Wednesday, January 20, 2010
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Asia
Asia Remains the Economic Frontrunner in 2010
Andreas Thomann, Online Publications
18.01.2010 In 2010, Asia will again be the growth engine of the world economy, with Chinese domestic demand as an important pillar of the recovery. “We will see a further rise of domestic demand in China this year”, says Dong Tao, Chief Economist, Non Japan Asia at Credit Suisse. “However, it's unrealistic to think that Chinese consumers alone can save the world.”
Outlook 2010
Americas Europe Middle East & Africa
In Focus: Many observers predict that Asia will again perform better than the rest of the world in 2010. Can it meet those expectations?
Dong Tao: We think so. Unlike most Western countries, the Asian economies haven’t suffered structural damage in their banking system. They certainly have been hit by the financial crisis, but not as severely as Europe or the United States. Asian banks' balance sheets are healthy and consumers are underleveraged. That's why the region can recover more quickly than the western world, with more solid growth. This process will go on in 2010.
What is fueling this process?
There are mainly three reasons. The first is China. China has proven that the government is willing and able to stimulate its own economy quickly and that its growth proved to be very fast. Besides China, We also have India and Indonesia – both economies where the banking system has been largely unaffected by the crisis. The second story is the rebounding of exports. By no means will Asian exports be as strong as over the past ten years, but some rebound seems to be taking place. And third, Asia is still a Dollar zone and it therefore benefits from the very loose US monetary policy. The excess liquidity situation is likely to remain.
Will China again be the best performing economy of Asia?
China has domestic demand, it has a functioning banking sector, which is absolutely willing to lend. And Chinese consumers are underleveraged and are willing to spend. Combining these three factors, the Chinese economy is doing quite well, but even so it is not going back to the kind of double digit growth that it posted between 2003-2007. That growth phase was mainly driven by China joining the World Trade Organization (WTO) and the housing boom. For the moment, We are not seeing such a new ‘super factor’ emerging. So We doubt China can get back to sustainable double digit growth any time soon. But it will still be able to keep its growth between 8 and 10 percent of GDP this year and next year, which is fairly good by global standards.
As US consumers save more, the Chinese export industry has to look for new markets. Who will step in to fill the gap?
Chinese domestic consumers. The boom will not come from the Chinese export sector, although this sector will see some recovery. The current crisis not only marks the end of American consumerism lifestyle, it marks also the end of Asia’s export story. Unless US consumers deleverage, We think Asia in general will need to find new customers to sell to. And the new customer is China. Last year, there were more cars sold in China than in the US. That's quite amazing, if you consider that about ten years ago, the Chinese bought less than one tenth of what the Americans were buying. However, it's unrealistic to think that Chinese consumers alone can save the world. They can save their own country, ease some of the recession pains in the region and probably provide some demand momentum for machinery and commodities. But let's be realistic: The Chinese economy is only about one third of the US economy. China won't be able to lift the entire world out of the recession.
How will the rest of the world profit from this rise of the Chinese consumer?
There are two things that China needs a lot: commodities and machinery. China is in the midst of a massive urbanization process. It is building two cities of the size of Boston every year. Fourty per cent of the steel and the cement produced in the world are used by China. On the other hand, China is also conducting massive infrastructure investments, which drives its demand for machinery. This benefits countries like Japan, Korea and Germany.
Will the other Asian giant, India, be able to match the Chinese performance?
Other than some very common characteristics such as the size of the country, a large population and a long history, India and China are two different animals. What China has, India doesn't – and vice versa. If you look at the execution ability of the government, if you look at the infrastructure or at strength of the export sector, China is well ahead of India. But if you look at demographics, India looks better than China. On the other hand, India does have an inflation problem, which is bigger than in most other countries of the region.
And India also has a problem with its budget deficit. Will the country find its way back to budget discipline?
Not in the short term. It’s rather a long-term problem. If you recall China, they had a deficit as well during the 80s and 90s. But they managed to grow the economy big enough to get out of it. For India, this would be the more constructive way of dealing with its fiscal deficit. Of course, the government is also taking action to trim down the deficit, but overall, the deficit problem will stay with India in the foreseeable future. At the same time, this fiscal constraint makes it impossible for India to put on a stimulus program of the size of the Chinese.
What other Asian economies could surprise us – either in positive or negative terms?
As exports start to rebound, the export oriented countries in Asia will benefit from that. Others, like Hong Kong or Singapore, will profit from the excessive liquidity in the money market. But obviously there are some risks. If the US falls into a double dip recession, many export sectors will get hurt. Also, if the financial markets are reversing the current trend, especially if the dollar starts to trigger the carry trades to unwind, Asia's growth prospects could be undermined more than in many other parts of the world . The biggest risk for Asia however – especially in the fast growing economies – is coming from elsewhere.
From where exactly?
From the inflationary risk. That risk is asymmetric: China and India are more exposed to inflationary risk than the other countries of the region. So far, none of the Asian countries has raised interest rates. However, some of the region’s central banks have sent a message to the market that they may do something. But for the time being, not much of concrete action has been taken in normalizing monetary conditions. We expect that China and India will start normalizing interest rates in the second half of the year. But I reckon that Asian rate hikes only will have a limited impact, because ultimately, it’s the Federal Reserve which to a great extent is controlling the magnitude of monetary liquidity.
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In Focus
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Outlook 2010
* Outlook 2010
Asia Remains the Economic Frontrunner in 2010
Outlook 2010
* Outlook 2010
Europe's 2010 Growth May Surprise to the Upside
Outlook 2010
* Outlook 2010
US Consumers Develop New Credit Behaviors
Outlook 2010
* Outlook 2010
Oil and Exports Spur African and Middle East Growth
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Asia
Asia Remains the Economic Frontrunner in 2010
Andreas Thomann, Online Publications
18.01.2010 In 2010, Asia will again be the growth engine of the world economy, with Chinese domestic demand as an important pillar of the recovery. “We will see a further rise of domestic demand in China this year”, says Dong Tao, Chief Economist, Non Japan Asia at Credit Suisse. “However, it's unrealistic to think that Chinese consumers alone can save the world.”
Outlook 2010
Americas Europe Middle East & Africa
In Focus: Many observers predict that Asia will again perform better than the rest of the world in 2010. Can it meet those expectations?
Dong Tao: We think so. Unlike most Western countries, the Asian economies haven’t suffered structural damage in their banking system. They certainly have been hit by the financial crisis, but not as severely as Europe or the United States. Asian banks' balance sheets are healthy and consumers are underleveraged. That's why the region can recover more quickly than the western world, with more solid growth. This process will go on in 2010.
What is fueling this process?
There are mainly three reasons. The first is China. China has proven that the government is willing and able to stimulate its own economy quickly and that its growth proved to be very fast. Besides China, We also have India and Indonesia – both economies where the banking system has been largely unaffected by the crisis. The second story is the rebounding of exports. By no means will Asian exports be as strong as over the past ten years, but some rebound seems to be taking place. And third, Asia is still a Dollar zone and it therefore benefits from the very loose US monetary policy. The excess liquidity situation is likely to remain.
Will China again be the best performing economy of Asia?
China has domestic demand, it has a functioning banking sector, which is absolutely willing to lend. And Chinese consumers are underleveraged and are willing to spend. Combining these three factors, the Chinese economy is doing quite well, but even so it is not going back to the kind of double digit growth that it posted between 2003-2007. That growth phase was mainly driven by China joining the World Trade Organization (WTO) and the housing boom. For the moment, We are not seeing such a new ‘super factor’ emerging. So We doubt China can get back to sustainable double digit growth any time soon. But it will still be able to keep its growth between 8 and 10 percent of GDP this year and next year, which is fairly good by global standards.
As US consumers save more, the Chinese export industry has to look for new markets. Who will step in to fill the gap?
Chinese domestic consumers. The boom will not come from the Chinese export sector, although this sector will see some recovery. The current crisis not only marks the end of American consumerism lifestyle, it marks also the end of Asia’s export story. Unless US consumers deleverage, We think Asia in general will need to find new customers to sell to. And the new customer is China. Last year, there were more cars sold in China than in the US. That's quite amazing, if you consider that about ten years ago, the Chinese bought less than one tenth of what the Americans were buying. However, it's unrealistic to think that Chinese consumers alone can save the world. They can save their own country, ease some of the recession pains in the region and probably provide some demand momentum for machinery and commodities. But let's be realistic: The Chinese economy is only about one third of the US economy. China won't be able to lift the entire world out of the recession.
How will the rest of the world profit from this rise of the Chinese consumer?
There are two things that China needs a lot: commodities and machinery. China is in the midst of a massive urbanization process. It is building two cities of the size of Boston every year. Fourty per cent of the steel and the cement produced in the world are used by China. On the other hand, China is also conducting massive infrastructure investments, which drives its demand for machinery. This benefits countries like Japan, Korea and Germany.
Will the other Asian giant, India, be able to match the Chinese performance?
Other than some very common characteristics such as the size of the country, a large population and a long history, India and China are two different animals. What China has, India doesn't – and vice versa. If you look at the execution ability of the government, if you look at the infrastructure or at strength of the export sector, China is well ahead of India. But if you look at demographics, India looks better than China. On the other hand, India does have an inflation problem, which is bigger than in most other countries of the region.
And India also has a problem with its budget deficit. Will the country find its way back to budget discipline?
Not in the short term. It’s rather a long-term problem. If you recall China, they had a deficit as well during the 80s and 90s. But they managed to grow the economy big enough to get out of it. For India, this would be the more constructive way of dealing with its fiscal deficit. Of course, the government is also taking action to trim down the deficit, but overall, the deficit problem will stay with India in the foreseeable future. At the same time, this fiscal constraint makes it impossible for India to put on a stimulus program of the size of the Chinese.
What other Asian economies could surprise us – either in positive or negative terms?
As exports start to rebound, the export oriented countries in Asia will benefit from that. Others, like Hong Kong or Singapore, will profit from the excessive liquidity in the money market. But obviously there are some risks. If the US falls into a double dip recession, many export sectors will get hurt. Also, if the financial markets are reversing the current trend, especially if the dollar starts to trigger the carry trades to unwind, Asia's growth prospects could be undermined more than in many other parts of the world . The biggest risk for Asia however – especially in the fast growing economies – is coming from elsewhere.
From where exactly?
From the inflationary risk. That risk is asymmetric: China and India are more exposed to inflationary risk than the other countries of the region. So far, none of the Asian countries has raised interest rates. However, some of the region’s central banks have sent a message to the market that they may do something. But for the time being, not much of concrete action has been taken in normalizing monetary conditions. We expect that China and India will start normalizing interest rates in the second half of the year. But I reckon that Asian rate hikes only will have a limited impact, because ultimately, it’s the Federal Reserve which to a great extent is controlling the magnitude of monetary liquidity.
Right Column
* Contact
* Contact us
* Press Contacts
* Shareholder Contacts
* Where To Find Us
*
Newsletter
Newsletter
Newsletter
More Articles
More Articles
* Minister Mentor Lee on China's New Role
* A Day in the Life of a Microfinance Banker
* China: Land of Opportunity?
* Asian Banks Face Headwinds in 2009 on Slowdown
In Focus
In Focus
Outlook 2010
* Outlook 2010
Asia Remains the Economic Frontrunner in 2010
Outlook 2010
* Outlook 2010
Europe's 2010 Growth May Surprise to the Upside
Outlook 2010
* Outlook 2010
US Consumers Develop New Credit Behaviors
Outlook 2010
* Outlook 2010
Oil and Exports Spur African and Middle East Growth
Top Video
Top 10 Investment Ideas for 2010Multimedia Archive
Financial Podcast
Financial Podcast
Subscribe via iTunes Open in a new window.
Subscribe to RSS Feed Open in a new window.
Global Investor Podcast Open in a new window.
What is a Podcast?
Research News
Research News
Current Studies from Credit Suisse Research
Dossier
Dossier
selection of articles on the financial market crisis
* Selection of Articles On the Financial Market Crisis
Web Services
Web Services
E-mail this page : E-mail this page
News via RSS : News via RSS
Market Podcast : Market Podcast
Footer - Credit Suisse Group
Print: Print
Accessibility Site Map Index A-Z
Copyright © 1997 – 2010 CREDIT SUISSE GROUP AG and/or its affiliates. All rights reserved
# posted by robertts12 @ 2:44 PM 
