Japan, Taiwan, South Korea exports raise hopes Asian tech cycle downturn has bottomed out
- Latest export data from the three main semiconductor producing countries in Asia – Japan, South Korea and Taiwan – offer a glimmer of hope of a recovery
- Question mark remains over 15 per cent tariff the US is planning to impose on around US$156 billion of Chinese goods on December 15
Despite continued uncertainty over the so-called phase one trade deal between the United States and China, there are increasing hopes that Asia’s main export economies can rebound next year amid signs that a slowdown in the key electronics sector may be close to bottoming out.
Rising US-China trade tensions, including Washington putting Chinese hi-tech firms on its “entity list” restricting the ability of US firms to do business with them, have hit the Asian electronics sector particularly hard.
“Even if the dollar value of electronics exports remains at around its current level, the annual pace of contraction will ease significantly in November,” said Gareth Leather, senior Asia economist from Capital Economics.
In value terms, Japan’s shipments of semiconductor products grew 3.5 per cent to 281 billion yen (US$2.6 billion) last month, while the export volume also picked up after declining in each of the previous two months, according to Japan’s Ministry of Finance.
The value of South Korea’s semiconductor exports plunged 32 per cent in October from a year earlier to US$8 billion, but the actual volume picked up last month after dropping in September to the worst monthly level since February 2016. In the first 20 days of November, the drop in chip exports eased to 24 per cent, after dropping more than 30 per cent in each of the previous three months.
The value of Taiwan’s shipments of semiconductors grew 3 per cent in September from a year earlier to NT$91.7 billion (US$3 billion), even though the volume fell by 0.8 per cent, according to the most recent data from Taiwan’s Ministry of Economic Affairs.
South Korea, which supplies 60 per cent of components used in memory chips, is still suffering from a large supply overhang, which has pushed down chip prices significantly this year. But a recent rise in orders for servers used for cloud computing – a major market for memory chips – suggests the worst may be over.
Taiwan benefits from increasing demand for fabrication of chips designed by others, according to economists from French bank Societe Generale. Taiwan Semiconductor Manufacturing Company, the world’s largest chip fabricator, with half of the global market share, has estimated its fourth quarter revenue will rise 10 per cent because of strong demand for fast mobile chips for new high-end smartphones.
“There are signs that the tech cycle has bottomed out. Global mobile phone shipments started to pick up in late third quarter, driven by improving sales of new iPhones. China’s 5G roll-out and the tide of new technologies continue to be positive for tech demand,” said Yao Wei, chief China economist at Societe Generale.
“However, given our expectation for a further deceleration in major economies’ growth in 2020, we are not yet optimistic about a decisive turnaround in Asia trade. Furthermore, there remains many uncertainties other than tariffs for the tech sector, such as whether the US government will remove Huawei from the entity list or put greater pressure on Asian suppliers to scale back businesses with Huawei.”
One key uncertainty affecting the outlook for an Asian technology export recovery is whether the phase one trade deal with China will eliminate the 15 per cent tariff that the US is planning to impose on around US$156 billion of Chinese goods on December 15. The goods the new tariff would cover are mostly consumer electronics, including smartphones, many of which are only able to be assembled in China in the near term.
“Asian trade figures are often seen as a useful bellwether of the global economy, and a recovery in the headline numbers may provide a boost to market sentiment. But given that the recovery in Asian exports has been mainly concentrated in the electronics sector and largely reflects more positive base effects, a pick up in the [overall export] headline growth numbers should not be taken as a sign that external demand has improved,” added Leather from Capital Economics.
New purchasing managers’ index (PMI) data on firms’ expectations for the future also showed the Asian export recovery was proceeding slowly. The Jibun Bank Flash Japan Manufacturing PMI, which was released on Friday, rose slightly to 48.6 from 48.4 last month, but showed a contraction in overall activity for the seventh month in a row, with new export orders continuing to decline.
South Korea’s manufacturing PMI also rose to 48.4 in October from 48.0, but continued to show that export firms remained under pressure, with new orders down after stabilising in September.
Taiwan’s official PMI rose to 51.1 last month, a sign that factory production expanded, but new export orders remained weak.