Chinese exuberance can’t dull Asia

Angus Tulloch, head of emerging markets and Asia Pacific equities at First State Investments, believes the growth story for Asia ex Japan is still strong, despite signs of “over-exuberance” in China.
Tulloch (pictured) says there has been a secular shift in consumer spending patterns and attitudes to consumption in Asian countries: “While it is always dangerous to talk of new paradigms, there is a fast-growing middle class. Previously, they had been saving 30-40% of their income, but now they are spending. For example, there was a 70% increase in the sales of cars in 2003. China also consumed 50% of the world’s cement last year.”
Outsourcing has been the major source of growth up to this point, but Tulloch believes there is substantial room for further growth. He says that in spite of a population 10 times that of Europe and a land area seven times larger, the per capita GDP is still only one-fourteenth the size of Europe’s. He says: “It is easier for countries with low per capita GDP to grow.”
Demographics are also favour-able. Asian countries have twice the number of 0-14 year-olds as Europe and fewer older people supported by the working population. Tulloch says that Asia has learned its lesson from the late-1990s crisis and the Asian financial sector is still largely “under-lent”.
Tulloch sees potential risks in US protectionism and says that call centres are now becoming a major election issue. However, he adds: “The US has too much invested in free trade. It needs help from Asia.”
Asia is financing much of the US government debt as central governments buy up Treasuries. There is also a risk from avian flu, but Tulloch believes this will become significant only if the virus mutates and can be passed between humans.
China’s growth is a concern for Tulloch. He says there is no doubt that some areas show signs of over-exuberance, but he adds: “While it is clear that the 10%-plus expansion of money supply is not sustainable, the government is conscious of this. Interest rates have gone up. The government has controlled capital expenditure in state industries. There is still a huge rural population that is relatively untouched as a pool of labour. China is just beginning to start spending.”