Asia Best Placed to Weather Europe Crisis as China Exports Soar

Asia’s economies signaled they are best placed to weather Europe’s debt crisis this week as data from China’s exports to job growth in South Korea and Australia surpassed analysts’ forecasts.

Regional stocks rose yesterday after a report showed Chinese shipments abroad climbed 48.5 percent in May from a year earlier, more than the 32 percent median forecast in a Bloomberg survey, and separate figures showed a jump in property prices. Unemployment rates in South Korea and Australia fell last month, according to government figures, and Japan reported its economy expanded more than previously estimated in the first quarter.

The resilience may amplify American calls for Asian nations to reduce reliance on exports and increase their contribution to a world recovery clouded by Europe’s fiscal woes. China has so far resisted letting its yuan rise against the dollar, seeking to shield exporters, while Japan’s central bank has flagged the recovery in refraining from stepping up injections of cash.

“These numbers are very positive,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. “Asian countries have pretty strong fiscal positions and they’ve got growing domestic demand, which will help insulate against any shocks out of Europe.”

Also, the “sharp pick-up in China’s trade surplus will not go unnoticed in Washington, where there will be more pressure on the U.S. administration out of Congress to take a tougher line with China” on its currency, Jackson said.

Stocks Surge

U.S. Treasury Secretary Timothy F. Geithner told the Senate Finance Committee yesterday that a more flexible yuan could redress global economic “distortions” and help China cool prices. The Senate will vote “soon” on a measure aimed at getting China to raise the value of the yuan, Senator Charles Schumer of New York told Geithner at the hearing.

The economic reports helped stoke a surge in stock markets around Asia. The MSCI Asia Pacific Index rose 1 percent yesterday to 110.98 in Tokyo.

Asia’s growth contrasts with several European nations that may see their gross domestic product shrink, with the risk of a “double dip” recession, Andrew Burns, lead writer of the World Bank’s Global Economic Prospects 2010 report, said in a telecast from Washington late June 9. Burns didn’t single out European countries by name.

Eastern Europe, Central Asia and Latin America are the developing regions most in danger of an impact from the crisis that started in Greece, he said.

Knock-On Effects

East Asia wouldn’t be unscathed by a return to recession in the advanced economies, Burns said. “That’s going to have important knock-on effects in East Asia, particularly because it is a very heavy trading region.”

The Bank of Korea cited the European situation in keeping its benchmark interest rate at a record-low 2 percent yesterday.

“There is a considerable degree of uncertainty over the actual growth path, caused by the fiscal problems of European countries,” Governor Kim Choong Soo and his policy board said in a statement yesterday.

At the same time, Asia will continue to lead the global rebound, International Monetary Fund Deputy Managing Director Naoyuki Shinohara said June 9. That brings its own challenges, with increasing capital inflows and the risk of overheating if policy makers fail to take “appropriate” action, he said in a speech in Singapore.

China’s inflation accelerated in May to the quickest pace in 19 months as consumer prices rose 3.1 percent from a year earlier, a report showed today. Retail sales quickened, industrial production jumped 16.5 percent, and lending growth exceeded economists’ forecasts.

China Property

Property prices rose at the second-fastest pace on record in May, jumping 12.4 percent from a year earlier, a sign that the Chinese government’s crackdown on speculation has yet to avert the threat of an asset-price bubble.

“The Chinese property market is still growing at an unsustainable rate,” said David Taylor, a market analyst at CMC Markets in Sydney. “There’s also evidence that the sovereign debt woes of Europe are yet to have a material impact on China’s trade balance.”

Signs of economic strength in Asia are prompting leaders and policy makers to boost economic forecasts for their economies. Malaysian Prime Minister Najib Razak said yesterday that economic growth will average 4.2 percent in the 2006-2010 period, and Sri Lankan central bank Governor Nivard Cabraal said his nation’s economy may expand faster than earlier forecast in 2010.

Japanese Growth

Japan’s economy expanded at an annualized 5 percent rate in the three months ended March 31, quicker than the 4.9 percent reported last month, driven by exports and an upward revision to consumer spending.

China’s customs bureau said yesterday the nation posted a trade surplus in May of $19.53 billion.

By contrast, the trade deficit in the U.S. widened in April to the highest level in more than a year as exports fell more than imports, a Commerce Department report showed. The gap grew 0.6 percent to $40.3 billion, the most since December 2008.

“Unfortunately for Chinese policy makers the latest trade figures are probably ‘too good’,” said Craig James, a senior economist at Commonwealth Bank of Australia in Sydney. “The lift in the trade surplus will again get politicians in Washington rattling sabers about the value of the yuan.”

Rate Increases

Some economies in the region are growing fast enough for policy makers to begin raising borrowing costs. New Zealand central bank Governor Alan Bollard yesterday increased the official cash rate to 2.75 percent from a record-low 2.5 percent, the first boost in three years.

India’s central bank has raised rates twice since mid-March by a quarter percentage point each time, taking the reverse- repurchase rate to 3.75 percent.

In Australia, where central bank Governor Glenn Stevens has led Group of 20 policy makers with the most aggressive round of interest rate increases, a mining investment boom continues to stoke demand for workers.

Australian employers added 26,900 to payrolls in May, more than the 20,000 forecast by analysts, pushing down the jobless rate to 5.2 percent from 5.4 percent, almost half the level of the U.S. and Europe.

To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net

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