HONG KONG — Taiwan grew at an 18 percent annualized rate in the fourth quarter. Japan is about to have its biggest initial public offering in more than a decade. A big Hong Kong property developer quickly sold hundreds of apartments in a remote suburb over the weekend after bringing in thousands of potential buyers with free buses from the city’s center.
It is beginning to sound a lot like 2006 in Asia. Or is it?
Asia’s booming developing powerhouses are clearly beating Europe and the United States in the recovery and proving to be a pocket of great hope for the global economy.
But a look at Asia beyond the headlines shows the region still faces significant economic challenges, ranging from deflation in anemic Japan to an over-reliance on exports in places like Taiwan. China is the region’s only strong pillar, but economists warn of headwinds there, too, notably a possible real estate bubble.
As Asia’s role in the global economy expands, the threats facing the Asian economy grow in importance as well.
“Basically, we are bullish on the region,” said Robert Subbaraman, chief economist for Asia outside Japan at Nomura in Hong Kong. “But there are a lot of risks out there.”
At the top of Mr. Subbaraman’s “worry list” are issues that actually lie beyond the region itself. They include a possible renewed slowdown in the world’s big advanced economies, where many households are still paying down debt and worrying about double-digit unemployment rates.
“The world is such an interconnected place, and the Asian economies are so open, that Asia will get hit hard again if something goes pear-shaped elsewhere,” he said.
Despite its generally sound economic fundamentals, Asia has a string of home-grown problems to contend with.
China is both Asia’s greatest hope and its greatest risk. The Chinese economy grew 8.7 percent last year and is closing in on Japan as the world’s second-largest economy, after that of the United States.
But the pace of growth has been so rapid that many analysts are worried that the economy may soon begin to overheat. A flood of easy credit has helped real estate and stock markets soar, leading the authorities to rein in lending in recent months. And analysts caution that some of the loans made in a country determined to prime the economic pump may ultimately go sour.
Erwin Sanft, head of China and Hong Kong research at BNP Paribas, wrote in a note Monday that over the course of this year, “the numerous potential unhealthy side effects of the stimulus program will also probably become more apparent.”
Those include high inflation, misallocation of capital, overinvestment in heavy industry, and the accelerated use of scarce resources and environmental degradation, Mr. Sanft wrote.
The possible bubble in real estate is spilling over to places like Hong Kong, where last year a mainland Chinese citizen purchased a luxury apartment at what was believed to be the highest price ever on a per-square-foot basis.
Over the weekend, the Hong Kong developer Sun Hung Kai Properties sold 900 apartments in its new Yoho Midtown complex at prices that were almost double those of a year earlier.
The rebound in Taiwan looks equally impressive but likewise is fraught with obstacles.
Data released Monday showed the island country’s economy powering ahead at an annualized rate of 18 percent in the fourth quarter, significantly above economists’ expectations.
It is the latest piece of good news for the country, whose reliance on exports meant that it took a hard hit during the global economic crisis. Unemployment has come down slightly, to 5.7 percent, after peaking at more than 6 percent in August, and several companies in Taiwan’s huge semiconductor manufacturing industry have announced plans to hire thousands of workers this year as orders pick up.
After hitting bottom last March along with global markets, Taiwan’s Taiex stock market index closed up 78 percent in 2009 and is still about 74 percent above its low of last year. In January, Taiwanese exports were up 75.8 percent from a year earlier, with exports to China, the country’s biggest trading partner, having risen a whopping 187.8 percent. By contrast, shipments to the United States, Taiwan’s second-largest export market, rose 13.7 percent.
But Taiwan’s great reliance on exports to China compared with other major economies means that if the economy were to slow unexpectedly, the effect on Taiwan could be severe.
Political disputes between Taiwan and the mainland also are a question mark going forward. Taiwan’s president, Ma Ying-jeou, has been working to complete agreements that would lift some barriers on cross-Straits trade and investment. The agreements, Mr. Ma has argued, would aid Taiwan’s economy and help keep the island competitive with neighboring countries that have recently signed free-trade deals with China.
But the political opposition has mounted street rallies against Mr. Ma’s efforts, warning that the pacts could cost Taiwan jobs by, among other things, reducing tariffs on low-cost mainland imports. His political foes have also complained that his representatives have conducted negotiations with Beijing out of public view and warn that the deals may erode Taiwan’s de facto political independence from the mainland.
In Japan on Monday, Dai-ichi Mutual Life Insurance, one of the largest Japanese life insurers, said that it would sell about ¥1.1 trillion, or $12 billion, in shares in what would most likely be the country’s largest I.P.O. since 1998.
On the surface, it is good news for the Japanese economy, where I.P.O. offerings have nearly ground to a halt. I.P.O.’s generally signal that companies are trying to raise money to invest in jobs and growth and that investors are confident enough about the economy to put their money in companies there.
But the Dai-ichi Mutual Life I.P.O. belies the severe sluggishness of the Japanese economy — the world’s second largest but also one of the weakest links in Asia. The company said it needed the funds to finance overseas expansion because its business in Japan was waning as the population fell.
The latest data suggest that the economy has escaped a double-dip recession but that deflation — which has weighed down the economy for long periods over the past two decades — remains a serious risk.
The problem is that policy makers’ hands are tied. Japan’s public debt, at 181 percent of gross domestic product; a quickly aging population; and lower tax revenues mean that the government cannot spend its way out of the crisis. And interest rates set by the Bank of Japan are already close to zero.
What has resulted is gridlock and finger-pointing between the government and the central bank. The government has been pushing the Bank of Japan to do more. “The government will undoubtedly do all it can,” Prime Minister Yukio Hatoyama told legislators Monday. “I also hope the B.O.J. will conduct monetary policy appropriately.”
Despite problems in Japan and a possible bubble in China, many economists say they believe that external forces still pose the greatest risk to the Asian economy.
According to Mr. Subbaraman of Nomura, rising oil prices would hurt Asia’s energy-hungry economies, while a debt default by Greece could also shake investor confidence in Asia — even though most of the region has surplus reserves, rather than debt problems.
The Greece worries also mean many of the region’s central banks are now more reluctant to start raising interest rates in a bid to head off nascent inflation, economists say.This raises the risk that more Draconian rate rises may be needed further down the line. “If you raise too late, the inflation genie will get out of the bottle — and it is hard to get it back in,” Mr. Subbaraman said.
Still, optimism is the overriding feeling despite the headwinds. “Asia is growing up,” said Bill Belchere, global economist at Mirae Asset in Hong Kong. “I think the recovery will actually be a lot stronger and a lot more durable than many people think.”
