Asian exporters pin hopes on China as West sputters

By Simon Rabinovitch and Doug Young - Analysis

BEIJING/HONG KONG (Reuters) - Emerging economies in Asia may outperform developed markets on the road to recovery if their exporters can capitalize on rebounding growth in China to escape sluggish U.S. and European markets.

But some exporters and economies in the region are better placed to cash in on a recovery in Chinese demand than others, and China's rising tide won't lift all Asian boats.

Companies and countries which stand to benefit from China's infrastructure spending surge -- the bulk of its $585 billion stimulus package -- have grounds for optimism as demand for building equipment and materials soars, buoying firms such as Japan's Komatsu (6301.T) and Australian mining giant Rio Tinto (RIO.AX)(RIO.L).

Those counting on Chinese consumers, though, may be grasping at a thin reed.

"It may be that the real beneficiaries of Chinese success are going to be Australia, South Africa, Brazil and Indonesia, maybe Peru and Chile, and less so Korea, Japan and others which are geared toward the U.S. consumer market, a much higher-end type of market," said Bill Belchere, chief Asian economist at Macquarie in Hong Kong.

China's consumer sector is worth $1.5 trillion, puny next to the combined $22 trillion size of the U.S. and European markets.

Roughly speaking, counterbalancing a 1 percent decline in rich-world retail sales would require a 15 percent increase in China -- a disturbing reality for export-reliant economies.

Proof can be found in small, open Asian economies such as Singapore and Taiwan, where the brutal collapse in trade has caused gross domestic product to shrink by as much as 10 percent.

Silvia Liu, a Merrill Lynch economist in Hong Kong, said Asian exports were poised for a strong recovery over the next two quarters as companies rebuild depleted inventories in the G3 (the United States, Japan and European Union).

But she added a key caveat: no one knows when consumers will start spending again and if the demand will be sustained, which is key for a global recovery.

"That rebound could prove short-lived because we are talking about below-trend growth in the G3 for a number of years," Liu said. "The recovery is going to be a yo-yo and the momentum could lose steam in early 2010."

The International Monetary Fund (IMF) forecasts emerging economies will return to growth in the second half of this year but advanced economies are unlikely to follow until early 2010.

Hence the importance of decoupling from Western markets -- or, more to the point, of coupling with China's growing needs. Differing company outlooks across Asia tell the tale.

ROADS NOT MALLS

As early as April, Rio Tinto said it expected a revival in demand for iron ore, its most profitable product, in the second half of this year on the back of a Chinese recovery.