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The 1997 Asian financial crisis has helped Southeast Asia weather the current economic downturn (photo: Xinhua News Agency)
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Thanks to improvements in country banking systems and government finances implemented since the 1997 Asian financial crisis, the current global recession has not been as harsh to Southeast Asia’s developing economies as to others. Over the next three years, the International Monetary Fund (IMF) is projecting a brighter outlook for Southeast Asia, particularly Vietnam, Indonesia and, to some extent, the Philippines, than for emerging markets in other regions.
These countries are well placed to begin the process of recovery. So, too, is the Chinese mainland, whose resilient economy has acted as an economic anchor in Asia. Since the second quarter of 2009, there have been early signs of stabilisation in Asia’s financial markets and the broader economy, with moderating export declines.
In hindsight, the Asian financial crisis from 1997 to 1998 was partly due to weak financial and banking systems. Since then, most Asian economies have been improving their foreign exchange reserves and reducing external debt.
The ASEAN five (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) have at least tripled international reserves, while their debt-servicing abilities have also greatly improved.
Intra-Regional Trade
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The IMF projects a bright outlook for Southeast Asia |
Many developing economies around the world have relied on export-led growth. In Southeast Asia, the flourishing trade in parts, components and intermediate goods has tightened regional trading links.
According to IMF estimates, intra-regional trade in Asia grew nine percentage points to 52 per cent between 1990 and 2006. Intra-regional trade within emerging Asia gained 10 percentage points to 41 per cent over the same period.
Within the ASEAN five, Malaysia has the highest export-to-GDP ratio (95 per cent), followed by Thailand and Vietnam, where exports represent more than half of their GDP. Indonesia and the Philippines, the two most populous countries in ASEAN, have larger domestic markets, with exports representing 28 per cent and 29 per cent respectively of GDP. For Vietnam, the third-largest population centre in ASEAN, exports account for 57 per cent of GDP.
While external demand is a pivotal factor for export-dependent economies in developing Asia, reliance on demand from the G3 (the European Union, the United States and Japan), is not as large as for many emerging economies outside the region.
Among the ASEAN five, Vietnam sends 56 per cent of exports to the G3, while the other four ASEAN countries export between 35 per cent and 49 per cent to the G3. Singapore, which has the highest export-dependency ratio in ASEAN, sells less than 25 per cent to the G3.
In comparison, ASEAN exports to the mainland are significantly higher than those from such emerging economies as Central and Eastern Europe. About 10 per cent of ASEAN five exports go to the mainland, with the Philippines exporting the most.
Cushioning the Fall
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March of the Mega Malls
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Thailand’s IT malls (computer centres) have sprung up in profusion, often occupied by small- and mid-sized dealers offering a host of unrelated IT and hardware products. That’s changing with the opening of a generation of more sophisticated IT malls that can offer the latest products at reasonable prices.
Digital Gateway recently opened in Bangkok, targeting customers with better focus on technical upgrades and higher disposable incomes. The centre was designed to be a digital lifestyle centre and will be the first to use innovative and interactive digital displays to educate customers on scientific and technological developments.
Customers are generally in the hunt for the latest notebooks, digital cameras, MP3 and MP4 players, mobile phones, PDA phones and other accessories and gadgets. Other centres are rethinking their position as a result of the new business model.
The first and best-known IT centre in Thailand, Pantip Plaza, is celebrating its 25th anniversary this year with special offers. Pantip has assisted its tenants by reducing rental increases from 10 per cent to between two per cent and five per cent.
Another well-known centre, IT Mall Fortune Town, has changed its role from offering space under rental management to acting more like a consultant, helping to solve its tenants’ problems.
Fortune Town works closely with major vendors such as Acer, HP and others, showcasing their latest products at competitive prices. This approach is forcing mid-size IT dealers to cooperate and offer their collective bargaining power with major IT names.
In an uncertain environment, this year’s IT retail market in Thailand may grow by only one per cent, according to market commentators. There are still affluent customers, however, who like to stay in touch with new technology and live in the Bangkok area, where it’s easy to check out new products and services.
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As one of the major exporters in developing Asia, the mainland has also suffered from the collapse in global demand, with sharp year-on-year declines in exports reported in each of the three preceding quarters.
To offset falling external demand, however, it has been swift to introduce fiscal and monetary policies to stimulate domestic demand. Although GDP growth dropped to a seven-year low of nine per cent in 2008, followed by slower growth of 6.1 per cent in the first quarter of 2009, the Chinese economy expanded 7.9 per cent in the second quarter of 2009.
Coupled with data pointing to stronger domestic demand, this scenario indicates that the stimulus measures have started to take effect, raising confidence that the official growth target of eight per cent or more for 2009 will be achieved.
A stronger Chinese economy helps the rest of developing Asia by increasing the likelihood of more exports to the mainland, increasing intra-Asia trade. Chinese imports from each of the ASEAN five have either moderated the decline or rebounded since January 2009. ASEAN also benefits from the mainland’s adoption of a sound economic policy and maintenance of a stable Chinese currency.
With this economic anchor, ASEAN may go through the current global financial crisis without suffering from the economic troubles experienced during the Asian financial crisis.
The China Factor
The mainland’s capacity to absorb ASEAN exports should not be overstated. Exports from Malaysia, Thailand, Indonesia, the Philippines and Singapore to the mainland are about the same as their exports to the US, with the exception of Vietnam.
Moreover, the ASEAN five and Singapore are experiencing reduced demand from markets in the G3. Even for Singapore, which exports less to the G3 than the ASEAN five, the mainland accounts for only about one-tenth of Singapore’s exports, less than half of what it sells to the G3.
An integrated global supply chain means that a large share of developing Asia’s exports to the mainland may actually be driven by demand from developed economies, chiefly the G3.
The mainland acts like a hub for the processing trade: it imports raw materials, parts and components, and intermediate goods from developing Asian economies and then exports final consumption goods to developed markets. In this regard, the true impact of shifting external demand on ASEAN exports would presumably be higher than export data suggests.
Although a robust Chinese economy is good news, the mainland alone cannot replace the current dwindling export demand from developed countries.
Yet, with G3 economies likely to show clearer signs of stabilisation next year, the green shoots of recovery seen in Vietnam, Indonesia and the Philippines are expected to grow further in 2010 through 2011.
For more details on other new markets, please see the September issue of the HKTDC Trade Quarterly, which can be ordered at www.hktdc.com/bookshop.
