HONG KONG - Stanley Hsu, a Taiwanese
businessman, has looked at the future and likes
it, whatever dark shadow might be spreading across
Asia from the US subprime crisis.
The
mainland's fast-growing economy is encouraging Hsu
to splash out on fast expansion of his spa and
health club ventures, with a target of opening a
new 6 million yuan (US$834,000) club every three
to six months.
Hsu epitomizes the optimism
among Asia’s small and medium-sized enterprises
(SMEs), despite a growing negative impact from the
US subprime crisis. Increasing domestic demand in
the Asian markets could offset for SMEs the
negative impact brought by the
US
slowdown worries, said Margaret Leung, global
co-head of commercial banking at HSBC.
"In
the face of growing economic uncertainty in the
US, emerging markets still see great opportunity
for growth, as intra-Asian trade grows and the
small business sector is learning to adapt quickly
to changing global conditions," Leung said.
Vietnam SMEs are the most optimistic in
Asia, according to a HSBC commercial banking
survey, as trade expands a year after the country
joined the World Trade Organization. They were
followed by their counterparts in India and
mainland China. Of the Vietnam SMEs, the majority
(90%) of those polled expect faster economic
growth in the country in the first half of this
year, and 21% expect local economic growth to
maintain the same pace. Among the India SMEs, 58%
expect faster economic growth locally, and 38%
expect local economic growth to maintain the same
pace.
SMEs in Vietnam and India are acting
on their positive economic outlook, with increased
capital investment - with 75% of SMEs polled in
Vietnam and 60% of SMEs in India planning to raise
spending. Vietnam and India SMEs are also the most
optimistic about trade growth with the rest of the
world in this half.
In Hong Kong 68% of
SMEs polled expect local economic growth to
maintain the same pace in this half and 26% expect
faster growth.
Hsu's optimism for the year
ahead more closely reflects businesses outside his
native Taiwan than at home, where only 13% of SMEs
polled expect faster economic growth. Even so, 58%
expect local economic growth at least to maintain
the same pace in this half.
The
half-yearly survey, conducted in the fourth
quarter of last year, covered 2,700 SMEs in the
mainland, Hong Kong, Taiwan, Singapore, India,
Vietnam, Korea, Malaysia and Indonesia.
The SMEs were asked about their local
economic outlook, and their plans to invest and
hire. Those engaging in cross-border trade were
asked their views on trade volumes with mainland
China, the rest of Asia and the rest of the world.
Hsu, who is also chairman of the Taiwan
Merchant Association in Fuzhou, in east China’s
Fujian province, said in a telephone interview
that Taiwan’s economic growth mainly depended on
its relationship with mainland China.
If
the China-friendly Kuomintang, Taiwan’s largest
opposition party, succeeds in the presidential
election to be held on March 22, "the Taiwan
economy this year will grow by more than 5%", he
said. The pace of Taiwan’s economic growth picked
up to 5.1% last year, from 4.25% in 2006.
"But if the pro-independence Democratic
Progressive Party wins, local economic growth will
be affected, as we believe the 'three links' will
be resolved soon following a KMT victory," Hsu
said. Agreement on the links, covering direct
transport, trade and postal ties between the two
sides of the Taiwan Strait, are expected to be
pivotal in promoting cross-strait economic
development.
Trade between the mainland
and the island to the southeast of Fujian is
already growing apace, helpd by about 67,000
Taiwanese enterprises that operate in the
mainland, involving about one million Taiwanese
people living there.
Taiwan’s exports to
the mainland rose 16.5% year-on-year in the first
11 months of 2007 to US$67.29 billion while trade
the other way gained 12.1% to $25.39 billion. The
resulting trade surplus of $41.9 billion was up
19.4% from a year earlier, the board of foreign
trade of Taiwan said in a statement on January 29.
Increasing production costs and tightening
macroeconomic controls in the mainland are
encouraging Hsu to expand his spa and health club
operations there - he has nine already - at a
faster pace than his textile business.
"For the textile business, I will maintain
the same level of capital expenditure and staffing
level this year as last year, but I plan to open a
new spa and health club, costing six million yuan
each, in China every three to six months," he
said.
Hsu’s Fuzhou textile factory has
about 800 people, while his spa and health clubs,
including restaurants, employ about 1,300 workers
in total. He said Beijing’s tightening measures
and tax reforms, such as the unification of
corporate taxes, have had a bigger negative impact
on Taiwan SMEs in the mainland than the economic
downturn of the US.
Even there, Taiwanese
businesses operating in the mainland, which
include about 9,000 in Fujian alone employing
200,000 Taiwanese, might turn to Hong Kong banks
or offshore units of Taiwanese banks to raise
funds and sidestep Beijing's credit tightening
measures.
The People’s Bank of China, the
country’s central bank, raised interest rates six
times last year to prevent the economy from
overheating. After the six interest rate hikes,
the one-year benchmark deposit rate was increased
to 4.14% by the end of 2007 from 2.52% at the
beginning of 2007 while the one-year lending rate
rose to 7.47% from 6.12%.
The optimism of
Vietnam's small businesses is supported by a
growing economy and government help as they
increasingly look overseas for new markets.
Dao Quoc Khanh, commercial consul of the
Vietnam Trade Office in Hong Kong, said Vietnam
will continue its strong economic growth this year
as the government has been doing its best to
encourage investment, local and abroad, with plans
to cut taxes and amend laws such as enterprise law
and investment law. He said the SMEs in Vietnam
also have a cost-competitive labor force, huge
land as well as rich resources for development.
"The Vietnamese government has helped its
SMEs to explore overseas market by subsiding them
to take part in many overseas trade fairs," Dao
said.
Vietnam’s economy increased by 8.5%
in 2007, its fastest growth in more than a decade
and up from 8.2% in 2006, after the Southeast
Asian country joined the World Trade Organization
in January last year, the General Statistics
Office said in Hanoi last month. Last year's
expansion was the quickest since 9.3% expansion in
1996.
In Hong Kong, many businesses that
operate factories across the border with the
mainland are having to contend with extra costs
linked to a new labor law. Others face government
measures aimed at moving polluting and
labor-intensive factories out of Guangdong, Hong
Kong's neighboring province in the Pearl River
Delta.
Eddy Li Sau-hung, president of the
Hong Kong Economic and Trade Association, said he
was upbeat about the economic outlook of Hong Kong
as the gateway of China, which has had
double-digit economic growth for the past five
years.
"However, due to the negative
impact of the ongoing US subprime mortgage crisis,
Hong Kong economic growth may increase by about 4%
this year, I think," he said. Hong Kong Chief
Executive Donald Tsang said last month he expected
Hong Kong’s economy to grow 5.5% to 6.5% this
year.
Li, who is also managing director of
watch firm Campell Group (Holdings), said the
city's SME's had to transform themselves into
capital- or technology-intensive from
labor-intensive industries, in line with the rapid
development of the mainland economy. Giving his
firm as an example, he said it had developed from
labor-intensive products - watches - to
technology-intensive products - watch movements,
and had also diversified its business to property
and hotel sectors.
"Hong Kong SMEs in
China should not blame the new labor law and
disincentives targeting highly polluting
industries in the Pearl River Delta region. If
they don’t transform themselves, they will fade
out sooner or later," he said.
Li said his
company is closely watching Asian markets, which
have seen faster economic growth in recent years.
"Still we have not shipped our products to Vietnam
and India, as the people there are not rich enough
to buy them," he said.
He expected Hong
Kong trade with the US to slow due to weaker
consumption there as the US subprime mortgage
crisis continues.
The mainland and US were
Hong Kong's two main export destinations for
exports of services, accounting for 24.7% and
21.5% respectively of the total value (excluding
the value of financial intermediation services,
which had no geographical breakdown) in 2006,
according to the latest figures given by the
Census and Statistics Department of Hong Kong.
Not all SMEs in the region are optimistic.
A senior executive of a garment factory in
Thailand described his company’s business as
"walking on thin ice and in search of local
market".
Rising costs and an appreciating
currency - the strongest performer in the region
ex-Japan this year against the US dollar - were
eroding the profit margin of the company, whose
products mainly go to Europe and the US, the
executive said, preferring not to be named.
"I can’t tell how much the profit margin
has dwindled, but the problem is the more orders
we receive from the US doesn’t translate into more
money to be made," he said. "As my country becomes
less competitive amid rising costs such as labor
costs, US buyers are looking at other destinations
in the region, such as Vietnam, Cambodia, India,
Pakistan and Laos," he said.
His company,
which has let staff numbers fall through natural
attrition, now employs a total of only 200 people
at its two factories in the north of Thailand,
compared with 600 in five factories two years ago.
The company now serves as a subcontractor to some
big garment companies in the country and buyers
are mainly domestic purchasers or European.
"We are trying hard to capture the mid-end
fashion market due to faster economic growth in
the country," said he. One worry was that the
country’s economy has been under a cloud since a
coup in late 2006. A new civilian government was
formed last week after elections last December.
Thailand's currency, the baht, was trading
near its highest level against the US dollar in
more than a decade after the head of the newly
elected government, Prime Minister Samak
Sundaravej, said it is reviewing whether to remove
restrictions on foreign capital entering the
nation. The baht has gained 2.4% this year.
Olivia Chung is a senior Asia
Times Online reporter based in Hong
Kong.
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