World attention shifts to East Asia amid global slowdown

Massage chair controller Osim's massage chairs are going global

East Asia is a region that is getting noticed. At the World Economic Forum in Bangkok over the next two days, the main topics of discussion will be how best to develop its opportunities and tackle its problems.

But can the region really help offset the slowdown that has hit the US and Europe - and can it get the global economy motoring again?

Massage chairs are good business in stressed-out Singapore and local producer Osim is hoping its mechanical manipulators can also go global.

At the company's headquarters, the first thing you notice when you walk in is a large world map showing the countries where the firm has been expanding.

Each nation is picked out by a big grey dot and the tightest concentration is in East Asia, a region that is providing the firm with a steady heartbeat of new growth.

"Since 2009, we have seen a 25% year-on-year growth in this region," explains Peter Lee, Osim's chief financial officer.

"East Asian consumers have been consuming more and contributing positively to growth. We see that trend continuing in the near term."

'Rise of the East'

While East Asia may not be the best-known of global regions, it contains a mix of established powerhouses, such as China, and hot destinations such as Indonesia, Thailand, Vietnam, Singapore and the Philippines.

Start Quote

The US and Europe are not consuming enough and you need an alternate source of demand for which the East Asia is a potential candidate”

End Quote Pushan Dutt INSEAD

With the US and Europe stuck in a period of slow growth and recession, East Asia is becoming increasingly important, not just TO local companies but also the global economy.

"It is the rise of the East that is driving the fundament shift in the world's centre of economic gravity," says Pushan Dutt, a professor of economics at business school Insead.

"East Asian economies are starting to have a much bigger share of the global gross domestic product (GDP), they are key to the global production chain and a large chunk of the world's population lives here."

According to the World Bank, the developing East Asia region, which includes China, grew by 8.2% in 2011.

Even if you exclude China, the world's second-largest economy, the region's growth rate was still a healthy 4.2% and it is forecast to expand by 5.2% in the current year.

Domestic demand

One of the key factors helping growth has been increasing domestic demand and coverage.

As the economies have grown, so have income levels, giving more spending power to consumers.

East Asia has also benefited from growth in the size of the working-age population.

Workers constructing a road in Philippines Investment in building infrastructure has also helped boost growth in the region

Not only has that ensured a steady supply of labour, it also means that more people have been earning money, which they have been either saving or spending, helping underpin growth in their respective economies.

Growing domestic consumption has also helped offset a slowdown in exports from the region after demand from key markets such as the US and Europe slowed.

Analysts say that East Asian consumers are likely to play an increasingly bigger role in global growth.

"Currently the world suffers from a lack of demand," says Mr Dutt of Insead.

"The US and Europe are not consuming enough and you need an alternate source of demand, for which East Asia is a potential candidate."

Investment boost

The other main factor behind East Asia's expansion has been the rise in investment, both domestic and foreign.

Many of the region's economies are at a developing stage, which means that governments in those countries have been allocating resources and funds to improve infrastructure.

Start Quote

As costs in China go up, manufacturing could be moving more to places such as Indonesia, Philippines and Thailand”

End Quote Ruchir Sharma Morgan Stanley

"Within the region, there is a huge demand for investment, especially in infrastructure, but also in areas such as sanitation, clear drinking water and housing," says Prakriti Sofat, an economist with Barclays Capital.

In its latest report on the region, the World Bank noted that higher investment, particularly in infrastructure, "offers the potential to sustain growth" in the region.

At the same time, the region has also become the destination of choice for foreign investors.

Emerging economies in East Asia accounted for 43% of all foreign direct investment in developing areas globally last year.

Vulnerable growth

Yet while there are a lot of positives, the region is not immune from problems. There is no doubt that a slowdown in China - which comprises 80% of developing East Asia's GDP - would significantly damage the region's prospects.

However, some analysts also believe that if the slowdown in China is a gradual one, then it might in fact be beneficial for the other economies of East Asia.

With China consuming less, commodity prices would drop, putting a cap on inflation and freeing up money for development projects and spending, says Ruchir Sharma, managing director of Morgan Stanley and the author of Breakout Nations.

He adds that with manufacturing costs also rising in China, other nations may be able to start ramping up their own manufacturing operations.

"As costs in China go up, manufacturing could be moving more to places such as Indonesia, Philippines and Thailand," he explains.

A shift of manufacturing would most likely be accompanied by increased investment and job creation, which in turn would help stoke consumer demand and spending.

For analysts and companies such as massage-chair maker Osim, that is a virtuous circle they hope will spell years of growth and profits.

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