China's New Economy Is Hitting Asia's Exports

The South Korean city of Ulsan, perched on the peninsula’s southeastern tip, has long been a proxy for the health of the nation’s export-driven economy.
Home to the world’s biggest auto-manufacturing plant, a major shipyard and a large oil refinery, Ulsan has been a key engine of one of Asia’s postwar growth stories.
Now, the city is being held up as an example of something much less favorable -- how a deepening export slump is crimping South Korea’s $1.2 trillion economy. With China as its biggest trading partner, Korea’s export crunch is sending a warning shot to the world about the risks of slower growth in its neighbor’s economy.
Shipments from Ulsan in 2015 sank to $75.6 billion, the lowest level since 2010. The city’s chamber of commerce responded by freezing some of their employees’ salaries for a second year to “share the pain” being felt at its member companies across sectors including shipbuilding, auto manufacturing and petrochemicals.
Take Korean cars: Shipments fell 21.5 percent in January from a year earlier, an even sharper decline than the month’s 18.8 percent drop in total exports.
“With the big three sectors of Ulsan all in a slump, subcontractors to some of the big companies closed their businesses,” said Choi Jin Hyeok, research team leader at the Ulsan Chamber of Commerce & Industry. “I’m afraid headwinds may continue this year. Slower growth in China is the biggest risk as the main market for all those industries is China.”
The export malaise isn’t unique to South Korea. Across Asia, shipments are tumbling -- in some cases at double-digit rates. In January Japanese overseas sales fell 12.9 percent from a year earlier and China’s dropped 11.2 percent.

While some of this can be attributed to falling prices for commodities and energy, much of the decline is pinned on China’s economy, which last year grew at the slowest pace in a quarter century. As about 68 percent of South Korea’s shipments to China are of intermediary goods, a downturn in the Chinese economy squeezes demand for Korean exports.
Because China is exporting less of the goods it makes, the world’s biggest trading nation is also buying less of the materials needed for its supply chain. Part of the problem is structural: China wants to shift its growth model from one centered on manufacturing to more of a focus on services and consumption.
Others Importing Less
Korea isn’t affected only by China’s slower growth. Other big customers like the U.S. and Europe are importing less, too.
“Developed markets such as the E.U. and the U.S. are gradually grinding higher in terms of growth but they are not as responsive to imports due to changing consumption patterns in goods,” said Trinh Nguyen, an economist at Natixis Asia Ltd.
The outlook for exports in Korea isn’t expected to improve much in the short run, owing to several factors.
“Korean exporters are coming under pressure from softer global demand and rising competition in China, and this was likely exacerbated this month by the lunar new year holiday period,” Emily Dabbs, a Sydney-based economist at Moody’s Analytics, said in an e-mail. “Low global commodity prices have also kept a lid on the import bill, with softer domestic demand likely adding to the decline this month.”
Creeping trade barriers also are posing obstacles. Simon Evenett, a professor focusing on international trade at the University of St. Gallen, estimates 476 trade distortions were introduced by governments last year.
Still, even as exports have slumped in Korea, Asia’s fourth-largest economy posted 2.6 percent growth in 2015. The government and the Bank of Korea both forecast that the country’s economy will expand at least 3 percent this year.
Taimur Baig, chief economist for Asia at Deutsche Bank AG, describes the situation as trade stagnation.
‘Waning Domestic Demand’
“Asian economies are navigating through 2016 much the same way they did in 2015, facing waning domestic demand, exports, and credit momentum, under-pressure asset markets, and continued drag from high household and corporate leverage,” he said.
The export picture isn’t entirely gloomy. The world economy, while slowing, isn’t at a crisis point. Unemployment in the U.S., the world’s biggest-consuming nation, is low. The outlook for Asian manufacturers remains upbeat with PMI export orders for Japan and South Korea expanding, according to analysis by Bloomberg Intelligence.
There are a few bright spots in Asia: Singapore’s economy grew more than estimated last quarter as a gain in services outweighed weaker manufacturing and exports. Fast-growing Vietnam continues to avoid the regional trend.
And some economists say things may bounce back soon. Prospects that China’s economy will recover coupled with rising wages and loose monetary and fiscal policy in Asia likely will stoke domestic demand around the region. Expectations are growing that central banks in China, India, Thailand and elsewhere may lower interest rates this year.
“As far as exports are concerned, there are good reasons to think that Asia is past the worst, and that growth will soon start to pick up,” said Daniel Martin, a senior Asia economist at Capital Economics Ltd. in Singapore.

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Global Textile Machinery Market 2015-2019

Research and Markets (http://www.researchandmarkets.com/research/fpnmfb/global_textile) has announced the addition of the "Global Textile Machinery Market 2015-2019" report to their offering.

The global textile machinery market is expected to grow at a CAGR of 13.35% over the period 2015-2019.

The textile and apparel industry plays a significant role in determining the strength of an economy. The value chain of this industry includes primary activities, such as designing, procurement, production, logistics, marketing, and after-sales services. Textile machinery refers to a wide range of equipment used in different stages of manufacturing.

The report has been prepared based on an in-depth market analysis with inputs from industry experts. The report covers the market in Asia and Europe; it also covers the landscape of the global textile machinery market and its growth prospects in the coming years. The report includes a discussion on the key vendors operating in this market.

According to the report, with the rise in the number of vehicles manufactured, demand for fabric required for designing the interiors of vehicles is also likely to increase. The automotive industry manufactured 89.75 million vehicles in 2014 and this number is expected to reach 118.15 million in 2019, thereby boosting the growth of the textile machinery market in the process.
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More than just monetary policy needed to lift Japan machinery stocks

Shares of machinery builders and others that benefit from corporate capital spending are weak these days despite the introduction of subzero interest rates, suggesting that Japan needs economic stimulus that is separate from monetary policy.

     The Tokyo Stock Exchange's Topix index for the China machinery industry was the biggest decliner among the 33 subindexes Wednesday, sagging over 1%. Air cylinder manufacturer SMC slipped 3%, while the two machine tool giants -- Makino Milling Machine and Fanuc -- also lost ground. The machinery index is down 12% this year.

     "We just don't see anyone making capital investments," a Bank of Japan official told Yoshimitsu Goto, executive corporate officer for finance at SoftBank Group, during a routine hearing in December. The official seemed frustrated that businesses showed little interest in capital expenditures despite historically low rates, according to Goto.

     The Bank of Japan pushed interest rates into negative territory in February in hopes of encouraging businesses to invest. But the scheme is barely working.

     Machine tool orders logged year-on-year declines in each of the seven months through February, according to a trade group. Concerns that orders will continue decreasing amid slowdowns in emerging economies are keeping machine tool builders' stocks soft.

     "The potential growth rate has fallen globally, and the manufacturing industries in the U.S. and China are hurting," said Nobuyasu Atago, chief economist at Okasan Securities. "Lowering rates is not enough to paint a rosy picture."

     Business leaders agree on the limits of monetary policy. "Rates are already low, and companies that need to make investments have been doing so already," Tetsuya Fukunaga, director at information technology company SCSK, pointed out. The subzero rate policy has actually hurt business sentiment, he said, by strengthening the view that deflation is tough to shake.

     To stimulate domestic demand and capital spending, some investors call for economy-boosting measures under a supplementary budget and postponement of the additional consumption tax hike.

     Others have a different view. "Rather than short-term economic stimulus steps, we want measures to address the declining birthrate and other structural issues," said Yasunori Ueno, chief market economist at Mizuho Securities.

     In the initial stage of the Abenomics-fueled market rally that began in the fall of 2012, overseas investors jumped on Japanese stocks on hopes for the so-called "third arrow" of the government's growth strategy -- structural reform. In any case, monetary policy on its own is insufficient.
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German machinery exports to China drop 19 percent

Difficulties in China’s market pushed exports of German plastics and rubber machinery down 19 percent in 2015, to 653 million euros ($713.4 million).

The German machinery association VDMA released the figures ahead of Chinaplas, which is scheduled for April 25-28 in Shanghai. The data shows that German exports of plastics and rubber machinery fell roughly to the same level in euros as where they were at in 2012, after a huge increase in 2013 and a smaller drop of 5.5 percent in 2014.

The association did not comment on why exports dropped, but the numbers mirror reports from Chinese plastics equipment manufacturers.

Haitian International Holdings Ltd., China’s largest injection molding machine maker, said its domestic sales dropped last year, although more modestly than German figures, falling 4 percent to 4.86 billion Chinese yuan ($748.7 million).

Haitian said some of its domestic peers reported “more than [a] double-digit drop in sales figures in 2015,” and noted that the Chinese manufacturing purchasing managers index has been in contraction since March 2015.

Still, China Machinery remains a large market. In 2014, Germany was the largest exporter of plastics equipment to China, accounting for 32.9 percent of all imported machines in China. The second-largest exporter, Japan, in 2014 sent 445 million euros ($540.8 million) of imported equipment to China.

Taiwan and South Korea were the third and fourth largest sources of plastics and rubber machinery imports in China in 2014, respectively, VDMA said. 2015 figure are not yet available.