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 Asia's top export powers, which together account for a fifth of
global economic output, expect to get a lift this year from
anticipated U.S. and euro zone recovery and better global growth in
general.
Yet, a survey released on Thursday showed factory activity in China
turned negative in January for the first time in six months, after
gross domestic product data released earlier in the week raised
prospects that growth in the world's second largest economy will
sink to a 15-year low this year.
China's economy is passing through a difficult period as the new
Communist Party leadership, in charge for just over a year,
re-calibrates priorities.
"They are in the middle of a reform right now to fix shadow banking
... to open markets to the private sector," said Kyoya Okazawa, head
of global equities and commodity derivatives in Tokyo at BNP
Paribas. "In the middle of those reforms, those PMI (purchasing
manager index) numbers are going to be quite bumpy."
Things appear to be going better with China's neighbors.
A Reuters survey in Japan showed the business mood improved in
world's third largest economy. And, South Korean data showed Asia's
fourth-largest economy on track for a solid 2014.
"Compared to Japan and China, which are dependent more on domestic
consumption for growth, South Korea will likely benefit more from
the recovery in the advanced countries," said Kim Sang-Hoon, fixed-income analyst with Hana Daetoo Securities in Seoul.
South Korea is the most open economy of the three with exports worth
nearly 50 percent of GDP, while China's amount to about half of that
and Japan's account for about 15 percent.
GOING BY NUMBERS
South Korea could lose some of its advantage to Japan, due to the
yen's sharp decline over the past year against all major currencies,
including the South Korean won.
Some economists tip Japan to benefit the most from a recovery in the
West. That has already made South Korean automakers Hyundai and Kia
predict their lowest sales growth in a decade this year.
Regardless of the challenges, South Korea's economy grew 0.9 percent
in the final quarter of last year and 3.9 percent year-on-year, the
fastest expansion since early 2011 and data released this week
showed solid growth in exports in the first 20 days of January.
In Japan, a Reuters survey showed business sentiment improved
further in January as a result of Prime Minister Shinzo Abe's blend
of hefty monetary stimulus and fiscal pump-priming, though a
consumption tax rise due in April weighed on the outlook.
Meantime, China, the world's longtime growth engine, continues to
stutter. GDP data on Monday showed 2013 growth of 7.7 percent,
raising expectations that 2014 growth will slip to a 15-year low
somewhere above 7 percent.
On Thursday an early reading of the Markit/HSBC Purchasing Managers'
Index fell to 49.6 in January, dropping below the 50 line which
separates expansion of activity from contraction, pushing down
Chinese equities, and the Australian dollar because of Australian
exporters' reliance on Chinese demand.
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CHANGING GEARS
Despite different starting positions, the trio enters 2014 with an
ambition of boosting domestic consumption and reducing their
reliance on exports.
For the new leadership in Beijing it is part of a grand rebalancing
plan as the old growth model, driven by heavy investment in
export-related capacity and infrastructure, is unsustainable.
For Tokyo, spurring more consumer spending is an essential part of
its campaign to end a 15-year phase of deflation while Seoul counts
on private demand to make up for a planned reduction in government
spending.
Though the International Monetary Fund raised its global growth
forecast this week, with advanced nations leading the way, the
outlook is littered with uncertainty.
An export boost from Western Hemisphere upswing cannot be taken for
granted. Markets have to see how the U.S. economy responds to the
Fed's gradual withdrawal of monetary stimulus.
In China, latest data showed growth remained as skewed as ever
towards investment despite the authorities taking steps to reduce
availability of cheap credit.
The authorities also have yet to tackle weak social safety net and
inadequate health and pension coverage that encourage savings and
act as structural impediments to more consumption.
In Japan, there is uncertainty how consumers will respond to the
sales tax increase, the nation's first since 1997 and whether
thousands of smaller firms can follow blue chip companies in raising
wages, which is necessary to sustain consumption.
For its part, South Korea needs to continue working through its
household debt pile, which can weigh on spending, particularly if
the Fed's unwinding leads to higher borrowing costs worldwide.
"Reforms will be a key theme for Asia in 2014," said Ronald Man,
HSBC economist in Hong Kong. "While our China economists note that
some measures are likely to involve short-term pain, they stress
that the broad reform agenda can help unleash pent-up private sector
demand for investment and consumption."
(With reporting by Se Young Lee in Seoul, Kevin Yao and Jonathan
Standing in Beijing and Tetsushi Kajimoto and Izumi Nakagama in
Tokyo; writing by Tomasz Janowski; editing by Simon Cameron-Moore)
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