Published May 4, 2009

Consensus grows over signs of recovery in 3 Asian giants

ADB officials and economists see early signs of revival in China, Japan, Korea

By ANTHONY ROWLEY
IN BALI

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JAPAN, China and South Korea are showing signs of an economic revival that could help pull much of the rest of Asia out of recession.

Mr Kuroda: Whether the early signs can be sustained in the coming months is the question

This was the consensus emerging at the weekend as government officials, bankers and businessmen converged on Bali for the Asian Development Bank's latest annual meeting.

'Already in China and Korea we are seeing some signs of bottoming out, particularly in China,' ADB president Haruhiko Kuroda commented, echoing a growing consensus among economists about prospects for these two economies.

'I think Japan will also bottom out,' said Mr Kuroda, again reflecting a generally more cautious view about Japan.

With the US still mired in a severe economic contraction and Europe's prospects looking little brighter, a great deal of attention is being focused in Bali on prospects for the world's second largest economy, Japan, and its two near neighbours.

'South-east Asian countries are very dependent upon these three, not only for export markets but also for foreign capital imports,' ADB chief economist Jong-Wha Lee said.

The decline in business investment and in external bank inflows into South-east Asia is 'very worrisome', said Mr Lee, adding that 'we hope that Japan, China and Korea can maintain relatively strong economies and then they can provide capital to Asean'.

On China, Mr Kuroda pointed to industrial production and bank credit trends. 'Those statistics show some sign of bottoming out or even green shoots of recovery,' he argued. 'In the case of Korea, in the first quarter, apparently the economy has bottomed out.'

But 'whether these early signs of recovery can be sustained in coming months - that is the question,' said Mr Kuroda. 'I am hopeful that maybe by the end of this year economic indicators will show some clearer signs of recovery.'

He noted that in Japan 'inventory adjustment has been done very quickly, and already some recovery of production is apparent. But the question is whether this can be sustained and whether recovery is strong enough. I think we have to monitor (trends) carefully'.

Meanwhile, optimism about China's prospects appears to be growing rapidly. Goldman Sachs chief economist Jim O'Neill for one has upgraded his forecast for Chinese growth in 2009 from 6 per cent to 8.3 per cent - way above the consensus and even above China's own 8 per cent target.

Fiscal stimulus and other measures announced by the Chinese government since the onset of the global economic and financial crisis 'have set the scene for a major acceleration of Chinese domestic demand for the rest of 2009 and 2010', says Mr O'Neill. This is 'just the right recipe for China, and critically, the world'.

ADB's Mr Lee is confident China can achieve growth of 7 per cent this year. 'China has maintained strong fundamentals, first of all coming from credit growth,' he said. 'This clearly shows the difference between the G3 economies and China,' he added.

Mr Lee nevertheless expressed concern that Chinese authorities could become over-concerned with short-term economic growth at the expense of longer-term priorities. The government should provide the necessary infrastructure and leave it to the private sector to allocate financial resources to other sectors, he suggested.

Some economists are also concerned about the rate of bank credit expansion in China. According to Harvey Chen, president of First Light Academy of Global Economics in Shanghai, Chinese banks have been providing 'an unprecedented amount of credit' to the economy recently.

Much of this is going to state-owned enterprises rather than to smaller enterprises that are badly in need of funds, he said. This raises questions of 'whether the money is being put to good use', Mr Chen added.

Views are meanwhile cautious about Japan's recovery prospects. 'The question is whether Japan can manage recovery by strengthening domestic demand even without recovery in the US,' said the ADB's Mr Lee.

This will depend critically on the ability of the Japanese government to instil confidence among businessmen and consumers in Japan, he added.