Asian Decoupling: Facts and Figures

[SGD Bear]

enough stupid articles.  V, you bring down the IQ of this forum and give expats a bad name.  This is getting very tedious and annoying.

[Kubes.SG]

V:  I don't believe Asia can decouple from the global economy for decades, if ever.  Where will Asia source the energy it requires, the raw materials, the technology, IP to drive their economies? Sure some will be sourced domestically but not all.   I fear that you are only cherry-picking supporting comments. You forgot to delete, or at least highlight this statement.  It is THE most clear and direct statement that all our economies are inter-dependent,  there will be no decoupling in the shot-term and the recession is not the trigger for decoupling.

Asian nations will need a recovery in the global economy before the region can exit a slowdown, the IMF said this month. Strauss-Kahn said today the fund’s forecast for a recovery to start in 2010 is “very uncertain.”

[Vulcanl]

SGD Bear,

"...V, you bring down the IQ of this forum and give expats a bad name..."

It is actually YOU that does this with your narrow mindedness and repeated retreat to insults in the face of evidence that decoupling is a very real World changing event that needs to come about

"...This is getting very tedious and annoying..."

Once again, no one is twisting your arm to read this thread.  One of the reasons I set it up is to isolate this particular discussion.  You are free to ignore it.

[Vulcanl]

Kubes,

"...decouple from the global economy..."

Not what I am saying.  Asia needs/will decouple from reliance on exports to the West and develop its own self-sustaining domestic consumption/intra-regional trading model.  Provided protectionism does not rear its ugly head, the World is an intertwined place, all nations need to trade with each other.  That is what decoupling entails.  Hopefully by this evening I will have up on this thread a summary of positions I have taken specifically as pertains decoupling (again based on everything I have posted thus far on the topic).

"...Where will Asia source the energy it requires, the raw materials, the technology, IP to drive their economies? Sure some will be sourced domestically but not all..."

China has successfully established itself in Africa (via agreements official and otherwise) as a buyer of that region's energy/commodity products.  Australia is another source.  USA does not produce its own energy needs either...not sure what your point is here.  As far as IP goes Asia steals it from the West at the moment.

"...I fear that you are only cherry-picking supporting comments. You forgot to delete, or at least highlight this statement.  It is THE most clear and direct statement that all our economies are inter-dependent,  there will be no decoupling in the shot-term and the recession is not the trigger for decoupling...."

There are so many relevant articles and news stories at the moment that back up the decoupling thesis, I actually find it hard to see anything that goes against it at the moment.  In actuality I don't post everything I come across, there's a lot of stuff out there I leave out.  As for deleting, I would never do that.  I always cite the source and post the piece in its entirety.

[Kubes.SG]

Now I am really confused.  How do you define "decoupled"?  Is it just stopping exports to the US WE markets?  What is the point of decoupling from US/WE,  but still being coupled or your word intertwined, with the rest of the world?

[Vulcanl]

Kubes,

As mentioned earlier this week and this morning, I will post my positions on decoupling by later this evening.

Cheers man - enjoy the day - looks like a nice one out there!

[gram]

Other Asian countries may achieve some measure of decoupling from the West but in Singapore's case, that will be much harder. It's a port-city and has no natural resources.
If it weren't for the port, I don't think it could have become developed at all.

[Vulcanl]

Asian Decoupling

Why do I continue to post about decoupling?  Because the West is now in a self-inflicted economic depression that is negatively impacting the Globe, dragging down otherwise fundamentally sound economies with it,  and it makes no sense that said economies will suffer along with the West given the vast potential and resources for continuing development and indeed prosperity for the Asian region in particular.

A counterbalance to all of the ‘conventional wisdom’ that happens to be very negative right now is good as it leads to healthy debate.  I  present background for the decoupling case from various sources to engender discussion and illustrate that I am not alone in this line of thinking.  This happens all the time in academia and professional circles.  There are those who don’t know how to have an intelligent discussion and resort to childish name-calling  There is no need to resort to insults.  You may disagree and that is your prerogative but it doesn't mean that you are 'correct' either.

There WILL be growth SOMEWHERE in the World within the next year and a half.  I am making the case that it will be in Asia and not the West. 

What is Decoupling
*The World is undergoing a paradigm shift where the economic center of gravity is moving from the West back to the East.  This is a  reversion to where it resided for hundreds, perhaps thousands of years prior to the Roman Empire and it is nothing to be afraid of.  Europe and the USA will still be around, doing what we do
*Some choose to call it 'rebalancing' but it is the same thing: namely that Asia weans itself off dependence on Western exports and replaces it with its own domestic consumption model

Hasn’t decoupling already been debunked?
*There is a case to be made that the analysts and economists that made that call were early and not necessarily incorrect.  There is no way to prove this
*Many posters here assume that the entire World will go into a coordinated funk and be mired in the same muck for at least a decade.  A basic tenet of capitalism is that capital will always find its way to the best investment opportunities.  In a RELATIVE World those opportunities will be in Asia, not the West
*There is a lot of cash on the sidelines right now and eventually it will be invested.  Do you honestly believe it will go to keeping zombie Western banks on life support?  I don't think so

Time frame
*I have NEVER stated that Singapore or Asia has already decoupled from the rest of the World.  What I have made abundantly clear, however is that in a relative World Asia will emerge from this in much better shape than the West, and that there is much evidence to attest to this at this time.  Decoupling must occur as the old model is busted (the West is tapped out and simply cannot continue buying Asia’s exports at the rate it did in the past)
*The road ahead will be difficult but not nearly as difficult as what the West is facing.  Asia will grind along for the next 16 months or so but there will not be a collapse here
*We will have more clarity on the issue by mid year.  I certainly expect that within the next 16 months the emerging global trend will be clear
*This is a once-in-a-lifetime event, past experience will not help us determine what happens next.  This is a paradigm shift, a net positive for Asia once the dust settles

Paradigm shift
*Asia exports cheap goods to the West and reinvests the proceeds in Western debt so as to enable further sales to this key client.  Basically Asia is providing vendor financing.    This  shell game is over as the West is tapped out and can't afford any more cheap goods even if they wanted them.  This will force Asia to come up with its own intraregional consumption model where countries export to one another, or perhaps China and/or Japan lead the way and replace the USA as the world’s engine of growth by becoming net consuming nations
*The house of cards has collapsed,  it was never a sustainable situation to begin with.  A new model is needed going forward.  The process of Asia decoupling from the West has increased as a result of this mess.  Fundamentally Asia is in better position (lower levels of debt, higher levels of cash across both the private and public sector)
*Asian reserves (which are 75% of all outstanding USD based reserves)  will provide a cushion to get through this contraction.  That’s a lot of cash to ride out this storm and gives Asian governments flexibility for stimulus.  While Western governments are printing money and issuing debt to bail out their financial systems their counterparts in Asia will be drawing on savings.  When the dust settles Asia’s balance sheet will be in much better shape than the West
*Asia needs to put all that cash to good use to prime the pump of domestic consumption that will lead to real, sustained intra-regional trade and therefore true decoupled (from the West) growth
*Even though the new model is not apparent right now, it is my belief that the current circumstances will dictate this natural change in Asia - to somehow move away from relying solely on exports to the West and more to intra-regional exports.  But this can only happen if domestic demand in emerging Asian countries is stimulated

Western (particularly American) decline
*USA/UK/Europe financial system  has been ripped to shreds with more bank failures looming.  Working through resuscitation is going to take years.  Recovery will not be quick, excess credit needs to be worked off, and re-flation of asset bubbles is not the answer
*The so-called 'flight-to-safety' to the USD is a joke.  It becomes clearer by the day that the US gov't has no ability, interest, or intention to keep the USD strong
*Growth prospects in the West relative to the East are therefore  poor
*The gap in standard of living will close not only via improvement in Asia, but also by a decline in the West.  This is already happening

Singapore’s role
*Prosperity will depend on more high-value added activities that will service Asia in addition to the West.  Singapore's tiny size is its advantage - it is very nimble.  All manner of changes in policy/specialization/economic orientation can be executed very quickly.  The gov't is making a push in the education, arts/entertainment, defense, and science/medical industries
*We already see SG trying to wean itself off the financial svcs business as a source of future growth (for example).  It can and will succeed by positioning itself to service regional (as opposed to Western) growth areas.  Per above, SG can shift on a dime, basically - to become a value-added provider.  Making widgets profitably is in Singapore's past
*The govt is doing what it HAS to do, indeed "dipping Singapore's feet" in various waters to test the efficacy of potential success.  This is something that I think they do and has served the Republic well.  They are constantly trying out new things to see what works.  Nothing ventured, nothing gained
*SG Gov't has loads of cash to tide the population over in the short term (16 months or so). The recent budget was well received and ample evidence as to what the gov't can do.  It will need to observe what the emerging trends are and exploit them
*Singapore has a solid social safety net, primarily in the form of the HDB.  The population gets a shelter over their heads that is very difficult to have taken away from them

The actual Whys and HOWs of decoupling
*The first and foremost economic problem for Asia  is the collapse in demand for their exports.  This problem can be solved by increasing domestic consumption within each Asian country which will spur intra-regional trade.  Leadership will implement policies to this end.  Asia has no choice.  Demand from the West has dried up and will not be returning any time soon (at least the next 3 years or so)
*These structural changes are NOT decades down the road.  Some Asian economies have already 'arrived' (Japan, South Korea, Hong Kong, Singapore, Taiwan)
*Why will governments be forced to make these changes? Because people need to be employed or else the populace gets restless and overthrows the government.  An acute concern of the Chinese government in particular
*In Nov 2008 the Chinese gov’t injected half a trillion USD into its economy directly to start easing the pain.  As long as these flows are invested/spent and not hoarded by the various parties in the Chinese domestic system some of this money makes its way to China’s outsourcers (like Thailand and Indonesia) in the region.  Asians generally are savers and not spenders.  This will have to change
*China does not WANT decoupling to occur, at least not so quickly and violently.  The shell game that’s been going on has been great for them: They made stuff, sold it to the West and invested the proceeds in ‘safe’ US Treasuries.  This is where the massive foreign currency reserves I talk about came from.  Brilliant.  Decoupling will cause them a lot of problems, namely the onus will be squarely on the Chinese gov’t to spur domestic Chinese demand. So of course they want to maintain the status quo. 
*Unfortunately this is all out of their hands for two reasons:
1.  The USD is being devalued as we speak via the Fed running the printing presses all-out in efforts to stabilize the financial system.  Something will have to give eventually: Either interest rates increase to lure investors back to USTs thus further crushing further investment and GDP growth in the States (unlikely anyhow as the Fed is doing exactly the opposite, i.e. keeping rates low to spur whatever growth they can),  or the USD declines in value severely or outright crashes as a result of the massive amounts of USD printed out of thin air.  China knows this and will not continue buying USTs the way they have been in the past.  They have already slowed down their purchases.  Korean asset managers are dumping USTs…no one really knows for sure what all the other existing foreign holders of this debt are doing with it
2.   The Obama administration is not as friendly as the Bush gov’t was (with good reason, as Americans are in pain and demanding action from their gov’t representatives).  The Democratic party-controlled congress is eager to start slapping all manner of punitive action against the Chinese for perceived manipulation of the CNY in their favor.  Such action will make Chinese imports more expensive and/or US exports more profitable resulting in the same outcome: China is FORCED to generate its own internal demand.  China will drag its feet on the value of CNY but in the end its hand will be forced either by mr. market or US protectionist legislation

[boo hoo]

*yawn* - where's that list of positions you took recently to take advantage of decoupling - remember to include the flat hor...

[SGD Bear]

didn't read...too long and boring and idiotic.

[Again]

V you have said nothing..give us a break

[Kubes.SG]

The story goes that in the '30s Willie Sutton after being caught was asked by a reporter why he robbed banks.  He replied, "Because that is where the money is".

When Asian economies are asked why they are so dependent on exports to the West, instead of developing their own domestic consumption,  they give the same answer as Willie.

[Vulcanl]

SGD Bear,

You are a Pip...still interested in the topic, I see?

Kubes,

As a matter of fact, the money is no longer held by the West, it is in Asia. 

The below is a great piece.  It hits on protectionism, the role of China, currency reserves and even the breakdown of Asia's export-led model.  Enjoy:

Clinton Will Pull Rubin Stunt on Visit to China: William Pesek
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Commentary by William Pesek

Feb. 9 (Bloomberg) -- Chinese officials are bracing for Hillary Clinton’s visit.

Clinton made a good call in making Asia her first trip abroad as U.S. secretary of state. Officials in Tokyo, Jakarta and Seoul will be delighted that Clinton, in the words of State Department spokesman Robert Wood, is visiting to “send a tremendous signal” of the region’s importance to American policy.

Folks in Beijing have reason to be less enthusiastic: They will be on the hot seat.

It’s telling that Clinton chose these four nations on a visit that begins Feb. 15. Three rank among the top 10 national holders of U.S. dollar assets. Add in Indonesia and the four have more than $3 trillion of international currency reserves. It’s a reminder of who holds the power these days.

China, the U.S.’s biggest debt customer, can’t be happy that Clinton will visit Tokyo first. She will be in China almost a month after the White House labeled it a currency manipulator. That charge was made by Treasury Secretary Timothy Geithner in his confirmation hearing, and China is livid.

Officially, Clinton will focus on North Korea’s nuclear- arms program, the financial crisis, security and climate change. Yet Chinese leaders would be right to figure their currency and role in global imbalances will dominate her list of discussion points.

Pulling a Rubin

That can be seen in what Clinton wants to do with the State Department. Both Clinton and Geithner have stressed that China, the fastest-growing major economy, is crucial in fixing the world financial crisis. Clinton says she wants her team to take a stronger role on international economic issues.

As Barack Obama has said, history will judge his presidency by whether he avoided a U.S. depression. Whereas the White House’s mantra during the 1990s was “It’s the economy, stupid,” Obama’s is becoming “It’s the economy or we’re all homeless.”

Clinton wants to pull a “Robert Rubin” on his old department. When Rubin was Bill Clinton’s Treasury secretary, he co-opted many of the State Department’s traditional functions. With Asia, Mexico and Russia in crisis during his tenure, Rubin fused economic policy with diplomacy in unprecedented ways.

In late 1997, Rubin and Geithner, then a top Treasury official, explained the shift to me and a small group of journalists accompanying them on a whistle-stop tour of Asia. In Bangkok, Beijing, Hong Kong and Kuala Lumpur, they laid out their view that economics had become the soul of U.S. foreign policy.

State’s Brief

Neutered even further during the 2000s, the State Department seems ready not only to reassert itself under Clinton, but to broaden its brief. China can expect a multipronged approach to economic issues it would just as soon keep swept under the carpet.

Thorny topics likely to get more attention include China’s currency, labor standards and intellectual-property rights. One reason Chinese leaders often prefer Republicans in the White House is they tread carefully on human rights. And after the last eight years -- invading Iraq, Abu Ghraib, Guantanamo Bay -- the U.S. has little moral high ground. So, Obama’s team will probably focus on labor standards.

China is clearly unnerved by the tone coming from Washington. One worry is how many lawmakers think China bears responsibility for U.S. job losses. Another reflects concerns about U.S. protectionism, something fanned by the “Buy American” provisions in stimulus efforts. Geithner’s yuan- manipulation comments haven’t helped.

Wen’s Criticism

Officials in Beijing also may sense a lack of contrition for the state of the global economy. In Davos, Switzerland, last month, Chinese Prime Minister Wen Jiabao criticized American- style capitalism and stressed “how dangerous a totally unregulated market can be.”

China is very regulated, a quality that is an asset as growth swoons. It has no need to get stimulus efforts through skeptical lawmakers and boasts $1.9 trillion of currency reserves.

China is in for a rough year. Is it a coincidence that the most open economies in Asia -- Hong Kong, Singapore, Taiwan and, arguably, South Korea -- were the quickest to wilt? Asia’s export-led business model is rapidly unraveling. Governments are struggling to stabilize growth.

Clinton and Geithner need to offer Asia something else. The gospel of free-market capitalism no longer passes muster. Nor does talk of deregulation and the magic of democracy. They need to articulate a new economic and foreign-policy doctrine that recognizes its limits.

Easier Stops

Jakarta, Seoul and Tokyo will be easier visits for Clinton. The Japan stop is about maintaining a vital geopolitical relationship. Korea is about that and also tackling the North Korea issue. Indonesia marks the U.S.’s re-engagement with Southeast Asia via a nation with the largest Muslim population.

Lecturing China is no longer an option. Clinton shouldn’t pull punches, yet it would be more constructive to work with China. The U.S. needs China’s money, and China needs U.S. demand for its exports. The last thing the U.S. needs is a trade war with its main creditor.

That doesn’t mean Clinton’s visit to China will avoid hard feelings. Not with U.S. diplomacy and economics becoming one.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

[SGD Bear]

V, i'm not interested in the decoupling topic, I'm just interested in seeing you make an a55 out of yourself.  Please keep everyone up to date on your mark-to-market loss on your HDB.  Don't want your mark-to-vulcanl world valuation...

[Vulcanizing]

Chin up , Vulcan. When you speak, we all say " he aw- he aw he- allllll...ways says that". How's the HDB? And the Bee Hoon?