Weak U.S. Demand Tests Asian Export Elasticity

For Hongkong shoe maker Feng Tai, August is usually a busy month, and they must increase their horsepower to produce winter sports shoes.

However, this year, the US retail giants, such as WAL-MART and Sears, postponed the order time to September. Because of uncertain demand, Fengtai was forced to suspend the two production lines of the company's seven production lines in the southern Anhui factory in southern China.

Asian exports have been resilient in the face of the world's biggest economic slowdown, but now there is a crack in resilience.

In June, the decline in exports from Japan and Hongkong indicated that the expected growth rate of Asian exports was finally slowing down.

Eddie Lam, chief executive of Fengtai Footwear Company, said that American retailers were worried about their overstock and slow economic growth would affect sales. They had to sell at a discount because they were waiting to see.

Asian emerging markets are largely unaffected by the global credit crisis triggered by subprime lending in the US, but slower export growth will drag down the economic development.

JP Morgan said Asia is unlikely to take an active approach to tightening monetary policy to deal with inflation.

Concerns about slowing development slowly attracted attention. The investment bank said in a research report that Malaysia decided to keep interest rates unchanged, although inflation jumped to 7.7% in June, hitting a 27 year high.

HSBC expects greater downward pressure on Asian financial markets, which said analysts did not fully consider the impact of a weak trade outlook.

Garry Evans, chief securities strategist at HSBC Bank Asia Pacific, said revenue growth expectations are not too optimistic.

Analysts once predicted that Asian companies' revenue grew by 6% in 2008 and 15% in 2009.

He said analysts believe growth is slow this year and will return to normal next year.

But analysts did not consider bear market factors.

Asia has been in a bear market since October, but its net share is 2.1 times the average, compared with 1.2 times the previous bear market.

Japan's exports in June decreased by 1.7% compared with the first time in nearly 5 years. Hongkong was the Asia's trade entrepot and exports decreased by 0.6%, much lower than the expected growth rate of 9%.

Asia's senior economist, Sebastien Barbe, of Agricole credit agency Calyon, says Asia is saying goodbye to a very favorable economic environment for more than four years.

The good time is over.

Asia is slowing down in the import economy, and I expect a significant slowdown in the Asian economy.

China is a regional manufacturing base. China's exports increased by 18% in June, while exports increased by more than 20% in the first few months.

The growth rate has cooled down.

Lam, Fengtai shoe industry, says the business environment is very bad now.

Hundreds of workers were sent back to their homes, but they also got full wages until the late arrival of orders in the US, which increased the pressure of Fengtai. The bottom line of Fengtai has increased by 30% in the past six months, as wages have risen sharply, and energy and raw material prices have soared.

When the order was received in September, Fengtai had only three months' delivery time, and usually it was six months. Overtime costs also increased. The company had to add more workers to complete the extra work.

Corporate earnings also show a further slowdown in exports, and export deceleration will eventually lead to economic growth.

Japan's Toyota Auto Body Co is the world's largest car manufacturer, with its US exports to its largest market by 6% in the first half.

South Korea's LG monitor is the world's second largest LCD manufacturer. Now the company has reduced its display production by 10%. Until the end of this month, the company claims that the prospects for global sales of flat panel displays and personal computers are not good.

Analysts said that the highest economic growth rate in Asia this year (excluding Japan) was 7%, compared to 9.1% last year, and the relatively strong domestic consumption played a stimulating role.

But the Lehman brothers said it was not optimistic. The agency expects growth of 7% and a downside risk.

Lehman Sun economist Young Sun Kwong said that if US consumption continues to be weak, the growth of emerging economies that will export to the United States will slow down.

It's only a matter of time.

The employment rate is expected to decrease as income shrinks.

HSBC survey shows that most small and medium-sized companies have no plan to increase employees in the next six months, while headhunting Hudson expects that managers recruitment is the most inactive time in the past three years.

Consumer demand in the US has been supported by tax cuts, but this support will gradually weaken in the second half of this year.

To make matters worse, regional exports have made up for the slowdown in exports to major markets in the US and EU, but now they are beginning to decline.

Fengtai footwear is still very healthy for Mothercare, a British baby retailer, but many analysts point out that Britain is entering a recession.

Lam is not very worried about this.

He said sales of Mothercare increased by 5% last year, but the retailer also delayed the purchase time.