China the lone bright spot among Asian economies
| • | World Bank might lower economic forecast for Asia |
Bloomberg News Service
HONG KONG — Asian economies face a tough year, with China the only bright spot in the region, the heads of three of the world's biggest banks said.
Citigroup Inc., HSBC Holdings Plc and Deutsche Bank AG, which have combined assets of more than $2.5 trillion, said slowing economies and falling exports from Asia will last until the end of the year before a recovery begins.
"It's going to be a very difficult year," said William Rhodes, vice chairman of Citigroup.
Asia is experiencing its most serious slowdown since a 1997-98 financial crisis led to a surge in bankruptcy and jobless rates in the region. The International Monetary Fund recently cut its forecast for growth in Asia ex-Japan this year to 5.6 percent, from a 6.6 percent forecast in October last year.
A slowdown in the U.S. economy, which prompted the Federal Reserve to cut rates by 2.5 percentage points this year, is hurting demand for Asian exports, while Europe and Japan — where the economy unexpectedly shrank 0.2 percent in the first quarter of 2001 — aren't taking up the slack.
"What we're seeing is a slowing of the import flow from Asia into the United States," Rhodes said.
In the doldrums
Foreign investment into emerging markets is forecast to fall 16 percent in 2001 to $140 billion, with private capital flows into Asia dropping to $47.4 billion from $60 billion a year earlier, according to the Institute of International Finance, which represents 320 of the world's biggest financial companies.
"Nobody is really pulling the train out of the doldrums and Asia is suffering from that," Deutsche Bank Chief Executive Rolf Breuer said. There is "a lack of interest in high-technology products and that is where quite a few countries in Asia are suffering as that was a major part of their exports."
Next year should be better, the IIF said, with Asia likely to see $70 billion of private capital inflows.
Political ructions — Indonesian President Abdurrahman Wahid may be impeached and Philippine President Joseph Estrada was overthrown by popular protests — are roiling investors worried Asia is backsliding on a commitment to reform made after the crisis.
Losing independence
Taiwan's legislature last week failed to pass a financial reform bill, Korea's efforts to reorganize corporate debt and sell companies to foreign investors have seen little progress, and Thailand's prime minister recently sacked the central bank governor, raising concerns the Bank of Thailand is losing its independence.
Asia Pulp & Paper Co.'s failure to repay more than $12 billion of debt dominated a raft of Asian corporate defaults in the first four months of the year, when Asian companies failed to repay more rated debt than in all of 2000, according to credit rating company Standard & Poor's.
"The experience of the last six months and the continued subdued capital flows underscores the need for stronger efforts at crisis prevention," HSBC Chairman John Bond said.
China is a bright spot
China, whose government is pump-priming the economy with 150 billion yuan ($18.1 billion) of spending on roads, rail and other infrastructure, is a bright spot, the bankers said.
The economy is slated to expand about 7.5 percent in 2001 from 8 percent last year.
China and the United States last week reached an agreement paving the way for the nation to join the World Trade Organization, an event that will lead to a deregulation of some industries and a lowering of some trade barriers.
"A lot of the capital inflow into China is in anticipation of WTO entry," said Nicholas Lardy, senior fellow and economist with the Brookings Institution.
Citigroup's Rhodes visited senior officials in Beijing last week, following a path trodden by Robert Rubin, the bank's executive committee chairman and former U.S. Treasury secretary, who visited last September.
Long game
Deutsche has also invested time and money in China, chasing mandates from mainland companies wanting to sell shares in the international capital markets. It's waiting to hear whether it won the right to advise on China Unicom Ltd.'s planned purchase of 18 mobile networks and on Air China's planned share sale.
"Presently it tends to be rather fashionable to throw a pot of money into China and say OK, everyone's back in China, don't be the latecomer," Breuer said. "I don't believe in that. China business-wise is not at a stage where you should run to invest."
HSBC is equally sanguine about China. The eighth-largest bank in the world by assets says it is the largest foreign lender into China, and while it didn't bid for any of the $20 billion of international initial public share sales out of China last year, it recently hired Huan Guocang to boost its investment banking business in China.
"The ability for us to grow our business in China today, as it is for all foreign banks, is limited by the licenses we can get, by the businesses we are allowed to do," said David Eldon, chairman of HSBC's two units in Hong Kong. "Therefore the profit growth potential for businesses out of China today is in the overall group's perspective not that great."
Citigroup makes about 21 percent of group profit in Asia. HSBC, founded in Hong Kong and Shanghai 136 years ago, makes just over 50 percent of its profit from Asia, Eldon said. Deutsche doesn't break down profit by region, though it hires about 7,200 of the bank's 98,000 staff in Asia.
