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Asia's consumer revolution
deepens
By John Berthelsen
Asia's consumer revolution, which is gathering
strength as more than a billion shoppers increasingly
take to the malls, is widening and deepening away from
United States and European export cycles. And, in doing
so, it is changing the path of world trade and
economics.
Having largely become the engine of
Asian growth, China is now moving towards ultimately
supplementing, if not supplanting, the US as Asia's
importer of last resort. The ultimate impact is that the
world is going to become multipolar economically, if not
militarily, over the next decade.
"One of the
redeeming features of being optimistic about Asian
household spending is that it is now less influenced by
the merchandise export cycle than previously," economist
Vasan Shridharan wrote in an Asian Economic Insight
published on November 13 by HSBC's investment banking
unit in Hong Kong.
Virtually since World War II
ended in 1945, global economics have been driven by the
US import cycle, even though the Eurozone and Japan have
seen their economies grow accordingly. Japan, despite
having the world's second biggest economy, has never
provided the economic impetus that China is providing
today, partly because Japan has never broken out of its
mercantilist, export-led economic regime to become a
consumer-led society despite the export of a major part
of its industrial plant to Southeast Asia in the wake of
the Plaza Accord of 1984, which caused a precipitous
rise in the value of the yen.
Japan's stock
market and economic surges in the first half of 2003
very much coincided with the American economic recovery,
although growth is starting to take on a life of its own
today. Continental Europe's economic cycles likewise
have largely coincided with the US's.
China is
not following that path, nor is India. Consumer demand
in both countries is growing rapidly. (See Asia's consumer revolution gets
serious, March 15, and China's consumer era takes
hold, August 6.)
With its growing
domestic markets, pent-up consumer demand and a
burgeoning economy, China has averaged gross domestic
product (GDP) growth around 8 percent for more than a
decade. GDP for 2003 is expected at about US$1.3
trillion, just a bit more than a tenth the US's $12
trillion economy. Nonetheless, growth is soaring
upwards.
India's middle class, already bigger
than the entire population of the US, is expected to
grow to 445 million by 2006. That has inspired Knight
Frank India to rank India fifth in the list of 30
emerging retail markets globally, predicting 20 percent
growth for the segment by 2010. According to a survey by
New Delhi-based KSA Technopak, India's largest
management consultancy, which was based on 10,000
four-member families with slightly higher earnings than
average, urban consumers in 20 Indian cities spent over
$30 billion on themselves in 2002, a 12 percent
year-on-year increase. (See India's growing urge to
splurge, August 22.)
According to
China's National Statistics Bureau, retail sales of
social consumables reached 3.27 trillion yuan, up by 8.6
percent year-on-year in the first three quarters of
2003. Urban retail sales growth, the statistics bureau
said, was distinctly higher than in rural areas. While
total retail sales volumes of urban consumer goods
reached 2.13 trillion yuan, up 9.8 percent, across the
country they were only up by 6.4 percent. That included
retail sales of cars, up 77.5 percent, communications
equipment by 74 percent, construction and decorative
materials up 46.6 percent, petroleum and petroleum
products 38.7 percent, and sales of commercial housing
up by 35.9 percent year-on-year.
Despite
American concerns over China's vast trade surplus with
the US, in fact the country is in a high import-growth
period, according to data from the National Bureau of
Statistics. For the first three quarters of the year,
total import-export volume was $606 billion, up by 36
percent over the same period last year. Growth was 17.9
percent up on the previous year.
China's
gigantic trade surplus with the US thus masks the fact
that overall, China's imports and exports were nearly in
balance. Export volumes reached $307.7 billion, up by
32.3 percent, while imports were $298.6 billion, up by
40.5 percent. Export volume was $9.1 billion more than
import volume, down by $10.9 billion over the previous
year. General trade export growth was up 32.9 percent as
opposed to processing trade, which was up 31.3 percent.
Export volumes to the US, the Association of Southeast
Asian Nations (ASEAN) and Australia were up by 30
percent, and to the European Union and Russia by 40
percent.
The US during the same period imported
$153.9 billion worth of goods from Asia, according to
the US Commerce Department. In the past year, the
Economist pointed out in its November 20 edition,
China's imports have risen by 40 percent, the US's by 2
percent. Japan's exports to the so-called Greater China
region, which includes Hong Kong and Taiwan, are now
greater than those to the US.
US officials have
repeatedly complained that China is only grudgingly
living up to the market-opening pledges it made in order
to join the World Trade Organization (WTO)in 2001. In a
recent story from the People's Daily, which functions
largely as the Chinese government's mouthpiece, it was
pointed out that China has slashed its tariffs
extensively in an effort to meet its commitments under
the agreement to join the WTO. Tariffs were cut to 11
percent as of last January, with some 90 information
products tariffs cut to zero.
Across Asia, "were
the bullish case for the Asian consumer to hinge on a
healthier merchandise export cycle, it could hardly be
described as appealing", HSBC's Shridharan wrote in his
November 13 economic analysis. After all, Shridharan
wrote, "the US recovery is built on extremely shaky
foundations, and a healthy US job market may not coexist
with solid profits, as it is fashionable to assume."
Thus, he and other economic analysts theorize,
there is increasing evidence that Asian household
spending is less and less dependent on the merchandise
exports cycle. Regional private consumption trends are
starting to take on a life of their own. Household debt
levels are low in China, India, Indonesia, Thailand and
the Philippines and are moderate in Taiwan and Malaysia,
especially when compared with debt levels in the US and
the Eurozone.
Eddie Wong, chief Asian economist
for ABN AMRO Asia Ltd, agrees, writing in a November
analysis of Asian economies that any global slowdown
will not derail the Asian recovery. "Although we expect
US economic growth to lose momentum towards the middle
of next year, the global environment will remain
generally favorable to regional equities," he writes,
with interest rates remaining at their current low
levels, sustaining US dollar weakness and driving more
capital back to Asia. A major domestic demand recovery
should exceed current expectations, he continues.
"Employment trends have also been modestly
supportive of household consumption in the region," he
writes. "Asia has managed to avoid a wrenching rise in
its unemployment rate, not only by boosting its share of
the global merchandise export market, but more
significantly, by augmenting its production chain with
service-related industries."
This economic
divergence is being replicated across the region. In a
publication called "In the Bag", a weekly analysis of
consumption trends across the Asia-Pacific region
written by economists for CLSA Asia-Pacific Markets in
Hong Kong, the economies of Taiwan, Thailand, New
Zealand and Australia are particularly building stronger
consumer spending. There are signs that in Singapore,
spending is finally picking up, Korea signaling an
upturn, and India is showing a mixed picture after
strong signals earlier in the year.
PricewaterhouseCoopers (PwC), the international
accounting firm, likewise earlier this year, in a study
titled "Retail & Consumer from New Delhi to New
Zealand", finds similar signs of high rates of economic
growth, far outrunning the EU or the US. While buying
power is still relatively low, the report found, it is
generally on the increase, with pockets of wealth in the
main cities. Growing local industries and outsourcing
are very much responsible, according to the report.
GDP growth in Australia, Malaysia and Thailand
has largely been driven by domestic demand, PwC finds,
as it is in China. Singapore and Hong Kong are both
showing signs of recovery in the wake of the Severe
Acute Respiratory Syndrome (SARS) epidemic in the first
two quarters of 2003.
It is certain that rapid
development will continue over the next few years, the
PwC report finds. "What Western companies need to do is
to accompany the local players in these regions on their
path to growth and at the same time revisit their own
business models, bearing in mind the youth, the vigor
and the winner's mentality that characterizes Asian
entrepreneurs."
(Copyright 2003 Asia Times
Online Co, Ltd. All rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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