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China cuts reliance on Asian input
Recent wobbles on the Shanghai Stock
Exchange caused ripple effects on other Asian stock markets, but
trends within China’s manufacturing sector could be of greater
concern.
The turbocharged Asian economies these days belong to the two
giants – China and
India – whose performances will enable the overall Asian economic
growth to only slow to 8.5% this year from 9% in 2006.
According to the latest ‘Regional Economic Outlook’ by the
International Monetary Fund, the pick up in domestic consumption
growth throughout Asia is expected to be modest, outside of China.
Higher interest rates and other government measures are expected
to slow growth in both China and India.
China’s growth has been forecast to fall from 10.7% last year to
10% and 9.5% respectively in 2007 and 2008, while India would see
its growth moderate from 9.1% to 8.4% this year.
The IMF said that
China’s growth continued to be largely investment led, although
net exports were contributing a growing share, while India’s
domestic demand had gained further momentum.
Singapore and South Korea led the newly industrialising countries
elsewhere in Asia with average growth of 5.3% (4.6% this year),
while the Asean-5 had 5.7% growth (5.8%).
The external positions measured via current account surpluses last
year showed outcomes that were “uniformly higher than expected”.
As a result of improved exports, lower oil prices and lower
imports,
Asia’s overall current account surplus reached 4.3% of gross
domestic product, one percentage point higher than in
2005 and earlier projections for 2006.
The bulk of the increase came from China burgeoning trade surplus,
which accounted for two thirds of Asia’s higher current account
surplus compared with 2005.
Foreign exchange reserves in the region picked up pace to exceed
US$3 trillion with China dominating with South Korea and Thailand
experiencing significant increases.
The IMF said the main risks to growth was linked to uncertainty
surrounding US growth prospects with risks within the region more
on the upside due to the “potential growth performances of China
and India”.
The IMF report also indicated there could be evolving changes to
the decade-long trend that has seen most Asian nations enjoy big
export growth to China.
China, which has traditionally been a net importer of steel
products despite a fast growing domestic steel industry, has for
the first time become a net exporter of steel in 2006.
According to the IMF, iron and steel was the third biggest
contributor to China’s expanding trade surplus, contributing 0.9%
of GDP versus 1.8% for electronics and 1% for machinery.
It said the domestic content of Chinese exports also appeared to
be rising fast with the link between Chinese exports and imports
becoming weaker.
This trend could have significant implications for Asian nations
that provide the Chinese with a range of intermediate goods that
have fuelled its massive industrial growth.
“Imports of intermediate goods have slowed considerably,” the IMF
noted.
“Parts and components and semi-finished goods accounted for almost
half the slowdown in import growth between 2004 and 2005.
“In addition, there has been a significant slowdown in capital
equipment imports, as domestic fixed asset investment continued to
expand sharply in 2005 and 2006.”
Despite the slowdown in imports of intermediate inputs, China’s
exports of final goods have remained “robust” with strong growth
in areas such as aircraft, home electrical appliances, industrial
machinery, precision apparatus and automobiles.
Foreign direct investment continues to play a significant part in
the transformation underway with FDI from the US chemical industry
rising from US$37 million in 1999 to US$520 million in 2005.
In the same period, FDI from Taiwan has risen from US$538 million
to US$2.4 billion in the electronics sector and from US$28 million
to US$373 million in the precision instrument sector.
The IMF noted that China was becoming less reliant on other Asian
economies for inputs.
“While China’s trade surplus with the United States and the
European Union continues to grow, its trade deficit with the rest
of Asia, traditionally an offset, has begun to shrink over the
last two years,” it said.
 
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