ASIA scenarios reliant on China

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ASIA scenarios reliant on China?

• Basel May 2003
• Oxford Economic Forecasting www.oef.com
• VANESSA ROSSI
• Email vrossi_at_oef.co.uk

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Outline of Presentation

• ASIA has seen a mixed but still generally
  positive performance
• Impact of terrorism, Iraq, oil prices and the
  still weak global economy
• Set this against the China boom - BUT what about
  the impact of SARS?
• Scenarios for 2003 and 2004 ?

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GLOBAL contagion oil,trade, tourism, capital
flows

• US EU economies weaker in 2003H1 in spite of
  lower interest rates and higher US budget deficit
  
• Much of this weakness is sentiment driven
• Poor trade outlook US and EU export forecast
  down 4-5 for 2003 versus previous estimates
• Oil prices volatile in 20-30 range
• People stay home tourism losses
• Capital stays home - weak FDI flows

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REVISIONS to FORECASTS

• GDP growth for 2002
  2003 2004
• OEF SEPTEMBER 2002
• US 2.4 2.7 3.2
• EU 0.8 2.1 2.8
• OEF JANUARY 2003
• US 2.4 2.4 3.5
• EU 0.7 1.2 2.4
• OEF MAY 2003
• US 2.4 2.4 3.6
• EU 0.8 0.9 1.6
• GERMANY 0.2 0.4 1.0
• UK 1.8 2.0 3.0

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Worst affected? Ex Ante

• Oil big oil importers such as Asia, Turkey
• Trade countries with high export shares in GDP
  such as Malaysia, Singapore, HK
• Tourism GDP growth forecast for Indonesia was
  cut by up to 2 last autumn, others following
• The financially fragile Turkey, Philippines
• Regional ties Turkey, Egypt etc

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The importance of oil

• Oil imports
  total demand
• as
  GDP as GDP
• US 1
  1.5
• EU
  1.25
• S Asia average 6
• S Korea 4
• Taiwan 3.5
• Turkey 3
• China 1
  4

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Exports of goods as GDP

• 1990 2000 to US
  
• Malaysia 79 117 23
• Thailand 36 65 13
• S Korea 22 51 11
• China 16 25 11
• Mexico 14 35 29
• Argent/Brazil 10 12 1-2
• Czech Rep 41 81 2.5
• Turkey 17 32 3.5

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Tourism exports

• Tourism exports bn as GDP
• 
  
• China (2001) 17.4bn 1.5
• Hong Kong (2000) 7.9 bn 4.8
• Indonesia (2000) 5.7 bn 3.7
• Korea (2001) 6.4 bn 1.5
• Malaysia (2001) 6.9 bn 7.8
• Philippines (2000) 2.1 bn 2.9
• Thailand (2000) 7.1 bn 5.8
• Singapore (2000) 6.0 bn 6.5
• Turkey (2001) 8.1 bn 5.8
• Croatia(2001) 3.4 bn 17.5

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FDI FLOWS

• net FDI inflows and share in GDP
  
• bn GDP
  
  
• China 40-50bn 3-3.5
• Philippines 2bn 2.5
• Thailand 2-3bn 2-2.5
• Malaysia 2bn 2
• Mexico/Brazil 10-15bn 2
• India 2-3bn 0.5-1
• Turkey 1bn 0.5

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Ex Post

• Extra aid to Turkey
• Fiscal and monetary policy offsets in some
  countries Thailand, Malaysia, Hong Kong
• China has been a locomotive for regional trade
• The global rebound could be very big in 2004,
  especially for goods trade and investment
• Another 2000-style growth peak in 2004?
• OR a SARS induced recession?

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Asia Output growth reserves

• Q1 US Industrial
  output Change in forex
• exports y-o-y
  change reserves USbn
• y-o-y 2002H2
  Jan-Feb Apr02 Feb03
• Malaysia 7.9 7.6
  6.3 2.3
• Korea 21.4 7.4
  6.1 15.9
• Philippines 8--9 -4
  3--4 -2
• Taiwan 12.1 9.0
  6.4 35.7
• Thailand 22.1 10.3
  13.7 3.2
• Singapore 23.2 12.9
  6.2 7.0

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GDP FORECASTS for ASIA

• 2002 2002Q4 2003 2004
• pa growth
• China 8.0 8.1
  7--9 7--8
• Hong Kong 2.3 5.0
  1.5--2.5 3--6
• Japan 0.3 2.0
  0--1 1--2
• Korea 5.8 4.0
  3.5--4.5 5--6
• Malaysia 4.2 5.6
  3--5 4--8
• Thailand 5.0 5.5-6.0
  4--6 4--6
• Singapore 2.3 3.0
  1--3 4--8

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China high GDP growth and trade boom sustained
in Jan-April

• 2002 GDP up 8 in 2001 and 10 in 2003Q1
• Flash estimate 9 for month of April
• Consumer had been stepping up spending and
  imports pre SARS car sales booming
• Special factors WTO entry helped boost exports
  by 22 last year an increase of 55bn
• Trade surplus rose to 30bn in 2002
• But imports surge of 50bn probably added 5 to
  rest of Asias exports last year

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China car sales

• Solid growth in Chinese consumer spending
• last year, particularly in the big cities
  led by
• a big surge in car sales
• 2001
  2002 Jan-Feb 2003
• Annual change in
• Car imports (units) 70.0 76.9
  177.7 (Jan)
• Car output (units) 15.9 52.8
  120 (Q1)

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CHINA TRADE GROWTH

• 1998 1999 2000 2001 2002
• pa growth
  
• World trade 1 7.5 15
  -3 5
• US exports 1 6 28
  7 22
• US imports -1 18 36
  8 21
• US exports actual
  325bn
• OR if rose in-line with world trade
  230bn
• implies WTO bonus
  95bn
• 
  (10 GDP)

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CHINA TRADE MONTHLY

• TRADE DIPS INTO DEFICIT IN Q1
• Oil and raw material purchases heavy cost in
  Q1
• post SARS exports hold up in
  April
• OCT NOV DEC
  2003Q1 APR
• pa grow in
  
• US exports 31.5 30.1 30.2
  33.5 33.3
• US imports 33.3 37.9 28.4
  52.4 34.3
• Trade balance 4.75 2.5 3.15
  -1.0 1.0
• USbn

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China also viewed as a threat

• Claims that China exports deflation but China
  not worst offender?
• And has an undervalued currency this is not
  certain although trade balance rose last year
• Imports from its main export partner, the US, are
  low
• But this may be due to Chinas import mix these
  are mostly inputs for production

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ASIA EXPORTS DEFLATION

• US trade prices in
  2002
• Imports
  Exports Exch Rate
• 
  Deval v
• 
  
• HK (and China) -3.0 -2.5
  zero
• Taiwan -3.0
  -4.0 2
• Japan -4.5
  -3.5 3
• Korea -6.5
  -6.5 -3
• US 0.3
  -0.2 n/a
• EU -2.0
  -1.0 -5

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CHINA MONTHLY PRICES

• FUELS AND FOOD PUSH UP CPI SALES
• OCT NOV
  DEC 2003Q1
• pa grow in
  
• CPI -0.8 -0.7
  -0.4 0.7
• Fuels 7.6 8.4
  11.6 19.5
• Food -0.6 0.4
  1.3 3.1
• Retail sales 9.4 9.1
  9.0 10.7
• (value)

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CHINA TRADE PARTNERS

• Trade shares (2002 estimates)
  
• ASIA US
  EU OTHER
  
• CHINAs
• EXPORTS to 30 40 15 15
• IMPORTS from 50 10 15 25

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CHINA SECTORAL TRADE

• TRADE SHARES EXPORTS IMPORTS
  
  
• RAW MATERIALS 10-15 15-20
• inc ENERGY
• INTERMEDIATE GOODS 15-20 25-30
• EQUIPMENT 40-45
  45-50
• CONSUMER GOODS 30-35 5-10

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China trade in 2002

• gain in 2002 China Exports
  China Imports
• Total 22.3
  21.2
• to / from
• US 28.9
  3.9
• EU 17.9
  7.9
• Europe 20.3
  10.4
• Germany 16.6
  19.3
• UK 18.9
  -5.4
• Latam 15.2
  24.4
• Asia 20.9
  29.3
• Japan 7.8
  25.0
• Asean 28.3
  34.4
• Value of trade in 2002 325.6bn
  295.2bn

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China trade in 2002 the big gainers

• 
  gain over 2001
• China exports to
  China imports from
• Hong Kong 25.6
  14.0
• Malaysia 54.4
  49.8
• Philippines 26.1
  65.4
• Taiwan 31.7
  39.2
• Singapore 20.3
  37.5
• Korea 23.8
  22.2
• Brazil 8.5
  27.9
• Kazakhstan 83.1
  41.0
• Norway 28.3
  61.8
• Austria 36.1
  34.9

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SARS scenarios

• China GDP growth
  
• 2002 2003 2004
  
  
• pre SARS 8.0 9.0 7.1
• SARS
• 1) controlled Q2 8.5 7.1
• 2) extended to Q3 8.0 6.0
• 3) further extended
• and impact on trade 6.5 3.25

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CHINA INVESTMENT

• 2000 2001
  2002e 2003e
• Growth rates pa
• Investment 10 13
  20 10
• Government inv -1 20 25
  20
• FDI inflows 1 15
  12.5 -5
• Bank loans 10 11
  15 15
• Share covered by
• Government 6.4 6.8
  7.5 8.0
• FDI 5.1 4.7
  5.0 4.5

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SARS scenarios

• China GDP in USbn
  
• 2002 2003 2004
  
  
• pre SARS 1255 1380 1510
• SARS
• 1) controlled Q2 1375 1500
• 2) extended to Q3 -10 -40
• 3) extended and
• impact on trade -30 -120
• loss in exports -20 -65