Economic recovery on horizon, right? Everyone getting ready for inflation, no? Stocks are expected to go up 20% at least in 2010?
Well, contrarian that I am, the forecast that I’m making for 2010 for ASEAN economies is that things will get worse (for those who follow the teachings of Anthony Robbins, Rhonda Byrne, or their MLM upline mentor, please stop reading now).
Here’s an interesting read from BT, “China’s growing power unsettles its neighbours”
There’s a sense of disquiet over the implications of China’s seemingly boundless expansion
IN THE Dickensian depths of the Dunia Metal Works here (in Indonesia), all is cacophony: The bam bam bam of grease-drenched punches; the rhythmic clank of unspooling steel wire; the storm and stress of glinting, freshly minted nails cascading onto a broad metal table for boxing.
But for all the industrial din, Dunia is undergoing a painful slump. Today it runs at 40 per cent of its capacity, its domestic nail business imperilled – and its exports wiped out – by cheaper Chinese alternatives. ‘We have been competing with the Japanese and the Koreans,’ said Juniarto Suhandinata, the factory’s director. ‘But the Chinese – no chance.’
The Chinese are tough competitors, and Dunia is hardly the first to find out. But Mr Suhandinata’s lament speaks to something different: a sense of disquiet, even in developing Asian nations in Beijing’s orbit, over the implications of China’s swift, seemingly boundless economic growth.
China has long claimed to be just another developing nation, even as its economic power far outstripped that of any other emerging country. Now, it is finding it harder to cast itself as a friendly alternative to an imperious American superpower. For many in Asia, it is the new colossus. ‘China 10 years ago is totally different with China now,’ said Ansari Bukhari, who oversees metals, machinery and other crucial sectors for Indonesia’s Ministry of Industry. ‘They are stronger and bigger than other countries. Why do we have to give them preference?’
To varying degrees, others are voicing the same complaint. Take the 10 South-east Asian nations in the Association of South-east Asian Nations (Asean). Through September, ASEAN ran up a collective US$74 billion trade deficit with China. That is a sharp reversal of the surplus those nations enjoyed in most recent years, and it is prompting some rethinking of the conventional wisdom that China’s rise is a windfall for the whole neighbourhood.
Vietnam just devalued its currency by 5 per cent, to keep it competitive with China. In Thailand, manufacturers are grousing openly about their inability to match Chinese prices. India has filed a sheaf of unfair-trade complaints against China this year covering everything from I-beams to coated paper.
‘Market-oriented exchange rates’
The Asia-Pacific Economic Cooperation forum, the biggest regional group, last month urged the adoption of ‘market-oriented exchange rates’ for Asian currencies without mentioning China’s currency, which many economists say China keeps artificially undervalued to promote its own exports. China has taken some steps to mollify complainers. In April, it proposed a US$10 billion investment fund to help build badly needed roads, railways and ports in South-east Asia, and a US$15 billion fund to give Asian nations low-interest development loans. But it has so far done little to address regional and global unease over the value of its currency, the renminbi. Because the currency is lashed by effective government fiat to the sinking American dollar, China’s exports have become significantly cheaper in countries whose own currencies have not compensated for the dollar’s recent fall.
In Asia, the renminbi is doubly significant. During the 1997 Asian economic crisis, the values of many regional currencies collapsed, making their goods cheap to foreign buyers. The Chinese then won the gratitude of their neighbours by keeping the renminbi’s value fixed. That prevented a competitive spiral of devaluations that many economists feared might make the crisis much worse.
The latest financial crisis tells a different story: China’s exchange rate controls are cited as a leading cause of huge global imbalances that contributed to the collapse of 2008. This time, China has resisted pressure to untie the renminbi from the dollar and let it rise. And its neighbours’ exports have suffered as a result.
Michael Pettis, an economist and scholar with the China programme of the Carnegie Endowment for International Peace, argues that China can no longer pursue the same export-driven development model at a time when Western consumers no longer are able to gobble up whatever it and other Asian manufacturers produce.
Until 2008, Mr Pettis said: ‘Most of these countries ran trade surpluses, and the US was the countervailing trade deficit.’ ‘The entire model depended on the ability of an external agent – the US – to absorb trade deficits,’ he added.
Indonesia is especially vulnerable to the shift. It is the most populous and arguably the least economically advanced nation among the onetime Asian Tigers, and perhaps the least able to accommodate itself to a new regional order dominated by China. Didik J Rachbini, a professor and the founder of an economic research institute here, said that in the past four years, Indonesia had swung from more or less parity in bilateral trade to a deficit equal to one-third of its annual exports to China – and rising.
The lowly nail is one focus of tension. Making nails is not complicated: start with a bale of steel wire, shave it down to the proper diameter, then feed it into a punch that shapes the nail, cuts it and spits it into a bin. Labour and machinery account for 10 or 15 per cent of the cost of a nail. The rest is the cost of the wire.
Too many steel mills
And that is Indonesia’s problem.
‘Many Chinese steel factories have overcapacity, so they sell their wire very cheap,’ said Ario N Setiantoro, who leads the Indonesia Nail and Wire Factory Association. ‘Chinese nails enter the market here at about the same price as our wire.’
He is right. Most analysts say China has too many steel mills. Its excess steelmaking capacity equals the entire annual production of the world’s No 2 steelmaker, Japan. Beyond supply, Chinese state-run banks support industry with construction loans so cheap that credit can be almost free, holding down operating costs. China’s vast purchases of iron ore lock in volume discounts that Indonesia’s small steelmakers cannot match.
Irvan K Hakim, a co-chairman of the Indonesian Iron and Steel Industry Association, said he had aired complaints to Chinese officials for years. He did not appear optimistic about a meeting of the minds. ‘China is China, you know?’ he said, shrugging. ‘Even the US cannot talk to China.‘ – NYT
Then, consider this article from BT, “China open free trade area to rival world’s biggest”
China and Southeast Asia establish the world’s biggest free trade area (FTA) on Friday, liberalising billions of dollars in goods and investments covering a market of 1.7 billion consumers.
Eight years in the making, the Asean-China FTA will rival the European Union (EU) and the North American Free Trade Area in terms of value and surpass those markets in terms of population.
Officials hope it will expand Asia’s trade reach while boosting intra-regional trade that has already been expanding at 20 per cent a year.
‘In 2010 we are sending a strong signal that Asean is open,’ HE Sundram Pushpanathan, of the Association of Southeast Asian Nations (Asean), told AFP.
China has just overtaken the United States to become Asean’s third largest trading partner, and will leap Japan and the EU to become ‘number one’ within the first few years of the FTA, said Pushpanathan, deputy secretary-general for the Asean Economic Community.
Under the agreement, China and the six founding Asean countries – Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand – are to eliminate barriers to investment and tariffs on 90 per cent of products.
Later Asean members, including Vietnam and Cambodia, have until 2015 to follow suit.
Zhang Kening, the director-general of the department of international trade and economic affairs in Beijing, said the average tariff rate China charged on Asean goods would be cut to 0.1 per cent from 9.8 per cent.
Average tariffs imposed on Chinese goods by Asean states will fall to 0.6 per cent from 12.8 per cent.
Asean-China trade has exploded in the past decade, from US$39.5 billion in 2000 to US$192.5 billion last year, Mr Pushpanathan said.
At the same time, Asean-China trade with the rest of the world has reached US$4.3 trillion, or about 13.3 per cent of global trade.
Teng Theng Dar, chief executive of the Singapore Business Federation, said sectors likely to reap the most benefits from the FTA included services, construction and infrastructure, and manufacturing.
‘Other than product and service innovations, this is one great new business opportunity for the establishment of a regionally-based innovative supply chain for market reach and growth,’ he said.
Officials said there was more to the deal than sating China’s thirst for Asian raw materials like palm oil, timber and rubber, and opening up regional markets for its manufactured products, steel and textiles.
‘China and Asean countries are all export-oriented economies. A large proportion of our products target the US and EU markets… Generally neither side took the other’s market as its most important target market,’ Mr Zhang said.
‘But with the establishment of the China-Asean free trade zone, we think there is potential to improve or adjust this situation… Both sides have many goods that complement each other’s needs.’
Not everyone is happily singing the free-trade anthem, however.
At the 11th hour, industry groups in Indonesia, Southeast Asia’s biggest economy, and the Philippines are frantically pressing their governments to keep tariffs on vulnerable sectors until 2012.
‘These sectors aren’t ready to compete with imported Chinese products. If the government implements free trade now, these industries are surely going to die,’ Indonesian lawmaker Airlangga Hartarto said.
He cited 12 sectors including textiles, petrochemicals, footwear, electronics, steel, auto parts, food and drinks, engineering services and furniture.
‘For example, a local sack for sugar, rice and fertilizer costs about 1,600 rupiah (US$1.70) each. A Chinese sack costs about 800 rupiah each,’ he said.
Indonesian Footwear Association chairman Eddy Widjanarko said Chinese firms would take their share of the Indonesian market to 60 per cent from 40 per cent, costing some 40,000 local jobs.
Indonesian Furniture Producers Association executive director Tanangga Karim blamed the government for failing to level the playing field, and called for non-tariff protection in the form of strict safety and quality controls.
‘We have to admit that we aren’t ready to compete now with imported Chinese products,’ he said.
Mr Pushpanathan conceded that some local businesses would struggle.
‘In the short term there will be some adjustments that some countries have to make. Some local companies will lose their domestic market share but ultimately consumers will benefit,’ he said. — AFP
If it’s not already apparently obvious, here are the salient points from the articles:
1. Our savings (everyone in ASEAN) are now flowing outwards to funding capacity buildups in China. (see “trade deficit”) - which means that we’re now funding our competitors to produce even more cheap stuff that’ll put the final bullet in our producers’ still-warm body. Irony number 1.
2. Because all of us in ASEAN are export-oriented, there are only two ways we can “compete” against China (and I mean “compete” in the loosest sense of the word, since we’ve already lost the game):
- Devalue our currency. (see “Vietnam devaluation” and “price of nail”). A vain attempt to protect production that’s already left the building, but guaranteed to be an absolutely LOUSY decision for importers and local consumers. Alternatively, we can always redirect our entire country’s workforce to either work as IR croupiers, or as oil rig production workers.
- Raise protectionist barriers - but the recent FTA means that we’ve just made it even easier for China to swamp us. Why did the governments agree to this pants dropping? The great HOPE (that hopefully we can believe in) is that China will be a CONSUMER of all things ASEAN, rather than a competitor that it actually is. In gambling parlance, it’s called “double-or-nothing”. Yet, as the deficits have shown, we’re now big net buyers of China made goods, not sellers. Anyone wants to bet money on whether China will become a net consumer in 2010? I didn’t think so. Neither does the US.
I weep for my kids.
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