ASIA MONTHLY. November 2013

Transcription

1 ASIA MONTHLY November 13 Topics China s burgeoning consumer market 1 Malaysia 3 Philippines Vietnam 5 China 6

2 November 13, No.15 Topics China s burgeoning consumer market China s household consumption expenditure grew to $.5 trillion in 1, 1.3 times that of Japan s. The scale of expenditure may rise to as much as $8 trillion by 15. The consumption structure will change considerably. Service consumption is expected to grow at a fast pace. Expanding consumer market In recent years, labor costs have risen at a fast pace in China. This has caused China s appeal as a production base to wane. Seen in a different light, rising income levels translate into improved purchasing power on the part of consumers, with the result that China is becoming more and more attractive as a consumer market. First, the current market scale needs to be examined. According to China s National Bureau of Statistics, China s per capita consumption expenditure in 1 was RMB16,67 in urban areas, and RMB5,98 in rural areas. Given that the urban population in that year was 71 million, and the rural population 6 million, this means that, for the whole country, household consumption expenditure was as much as RMB15.7 trillion ($.5 trillion). Second, examination of the changes (Trillion US$) <Household Consumption Expenditure> China Japan Note: All households in urban and rural areas. (Y) Source: The Japan Research Institute, Ltd., based on the data of the National Bureau of Statistics of China, and the data of the Ministry of Internal Affairs and Communications of Japan. in the market in the years between and 1 shows that China s consumption expenditure has grown at an average pace of 15.5% per annum. In particular, the growth in automobile related expenditure has been remarkable. According to the Bureau of Statistics, the percentage of per capita consumption expenditure in urban areas accounted for by transport related expenditure grew from 3.% in to 9.8% in 1. Specifically, automobile purchase and expenditures on gasoline has increased significantly. Meanwhile, the proportion of household consumption expenditure accounted for by food expenditure dropped from 39.% in to 36.% in 1. Thus, we can see that Engel s law is being observed in China. Looking forward, China s consumer market is expected to expand to a sustainable degree, in step with rising income levels. In actual fact, there is a proportional relationship between the per capita consumption expenditure and per capita GDP data of 71 countries. Based on these data, if China s per capita GDP in 15 can increase to $1,, its consumer market may be worth as much as $8 trillion by that time. Potentially huge market for service consumption The expansion has not been uniform across all sectors. For example, while the spread of washing machines and refrigerators helped power Japan s period of high growth, these items no longer have the power to drive China s economic growth looking forward. In fact, washing machine ownership was 98 per 1 urban households in 1. For refrigerators, the figure was 99 per 1 urban households. In the future, one field that is expected to grow massively is services. China s consumer needs will become more diverse and sophisticated as income levels rise. As demand for better quality goods grows stronger, there will be a particularly large expansion in the demand for services such as leisure, accommodation, and communications. In actual fact, not only is there a strong interrelationship between the per capita service expenditure and per capita GDP data of 71 countries, but a very clear relationship has been observed that, as incomes rise, the share of total consumption expenditure accounted for by services also increases. This stands in contrast to items such as food and non-alcoholic drinks, for which the share of consumption drops as incomes rise. 1

3 November 13, No.15 The growth in Chinese consumers spending on services represents a major business opportunity for Japanese firms. For example, as more Chinese consumers travel abroad, there is a chance for the tourism industry to increase revenues. According to the World Tourism Organization, Chinese overseas tourists total spending amounted to $1 billion in 1, beating out Germany and the US to take the No. 1 spot for the first time. The annual number of overseas tourists has reached million in 1. While Hong Kong and Macao account for over half of travel destinations, other Asian destinations are gradually winning larger shares. Japan played host to 1.3 million Chinese tourists in 1, more than twice the 65, visitors in 5. The number is expected to increase in the future. The benefits are not limited to tourism. As China s consumer needs become more and more diverse and sophisticated, this represents an opportunity for Japanese non-manufacturing firms, that have survived tough competition in the domestic market by providing high quality goods and services, to expand their overseas revenue sources. In many business sectors, including leisure facilities, hotels and transportation, the growth in China business represents a significant challenge. As described, China s consumer market has expanded considerably as wage levels have increased. China s household consumption expenditure is (Consumer Expenditure per Capita, US$) <GDP per Capita and Consumer Expenditure per Capita> (11, 71 Countries) China y =.8x R =.913,, 6, 8, 1, (GDP per Capita at current prices, US$) Source: The Japan Research Institute, Ltd., based on the data <GDP per Capita and Share of Consumer Expenditure per Capita> of Euromonitor, World Consumer Income and Expenditure Patterns 13 7 (Share of Consumer Expenditure per Capita, %) :Services Consumer Expenditure Regression curve:y = 5.66Ln(x) - 7 R =.3 :Food and Non-Alcoholic Beverage Consumer Expenditure Regression curve:y = Ln(x) + 9 R =.661,, 6, 8, 1, (GDP per Capita at current price, US$) Source: The Japan Research Institute, Ltd., based on the data of Euromonitor, World Consumer Income and Expenditure Patterns 13 expected to expand still further in the future. In particular, the service sector is expected to grow at a fast pace, and this represents a significant business opportunity for Japanese firms. (Shinichi Seki)

4 November 13, No.15 Malaysia Protectionism creeping into economic policy Foreign demand set to improve through second half Malaysia s real GDP growth rate for the April to June quarter, 13, was.3% compared to the same period in the previous year, despite flagging foreign demand, and slightly improved on the.1% posted in the previous quarter. Moreover, the good news is that foreign demand looks set to improve through the second half of the year. August exports posted a rapid growth of 6.7%, compared to the same period in the previous year, and 1.1% up on the previous period. While exports to the industrialized economies remained more or less unchanged, year on year, exports to the new, emerging economies and developing economies posted impressive gains, growing 18.%, compared to the same period in the previous year. Growth in (Million Dollars) 1, 1, 1, 8 6 <Export to China> 1 13 Source: CEIC Production Machinery & Transport Equipment Others Industrial Product exports to China was particularly strong at 15.8%, similarly. Among exports to China, while palm oil and petrochemical products continue to struggle, electronic parts and components and other industrial products (excluding manufacturing equipment and transportation equipment) posted 135.6% growth in August, compared to the same period in the previous year. On October, Prime Minister Najib met with Chinese President Xi Jinping, at which meeting both sides agreed to strengthen their comprehensive strategic partnership. The agreement included the bold target of increasing the value of trade between the two countries from $6 billion in 1 to $16 billion by 17. Increasing protectionism in the wake of the general election Against this backdrop, it needs to be noted that, since the general election in May, the economic policies of the Najib administration have begun to show signs of increasing protectionism. In the general election, the ruling coalition National Party (BN) secured out of 133 parliamentary seats, but its percentage of votes was 8%, falling below the 51% gained by the opposition People's Alliance (PR). The introduction of increasingly protectionist policies is seen as a move aimed at strengthening the party s support base. The Najib administration has been participating in the TPP (Trans-Pacific Strategic Economic Partnership Agreement) negotiations since October, 1, and in July, 13, declared that it would not implement any deregulation of government procurement that might adversely impact Bumiputra (a generic term referring to Malays and other indigenous people) businesses or small and medium sized enterprises. In September, what is being called the second round of Bumiputra policies was announced. These comprise 1) enhancing the development of Bumiputra human capital development (increased student intake at MARA University of Technology), ) raising Bumiputra equity ownership levels in businesses (investment through a state owned corporate fund), 3)expanding Bumitra ownership of real estate and other non-financial assets (increasing the supply of low priced housing), ) fostering Bumiputra entrepreneurs and businesses (expanded finance for business startup capital, and expanded government procurement), and 5) the improvement of services for socio-economic development. Each one of these measures caters to the concerns of the domestic support base, and none of them are consistent with the TPP commitments that have been made thus far. The Prime Minister expressed the view at the October TPP summit that it would be difficult to conclude negotiations within the year, and the prevailing view is that these comments were made with his support base in mind. Malaysia is also a major player in the effort to realize the ASEAN Economic Community (AEC), and this tendency towards protectionism needs to be watched carefully. (Keiichiro Oizumi) (Y/M) 3

5 November 13, No.15 Philippines High growth levels expected to continue Real GDP growth 7.5% in Q The Philippines real GDP growth rate for the April to June quarter was 7.5%, compared to the same period in the previous year, marking four consecutive quarters of growth over 7%, and well up on the earlier forecast of around 7.%. The growth rate for the January to June period was 7.6%, and it looks as if the government s whole year target of between 6% and 7% is very likely to be realized. This is because domestic demand has continued to perform well, bolstered by monetary easing and expanded government expenditure. On the other hand, foreign demand has struggled to grow, and exports in the January to June period (customs cleared basis) were minus.%, compared to the same period in the previous year. In light of the economy s strong performance, many government cadres are expressing confidence in the government s economic policy management. Given the recent economic reports, the National Economic Development Agency s (NEDA) Socio-Economic Planning Secretary, Arsenio M. Balisacan, commented that the Philippine economy is on a different track to high economic growth than the traditional one. Viewing the April to June quarter growth rate in terms of industrial origin, the agricultural sector posted minus.3%, while industry and services grew at 1.3% and 7.%, respectively. The poor performance by the agricultural sector was due to the impact of climatic factors, such as intense heat and typhoons. Also, for three consecutive quarters the growth rate of industry has been above that of the service sector, which is quite different from the traditional pattern where services have been the main driver of growth. In industry, manufacturing posted 1.3% growth and construction 17.%. In construction, the public sector posted 31.1% growth and the private sector 9.%, with the public sector continuing to drive construction growth. In the services sector, finance (9.6%) and real estate (9.5%) were particularly strong. IMF has stressed the importance of allocating sufficient liquidity to productive sectors and has pointed out the need to be adequately careful against the forming of a real estate bubble, and the importance of prompt legal reform to reinforce Central Bank s supervisory authority in monitoring the financial sector. With these statements, IMF voiced concern over the high rate of growth of finance and real estate. As for domestic demand growth in the April to June quarter, private consumption grew 5.% and government consumption 17.%. Fixed capital formation growth was 9.7%, of which construction investment was 15.6% and equipment investment 5.7%. From the demand side, it may be said that the trend of public sector led growth is strengthening. High growth levels expected to continue Consumer prices are settling down, and for the time being, it would seem that monetary easing is likely to be maintained. Also, since the fiscal deficit is contracting, it is expected that the promotion of PPP projects for infrastructure development will continue. The government s target for real GDP growth in 1 is between 6.5% and 7.5%, and there is every possibility that this target will be achieved. However, in order to sustain the growth momentum over the mid term, it will be essential to implement steady structural reform, such as improving the investment environment mainly by accelerating infrastructure development projects, and to tackle poverty. Since late May there has been an outflow of capital from Asian regions, and <GDP Growth Rates by Industrial Origin> (Y o Y, %) 1Q1 1Q 1Q3 1Q 13Q1 13Q Real GNI Real GDP Agriculture, hunting, forestry and fishing Industry Sector Manufacturing Construction Service Sector Transport, Storage and Communication Financial intermediation Source: National Statistical Coordination Board the Philippines also has seen the exchange rate continue to depreciate and share and bond prices continue to decline. The concern is that, if US monetary policy really does change, then the impact will be even greater. However, the Philippines has managed to sustain a current account surplus, boosted by money remitted home by Filipinos working abroad and revenues from business outsourcing, and this and the improvements in the fiscal balance and the reduction of public debt are being praised, leading to an improved sovereign ratings for the country. Given all of this, it would seem that there is only a very low possibility that foreign investors confidence in the Philippines could be lost. Therefore, even if US monetary policy changes do result in an upset in Philippine capital and financial markets, the expectation is that this would be limited at most. (Satoshi Shimizu)

6 November 13, No.15 Vietnam Non-performing loans are a drag on bank financing GDP growth rate 5.5% in Q3 Vietnam s real GDP growth rate in the July to September quarter, 13, was 5.5%, compared to the same period in the previous year. Given a rate of.8%, similarly, in the January to March quarter, and 5.% in April to July, the growth rate for January to September averages out at 5.1%, compared to the same period in the previous year. The contributions for individual supply items in the January to September period were.% points for agriculture forestry and fisheries,.% points for industry and construction, and.7% points for services. The General Statistics Office (GSO) does not publish GDP data for individual demand items, but both (%) <Real GDP growth Rate & Contribution by Supply Items> Q Q 3Q Q 1Q Q 3Q Q 1Q Q 3Q Q 1Q Q 3Q Industry and Construction(Manufacturing) Industry and Construction(Other) (Y/Q) Service Agriculture, Forestry & Fishery GDP Growth Rate Source: CEIC, GSO investments and private consumption appear to have performed poorly. Gross fixed capital investment grew 6.1% compared to the same period in the previous year, on a nominal basis, while capital goods and services gross retail value grew 5.3%, similarly, on an actual basis. Both of these figures were below the previous year s performances (7.% and 6.%, respectively). Meanwhile, in terms of foreign demand, exports of smartphones and the like were robust, and this is believed to have boosted the growth rate. In late September, GSO revealed a forecast of between 5.6% and 5.7% growth for the October to December quarter, and between 5.% and 5.3% economic growth for the whole year 13. World Bank s forecast for 13 is 5.3%, and the Asian Development Bank (ADB) forecasts 5.%. Non-performing loan recovery corporation finally up and running Economic performance in the October to December quarter and in 1 will be affetced by the non-performing loan issue. According to Central Bank, the financial institutions non-performing loans as of July totaled 138 trillion dong ($6.5 billion), with a non-performing loan ratio of.58%. However, even within Vietnam it is believed that actual non-performing loans are well above Central Bank s estimates, and the full picture with regard to non-performing loans cannot be seen clearly. According to local media, the revenues of local banks in Ho Chi Minh city have deteriorated seriously, and the non-performing loan ratio that stood at 5.65% at the end of January is said to have risen to 5.99% by the end of August. The excess supply of real estate, which has been the major cause of non-performing loans, does not look likely to be solved any time soon, and it is expected that non-performing loan ratios will increase further. The response of the government and Central Bank has been slow. The establishment of a non-performing loan recovery corporation (VAMC) that was supposed to have been completed by March, 13, did not happen until July, and in October the first bank to be targeted for debt collection was finally decided. VAMC is supposed to be purchasing between to 7 trillion dong ($1.9 to $3.3 billion) worth of receivables in 13, but it is often the case that real estate development is being carried out by developers in which local governments and large scale state owned enterprises are involved. There are problems in working out where the management responsibility lies in such development projects, and it is anticipated that handling of related non-performing loans will be even further delayed. Central Bank has been lowering its refinance interest rate (an interest rate that applies when Central Bank makes a loan to a commercial bank that is collateralized by short-term securities) in stages since February, 1, and has been supplying the market with ample funds. However, the lack of progress in clearing non-performing loans has meant that the banks have been cautious about lending, and the credit balance at the end of September could only manage a very low 6.1% growth compared to the end of the previous year. (Yuji Miura) 5

7 November 13, No.15 China Economic recovery is favorable for promoting reform Q3 growth +7.8% On October 18, the Nation Bureau of Statistics announced a real GDP growth rate of 7.8%, compared to the same period in the previous year, for the July to September quarter. The figures have surpassed the previous quarter s performance the first three consecutive quarters, clear evidence that the economy has been picking up from the mid-year point onwards. Monthly indices also show that the economy is recovering. Fixed asset investment growth for January to September (excluding rural household) was.%,.1% point up on the performance for January to June (.1%). In terms of individual industries, the downward trend in growth in manufacturing and infrastructure related industries has stopped. Industrial production (added value basis) is thought to have bottomed out in June and is on the rise, which is considered evidence that economic leveraging measures have proved successful. Also, total retail sales turnover (nominal basis) continue to grow at around 13%, compared to the same period in the previous year. The figures may be said to be growing strongly in spite of the fact that some factors that have inhibited consumer appetite, including the Xi Jinping administration s efforts to encourage public expenses frugality, remain unchanged. Meanwhile, September export growth was minus.3%, compared to the same period in the previous year, the first negative growth in three months. In addition to the fact that the same period in the previous year posted a high growth figure, economic deceleration among the new emerging economies triggered by concerns over the possibility of the scaling back of quantitative easing by the US is also Investment(Nominal, R) (%) GDP (%) /1Q 1/1Q 13/1Q thought to have contributed to the contraction. In terms of exports to major countries and regions, setting aside the fact that exports to Japan changed to positive growth (since January, 13) and that exports to the US have been increasing for three consecutive months, negative developments are quite noticeable, such as a significant drop in the growth rate of exports to ASEAN and the fact that exports to the EU fell below the previous year s level for the first time in three months. Factoring in the improving trend in new export orders received and the postponement in the US of the scaling back of asset purchases, while export growth is expected to shift to year on year positive growth from October onwards, there are still strong concerns over the future of the global economy, and there is little prospect of a sudden recovery. Stressing reform promotion on the international stage While leveraging measures seem to have boosted the recovery trend, the government is at pains to stress the sustainability of the economic growth, and the fact that the risks can be controlled. President Xi Jinping s address (October 7) at the APEC CEO summit may be said to be a typical example. In his address, President Xi stressed that China s growth rate and other major economic indices were within a reasonable range. The President stated that suitable measures were being implemented in order to enable China to fend off the risks of excess production capacity, local government debt and shadow banking. Further, in his address, President Xi explained that measures for the comprehensive deepening of reform were being worked out, and also expressed his strong determination to push ahead with reform, insisting that, while challenges abound ahead of reform, hesitation resulting from fear at this point would risk losing everything that has been achieved thus far. All eyes will be on the soon to be published reform plans, to see to what degree this expressed determination has been incorporated. (Junya Sano) <Real GDP, Investment in Fixed Assets> (Y o Y) Note: Nominal Investment figures are year-to-date. Source: National Bureau of Statistics (%) <Export Destinations> (Y o Y) Japan U.S. EU (Y/Q) - 11/7 1/1 7 13/1 7 (Y/M) Source: Customs Statistics ASEAN