Asia’s Recovery Highlights China’s Ascendancy

via nytimes.com

By NELSON D. SCHWARTZ
Published: August 23, 2009

PARIS — In past global slowdowns, the United States invariably led the way out, followed by Europe and the rest of the world. But for the first time, the catalyst is coming from China and the rest of Asia, where resurgent economies are helping the still-shaky West recover from the deepest recession since World War II.

Economists have long predicted that an increasingly powerful China would come to rival and eventually surpass the United States in economic influence. While the American economy is still more than three times the size of China’s, the nascent global recovery suggests that this long-anticipated change could arrive sooner than had been expected.

Such a shift would have significant ramifications for the United States and the rest of the West, even after the global economic recovery takes hold.

“The economic center of gravity has been shifting for some time, but this recession marks a turning point,” said Neal Soss, chief economist for Credit Suisse in New York. “It’s Asia that’s lifting the world, rather than the U.S., and that’s never happened before.”

China’s government-dominated, top-down economy is surging after Chinese banks doled out more than $1 trillion in loans in the first half of the year, in addition to a nearly $600 billion government stimulus program.

Though the benefits are manifest, some economists wonder whether China is laying the groundwork for sustainable growth or just increasing its export capacity despite more frugal spending habits on the part of Western consumers.

“The big question is what happens next,” said Kenneth S. Rogoff, a professor of economics at Harvard. “If the consumer in the United States and Europe doesn’t come back, I’m not sure Asia has a Plan B.”

But robust demand among Chinese consumers and businesses is one reason oil prices have doubled to more than $70 a barrel since bottoming out early this year, and China is likely to keep buying American debt as Washington borrows heavily to finance its myriad stimulus and bailout plans.

The United States is also being shoved aside as the make-or-break customer for export-driven nations like Germany and Japan. China overtook the United States as Japan’s leading trading partner in the first half of 2009, while in Europe manufacturers are looking east instead of west.

“What we’re losing in the trans-Atlantic trade with the U.S., we are gaining in China,” said Jens Nagel, head of the international department of the German Exporters Association.

In the near term, however, the United States should benefit from a resurgent Asia, as the American economy finally begins growing again, as expected in the second half of 2009.

“Vigorous rebounds overseas, particularly in East Asia, suggest that U.S. imports and exports will soon improve,” Mr. Soss said.

Last week, Hewlett-Packard pointed to double-digit revenue growth in China as a rare bright spot in an otherwise lackluster earnings report. Meanwhile, overall American exports to China have already been picking up, rising to $5.5 billion in June from $4.1 billion in January.

“The numbers are volatile, but the trend is clear,” said Robert Brusca of FAO Economics in New York. “It’s a big contrast with Japan, where U.S. exports are still dropping, but China is different.”

Of course, other factors have played a significant role in helping the global economy begin to stabilize, including trillions of dollars in support from central banks for frozen credit markets, as well as bailouts and rescues of major financial institutions, insurers and automobile companies.

But as the engine for future demand growth shifts from the government back to the private sector, and Americans remain wary of returning to their free-spending ways, Asian consumption is expected to pick up at least some of the slack. And if China does slow, as some experts fear it could in the second half of 2009, the United States’ effort to climb out of recession could be that much harder.

After the recession of 2001-2 and the slowdown in the early 1990s, the American economy served as the global locomotive, said Michael Saunders, head of European economics research for Citigroup.

Back then, he said, China and other Asian countries lacked huge cash reserves that could buttress them in the event of recession. But in the last decade, China has enjoyed huge trade surpluses with the West, and it holds $2.13 trillion in foreign reserves, solidifying its position as a rapidly emerging economic power.

Citigroup recently increased its estimate for annual Chinese economic growth to 8.7 percent in 2009 from 8.2 percent, and to 9.8 percent next year from 8.8 percent.

While economists like Mr. Soss expect that growth to spill over to the United States shortly, the effect is already visible in Europe.

Indeed, after the French and German economies shocked most economists this month by turning in positive performances for the second quarter, the normally conservative Deutsche Bank released a report titled, “Eurozone Q2 GDP: Made in China?”

For now, the answer seems to be yes. “It’s quite amazing, because usually Asia doesn’t play such a big role in European exports or output,” said Gilles Moec, senior European economist with Deutsche Bank in London.

French exports to China and other East Asian economies rose 18.7 percent in the second quarter, according to customs data, a sharp turnaround from the 16.2 percent drop recorded in the previous quarter. Overall exports to the region from the 16 countries that use the euro currency increased 6.3 percent in the second quarter, reversing a 6.2 percent drop in the first quarter, Mr. Moec said.

While Western European countries have been more timid about embarking on big spending programs because of their already mounting deficits, and European banks took huge hits on their holdings of subprime American debt, Beijing does not face either obstacle.

In the first half of 2009, Chinese banks lent a record $1.1 trillion in new loans, setting off fears that the lending binge might create a bubble over the long term.

China’s moves have also helped its neighbors increase industrial production sharply from recession lows. Since hitting a trough in late 2008 and early 2009, industrial production has jumped 28 percent in Korea and 26 percent in Taiwan. In July, American industrial production rose for the first time since December 2007, but it remains just half a percentage point above the bottom in June.

“Asia is still relatively small in the world, but it reflects how the world is changing, and economic power does translate, of course, into political power,” said Simon Johnson, a former chief economist for the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics. “You can use it to win friends and influence people, as the Chinese are already doing in Africa and Latin America.”

Nadim Audi contributed reporting from Paris.
Sign in to Recommend More Articles in Business » A version of this article appeared in print on August 24, 2009, on page B1 of the New York edition.

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Malaysia’s New Labor Rules Hurt Business

via nytimes.com

KUALA LUMPUR — It is lunchtime at the Wangsa Ukay restaurant in suburban Kuala Lumpur, and regulars are coming in for local favorites like roti canai, chicken curry and tea tarik, the sweet, milky drink that is ubiquitous across Malaysia.

The owner, Muneandy Nalepan, has time to stop and talk for now, but when peak times hit on weekends, he and his wife must pitch in to help clear tables.

He used to have a staff of 120 — almost all foreigners — working in his five restaurants across the city. But after the government made it more difficult for businesses to hire workers from abroad, he is down to 80 because he has been unable to replace the 40 employees who had to return home after the maximum work period of five years.

Unable to find Malaysians willing to work as cooks, waiters or dishwashers, he is awaiting approval to employ more foreigners. But if he cannot get more workers soon, he says, he may close one of his outlets. Mr. Muneandy, an 18-year veteran of the industry, is even considering other business ventures.

“To run a restaurant, it’s becoming impossible,” he said.

It is not just restaurateurs complaining. Many business owners, from furniture producers to rubber glove manufacturers, say a labor shortage is harming productivity.

In January, Malaysia banned the hiring of new foreign workers in the manufacturing and service sectors after a government report predicted that 45,000 people could be laid off during the Lunar New Year at the end of that month, the New Straits Times reported.

“There is no valid reason to bring in foreign workers at this time,” Home Minister Syed Hamid Albar told the paper.

The ban was backed by labor groups. The Malaysian Trades Union Congress proposed a freeze on the recruitment of foreign workers last October.

“Because of the global economic downturn, we were worried about the impact on jobs for Malaysians as well as foreigners,” said Raja Sekaran Govindasamy, the group’s secretary general. “We don’t want workers to be brought in and abandoned, because that then causes hardship.”

In 2008, there were an estimated 2.2 million foreigners — mostly from Indonesia, Bangladesh, Nepal, India, Myanmar and Vietnam — working legally in Malaysia, a nation of 28 million. Some reports suggest the country was home to another one million illegal workers. By March this year, the number of foreigners with work permits had fallen to 1.9 million, according to Shamsuddin Bardan, executive director of the Malaysian Federation of Employers.

“About 300,000 permits were not renewed, and people were sent back,” he said.

Malaysia recorded 31,392 layoffs from January through July, and the country’s unemployment rate rose to 4 percent in the first quarter of this year, the latest period for which figures are available. That was up from 3.1 percent in the fourth quarter of last year.

Closing the doors to foreign workers is hardly a uniquely Malaysian response to the global economic downturn. Taiwan, South Korea and Australia also announced plans this year to reduce the number of new foreign worker visas, according to the International Labor Organization.

But in Malaysia, the cutbacks are not simply a result of the economic crisis. The government has said it wants to reduce the number of foreign workers to 1.5 million by 2015. Some believe weaning the country off its dependency on foreign workers is crucial to increasing local wages.

The average monthly wage in the manufacturing sector has risen to between 650 and 700 ringgit, or $185 to $200, in the past three months, up from 450 ringgit, the national news agency Bernama reported in August.

Mr. Raja said foreign workers often accepted lower wages than Malaysians. The country has no minimum wage. Typically, foreigners are brought in by a business offering a job, he said, or by an outsourcing company that promises them work.

Mr. Shamsuddin said that companies could still apply to recruit foreigners but that the process had become more difficult.

For example, he said that since April 1, employers have had to advertise vacancies locally for two months, up from one month, before they could apply to recruit foreigners. And employers must now pay an annual levy — as much as 1,800 ringgit — for any new foreigners they employ, he said; the fee used to be paid by workers. Mr. Shamsuddin said the government had abandoned plans to double the levy after the federation complained.

Dominant Semiconductor, a light bulb manufacturer with factories in Malaysia and China, is struggling to fill about 1,000 vacancies. Its chairman, Goh Nan Kioh, said the company was allowed to employ one foreigner for every local worker but could not find enough Malaysians to help increase its total work force. If the labor shortage continued, he said, the company might consider moving more of its labor-intensive operations to China.

The rubber glove industry is also struggling to find enough workers to fill orders, which have surged with the spread of swine flu.

“It’s a pity that right now when we are facing a big jump in demand, we are not getting enough workers,” said K.M. Lee, managing director of Top Glove and president of the Malaysian Rubber Glove Manufacturers’ Association.

The employers interviewed said they were trying to reduce their dependency on foreign workers by exploring ways to automate and to increase pay to attract locals. However, they say that foreign workers remain crucial for now because they cannot find enough locals willing to take what some call the “three D jobs” — dangerous, difficult and dirty.

“If you are going to get a Malaysian to come to work, it’s very difficult,” said Mr. Muneandy, the restaurant owner. “They feel that by working in a restaurant, their pride is in question. They feel that Malaysians have already come to a stage where they are above certain other Asian countries.”

Mohamed Ariff, executive director of the Malaysian Institute of Economic Research, blames the country’s dependence on foreign labor on the decision to “open the flood gates” to migrant workers in the late 1980s, first in the plantation sector, then in manufacturing.

Mr. Ariff said that in the early 1990s, when wages in the manufacturing sector were rising, factories had considered introducing labor-saving technology but that many had shelved those plans when the government let them employ more foreign workers.

“The technology transfer suffered enormously,” he said. “Malaysia was trapped into an unskilled, labor-intensive economy.”

Malaysia should give up its labor-intensive operations to countries with lower wages, like China, he said, and concentrate on more highly skilled work like research and development, financial and health care services.

Some workers’ rights groups, though, are concerned that new restrictions on foreign laborers may result in more people migrating to countries before they obtain a valid work permit. That can leave them more vulnerable to exploitation, the International Labor Organization said.

Figures released by the government last week showed that the economy had emerged from recession in the second quarter. Mr. Raja, the labor leader, said that although job losses were easing, the unions believed the freeze on foreign workers should continue. If there is a need for more workers in the coming months, he said, companies should be able to extend the visas of foreign workers already in the country.

Sunil Nemdang, a 21-year-old Nepalese man, came to Malaysia in May on the belief that an agent had a job for him. He was given a work permit and told that he would work as a security guard. However, when he arrived, there was no job.

With the agent still holding his passport, Mr. Sunil is sleeping on the floor of a Nepalese restaurant alongside his three cousins, who made the trip with him, while he tries to get his documents back.

Despite the harsh introduction to life in Malaysia, he has not given up on his dream of earning money to send home to his parents, poor farmers living in a village in eastern Nepal. “If I get a good job, I want to work here for two or three years,” he said.

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Doing Business in the Developing World

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Doing Business in the Developing World by Steven on Monday, August 24, 2009 - 5:09:31 PM EST It isn’t a secret that many aspects of developing countries are unappealing to the global businessperson. Decrepit urban and rural areas, lawlessness, and violence often cause companies to avoid these areas either out of fear for employee safety, logistics, or simply because they can’t find a way to make doing business there profitable. However, the fact still stands that these areas have hundreds of millions of potential customers lacking many goods and services. Additionally, there have been numerous pioneering companies which have had to modify their business strategies in order to adapt to the economic climate of these regions, and have subsequently thrived there. Here are a few of the issues that have arisen in these areas, and tips from successful companies on how they’ve handled them: Challenges of the market: -Lack of functioning legal systems makes contracts rarely enforceable. -Prevalence of theft, vandalism, and physical violence. -Lack of skilled workers. -Regional poverty makes finding customers who can afford goods and services difficult. -Conventional advertising rarely has the means to reach the people in these environments. -Winning the acceptance of the people in the area amidst religious, cultural, and linguistic diversity. Tips for succeeding in these markets: -Identify local entrepreneurs and potential partners who can help your business to get acclimated with the culture and economic climate of the area. -Approach the business endeavor with the mindset of helping the target community by fostering social and economic good. This mindset will be contagious to the employees, partners, and customers and will maximize cooperation and profitability. -Be willing to experiment with new business processes. The intricacies of these markets almost necessitate a trial-and-error approach. -Make your partners feel important. Although one partner may only draw a small profit for your business, by including them in meetings, functions, etc., you help to foster a dedicated, resilient business partnership. For more on doing business in developing areas, check out the whole story from the Wall Street Journal!   Tags: Entrepreneurship · Business Risk

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