Asian Economy Decoupling From U.S. Economy

Asian nations, whose economic growth have depended on exports to the U.S. and have been swayed by changes in the U.S. economy, are showing a decoupling phenomenon, reported British international business newspaper the Financial Times on Friday.

Over ten years since the 1997 Asian financial crisis, Asian economies have become independent, weakening linkages with the U.S. economy. In fact, though the American economy is now suffering from a series of economic woes, such as the credit squeeze resulting from defaults in the U.S. subprime mortgage market, Asia’s economy remains robust. Asian nations are just striving to protect their currencies from depreciating, guarding against a falling dollar.

Emerging economies in the region and self-improvement help them be independent -

The rapid growth of emerging economies in the region, such as China and India, is one of the major factors that helped the Asian economy remain unscathed from market changes in the U.S. Those nations can cushion and absorb blows coming from U.S. economic crises.

In addition, while undergoing the Asian-wide financial crisis, Asian companies have streamlined their corporate structures and strengthened their competitiveness. Domestic markets have grown, and stock markets have become steady. All these have led to strong domestic fundamentals.

With Asia’s economy growing, investors around the world are flocking into Asia. New IPOs from January through October in mainland China raised $52 billion, beating the U.S. ($50 billion) and the U.K. ($42 billion). The benchmark Shanghai Composite Index rose six-fold over the past two years. It took 20 years for the Bombay Stock Exchange benchmark Sensex to reach 10,000, but the next 10,000 points were reached in the past two years.

The proportion of Asia’s exports to the U.S. dropped to 16.8% last year from 21.3% in 2001. Asia’s domestic markets have grown, with China’s household spending increasing by 130% and India and Malaysia by over 50%, over the past ten years.

Geoff Lewis, head of investor services for JF Asset Management, said, “With rising consumption in Asia, decoupling is a fact.”

But there is a long way to go –

However, there still exist many weak points. Even though Asian stock markets are on the upturn, they are still affected by advanced countries’ economic and stock market changes.

“Asia is still export-dependent, with the value of exports equal to 40 per cent of gross domestic product,” pointed out Stephen Roach, chairman of Morgan Stanley Asia. He also said, “There is growing intra-regional trade, but a lot of this is components sent to China, which are later exported to developed countries.”

Markus Rosgen, chief Asia strategist at Citigroup, said, “There is little evidence of independent monetary policy in Asia,” and added that growing overseas capital into Asia will increase linkages with global financial markets, keeping Asia coupled with Western economies.

redfoot@donga.com