28 January 2008
For Personal Use Only

• Source: Nikkei Weekly

The stock market jitters emanating from the U.S. subprime loan turmoil are now spreading even to China, India and other emerging economies.

“Shipments from Asia to North America have leveled off since summer, although we expected a year-on-year increase of 5-6%,” said Makoto Igarashi, director of Nippon Yusen KK, Japan’s largest shipping company.

The year-on-year growth in exports from China has slowed to the lower half of the 20% level since the second half of last year from more than 30% previously. Although the slowdown is largely attributable to the Chinese government’s move to curb exports, a sharp fall in shipments to the U.S. is another key factor.

Exports from China to the U.S. - housing materials and consumer goods, mostly - account for approximately 20% of total Chinese exports. In December, they declined to 6.8%.

The slide has not gone unnoticed. Chinese Commerce Minister Chen Deming declared at a trade strategy meeting Jan. 17 that China’s basic trade policy for 2008 is to “maintain a steady increase in exports.” He thus abandoned last year’s target of cutting the nation’s trade surplus.

As exports and investment are the main engines of the country’s rapid economic growth, the Chinese economy may well experience a sharp slowdown if exports rapidly decrease.

In India, meanwhile, even information-technology-related stocks are being sold off. The price index of 18 IT stocks listed on the Bombay Stock Exchange is down 30% from a year earlier, mirroring concerns about the U.S. market, where Indian IT companies chalk up more than half of their sales.

China’s economy is expanding at an annual rate of more than 11%, and India’s is growing at more than a 9% clip. Along with the two other BRICs, Brazil and Russia, they now contribute more than half of the globe’s growth, surpassing Japan, the U.S. and Europe.

China will soon begin a gigantic 200 billion yuan ($27.62 billion) public works project to build a high-speed rail between Beijing and Shanghai. Once it goes into service in 2010, the rapid-transit system will halve the travel time between the two cities to five hours.

In December, the Communist Party of China and government decided to maintain a moderate fiscal policy without a spending cut while shifting to a tight monetary policy. As China will increase public works projects on the back of strong tax revenues, investment in fixed assets shows no signs of slowing.

As such, orders for construction machinery in China continue to skyrocket. In December orders for hydraulic shovels leaped 80% from a year earlier.

In India, personal consumption is increasing, thanks to rising incomes. With replacement demand for liquid-crystal display televisions accelerating among affluent consumers, Sony Corp. posted a sales gain of 24% at its electronics and electrical equipment business in India in the six months to Sept. 30.

Big countries like China and India, with populations exceeding 1 billion, will continue to lead the world economy. In terms of GDP, however, the BRICs account for only about 13% of the global economy, much smaller than the 25% for the U.S. and the more than 50% for the Group of Seven major industrial powers.

Filed by Egor Ouzikov under Investment and Competition Policy