Chinese Demand Drives Asia Export Rebound

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Chinese Demand Drives Asia Export Rebound

Filipino bananas, Indian cotton and New Zealand lamb have at least one thing in common. They're all objects of resurgent Chinese demand.

As Donald Trump prepares to go head to head with Xi Jinping on trade, China's consumer power is kicking Asia's export engine into gear, moving the world's fastest-growing economies.

Shipments to China from around the region have risen sharply in both value and volume, ending what economists at Australia & New Zealand Banking Group Ltd. described as Asia's two-year trade recession. Higher commodity prices are lifting export values for countries like Indonesia and Malaysia while rising oil prices have boosted Singapore and India. The planned launches of Samsung Electronics Co.'s new Galaxy S8 and Apple Inc.'s iPhone 8 are fueling demand for semiconductors and other components made in South Korea and Taiwan.

"Asian exports have staged a significant rebound," said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore.

Upward trend

In Japan, exports are underpinning a modest economic recovery, with shipments to China, its biggest customer, jumping 28% in February, helping total exports rise the most in two years. South Korean exports rose the most in five years during the same month, thanks to accelerating shipments to China, which jumped by nearly a third from a year earlier.

Indian exports to China rose by nearly half in December from a year earlier, driven by shipments of cotton, ores & zinc. The figure compares with a 5% drop in overall Indian exports, & pares the 7.7% decline in Indian exports to China for the full year. New Zealand's shipments to China grew 12% in the three months to February, driven by demand for beef, lamb and milk powder, according to ANZ. There's more to come. New Zealand wants to upgrade an existing trade deal with China. In Southeast Asia, Thailand and Malaysia's exports to China in January rose by nearly a third from a year earlier. Indonesian exports to China jumped almost 44% in February from a year earlier while Singapore's soared 65% the same month. The China-driven rebound in exports is part of the reason Asia's expansion will probably exceed 5% in 2017 and 2018, compared with about 3.5% for the world, according to the International Monetary Fund.

Risks ahead

To be sure, the sustainability of the export recovery is far from assured. Though volumes are up, much of the rebound reflects higher commodity prices & seasonal effects can provide a gloss to overall numbers. Beijing is faced with a challenge as it tries to rein in excessive debt & leverage while shifting the economy away from a reliance on stimulus.

"You should expect China to slow this year," said Mark McFarland, chief economist for Asia at Union Bancaire Privee in Hong Kong. Then there's Mr Trump. While he's toned down threats of dramatic trade action against China, his administration appears committed to shrinking a yawning trade deficit through tariffs on the country's goods or other punitive measures. Heightened trade tensions between the two largest economies would spill over to the rest of Asia given the region's tightly knit supply chain and the US position as worlds' largest consumer market.

A reluctance among companies to invest, excess capacity and rising levels of debt also limit the prospects for a recovery. Still, firming demand in East Asia is consistent with global trade volume growth of more than 5% on year in February, the fastest pace since 2011, according to Capital Economics.