Asia’s exporters hit as demand slips

Net exports make up 10% of China’s GDP and up to 30% for economies like Hong Kong and Singapore

HONG KONG: Cliff Sun is hurting. The 54-year-old chief executive of Kin Hip Metal Plastics had spent much of the past year grappling with rising labour and material costs in China and a strengthening yuan.

Now that the US consumer juggernaut is slowing, he’s throwing in the towel and relocating inland from coastal southern China.

“If we don’t cut margins or even take small losses these days, we’re just not able to get the same level of orders,” said the former chairman of the Hong Kong Exporters’
Association.

“We’re facing a bitter, cold winter ahead.”

Sun and others that collectively make up Asia’s mighty export engine face a difficult second half with Asia’s central banks now ready to sacrifice growth to combat food- and oil-based inflation and with Europe no longer taking up the slack amid downward-spiralling US consumption.

The worst is yet to come. Net exports make up 10% of China’s gross domestic product and up to 30% for externally vulnerable economies like Hong Kong and Singapore.

Asia - much of which had remained resilient in the face of the US downturn - and China are expected to decelerate with interest rates on the rise, inflation mounting and oil at $145 a barrel.

Toyota Motor, the world’s top carmaker, said it could fall short of its US sales target this year as high gasoline prices and a sluggish economy cut into demand.
Deutsche Bank estimates some 20% of China’s low-end exporters will go belly-up this year.

Foxconn, the world’s top contract manufacturer of cellphones for Motorola and Nokia, lost two-fifths of its value in the past two months on fears that slowing global demand will hit its earnings.

And Japanese exports to the US fell for a ninth straight month in May, while shipments to the European Union - which had been holding up well - recorded their first annual drop in more than two years.

“The Euro area and Japan are decelerating and that’s really bad news for Asian exporters,” said David Fernandez, head of Economic and Sovereign Research at JP Morgan.

Hong Kong’s exports to the US - much of which originates in China, the world’s workshop - fell 1.5% year on year in the first five months. Exports to the US from South Korea shrank 0.3% in January to May.

“By the year’s end and early next year, Asian demand should start to slow,” said Daiwa economist Kevin Lai.

Analysts and fund managers reckon firms with established brands, which own technology higher up the value chain or enjoy large cash balances - such as Samsung Eelctronics or Taiwan Semiconductor Manufacturing Corp - will fare better in this environment.

“Slowdowns are sometimes a double-edged sword that can benefit outsourcing. So for Taiwan tech this year, export growth is still in the double digits and the fundamentals remain quite solid,” said Kevin Chang, an analyst at Yuantai Securities.

Old-economy exporters that need intensive labour, energy or raw materials, such as garment, car and cellphone makers, are more vulnerable to inflating costs and shrinking demand.

Other firms, far from fighting a holding action, might spot an opportunity to expand through acquisitions in a down market.

“If the company has net cash or low debt, they’ve got flexibility and will not be forced into making any foolish business decisions,” said Hugh Young, managing director at Aberdeen Asset Management, which has $40 billion in Asian equities.

They “might have a golden opportunity to buy one of its competitors at rock-bottom price.”

Energy-saving devices maker Computime Group Ltd, which ships about half its goods US-ward, has stepped up efforts to enhance technology with automation and by slashing staff.

“We’ll focus on our brand and outsource to Vietnam, Mexico and east Europe,” said chief executive Bernard Auyang.