Asia's exporters, already taking a hit from shrinking Western demand for their goods, find their troubles compounded by a scarcity of trade finance and other forms of credit.
While consumer spending makes the U.S. economy tick, exports are the engine of Asia's economic growth, making up more than 46% of gross domestic product for the region's main economies outside Japan. But they are also its Achilles' heel.
On Wednesday, Singapore, which is in recession, said its manufacturing output shrank 12.6% in October from a year earlier, on falling production of electronics and pharmaceuticals aimed for overseas consumption.
Taiwan, which has had two months of declining exports, recently said its economy contracted 1.02% in the third quarter from a year earlier, its first drop in five years.
While demand is in short supply, so is credit, exporters say. Manufacturers that manage to get business from overseas are discovering in some cases that banks won't finance the orders out of fear the overseas buyers won't pay their bills.
"People are unwilling to finance you if the guy you're selling to is on the verge of bankruptcy," says Subir Gokarn, Asia-Pacific chief economist for Standard & Poor's in Mumbai.
Hong Kong manufacturers, which employ millions of people across southern China, already have seen margins squeezed by rising labor expenditures and costly new regulations on their businesses.
Many of these businesses find it "very difficult to get loans or credit, so they have issues in working capital," says F.C. Lo, vice president of the Chinese Manufacturers Association of Hong Kong. Banks, he adds, "are concerned about their own survival."
In Taiwan, small and medium-size export manufacturers are struggling as customers from Europe and the U.S. have begun delaying payments for their delivered products by two to three months. That hurts the manufacturer's ability to obtain credit.
"About 60% of my clients are suffering from a temporary capital shortage, and they have been chasing funds every day," said Chiu Han-chang, sales manager of Bank SinoPac's corporate-finance department. "Therefore, we also need to decrease their credit facility."
Exporters have gotten some help from government efforts to pump money into the markets for lending between Asia's banks as well as wider guarantees for bank deposits.
But banks "are much more wary of counterparty risk," says Moh Siong Sim, an economist for Citigroup in Singapore, who says a lack of credit may explain some worse-than-expected export figures in Asia. As a result, "the cost of finance increases, and that itself will hurt trade."
Still, demand -- or the lack of it -- is the bigger worry.
"The main problem for us is a lack of orders, not a shortage of funding for exporting," says Hsiangbo Hou, sales manager of Taiwan's DXG Technology Corp., which makes digital cameras sold under a top U.S. camera brand.
Meanwhile, violence in Mumbai and political unrest in Bangkok portend bad news for other parts of Asia's economy.
Foreign investors and tourists are likely to think twice now about India and Thailand, both of which are facing economic slowdowns. The latest events "couldn't happen at a worse time," says Patrick Bennett, a strategist with Société Générale in Hong Kong.
On Friday, India said its economy grew 7.6% in the second quarter of the fiscal year, the country's slowest growth pace in almost four years.
Malaysia also reported that its GDP grew 4.7% in the latest quarter, its weakest increase in three years, as slowing exports dragged down the manufacturing sector.
Thailand said its GDP growth slowed to 4% in the third quarter from a year earlier, down from 5.3% in the second quarter and from a revised 6% in the first.
By the standards in fast-developing Asia, those numbers are worrying. Economists say the full impact of a slowdown in the U.S. and Europe hasn't even filtered down to Asia's export orders, and that any rebound from government stimulus plans in the West could take until the middle of 2009 to materialize.
The fourth quarter of this year and the first quarter of 2009 "will look particularly bad," says S&P's Mr. Gokarn.
Source : The Wall Street Journal