Asia exporters suffer as global demand weakens

By Alison Leung - Analysis

HONG KONG (Reuters) - Cliff Sun is hurting.

The 54-year-old chief executive of Kin Hip Metal Plastics had spent much of the past year grappling with rising labor and material costs in China and a strengthening yuan.

Now that the U.S. consumer juggernaut is slowing, he's throwing in the towel and relocating inland from coastal southern China.

"If we don't cut margins or even take small losses these days, we're just not able to get the same level of orders," said the former chairman of the Hong Kong Exporters' Association.

"We're facing a bitter, cold winter ahead."

Sun and others that collectively make up Asia's mighty export engine face a difficult second half with Asia's central banks now ready to sacrifice growth to combat food- and oil-based inflation and with Europe no longer taking up the slack amid downward-spiraling U.S. consumption.

The worst is yet to come. Net exports make up 10 percent of China's gross domestic product and up to 30 percent for externally vulnerable economies like Hong Kong and Singapore.

Asia -- much of which had remained resilient in the face of the U.S. downturn -- and China are expected to decelerate with interest rates on the rise, inflation mounting and oil at $145 a barrel.

Toyota Motor (7203.T), the world's top carmaker, said it could fall short of its U.S. sales target this year as high gasoline prices and a sluggish economy cut into demand.

Deutsche Bank estimates some 20 percent of China's low-end exporters will go belly-up this year.

Foxconn (2038.HK), the world's top contract manufacturer of cellphones for Motorola (MOT.N) and Nokia (NOK1V.HE), lost two-fifths of its value in the past two months on fears that slowing global demand will hit its earnings.

And Japanese exports to the United States fell for a ninth straight month in May, while shipments to the European Union -- which had been holding up well -- recorded their first annual drop in more than two years.

"The Euro area and Japan are decelerating and that's really bad news for Asian exporters," said David Fernandez, Head of Economic and Sovereign Research at JP Morgan.

Hong Kong's exports to the United States -- much of which originates in China, the world's workshop -- fell 1.5 percent year on year in the first 5 months. Exports to the United States from South Korea shrank 0.3 percent in January to May.

"By the year's end and early next year, Asian demand should start to slow," said Daiwa economist Kevin Lai.