While US and European policymakers are attempting to stem financial market jitters, attention has also shifted to Asia for its potential role in bolstering the global economy.
Policymakers in Western economies have admitted that the financial woes are eating into the real economy and few expect the crisis to come to an immediate end. In this case, the global economic crisis may widen further, spilling over to affect the Asian economies, including China, the world's fourth largest economy, which is also undergoing a downward adjustment.
Trade in Asia is already the first victim to the financial turmoil of Western economies. As the impact of the global financial crisis starts to be felt throughout the real economy, with a number of major economies teetering on the brink of recession, many Asian exporters are feeling the pinch, say Moody's Economy.com economists Alaistair Chan and Matt Robinson.
"The export performance of several trade-oriented economies in the region has shown signs of deteriorating in recent months, as sales to the likes of the US and Europe started to wane. Fresh foreign trade data released in the last fortnight merely confirm the gloomy outlook for these export-oriented economies."
South Korea's trade ledger was in the red for another month while Japan just recorded its first ever seasonally adjusted trade deficit, statistics show. India and Singapore headed the list of other Asian nations experiencing declining export sector performance. Australia provided one of the few bright spots in an otherwise lackluster week, recording a near-record trade surplus. "Asia's export-oriented economies will continue to struggle as the global economic slowdown deepens," they say in a research note.
In China's case, exports have been declining in recent months and things may worsen. "Faced with the most serious global slowdown of the reform period, Beijing will have to cope with zero, or even negative, export growth," says Stephen Green, head of China research at Standard Chartered Bank. "The factory closures we have heard about in the previous few months will become more obvious."
Worse, auto sales growth has slowed sharply while housing sales in major cities have slumped as people expect prices to fall further. In the steel sector, the four big steelmakers have agreed to cut output by 20 percent to shore up prices.
"What has worried policymakers most are the difficulties faced by the corporate sector, which have been squeezed by the global slowdown, policy tightening and general rise of production costs," says Huang Yiping, an economist with Citigroup.
But despite the western impact, the overall Asian economies could remain resilient, although they would suffer from slowing growth, says Wang Tao, head of the China economic research unit of UBS. No major financial institutions, for example, have needed to be recapitalized, although the Asian stock markets have also tumbled in recent months.
Moody's Economy.com economist Andres Carbacho-Burgos agrees. "The financial crisis that originated in the US is complicating the global weakness by reducing US and European consumer demand, but it is not essentially altering the main story."
Moreover, Wang says many Asian countries had been equipped with ample foreign exchange reserves to back up economic stability, which is different from ten years ago, when the Asian financial crisis wiped off much of their national wealth.
The International Monetary Fund (IMF) says in its latest economic outlook report that the emerging Asian markets would achieve an 8.4 percent and 7.7 percent growth rate respectively for this year and next, lower than last year's level but remaining impressive.
China's economic growth is expected to rise by 9.7 percent this year and 9.3 percent for next, according to the IMF report. India, another Asian economic powerhouse, would see its economy expand by 7.9 percent this year and 6.9 percent for next. Both would be lower than that of last year, but they are fairly fast growth rates, analysts say.
In China, the retail sales growth remains fast while there is a silver lining its industrial profit scenario.
"Industrial data confirm a slowdown, not a collapse, of earnings growth," Citigroup's Huang says. For instance, while total profits of State-owned companies were flat during the first eight months from a year earlier, the industrial sector's total profits, of which the State sector accounts for roughly one-third, still rose by nearly 20 percent year-on-year during the same period, he says.
China has an advantage in maintaining stable economic growth in that it has much room to relax monetary policy while it can also resort to fiscal inputs to shore up the economy, says Dong Yuping, senior economist with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.
Last Wednesday China cut its benchmark interest rates and the money banks must hold in reserves to ensure liquidity expected to take further moves if necessary.
"We continue to see the latest move as a strong signal of monetary policy easing to come, rather than the easing that many were hoping for," says Wang from UBS.
The country can also invest its fiscal funds in such public goods as rural infrastructure to back up economic expansion while pushing the healthy development of rural areas, Dong says.
"Investment in the rural clean water projects, for example, can ensure health of poor farmers, which will reduce their medical costs and allow them to keep more money to spend."
(China Daily 10/13/2008 page3)