Don’t just think of Asia as ‘export-driven’ urges Matthews Horrocks
Robert Horrocks, CIO of Matthews International Capital Management, adviser to the Matthews Asia Funds, says investors need to distinguish between growth-driven exports and export-led growth.
We all do it. We all refer to Asia as an export-driven economy. It’s one of those seemingly useful bits of shorthand. Unfortunately, I believe it has come to do more harm than good. Along with “emerging economies,” I would like to banish the phrase to the ranks of outlawed jargon. Indeed, there is plenty of evidence to suggest that the relationship between the growth of economies and exports in Asia is not of Asian exports promoting Asian economic growth, but Asian economic growth promoting the region’s exports.
How can this be? Well, growth is essentially being able to produce more goods and services more efficiently, by better machinery, better skills and better ideas as well as better institutions and more effective business models. Advances in these areas make some goods more competitive on global markets and so… countries will then export more.
Even as I write this, I see more headlines in the financial press about how slowing growth in Europe is affecting Asia’s exports. I have even been faced with the question: “How can China grow at all if Europe goes into recession?” Well, in my view, Asia has growth-driven exports more than it has export-led growth.
In Asia, GDP per capita rose by 31% from the end of 2009 to the end of 2011. Korea and Japan topped the list of industrial robot markets but will likely give way to China in the next couple of years. China, meanwhile, has become the world’s largest market for cars. India is now LinkedIn’s second-largest market and expected to become Facebook’s largest market by 2015. According to a survey by consumer insights firm Semiocast, Asia already posted 37% of the world’s tweets in June 2010. China has twice as many Internet users as the U.S.; Asia’s largest populations of Internet users-China, Japan, India, Indonesia and Korea-already number about 830 million in aggregate. Asia Pacific retail sales-having been just about 70% of North American and Western European sales combined in 2008-already surpassed these two regions’ combined sales in U.S. dollar terms last year, according to the Economist Intelligence Unit. In addition, China’s current account surplus fell from about 10% of GDP in late 2007 to less than 3% last year.
Asia continues to grow, installing new capital equipment to boost manufacturing productivity, nurturing new skills and developing new ways of organizing economic activity and sharing information. These efficiencies create value, most of which is enjoyed ultimately by the Asian consumer. This is not export-led growth. And it’s all happening while everyone is worried about Europe.