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September 07, 2011

Asia Looks for Hopeful Signs from Obama Speech on US Jobs

by Ivan Broadhead

U.S. President Barack Obama is expected to outline his plans for boosting American employment and shoring up an economy that some analysts fear may be headed to another recession.  Although his speech Thursday is mainly aimed at Americans, the stumbling U.S. economy is of great concern in Asia, where there are expectations that growth in China  will reach a 10-year low and other nations may be economically vulnerable.

Asian countries have posted steady economic growth during much of the last decade, but the dean of business at Hong Kong University of Science and Technology, Leonard Cheng, says U.S. fiscal well-being remains crucial to the region’s continued growth.

"Asian economies are very much externally oriented. Many of them depend on exports of goods to the U.S., Europe and Japan. Since the U.S. still accounts for one quarter of the global economy, you can imagine that the U.S. is very important," he said.

Cheng expects Obama to focus on sustainable growth and job creation in his speech.  He says Asian governments are eager for the U.S. economy to once again become an engine for growth.

Singapore, which witnessed 15 percent growth last year, announced this week that it expected to move back into recession next quarter on a drop in U.S. exports exacerbated by fears about European sovereign debt.

Further north, Seoul is hoping that the U.S. Congress will ratify a Free Trade Agreement between Korea and the U.S. so both countries can benefit from a relaxation in bilateral tariffs.

However, with both Democrats and Republicans worried that it could lead to thousands more American jobs lost overseas, the deal may not have the votes to pass.

Perhaps most exposed to the U.S. downturn is China.  More than 20 percent of its total exports are bought by U.S. consumers and Beijing holds $1.2 trillion of U.S. Treasury Bonds.   Cheng calculates that exports from China to the United States still account for between four and six percent of China’s GDP.

This week Huang Guobo, chief economist with the State Administration for Foreign Exchange, reported that China’s growth is softening and could fall below nine percent next quarter, its slowest rate since 1991.

Cheng argues that Asian governments, particularly Beijing, must satisfy themselves with a more gradual rate of growth. He says Americans have to change their consumption habits if the President’s plans are to be effective.

"Work harder, yes, but consume a little bit less so that they can have enough savings to pay off their debt - at least not let their debt grow larger and larger. And, Asians need to be aware that this is good for the U.S. and good for them too in the long term. Even though in the short term, everyone wants to sell as much as possible to the United States," said Cheng.

World Bank President Robert Zoellick said Monday that he hopes China can boost global economic growth by expanding domestic demand and reducing its reliance on exports.

Sophie Leung, a Hong Kong legislator and deputy to China’s National People’s Congress, says she is confident that China can play a role in assisting the U.S. recovery as increasingly affluent consumers look to purchase American goods.

"As the new 12th Five Year plan indicated, China would like to divert from export to import. And, I think this is something that President Obama might be catering his speech towards; tapping that [demand]. As China’s consumers start waking up, [they will] want choice, and I think American products have a lot to offer, beyond just Coca Cola and jeans," she said.

For poorer Asian countries, cuts of more than 40 percent to U.S. development budgets could take a more serious toll on vulnerable economies.  Cheng says regional instability could become a concern the longer it takes the United States to struggle back to profitability.

"I think Asian governments already are under pressure now because of inflation and a very uneven income distribution and wealth distribution," said Cheng.

After President Obama’s address, attention will likely shift to Friday’s G7 meeting in Marseille for a further indication of how the United States and other leading economies can collectively support global growth and job creation.