China's stimulus fails to boost South-East Asia, analysts say

Bangkok  - China's state-driven stimulus package may have boosted its own domestic growth but has had little knock-on effect for South-East Asia, the lead analyst of Fitch Ratings in Asia said Monday.

"The stimulus that China engaged in has not really benefited the rest of the region," said James McCormack, Fitch's managing director and head of Asia sovereigns.

McCormack noted that while China's gross domestic product (GDP) grew 6.1 per cent in the first quarter of this year, most South-East Asian economies experienced sharp contractions in the same period, showing there is no correlation between China's growth and the region's.

The sovereign credit rating agency sees the beginning of a recovery in Asia with signs of rising exports at the tail end of the second quarter, attributed chiefly to rising imports in the US and Europe.

In its revised forecast for the region's economic performance in 2009, Fitch forecast that Asia would grow 0.3 per cent this year with China and India up 7.2 per cent and 6.0 per cent respectively, but Japan's GDP shrinking by 6.3 per cent.

South-East Asia's exports are starting to improve, including exports to China, but the trend is not driven by China's domestic consumption, which has actually declined as a percentage of GDP this year, McCormack told an annual Fitch conference in Bangkok.

"When China's exports come back up, the region's exports feed in to that growth because you've got a regionally integrated manufacturing network," McCormack said. "So the region benefits from China's export growth, but it does not benefit from China's GDP growth."

China's stimulus package has been limited to the state sector, with Chinese state banks largely pumping money into state enterprises to boost production, aiming at more exports, the analyst said.

"This is an unsustainable increase in credit but it isn't meant to be sustainable," McCormack said. "China is clearly hoping for an export-led recovery."

McCormack, and many other US economists, are pessimistic about the US economy returning as the leader of world economic growth in the near future.

"What supported America, and to some extent the global economy before the crisis, was a bubble - people living beyond their means," Joseph Stiglitz, who was awarded the Nobel Prize in economics in 2001, said at a conference in Bangkok last week.

McCormack doubts US consumerism will return to pre-crisis levels in the near future which will have repercussions for Asia's export-driven economies.

Fitch has urged Chinese policymakers to consider allowing its yuan currency to appreciate as a means of boosting domestic consumption and slow export dependency.

Thailand's domestic consumption has also been on the decline, as a percentage of GDP, for the past three years, a trend that was blamed on the country's ongoing political instability.

"There is a strong correlation between consumption and political noise here," McCormack said. Fitch downgraded Thailand's sovereign rating to BBB in the aftermath of anti-government protests that turned into riots in Bangkok in April. (dpa)