China Can Suck in Asian Exports Only for So Long

Whenever Hong Kong’s exports enjoy a pick-up, economists tend to look for some renminbi-related Chinese capital controls dodge for an explanation. Rarely are they seen as a win for Hong Kong’s service-centred economy. Yet for once this growth — 16.7 per cent year on year — is not only real but being replicated across Asia. On Monday, South Korea reported exports up 24 per cent. Can it last? The direction of emerging market indices rests on the answer.Asia makes up more than two-thirds of MSCI’s flagship emerging markets index. The V-shaped recovery in its export growth this year has been key in helping the EM universe outperform its developed world counterpart, with a gain of 13 per cent compared with 7 per cent. Against a backdrop of soft US growth and Trump-inspired fears of a trade war, this is all the more impressive. Four of the world’s five busiest trade routes involve Asia and it is home to nine of the world’s top 10 container ports.  

Put simply, commodities, China and chips have led Asia’s export surge. The global rally in the price of materials from coal to copper has done much to lift business performance in the region, particularly for raw material exporters targeting China. About half of Indonesia’s 20 per cent growth in exports, for example, is the result of higher prices, not rising volumes. Electronic demand, too, has been a critical driver. A pick-up in global chip prices helpfully coincided with a big shift to 4G phones last year in China, benefiting the semiconductor specialists such as South Korea and Taiwan, where electronics exports to China rose 27 per cent in the first quarter year on year.

The most interesting point is that China appears increasingly to be an end destination, rather than a stage in the global supply chain. Its own exports are up only about 4 per cent from a year ago, suggesting what’s been exported there will stay there. Over the long term, anything that lessens Asia’s traditional reliance on the US economy has repercussions for how investors view the region. But in the short term — and this is the short view, after all — investors must expect an export slowdown with China’s growth rate expected to ease and the commodities rally tailing off. Those gloomy Hong Kong economists may yet get to dust off their notes on the mainland’s capital control dodges.