Asia leading as world economy inches to recovery

Asia is playing a star role in the still faltering world economic recovery, led by China, whose economy grew 8.9 percent over a year earlier in July-September. As usual, India is trailing and Japan lagging far behind.

“So far, data around the world suggests the recovery is proceeding and Asian economies will continue to pace global growth,” said David Cohen, chief of Asian forecasting at Action Economics in Singapore.

Although regional exports remain weak thanks to the jobless, jittery American and European recoveries, growth is rebounding as Chinese consumers and factories buy raw materials, components and consumer products to meet demand catalyzed by Beijing’s 4 trillion yuan ($586 billion) stimulus package.

China’s economy, now the world’s third largest, is only about a third the size of the U.S. economy, but the country’s ascent as a manufacturing power lent it the heft to help prevent an even worse global downturn.

“The world is fortunate that China had progressed to this level before the crisis,” Cohen said.

As 2009 winds to a close, Chinese factories that just a year ago were closing by the thousands are now hiring again, to meet a rebound in orders for the holidays and beyond.

Singapore-based Flextronics International Ltd., a maker of electronic gadgets such as cell phones and Microsoft Corp.’s Xbox, plans to take on thousands of migrant workers for its factories in southern China in coming months to ensure it can meet recovering demand.

But while they appear confident the recovery is taking hold, even in China leaders are wary of backing away from the lavish spending and lax credit that powered the rebound.

Their focus, for now, is on fine-tuning policies to spur consumer spending and private investment and counterbalance massive stimulus-oriented investments in public works projects and the state-led industries that supply them.

China’s binge on labor-intensive construction helped limit unemployment during the downturn, says Huang Yiping, an economist at prestigious Peking University, but “The problem is what happens after the infrastructure programs are done,” he told a recent conference in Shanghai.

Crafting a sustainable recovery, despite weakness in the export markets that have long supported growth, remains the top challenge for many Asian economies.

Massive liquidity flowing into Asia — too much cash chasing too few profitable investments — has pushed stock and property prices sharply higher in some markets, raising worries about fresh asset price bubbles and risks of fresh crises in the financial sector.

Meanwhile, European leaders and even some of China’s neighbors in Asia are chafing at Beijing’s insistence on sticking to currency policies that link the Chinese yuan to the weakening U.S. dollar, fretting they are worsening or helping to perpetuate imbalances in trade, government debt and investment that could trigger future economic crises.

“Reducing global imbalances is the first priority,” says Jong-Wha Lee, chief economist at the Asian Development Bank.

“This is the time to address this issue,” he said, cautioning that otherwise, “we may get into the same situation as in the pre-crisis years.”