There has never been much doubt in my mind that Asia will have a softer landing from the current global financial crisis than other parts of the world, with the possible exception of its neighbour Australia.
The Asian banking crisis of 10 years ago has resulted in national governments building reserves, protecting currencies and, most important of all, regulating banks in a way that they had failed to do last time round.
Of course, Asian economies will suffer from reduced exports and that will hurt. But today Asian domestic demand, from improving living standards, has given rise to a huge increase in intra-regional trade. Current exports within Asia by South-east Asian countries exceed their global exports of 20 years ago; and in July last year Japan, for the first time in its history, exported more to China than to the US.
The big question for the future of Asia and the world is undoubtedly China. Will the Chinese authorities play with the exchange rate or move to use their massive reserves of foreign currency? The answers will affect us all, not least in the world of wood, the supply and demand of which is influenced by China in so many products.
China’s exports
Right now things look pretty bad and The Economist recently pointed out that exports from China were down by 2.8% in December compared with the previous year, and that GDP scarcely grew in the last quarter of 2008. Everybody knows that China needs growth just to stand still.
In addition, annualised rates of GDP fell in Japan by 10%, Singapore by 17% and Korea by 21%. Imports into Vietnam fell by 45% in January.
So will the intra-regional trade really soften the fall? Conventional wisdom says that Asian intra-regional trade is part of a global network from which it cannot escape. My view is that it is the resilience of Asian nations that will be their greatest asset, linked to better governance and less of a financial burden from social benefits than in Europe, if not in the US.
Asians have never relied much on any social safety nets, nor will they now – and they have never been frightened of very hard times and even harder work.
From a wood industry perspective, my belief is that Indonesia is still the country to watch. Despite an appalling reputation for the management of its tropical rainforest in the past, and the problems of land conversion for agriculture that remain to be tackled, Indonesia has a wood processing infrastructure, a skills base, huge supplies of competitive labour, entrepreneurs that are undeterred by economic woes, and resources that underpin an economy that has proven itself in recent years.
New arrival
The other country to watch is, of course, Vietnam – newly arrived on the timber scene and now a major contributor to the demise of furniture manufacturers in many countries.
By comparison with Indonesia, Vietnam is simply an agricultural country in the process of industrialising within a very short time frame and with an economy still under communist government.
It had a crisis of its own early in 2008, before the global crisis fully emerged and largely unknown to outsiders. The property market exploded and collapsed; the infant stock market plummeted; and the currency was so volatile that the commercial rate and official rate diverged to the point that car importers were forced to return stocks for which they were unable to find foreign exchange with which to pay producers. So, having fallen already, it has less far to fall in the current market.
Despite being a significant processor of wood, mainly for furniture exports, Vietnam is still not a major wood user in terms of its domestic markets, with 95% of construction in concrete and only a few joinery and some flooring products in hardwood.
But for the future I see a comparison with Korea, the largest plywood producer in Asia in 1970 and today solely an importer. The future rise of Vietnam as an industrialised nation is now inevitable, from tourism to hi-tech industries it will surely succeed.
However, as a wood processor devoid of sufficient native forests; dependent on US hardwoods and New Zealand softwoods; under NGO threats to stop importing from Indochinese neighbours; and without the innate wood skills base of Indonesia, its wood furniture producing days could be numbered.
