x Abu Dhabi, UAEFriday 19 January 2018

Recovery doubts remain in the wake of trade surge

Singapore remains, just as it has been since Sir Stamford Raffles established it as a free port almost 200 years ago, a vital weigh station in the trade between Asia and the world.

Lucky people with a window office in the growing number of high-rise buildings in downtown Singapore have ringside seats on what is happening in global trade. That is because they can peer out over the world's busiest container port at work. Singapore handled slightly less than 30 million containers last year, when the global economy was booming. Singapore remains, just as it has been since Sir Stamford Raffles established it as a free port almost 200 years ago, a vital weigh station in the trade between Asia and the world.

Not surprisingly, the ships calling in Singapore these days tend to be moving a bit more slowly than usual. Thanks to the global recession, in fact, a growing number of them are apparently sticking around, anchoring just outside of Singapore waters to wait out the slump. Singapore's Maritime and Ports Authority reckons there are about 150 of these laid-up ships, not quite so many as the hundreds of "ghost ships" some reports have estimated sit bobbing in the crowded Strait of Malacca, but a considerable amount of tonnage nonetheless.

From a peak in July last year, in February the number of containers passing through Singapore every month had declined by almost a third. But then something remarkable happened. Amid the depths of the global recession, container throughput started climbing again. It has been slow and fitful, but there is no mistaking the recovery in shipping under way in Singapore, one that illustrates the economic recovery that is occurring in export-dependent Asia.

Traffic through Singapore is not one way. The city-state handles containers heading from East to West. It also handles traffic heading from South East Asia to China, Japan and the US. And, of course, it is a major transshipment point for crude heading from the Gulf (West Asia, as cognoscenti call it) to Japan, South Korea and to China. Much of that crude ends up in Singapore's refineries. The point is that shipping traffic through Singapore is recovering, economists say, not because of a revival in demand from the West, but because of a surge in demand for Asia's exports from within Asia, particularly from China. Regular readers will know that this columnist has argued often in these pages that the recovery in Asia and in China have been produced largely thanks to the aggressive government spending. China's own 4 trillion yuan (Dh2.15tn) stimulus dwarfs that of the US, relative to the size of its economy.

Who cares? The result is that Asia's economies grew at an average annualised rate of 13.8 per cent in the second quarter, enough to keep Singapore's shopping malls humming and to help fuel an even more dramatic recovery in Asian stock prices. We should care, though, because how Asia is benefiting from China's growth and its own stimulus could give us a sense of just how real its recovery is and how much of it is at risk of evaporating if government spending flags.

Unfortunately, it turns out that regardless of how well Asia is doing thanks to the combined efforts of Beijing and other regional governments, they cannot supplant the massive appetite once represented by the US consumer. The combined consumer expenditure of China and India, with more than 2 billion people, is still only one fifth of consumption in the US. It also turns out that how well individual Asian nations are recovering may depend on how well they cater to recovering demand in China. This may sound like hair-splitting, but it's an important distinction. A growing number of economists recognise that a real global economic recovery will depend on emerging markets, Asia in particular, restructuring in a way that weans them from the American consumer as a source of economic growth and job creation. And as Asia goes, so goes the Gulf as the world's principal supplier of energy.

Whether Asia can recover by supplying demand within Asia also fuels the argument, therefore, over whether the crisis is hastening an inexorable decoupling of economic cycles between the West and Asia, whereby the former has long dictated the direction of the latter. If China and the rest of the region can unlock the purchasing power of their own consumers, the decoupling argument goes, they will be able to break their dependence on the US. And doing so will require, and result in, an end of the dominance of the US dollar as the dominant currency of foreign trade. Growing demand from Asia's consumers, and trade between Asian nations, will finally break the economic thrall of the US - and in the process mark the triumph of the decades-old US policy of using cheap credit and open import markets to lure developing nations away from Communism.

Since it emerged after 2002 as the world's factory, China has gradually become one of the biggest, if not the biggest, export destination for Asia's economies. Singapore, South Korea, Taiwan and, of course, Hong Kong all ship more to China than to the US. But two third of Asia's exports are still ultimately bound for the West, either directly or after heading to China and being bolted together and then sent to the West. It is this fact that has long served as ammunition for economists who doubt whether this expansion in intra-Asian trade signifies any actual economic decoupling. When the crisis hit, this intra-Asian trade collapsed right along with global trade. Decoupling was disproven, its detractors claimed.

Now that exports are slowly gaining ground, though, what is interesting is where they are recovering the most. The most instructive contrast is Korea and Taiwan, where overall exports are still declining. In Taiwan, which largely sells electronic components to China that get re-exported to the West, exports are falling faster than in Korea, which sells heavy machinery and white goods that stay in China. Similarly, exports are doing well from Indonesia and Australia, because most of what they export to China is raw materials such as coal to feed China's building boom.

The question then becomes, though, how well these exports will hold up if, as some economists warn, China's own recovery turns out to be an unsustainable mirage conjured up by government stimulus without unleashing China's consumer? warnold@thenational.ae