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SCMP Reporter

A KEY feature of world economic development in recent years has been the strong performance of the developing countries at a time when the performance of the economically mature industrial countries as a group has been below par.

  Hence world Gross Domestic Product (GDP) growth has exceeded that of the Group of Seven (G7) countries in recent years by one per cent or more.

  Within the developing countries, relative outperformance has been greatest for the East Asian region (the four newly industrialised economies [NIEs] plus Malaysia, Indonesia, Thailand and China).

  Among these countries, GDP has continued to expand by 6.5 to 7.5 per cent each year, or almost three times the rate achieved by the G7. A variety of factors can be put forward to explain the higher growth rates.

  But a general feature of growth throughout the region is the extent to which it has been externally driven.

  Hong Kong, Thailand and Malaysia appear quite capable of sustaining trends in export growth of 15 to 20 per cent a year.

   In large part, their export success has reflected an ability to increase market share in the domestic markets of the industrial economies.

  Asia's export-oriented manufacturing base has been supported by strong inflows of foreign direct investment, as the production of manufacture has become increasingly globalised.

  In addition, East Asian countries have, by and large, been able to maintain competitive currencies, through formal or informal linkages to a weak US dollar.

  Import penetration has often increased, even when industrial country markets have been slow-growing or stagnant, as in the case of Japan.

  Another important feature of Asia's external trade has been the dynamism of intra-regional trade.

  Rapidly expanding intra-regional trade opportunities go some way to explaining the ability of Asian countries to sustain a high pace of development relative to other regions.

  As a share of the total, intra-regional trade has increased by about 50 per cent over the past 10 years, and is currently about 25 per cent.

   More recently, China's emergence as a rapidly growing regional economy has give a further boost to intra-regional trade.

  China's early-90s boom saw breakneck GDP growth (averaging 11.7 per cent over 1991-94) accompanied by strong trade expansion.

  Over the same period exports rose by an average 18.5 per cent per annum, and imports by 21.5 per cent.

  After considerable initial delay, China's austerity measures now seem to be making an impact.

  GDP growth of 10 per cent this year is expected to slow further to nine per cent in 1996.

  Although exports have continued strong, import demand has been heavily affected, with total import growth falling from 29 per cent in 1993, to an estimated 14 per cent this year.

  Some investors have became worried that the Chinese economy could slow much more rapidly than the consensus expects.

  They fear that a 'hard-landing' in China (growth of five to six per cent or less) would dampen prospects for regional growth a time when growth in the OECD countries is not expected to pick up from its current rate of two to 2.25 per cent.

   Although this is still a risk, officials in Beijing are steering a course for China that remains on track for a relatively 'soft-landing'.

  A harsh slowdown seems much less likely now that Beijing has decided to allow some selective credit relaxation in the second half to those state-owned enterprises which are relatively sound yet starved of working capital.

  Should this view prove wrong, then a slump in China next year will have most impact on Hong Kong, since China takes about 33 per cent of Hong Kong's total exports (although only 53 per cent of this goes to meet China's domestic needs. The rest is for outward-processing of exports from Hong Kong-owned factories located in China).

   After Hong Kong, exposure to a fall in the pace of growth in China would be greatest for Taiwan, followed by South Korea. The Southeast Asian countries would be least affected.

  Singapore, Malaysia, Thailand, Indonesia and the Philippines all have a low China export share of about 3.5 per cent or less.

  For this group of countries, even a sharp slowdown in China is unlikely to dent their own growth prospects significantly.

  At the margin, only in the case of Malaysia and Thailand did exports to China significantly outpace total exports last year (China was forced to increase food imports, notably Thai rice).

   The picture emerging from this scenario shows that regional growth prospects are probably less dependent on events in China than is commonly believed.

  Although a clear negative for Hong Kong and North Asia, the impact of a recession in China on the rest of the region would be fairly limited. Geoff Lewis is a regional economist with Smith New Court.



Foreign cash helps to keep Asian growth ahead of world