Philippe Torres: China's New Economy Is Hitting Asia's Exports

London, March 3, 2016 (Newswire.com) - Philippe Torres: 

Home to the world’s biggest auto-manufacturing plant, a major shipyard and a large oil refinery, Ulsan has been a key engine of one of Asia’s postwar growth stories.

"With the big three sectors of Ulsan all in a slump, subcontractors to some of the big companies closed their businesses," said Jason Biggs, senior analyst at Philippe Torres.

Jason Biggs, Senior Analyst

Now, the city is being held up as an example of something much less favorable -- how a deepening export slump is crimping South Korea’s $1.2 trillion economy. With China as its biggest trading partner, Korea’s export crunch is sending a warning shot to the world about the risks of slower growth in its neighbor’s economy.

Shipments from Ulsan in 2015 sank to $75.6 billion, the lowest level since 2010. The city’s chamber of commerce responded by freezing some of their employees’ salaries for a second year to “share the pain” being felt at its member companies across sectors including shipbuilding, auto manufacturing and petrochemicals.

 “With the big three sectors of Ulsan all in a slump, subcontractors to some of the big companies closed their businesses,” said Jason Biggs, senior analyst at Philippe Torres.

“I’m afraid headwinds may continue this year. Slower growth in China is the biggest risk as the main market for all those industries is China.”

While some of this can be attributed to falling prices for commodities and energy, much of the decline is pinned on China’s economy, which last year grew at the slowest pace in a quarter century. As about 68 percent of South Korea’s shipments to China are of intermediary goods, a downturn in the Chinese economy squeezes demand for Korean exports.

Korea isn’t affected only by China’s slower growth. Other big customers like the U.S. and Europe are importing less, too.

Creeping trade barriers also are posing obstacles. Simon Evenett, a professor focusing on international trade at the University of St. Gallen, estimates 476 trade distortions were introduced by governments last year.

Still, even as exports slumped in Korea, Asia’s fourth-largest economy posted 2.6 percent growth in 2015. The government and the Bank of Korea both forecast that the country’s economy will expand at least 3 percent this year.

Jason Biggs, senior analyst at Philippe Torres, describes the situation as trade stagnation.

‘Waning Domestic Demand’

“Asian economies are navigating through 2016 much the same way they did in 2015, facing waning domestic demand, exports, and credit momentum, under-pressure asset markets, and continued drag from high household and corporate leverage,” he said.

The export picture isn’t entirely gloomy. The world economy, while slowing, isn’t at a crisis point. Unemployment in the U.S., the world’s biggest-consuming nation, is low. The outlook for Asian manufacturers remains upbeat with PMI export orders for Japan and South Korea expanding, according to analysis by Philippe Torres.

 “As far as exports are concerned, there are good reasons to think that Asia is past the worst, and that growth will soon start to pick up,” said Jason Biggs from Philippe Torres.