan and Taiwan have increased government spending on all kinds of projects.
The difficulties in Asia now are completely different from the financial crisis that shook the region a decade ago. Much of the problem then lay in banks that failed after borrowing heavily. Those failures left corporations starved for credit and they had to drastically curtail operations — a predicament many fear for the United States and Europe now.
By contrast, most Asian banks have been more cautious in their lending since then. The contagion infecting Asian economies now is mainly economic, through trade. JPMorgan calculates the annualized rate of growth in Asian emerging markets in the second quarter compared with the first was 6.6 percent, and just 2 percent excluding China and India.
Most of the region’s economies appear to have slowed further in the third quarter.
At stake is not just economic growth, but also social stability. Japan’s previous prime minister resigned Sept. 1 as his country’s economy shrank. Malaysia’s opposition has attracted throngs of voters unhappy about inflation. Crowds protesting Thailand’s weak growth and fractious politics have blocked airport runways and the Parliament building. And candidates promising a minimum wage and other measures to shore up embattled workers won last month’s legislative elections in Hong Kong.
Though Asian leaders face an uphill struggle to shift from export-led growth to a dependence on domestic demand, businessmen say there is no choice.
In Chennai, India, Rafeeque Ahmed, the chairman of one of India’s biggest shoe exporters, laid off 800 of his 6,800 employees as exports weakened this year. Now his company, the Farida Group, plans to start selling to Indian stores in June and is exploring plans to open its own chain of Indian stores in 2010. “We feel like the whole world is now looking at India, so why aren’t we looking at India?” he said.
Similarly, Henry Ye, chairman of a large Chinese garment manufacturer, the Smartex Group, has bought a 60 percent stake in a chain of 300 clothing stores in east-central China. He wants to reduce his factories’ dependence on sales to Western retailers.
Ye has converted the original headquarters of his company in Xiamen, China, into a hotel to appeal to the growing numbers of Chinese who travel domestically. He has also set up a construction division to build homes.
“The U.S. dollar is still very, very weak” compared with China’s currency, Ye said. “The future for China is promising.”
Many economists say China is the Asian country least vulnerable to slowing exports.
Until this summer, the economy had double-digit growth. The government has a small budget surplus and modest debts, which give it a lot of room to cut taxes and spend more on big projects in response to factory closings and other problems that are starting to appear as companies move some manufacturing elsewhere in Asia.
Still, Western economists have been reducing their growth forecasts to 8 or 9 percent by early next year. That would be a bonanza for most countries, but could pose a problem for China, where officials are already struggling to find jobs for close to 20 million rural people who move to cities each year.
Factory closings have spread in and around Dongguan and Guangzhou, sprawling industrial cities in southeastern China. Zheng Peixi, 30, a waitress who works at a Thai restaurant in Guangzhou that has had a lot of empty tables lately, said she was eating out less and doing more window shopping than buying.
India, Japan, Taiwan and Southeast Asian nations with weaker demand at home and less solid government finances face greater troubles, though nothing as wrenching as the Asian financial crisis a decade ago.
Japan’s economy has already begun shrinking, economic growth in India has slowed to the weakest pace in nearly four years and economies elsewhere in Asia have decelerated noticeably. Malaysia, Singapore and Thailand are all looking at ways to finance increased government spending beyond what they had planned at the start of their fiscal years.
Americans and Western Europeans were conspicuous for their absence on the opening day of the Canton Fair. But they were partly offset by customers from South America, Russia, Africa, Asia and the Mideast, where the global financial crisis is only beginning to hurt.
A few exporters that sell only to emerging markets maintain they have not seen weakness in sales. Li Gang, sales manager of the Shanghai Pudong Import and Export Co., which specializes in exports of power saws to Eastern Europe and South America, said that the company’s order book was steady.
Other businesses, including rivals in the power tool business, said that no exporter had escaped the downturn. “Big or small, everyone has been affected,” said Dai Chao Yang, the general manager of the Shanghai Kedun Power Tools Co., which has experienced a 20 percent drop in exports this year.
But the market is not entirely bleak for the company. Half its sales are in China, and these sales are still rising.
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