The power of proximity

‘Panda-monium’ rides again! Australia’s amazing recession-dodging week continued with some new evidence how China’s role in regional trade is helping Australia.

Whilst the NAB Business Confidence survey suggested that domestic business confidence has been buoyed by the fiscal stimulus package, a new survey by HSBC shows how important China has been in boosting the fortunes of Australian exporters.

According to the new HSBC Trade Confidence survey, the overall fall in demand for Australian exports globally has been counteracted by the strong economic performance of China, and that Beijing’s stimulus across China will help export orders in the next three months and beyond.

However, according to the survey there are risks ahead as exchange rate and credit issues have also figured prominently on the radar screen of both exporters and importers.

Overall, exporters are satisfied with government regulation in Australia but are looking to the banking sector for more financial assistance. There is also concern about non-payment issues from customers given the Global Financial Crisis had had a greater impact on economies outside Australia.

China and Asia lead the way out

According to the index, the GFC has been adversely affecting demand – 62% of Australian exporters and importers mentioned lack of demand as their most pressing issue. For other nations, lack of credit, logistics and exchange rates were a bigger story.

However, China is definitely helping Australia with over two-thirds of traders already in China and one third seeing China as the place where they’ll get an increase in trading opportunities over the next three months (followed by South East Asia and the rest of Asia).

Most Australian traders are evenly split in terms of where global trade will be in the next three months, although nearly half think that it has stabilised, which might indicate that the worst is behind us after a tough 12 months. Traders in most of the regional economies – India, China, Vietnam, UAE and Singapore, are more optimistic than Australia about the global economy overall over the next three months.

Dollar Dazzlers – the impact of exchange rates

Exporters and importers constantly have to deal with fluctuating exchange rates. This was the major issue for traders from Hong Kong, Vietnam and India and the second-major issue for Australian and Singapore (Singapore’s main issue was also a lack of demand).

The rising exchange rate can cut both ways in that it makes exports dearer and imports cheaper, however 45% of exporters are also importers, so a rising dollar can help costs especially if an exporter imports a lot of capital equipment (like transport equipment or IT).

35% of Australian traders thought the exchange rate would remain in the same range, 34% thought it would be more favourable and 21% thought it would become more unfavourable.

Show me the money! Non-payment and trade finance

In the GFC, the credit crunch has of course affected world trade. That is why the G20 leaders recommended emergency credit relief to exporters suffering from the collapse of trade finance.

The need to increase access trade finance was a major issue regionally, especially in Vietnam, India, China and the UAE but not in Australia where 79% of traders thought trade finance would stay at the same level over the next three months.

However, there was a slight increase in the number of traders expecting default on payment from customers in other countries, although a clear majority (almost 60%) thought it would remain unchanged. Most exporters planned to use more trade services from banks to minimise risk, as well as accepting smaller orders, doing less with particular buyers, accessing export credit insurance, and offering more flexible payment terms.

Traders saw a clear need for specialist banking services in exporting and importing and offshore investment.

Red tape – what red tape?

In Australia, traders were mainly satisfied with the current levels of government regulation. 85% said it would remain at the same level and 8% said it would improve. The results were similar in other countries in the region, except Vietnam which expected a net decline in government regulation.

The bottom line?

There’s no doubt times have been tough trade-wise in the GFC and global trade is still expected to fall by at least 11% in 2009. The NAB survey showed similar results on the export front, although the fiscal stimulus had helped domestic activity.

But the HSBC index shows that traders are coping and are better placed in this region – stretching from Shanghai to Hong Kong and Ho Chi Minh City, and then Singapore to Sydney, and on to Delhi to Dubai.

However, the good news from China in particular and the region as a whole, shows that Australia, trade-wise, has found ourselves despite the GFC in the right place at the right time.

Tim Harcourt is Chief Economist with the Australian Trade Commission and the author of The Airport Economist (www.theairporteconomist.com). Thanks to Kate Epworth of HSBC for her assistance and comments on this article.

To read more Gone Global blogs, click here.