Friday, August 14, 2009

Rising again in the East?

by Brendan Smith

The global recession has been anything but predictable in its effects on emerging market economies, especially in Asia. When the financial crisis began, many thought Asia's largest economies, particularly China and India, would avoid the worst of the crisis. Those hopes were dashed when growth rates swooned in the fourth quarter of 2008. The unexpectedly large contraction in international trade hit exporting-dependent economies like Japan, Singapore and Taiwan especially hard, and even took a lot of the shine off the booming Chinese and Indian economies.

Fast forward to this summer, and growth prospects for Asia are looking a whole lot brighter. The Chinese, Indonesian, South Korean and Singaporean economies posted second quarter growth figures averaging over 10%, and even the Japanese economy, which fell into its worst recession since World War II last year, is showing signs of life, buoyed by the growth of its neighbors. China's resurgence in growth has prompted fears that its government is either cooking the books or overstimulating Chinese equity markets, but the vigor shown by other Asian economies and increases in indicators like electricity use seem to indicate that China has at least begun to return to its former growth trajectory.

The continued sluggishness of growth in the U.S. and other parts of the developed world suggests that Western firms should look at expansion possibilities in Asia. Firms that supply goods and services to infrastructure projects in particular stand to benefit from massive stimulus spending on such projects in Asia. Attention should be paid, however, to the potential ramifications of bubbles forming in China and elsewhere. Smart growth planning entails not only identifying new opportunities but creating risk mitigation strategies as well.

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