'Buy China' withers global hopes

Economists, for example, can't put a gloss on how ugly Japan's data are getting. Exports and output are plunging, unemployment is at a 25-year high and those all-important summer bonuses are evaporating. The best we can say is that sentiment among large manufacturers was less gloomy in June than expected.

Where is that smidgen of hope coming from? China, which rarely misses a chance to declare victory over the global recession. Officials in Beijing say stimulus spending and record lending are sparking a recovery in the third-biggest economy.

Export-led Japan would seem perfectly placed to benefit. That is, until you check the evidence. Shipments to Japan's biggest trading partner fell 29.7 percent in May, more than April's 25.9 percent. It suggests China's growth isn't helping the rest of Asia very much.

China acted quickly to shield its economy from the global crisis. Manufacturing in May expanded for a fourth month. Central Bank Governor Zhou Xiaochuan says things may keep improving in the third and fourth quarters.

It's also worth noting that Japanese exports to China are falling less severely than elsewhere. Shipments to the U.S. fell 45.4 percent in May. Exports to Europe slid by the same amount.

China isn't turning out to be an engine of growth for Asia.

One possible explanation is protectionism, as China works to encourage exports while curbing imports. The country objects to the “Buy American” provisions in U.S. stimulus efforts, yet it is using similar tactics. Another reason may be that China's revival is more spin than reality.

Either way, talk that China would feed the “green shoots” dynamic that Federal Reserve Chairman Ben Bernanke introduced into Wall Street's lexicon four months ago isn't working out. Nor will the Asia-decoupling theory that's being resurrected.

Yes, Asia is less reliant on the U.S. than it was a decade ago. Its fortunes are still intricately tied to what happens in the US$14 trillion U.S. economy. The longer the U.S. is on its back, the harder it will be for Asia to maintain modest growth.

One reason for a resurgence of the decoupling argument so convincingly debunked last year is actual growth. Even with the U.S., Europe and Japan mired in recession, economies in China, India, Indonesia, the Philippines and Australia are still expanding. That's impressive given the state of credit markets.

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