16/08/2013 - 15:00

Relief at China numbers, work remains

16/08/2013 - 15:00


Save articles for future reference.
Relief at China numbers, work remains

It looked pretty shaky for a while, but last week’s numbers from China suggest that a degree of stabilisation is setting in.

If sustained, and accompanied by more positive news from advanced markets, this should help curtail risks to emerging Asia over the coming quarters. The tapering news is also out of the bag and the Bank of Japan is doing its bit to sustain liquidity.

Bullet dodged. And yet, an uncomfortable feeling lingers. Look closely, and the region still faces formidable adjustment challenges. All we got is a bit more time to put our house in order.

The good news first. At last, China delivered more upbeat data. Not exactly roaring stuff, but a lot better than in recent months.

Industrial production accelerated, trade recovered, and investment stabilised.

In recent weeks, State Council and Politburo conferences offered soothing words, with Premier Li Keqiang reiterating his growth target of 7.5 per cent for this year (with a floor of 7 per cent).

More concretely, the government announced various measures to spur demand. Investment in railways has picked up, taxes on SMEs and services are being cut, and the approval process for certain investments has been simplified. More may need to be done.


Interest rates

Of course risks remain, above all financial. While interest rates have normalised, the recent spike delivered a jolt to shadow bankers. Encouragingly, there are signs that the onshore cash squeeze is easing.

China’s central bank has become more accommodative, and Hong Kong’s Monetary Authority stated that rapid dollar lending by the territory’s banks in recent months, partly reflecting urgent liquidity needs on the mainland, is likely to abate.

Total social financing, or aggregate credit growth, continues to cool from its torrid pace earlier in the year, which is a good thing, but the impact on demand, and real estate, remains uncertain.

According to official data, property transactions by value fell 17 per cent in July, although it is difficult to say whether this reflects deliberate curbs, seasonality, or lasting financial constraints.

The news from early August is a little better.

Still, it’s worth to keep an eye on property.

For now, however, China retains powerful policy levers to help guide the economy through its rough patch. The more relevant question is whether officials will deliver the structural reforms to put growth on a more sustainable path.

Elsewhere data remains downbeat. Exports slowed last month in the bellwether economies of Taiwan and South Korea. For early signals on whether China’s lift will aid the region, look to these two economies.


India and the region

India continues to struggle. Downside risks have risen sharply in recent months. To fight off pressure on the rupee, the Reserve Bank of India tightened financial conditions. This is bound to depress growth further in the coming months. Quick relief appears unlikely.

Across ASEAN, things have softened as well. In Indonesia, higher inflation and interest rates are weighing on demand. In Thailand, consumer spending has eased. In Malaysia, credit conditions have become less supportive.

And yet, none of this points to an imminent slump, and fears that tapering would knock the region out are overblown. Count on Japanese liquidity to cushion that particular blow.

Most of Asia will continue to deliver steady, if unspectacular, growth in the coming quarters. But this should not deflect from an inconvenient truth – structural reforms are urgently needed across Asia to reduce credit dependence, raise productivity, and secure a prosperous future.


Subscription Options