Interesting article, and worth a careful read:
Asia's consumer revolution deepens
By John Berthelsen
Asia's consumer revolution, which is gathering strength as more than a billion shoppers increasingly take to the malls, is widening and deepening away from United States and European export cycles. And, in doing so, it is changing the path of world trade and economics.
Having largely become the engine of Asian growth, China is now moving towards ultimately supplementing, if not supplanting, the US as Asia's importer of last resort. The ultimate impact is that the world is going to become multipolar economically, if not militarily, over the next decade.
"One of the redeeming features of being optimistic about Asian household spending is that it is now less influenced by the merchandise export cycle than previously," economist Vasan Shridharan wrote in an Asian Economic Insight published on November 13 by HSBC's investment banking unit in Hong Kong.
Virtually since World War II ended in 1945, global economics have been driven by the US import cycle, even though the Eurozone and Japan have seen their economies grow accordingly. Japan, despite having the world's second biggest economy, has never provided the economic impetus that China is providing today, partly because Japan has never broken out of its mercantilist, export-led economic regime to become a consumer-led society despite the export of a major part of its industrial plant to Southeast Asia in the wake of the Plaza Accord of 1984, which caused a precipitous rise in the value of the yen.
Japan's stock market and economic surges in the first half of 2003 very much coincided with the American economic recovery, although growth is starting to take on a life of its own today. Continental Europe's economic cycles likewise have largely coincided with the US's.
China is not following that path, nor is India. Consumer demand in both countries is growing rapidly. (See Asia's consumer revolution gets serious, March 15, and China's consumer era takes hold, August 6.)
With its growing domestic markets, pent-up consumer demand and a burgeoning economy, China has averaged gross domestic product (GDP) growth around 8 percent for more than a decade. GDP for 2003 is expected at about US$1.3 trillion, just a bit more than a tenth the US's $12 trillion economy. Nonetheless, growth is soaring upwards.
India's middle class, already bigger than the entire population of the US, is expected to grow to 445 million by 2006. That has inspired Knight Frank India to rank India fifth in the list of 30 emerging retail markets globally, predicting 20 percent growth for the segment by 2010. According to a survey by New Delhi-based KSA Technopak, India's largest management consultancy, which was based on 10,000 four-member families with slightly higher earnings than average, urban consumers in 20 Indian cities spent over $30 billion on themselves in 2002, a 12 percent year-on-year increase. (See India's growing urge to splurge, August 22.)
According to China's National Statistics Bureau, retail sales of social consumables reached 3.27 trillion yuan, up by 8.6 percent year-on-year in the first three quarters of 2003. Urban retail sales growth, the statistics bureau said, was distinctly higher than in rural areas. While total retail sales volumes of urban consumer goods reached 2.13 trillion yuan, up 9.8 percent, across the country they were only up by 6.4 percent. That included retail sales of cars, up 77.5 percent, communications equipment by 74 percent, construction and decorative materials up 46.6 percent, petroleum and petroleum products 38.7 percent, and sales of commercial housing up by 35.9 percent year-on-year.
Despite American concerns over China's vast trade surplus with the US, in fact the country is in a high import-growth period, according to data from the National Bureau of Statistics. For the first three quarters of the year, total import-export volume was $606 billion, up by 36 percent over the same period last year. Growth was 17.9 percent up on the previous year.
China's gigantic trade surplus with the US thus masks the fact that overall, China's imports and exports were nearly in balance. Export volumes reached $307.7 billion, up by 32.3 percent, while imports were $298.6 billion, up by 40.5 percent. Export volume was $9.1 billion more than import volume, down by $10.9 billion over the previous year. General trade export growth was up 32.9 percent as opposed to processing trade, which was up 31.3 percent. Export volumes to the US, the Association of Southeast Asian Nations (ASEAN) and Australia were up by 30 percent, and to the European Union and Russia by 40 percent.
The US during the same period imported $153.9 billion worth of goods from Asia, according to the US Commerce Department. In the past year, the Economist pointed out in its November 20 edition, China's imports have risen by 40 percent, the US's by 2 percent. Japan's exports to the so-called Greater China region, which includes Hong Kong and Taiwan, are now greater than those to the US.
US officials have repeatedly complained that China is only grudgingly living up to the market-opening pledges it made in order to join the World Trade Organization (WTO)in 2001. In a recent story from the People's Daily, which functions largely as the Chinese government's mouthpiece, it was pointed out that China has slashed its tariffs extensively in an effort to meet its commitments under the agreement to join the WTO. Tariffs were cut to 11 percent as of last January, with some 90 information products tariffs cut to zero.
Across Asia, "were the bullish case for the Asian consumer to hinge on a healthier merchandise export cycle, it could hardly be described as appealing", HSBC's Shridharan wrote in his November 13 economic analysis. After all, Shridharan wrote, "the US recovery is built on extremely shaky foundations, and a healthy US job market may not coexist with solid profits, as it is fashionable to assume."
Thus, he and other economic analysts theorize, there is increasing evidence that Asian household spending is less and less dependent on the merchandise exports cycle. Regional private consumption trends are starting to take on a life of their own. Household debt levels are low in China, India, Indonesia, Thailand and the Philippines and are moderate in Taiwan and Malaysia, especially when compared with debt levels in the US and the Eurozone.
Eddie Wong, chief Asian economist for ABN AMRO Asia Ltd, agrees, writing in a November analysis of Asian economies that any global slowdown will not derail the Asian recovery. "Although we expect US economic growth to lose momentum towards the middle of next year, the global environment will remain generally favorable to regional equities," he writes, with interest rates remaining at their current low levels, sustaining US dollar weakness and driving more capital back to Asia. A major domestic demand recovery should exceed current expectations, he continues.
"Employment trends have also been modestly supportive of household consumption in the region," he writes. "Asia has managed to avoid a wrenching rise in its unemployment rate, not only by boosting its share of the global merchandise export market, but more significantly, by augmenting its production chain with service-related industries."
This economic divergence is being replicated across the region. In a publication called "In the Bag", a weekly analysis of consumption trends across the Asia-Pacific region written by economists for CLSA Asia-Pacific Markets in Hong Kong, the economies of Taiwan, Thailand, New Zealand and Australia are particularly building stronger consumer spending. There are signs that in Singapore, spending is finally picking up, Korea signaling an upturn, and India is showing a mixed picture after strong signals earlier in the year.
PricewaterhouseCoopers (PwC), the international accounting firm, likewise earlier this year, in a study titled "Retail & Consumer from New Delhi to New Zealand", finds similar signs of high rates of economic growth, far outrunning the EU or the US. While buying power is still relatively low, the report found, it is generally on the increase, with pockets of wealth in the main cities. Growing local industries and outsourcing are very much responsible, according to the report.
GDP growth in Australia, Malaysia and Thailand has largely been driven by domestic demand, PwC finds, as it is in China. Singapore and Hong Kong are both showing signs of recovery in the wake of the Severe Acute Respiratory Syndrome (SARS) epidemic in the first two quarters of 2003.
It is certain that rapid development will continue over the next few years, the PwC report finds. "What Western companies need to do is to accompany the local players in these regions on their path to growth and at the same time revisit their own business models, bearing in mind the youth, the vigor and the winner's mentality that characterizes Asian entrepreneurs."
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