Away from the snowy flats of the north pole, the factories of southern China, South Korea and western Taiwan are probably the closest thing to a real-life Santa’s workshop. They have been churning out toys, trinkets, garments and gadgets to sit on or under the Christmas tree since the 1980s.
With the US economy growing at 3.6 per cent in the last quarter, most would expect Asia’s factory floors to be humming once again.
This year, however, Asia’s export engines have failed to get out of first gear. Exports from Asia ex-Japan have risen only 3 per cent compared with last year, despite the pick-up in growth in the west.
Manufacturing surveys for China, Korea and Taiwan have shown the sector contracting for long periods of the year, while the rise in US activity shown in the ISM data – the US manufacturing data that are historically a good indicator of Asian export growth – has so far failed to feed through to Asian production lines.
“By some measures growth in the US is blistering. Europe has emerged from recession. But where is the bounce in exports [from Asia]?” asks Fred Neumann, chief Asia economist at HSBC. “In previous years we would have expected a much more rapid response.”
The conflicting data hint at underlying long-term shifts in the relationship between the world’s biggest goods consumer and the world’s main production hubs. In recent years, China’s trade relations with other emerging markets have become increasingly important. At the same time US growth, once propelled by consumers, is now driven in part by cheaper energy costs.
“I don’t think these big trends are quickly reversed. These are 10-year cycles,” says Mr Neumann.
Indeed, Asia’s export exposure to the US has roughly halved since 2006, to about 5 per cent of GDP from 10 per cent, according to HSBC figures.
Instead Asia is exporting more to other parts of the world, and consuming more of its own products. Since January 2007, monthly Chinese exports to the US and eurozone are up 58 per cent and 74 per cent respectively. But to the rest of the world, shipments have risen 142 per cent in that time.
Meanwhile China, the world’s top exporter, is taking steps to rebalance its economy away from reliance on external demand and towards more domestic consumption.
One argument is that the nature of US growth has shifted away from import-heavy consumer spending and housing, and that the current make-up of the economy is far less reliant on widgets from Asia. America’s energy revolution, though a driver of growth and employment, has a far less direct impact on orders for Asian products, and helps reduce the input costs of domestic manufacturers. North Asia, meanwhile, remains heavily reliant on energy imports to power its factories.
Others say that the rise in Asian currencies and local labour costs have eroded competitiveness, tempting companies to “reshore” production back home, or at least to places far closer to the end consumer. Since 2009, the Korean won is up by more than 20 per cent against the US dollar, while the renminbi has gained around 12 per cent. By contrast, the Mexican peso has only risen 4 per cent.
Another factor in the changing trade picture is the rise of demand from emerging markets outside Asia, many of which have seen their economies slow sharply this year on waning demand for commodities.
“From 2010 onward, the real driver of whatever little emerging Asian export growth there has been has come from non-Asian emerging markets. The share of G3 [US, eurozone and Japan] exports has fallen, and fallen sharply,” says Jahangir Aziz, head of emerging Asia economic research at JPMorgan.
Michael Spencer, chief Asia economist at Deutsche Bank, does not buy into the pessimism. He believes that weak European demand has been the main reason for subdued exports, and that the most recent data suggest a pick-up is on its way. And while reshoring, falling US energy costs and rising currencies may all “chip away” at the region’s export model, Asia’s place as the world’s hub for electronics – the biggest component of exports – is “pretty secure”.
“If you want to buy iPads for Christmas, you’ve got to buy them from China,” he says. However, over the medium term Asian exporters will increasingly need to find new markets, such as in China, India and Africa, if they are to return to the high levels of growth of the past two decades.
“[Asia] has done phenomenally well in making things that most Europeans and Americans now own. We’re not likely to see the same growth”, says Mr Spencer. “Real growth going forward is likely to be in emerging markets.”
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