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1、Economic Research September 2, 2019US-China will weigh more on Japans growth than US-Japan6Debt crises in Asia and their lessons for China10India: An implicit fiscal stimulus14Australian labor supply: Demographic lags and NAIRU drags17ContentsData WatchesJapan19Australia and New Zealand23China, Hong
2、 Kong, and Taiwan25Korea28ASEAN30India34Asia focus36Regional Data Calendars37Sin Beng Ong(65) 6882-1623JPMorgan Chase Bank, N.A., Singapore BranchJ. P MorganoGlobal Data Watch: AsiaUS-China trade tensions ratchet up againIn the past couple of weeks, China raised its tariffs on US imports to 10% from
3、 5% on US$75bn of goods, effective on September 1, and re-imposed 25% and 5% tariffs on auto and auto parts imported from the US, effective December 15. The US responded with 5% additional tariffs on approximately US$550 billion worth of Chinese imports. For the existing 25% tariffs on approximately
4、 US$250 billion worth of Chinese imports, the US will begin the process of increasing the tariff rate to 30%, effective October 1 following a notice and comment period. For the remaining 10% tariffs on approximately US$300 billion worth of Chinese imports announced earlier this month, the tariffs wi
5、ll now be raised to 15%, effective on the already scheduled dates: September 1 for list 4.A products with estimated import value of US$129bn, and December 15 for the rest. If all these newly announced tariff are implemented, the average US tariff on Chinese imports will increase by another 4.9%-pts
6、to 21.7% from 16.8% and the average China tariff on US imports will increase by another 3.6%-pts to 18.8% from 15.2%.While the growth impact for 2019 likely will be limited given that the tariffs on US$300 billion of exports will only be implemented at year-end, the impact on growth next year will b
7、e more noticeable. We thus maintain our 2019 GDP forecast at 6.2%y/y, but lower our 2020 growth forecast to 5.8% from 6.0%. Chinas policy reaction likely will not deviate from our current forecasts: (i) modest fiscal expansion, with the augmented fiscal deficit increasing by 0.8%-pt in 2019 and 0.4%
8、-pt in 2020; (ii) two more RRR cuts and lObp OMO policy rate cuts, with TSF growth increasing marginally to 11%-12%; (iii) the USD/CNY exchange rate to reach 7.35 at end-2019 and 7.40 in mid- 2020. The new interest rate reform could foster monetary policy transmission and opens the door for lower ba
9、nk lending rates, but the adjustment likely will be gradual in the near term. In a risk scenario that the trade war further escalates and broadens with a more substantial knock-on to growth, the government likely will deploy more policy stimulus in 2020, including additional RRR cuts or rate cuts, a
10、ccelerating infrastructure investment, and subsidies to consumers, while the CNY would depreciate further.A temporary lull in trade flows, policy preemptsDespite the negative headlines on tariffs, EM Asias recent trade data paint a more benign picture. Exports look to have bottomed in late 2Q19, jux
11、taposed against weakening capital goods demand, and we also expect the August manufacturing PMIs in China, Korea, and Taiwan, due next week, to stabilize (Figure 1). However, the recent swings in regional exports likely owe largely to the impact of the tariffs, with front-loading of tariffed exports
12、 followed by a drop after the imposition of tariffs skewing the export data (Figures 2 and 3). We expect that tariff-related shocks will dominate EM Asia trade flows again through the rest of the year, especially if the US tariffs on US$300 billion in imports from China, effective September 1 and De
13、cember 15, remain in place. This could again lead to front-loading of exports followed by a contraction over late 3Q19 and late 4Q19 and 1Q20. However, if and when the dust around tariffs settles, we do not expect the underlying macro environment to be conducive to a sustained capex revival, especia
14、lly if corporate profits come under pressure, with a knock-on to EM Asias exports.Figure 1: Stylized banking sector flowsSource: JPMorganLoansDepositsOther assetsEquityEconomic Research NoteDebt crises in Asia and their lessons for ChinaThe region has experienced two severe banking crises: Japan in
15、early 1990s and the Asian Crisis in 1997/1998 The ensuing policy responses provide useful insights and lessons for debt resolutions in ChinaTimely recognition of loan losses and a well-coordinated flnancial safety net, with clear lender of last resort protocols, are keyOn the heels of notes focusing
16、 on Chinas present debt and past debt esolutions, this note provides a brief history of banking crises and resolutions in Asia, gleaning insights on the resolution framework within the Asian context that can apply to China. In China, the dominance of state ownership in the banking sector and its deb
17、tors, which are mainly state-owned coiporations, reduces the scope for market mechanisms to resolve NPLs, i.e., through bankruptcy and liquidation of assets. Tn effect, these considerations increase the burden of bank restructurings on the public sector, including both the central bank and governmen
18、t, and indirectly on the household sector via low returns on deposits. Thus, given the architecture of Chinas financial sector, we still expect the future cost of bank restructuring to fall squarely on the public sector, unless there is a material change in the ownership structure.That being said, t
19、wo crises still offer useful lessons: Japan in the early 1990s and Korea and Thailand in 1997/1998. The first lesson is that excessive credit expansion over a prolonged period tends to precede a banking crisis. Second, balance sheet mismatches around FX and duration can lead to a sudden stop in fund
20、ing flows, triggering a liquidity shock, which subsequently spurs a broader banking sector crisis. Moreover, uncertainty around solvency could also trigger liquidity shocks, via a loss of confidence among depositors and within wholesale funding markets. Third, such a liquidity shock would require a
21、clear protocol for lender of last resort intervention by the central bank. Indeed, there is little room fbr ambiguity in the central banks operations given its knock-on to confidence, which is the cornerstone of the smooth running of financial systems. Finally, a comprehensive and coordinated financ
22、ial safety net will be key in determining the allocation of funds to resolve underlying banking weaknesses, a necessary step to facilitate the banking systems return to health.A stylized debt flow/stock mapHelpful in thinking through banking sector crises are stylized descriptions of debt-creating f
23、lows, giving rise to the debt stock and the debt service payments needed to maintain solvency (Figure 1).There are very broadly four basic elements: initial deposit flows (1) from savers to the financial intermediaries, which in turn provide loans to borrowers, (2) who are then obliged to service th
24、e debt, (3) which ultimately flows back to the savers as interest income. (4) In principle, there are two types of shocks, which may not be mutually exclusive, that lead to banking sector crises in Asia. The first is insolvency, which occurs when the cash flows generated from the asset are not able一
25、either in reality or perception-to meet the debt service claims from the debt stock, which is the flow from (3) to (4). The second is a liquidity shock, which is the temporary inability to convert assets into cash, should creditors or depositors choose not to roll over their claims, effectively a re
26、versal of flows (1) and (2).In principle, solvent financial institutions should still be viable amid a liquidity shock if there is a timely provision of liquidity, typically via lender of last resort (LOLR) operations, while an insolvent financial institution would not be viable regardless of LOLR i
27、nterventions. In practice, distinguishing solvent from insolvent institutions during periods of stress is challenging. A strong financial infrastructure with timely reporting and recognition of risky and delinquent assets can facilitate this determination, preferably ex ante.Similarities in starting
28、 conditionsThus framed, the banking sector crises in Japan and Ko- rea/Thailand both involved elements of each shock, and the subsequent resolution provides lessons for the future. While the proximate triggers for the crises differed, the general sequence of banking sector resolution is similar, inv
29、olving an initial set of policies that provide liquidity to the banking sector to stabilize confidence and a subsequent recapitalization to restore their balance sheets, usually via public capital, to permit financial intermediation. Thus, it should not be a surprise that material increases in publi
30、c debt accompanied Asian banking sector crises (Figure 2).Source: IMF estimates; 1. Excludes liquidity assistance; Japan denotes period of recapitalizationFigure 4: Real GDPIndex, T=100, saBoth Japan and Thailand/Korea experienced years of high credit growth before their crises, leading to widening
31、credit gaps (Figure 3). Subsequently, with the onset of the crises, as defined by the BIS in 4Q92 in Japan, 3Q97 in Thailand, and 4Q97 in Korea, credit growth collapsed and credit gaps turned negative. However, the impact on growth was different: in Korea growth slowed sharply but GDP took only seve
32、n quarters to return to its pre-crisis peak, while Japans growth already had been slowing ahead of the banking crisis and Thailand took 16 quarters to return to its prior GDP peak (Figure 4).A BOP-led liquidity shock in 1997/1998The genesis of the crisis in Asia was in the early 1990s when export-le
33、d development drove expectations of strong growth.The prospect of strong growth and high returns prompted capital inflows into the region, helping fund current account deficits. With willing global creditors, domestic banks and companies were willing borrowers given the lower rates on foreign capita
34、l, largely denominated in USD, facilitated also by regimes of semi-fixed exchange rates, which implicitly guaranteed stability against currency fluctuations. The revenues of these domestic debtors were in the form of local currency even as their foreign liabilities tended to be short term and USD-de
35、nominated (see Kawai, M; Newfarmer, R; Schmukler, S. ”Crisis asd contagion in East Asia: nine lessons J World Bank Policy Research Working Paper 2610, and Hale, G. Could We Have Learned from the Asian Financial Crisis of 1997-1998? FRBSF Economic Letter 2011-06).Thus, external debt in Thailand and K
36、orea rose notably, as did domestic credit (Figure 5). However, there were notable differences between the two. Although Koreas short-term external debt had been much higher than Thailands, Thailands credit gap started at a higher point in 1996. In addition, the Chaebols had done much of Koreas exter
37、nal borrowing to build capacity in the tradable sector rather than to invest in the non-tradable sector, particularly real estate, as was the case in Thailand.Figure 5: Korea and Thailand short-term external debtRatio, ST external debt to FX reservesSource: IMF and WBThe slowing in trade flows durin
38、g 1996/1997 led investors to reevaluate their investments, slowing capital flows and triggering a sudden stop, which exacerbated the downturn with a knock-on to solvency. In hindsight, the build-up of short-term external debt and the subsequent sudden stop and currency devaluations provided the prim
39、ary catalyst for the economic shock.And likely because of the different starting conditions, the subsequent recoveries were quite different. Korea9s real GDP took only seven quarters to return to its pre-crisis level, led by a very competitive export sector aided by FX depreciation and a supportive
40、external demand environment. In Thailand, FX depreciation did help the export sector but not enough to offset the drag from the non-tradable sector, and the GDP recovery took almost 16 quarters.Japan, the unintended consequences of an incomplete policy responseIn Japan, the primary issue revolved ar
41、ound the solvency of the banking sector, and the policy response prolonged rather than shortened the crisis (see Fujii, M; Kawai, M, Lessons from Japans Banking Crisis. ADBI Working Paper No. 222, June 2010, and Nakaso, H.; The financial crisis in Japan during the 1990s: how the Bank of Japan respon
42、ded and the lessons learnf BIS Papers, No. 6.).The crisis stemmed primarily from late-1980s optimism on the Japanese economy, which led to a surge in real estate loans, collateralized by land (Figure 6). Second, banks had incorporated unrealized gains on their holdings of common stock into the capit
43、al base, which eroded once share values declined. Once the perceptions of economic growth cooled and sentiment turned, the equity market crashed, followed by real estate prices, denting real estate asset values and cash flows. Moreover, banking sector capital, derived from unrealized equity gains, a
44、lso came under pressure. The ensuing concerns around solvency of banking institutions further eroded confidence, leading a deterioration in funding conditions.Figure 6: Japan real estate loans and urban land price% GDP, saIndex, 1990=100Source: BOJ and JR日We draw two broad lessons from Japans experi
45、ence. First, it is crucial to deteiTnine loan losses and quantify the size of the problem early on in the crisis. In Japan, the financial infrastructure relating to accounting, disclosures, and timely recognition of loan losses delayed the assessment of the loan losses. This meant that NPL recogniti
46、on and the subsequent resolutions were similarly delayed. Second, the lack of a comprehensive financial sector safety net with clear protocols across various agencies and stakeholders slowed the allocation of public funds, undermining confidence with spillovers to other financial institutions.Lesson
47、s for China: Financial infrastructure and LOLR protocolsOver the past two years, Chinas credit gap has narrowed, while the easing in borrowing costs has reduced the cash flow pressure on the corporate sector, with a likely positive impact on solvency (Figures 7 and 8).Figure 7: China credit to non-f
48、inancial sector% GDP% GDP, deviation from HP filtered trendFigure 8: China RoA and 1-yr corporate lending rateFigure 9: China external debtRatio, external debt to FX reservesSource: SAFEMoreover, external liquidity risks look manageable, with short-term external debt at less than 40% of FX reserves,
49、 suggesting that rollover risks are not a concern (Figure 9). The sharp rise in external debt during 2014 reflected the inclusion of foreign-held local currency debt, that is, a change in methodology rather than a sudden rise in debt. By implication external liquidity risks appear manageable, with the evolution of the balance of payments and FX reserves key variable