/ News&Analyses / Asia & Pacific Economics & Finance
China's Slump Declaws the Asian Tigers
Back in the distant past when all this started – that is, a few months ago – the conventional wisdom was that Asian economies would sail through the credit crunch developing in the West. Not only were their banks in better shape, but the booming trade among them would make up for any fall in their exports to the United States and other Western markets. (...)
So much for the theory of decoupling, which held that Asian economies were overcoming their traditional reliance on Western markets. It turns out that they are still very much coupled to what happens in the West. At the same time, they are more and more coupled to what happens in China.
China stands at the centre of the global supply chain. It imports parts and components from other parts of Asia, assembles them with cheap labour in its bustling coastal factories and sends the completed products overseas. (...) China may contribute nothing more than the deft hands of its assembly workers.
So-called intra-Asian trade has been the big driver of Asian growth, exceeding even the booming growth of trade between Asia and the West. For years, the acceleration in intra-Asian trade outstripped both world trade growth and trade growth within the two other global trading blocs, the European Union and North America.
China not only became Asia's main platform for exports to the rest of the world, it also became a more and more important end-market for Asian products (...). China has been the number one growth market in the region for more than a decade.
As a result, the struggles of China's economy are having a profound effect in the rest of the region. (...)
That is rotten news for South Korea. Hundreds of South Korean companies have operations in China. China is South Korea's biggest export destination, ahead of even the United States. (...)
The news is almost as bad for Japan. One of the bright spots in the troubled Japanese economy was the growth in trade with China – until the crisis hit. (...)
In fact, just about every Asian economy is hurting from the drop in the China trade. According to Tai Hui, an economist with Standard Chartered Bank in Singapore, in November the Philippines suffered a 52-per-cent drop in sales to China, India 51 per cent, Taiwan 42 per cent and Hong Kong 41 per cent.
The integration of Asia economies has been a good thing, overall, tying the region's countries closer together and producing tremendous growth over the years. But the idea that it would make them less vulnerable to a downturn in the West has proved to be a fantasy. When the rich countries of the West get a cold, China gets the flu. And when China gets the flu, the rest of the region gets pneumonia.
