The face of the Asian continent in the wake of an economic slowdown


Asian economies are decelerating as exports across the region have contracted in most markets. Unlike the golden age of the past decades, when many Asian countries averaged double-digit growth rates combined with a rising youthful population and high incomes, Asia is now growing at a slower pace. Local currencies have weakened and increasing levels of corporate and households’ debts combined with potential financial market disruptions have grown to become other risks to growth. The key country to ¨blame¨ might obviously be China. With a hitherto unprecedented growth rate and unique economic structure, China’s economy was set to become ever larger as well as its international clout. Therefore, its slowdown in GDP and falls in stock markets were set to affect the whole world and, especially, the Asian countries.

Asian exports are losing power

Exports used to be Asian governments’ top economic strategy as they produce together approximately a quarter of all goods shipped around the world. Exports were almost 8% lower in US dollar terms in September than it was last year. Put together, the fantastic four Asian export powerhouses, i.e. Japan (expertise in high-tech), China (expertise in assembly), South Korea and Taiwan (both leader countries in electronics), lowered by 2% in the third quarter of this year compared to the same period last year.

The reasons for this downturn vary among countries. Japan’s fall in industrial output might plunge the country into its second recession period. On the other hand, China is gradually losing its key comparative advantage in lower-end manufacturing because of the rise in wage, a consequence of its economic development and increase in productivity. Business are thus shifting their operations to cheaper nations such as Vietnam or Bangladesh. For these less developed countries, the export path remains widely open provided that they can supply enough cheap but qualified workers to multinational companies and outside investors. However, investors in Vietnam are currently complaining about a shortage in skilled workers. This problem is even more severe in poorer countries such as Myanmar, Cambodia and Laos.

Currencies weakened while stock markets across Asia recovered slowly

The recent devaluation of the Chinese yuan had a knock-on effect on commodity prices. As a matter of fact, some Asian currencies witnessed multi-year lows. In August, the Malaysian ringgit fell by 2% to reach its lowest level since 1998. In September, it continued to fall by another 0.5% against the US dollar. Similarly, in August, the Indonesian rupiah fell by more than 1.4% to a 17-year low. In September, both the Indonesian rupiah and the Thai baht fell by nearly 0.3%, while the Singapore dollar weakened by 0.6% and the Taiwan dollar fell by 1.1%.

China’s “Black Monday” in August caused major falls both in the Shanghai Composite, the country’s benchmark stock index, and in the Shenzhen CSI 300. Thanks to the government’s intervention, the Shanghai Composite Index went up by 0.9%, inaugurating Asia’s volatile stock markets.

The Wall Street Journal Dollar Index that indicates the value of the US dollar against a basket of sixteen currencies, increased overnight from 88.33 to its highest level at 88.49 since September. Just as Evan Lucas, a strategist at brokerage IG said, „the reinstatement of long positions in the U.S. dollar is helping to calm Asian stock markets [and] easing Asian currencies”.

China faces intractable challenges

Despite its economic slowdown, China keeps leading global GDP expansion of the Asian continent and the whole world, representing an even larger part of world economic growth than the rest of all Asian countries combined. China’s economy grew by over 7% and is actually on its way to the slowest economic expansion for about 20 years.

The recently concluded Trans-Pacific Partnership (TPP), involving 12 countries and responsible for over 40% of world trade, is the most ambitious free trade agreement ever reached. Such as all free trade agreements in recent years, it aimed at deepening economic ties between nations, cutting tariffs and developing trade to boost growth. Unlike the other pacts, there is another crystal clear goal in this seven-year effort by the US, which is to keep China away from the game. “When more than 95% of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy,” President Obama said in a statement. “We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

As for the Chinese domestic economy, the composition of China’s growth is probably the culprit. A report from HSBC, a bank, suggests that China’s slowdown is due to its unsuccessful transition from cheap manufacturing export economy to a consumer-driven economy.

Emerging economies provide more possibilities for multinationals

The Philippines’ GDP grew as much as 6.1% for the last 2 years, a growth rate easily comparable to these of China and India, even though the Philippines’ economic story might often be overshadowed by its larger Asian neighbors. „We have the best investment incentives in the region and a trusted, loyal and educated English-speaking workforce¨ Philippine trade Secretary, Gregory Domingo said, ¨India is number 1 in outsourcing globally, the Philippines is number 2”. Actually a few multinationals such as HSBC and Shell, have already outsourced their back offices and IT operations to the Philippines. To some extent, this is also a result of the wage rise in China.

Leading the world in economic gains at a slower rate

It is no longer easy for Asia to depend on export-led growth and the region should manage to overhaul its economic model while waiting for global trade to recover. Asia must help itself out with its structural problems, overcome its addiction to debt and face the truth that there might be no return to record-breaking growth.

Photo credit: @sage_solar,


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