The Economist - USA (2022-02-12)

66 Finance & economics TheEconomistFebruary12th 2022

InflationinAsia

Rice restraint

I

nflation has shot to multi­decade

highs  in  much  of  the  rich  world  during

the past year, with the effect of supply con­

straints, covid restrictions and a burgeon­

ing economic recovery all helping to drive

consumer prices higher. In Asia, however,

pressure on prices is much weaker. Why?

In much of the region—in China, Hong

Kong,  India,  Indonesia,  the  Philippines

and Vietnam—inflation is in fact below av­

erage levels over the decade before the pan­

demic, notes Abdul Abiad, director of mac­

roeconomic research at the Asian Develop­

ment Bank. Where it is higher than the av­

erage  for  2010­2019—in  Malaysia,

Singapore, South Korea, Taiwan and Thai­

land—it  is  by  around  two  percentage

points or less. 

The divergence between East and West

is the result of several factors. Some of the

disparity with the booming prices seen in

North America and Europe, as well as ma­

ny  non­Asian  emerging  markets,  comes

down to food. Whereas prices of food glob­

ally  have  surged,  Mr  Abiad  notes  that  the

effect  has  been  uneven.  Maize  and  wheat

prices rose by 18% and 20% respectively in

the 12 months to the end of January. In con­

trast, the price of rice fell by around a fifth

in  the  same  period.  In  a  country  like  the

Philippines, rice makes up a quarter of the

food  share  of  the  consumer­price  index,

and one­tenth of the entire index. In China

in particular, average wholesale pork pric­

es  dropped  by  more  than  half  in  the  12

months to January, as the African swine fe­

ver  epidemic  that  has  raged  through  the

country since 2018 began to abate.

The impact of food prices is most obvi­

ous in developing economies, but there are

reasons  why  Asia’s  richer  countries  have

recorded  lower  inflationary  pressure  too.

For  one,  supply­chain  bottlenecks  are  not

as severe as they are in the West. The cost of

shipping a 40­foot container from Shang­

hai to Rotterdam has risen by around 60%

in  the  past  year,  to  $13,686,  according  to

Drewry,  a  supply­chain  consultancy.  In

contrast, the price for the return journey is

little more than a tenth of that, at $1,445, a

figure which has dropped by 1% in the past

year. Surveys of purchasing managers sug­

gest  that  supplier  delays  are  still  worsen­

ing  in  most  of  Europe  and  America,  but

falling  in  China,  India,  Indonesia,  Thai­

land and Vietnam.

The  different  ways  in  which  countries

have  emerged  from  the  pandemic  matter

too. Researchers at Capital Economics, an­

other  consultancy,  note  that  Asia’s  “re­

opening”  inflation  in  consumer  services

remains low. The rise in prices for recrea­

tion  and  cultural  services  in  Indonesia,

Malaysia,  the  Philippines,  Singapore,

South  Korea  and  Taiwan  is  half  or  less  of

the  American  year­on­year  rate  of  around

4%. The difference may be caused by more

gradual loosening of restrictions, as well as

a dearth of international tourists.

Not  all  forms  of  inflationary  pressure

can be avoided. Energy prices are more in­

fluenced  by  global  trends  than  those  for

most other goods and services. Rising en­

ergy costs have been the biggest contribu­

tor  to  the  inflation  surge  in  Asia,  making

up as much as a third of the total increase

recently, according to analysts at Goldman

Sachs, a bank.

Many economies in the region may face

higher  interest  rates  despite  their  milder

inflation.  Potential  interest­rate  increases

from the Federal Reserve this year raise the

threat  of  a  stronger  dollar,  which  would

bring imported inflation to Asia. Monetary

policymakers in Indonesia, Singapore and

South Korea have alreadyannounced small

steps to tighten monetarypolicy. They are

unlikely to be the last.n

H ONG KONG

Asia is not feeling the same price

pressures as the West—for now C

hina’slendingboomtopoorcoun­

triesisturningsour,asgovernments

struggletorepaytheirdebtstoitsstate­

ownedlendersliketheExport­Import

BankofChinaandChinaDevelopment

Bank.SohowwillChinahandlecoun­

triesonthebrinkofdefault?Willit show

thesolidarityonedevelopingcountry

mightexpectfromanother?Orwillit

insistonitspoundofflesh?

Somethinkdefaultswouldbegood

forChina.Itisoftenaccusedof“debt­

trapdiplomacy”:lendingheavilytopoor

countrieswithaneyetoseizingtheir

strategicassets,suchasports,whenthey

cannotrepay.Thetruthismoreprosaic.

A freshefforttocountChina’sdebtre­

structuringsfindsthatwhenfacedwitha

debtorthatcannotrepay,Chinamostly

justkicksthecandowntheroad.

ThenewpaperbySebastianHornand

CarmenReinhartoftheWorldBankand

ChristophTrebeschoftheKielInstitute

fortheWorldEconomycounts 261 in­

stancesofdebtrelieforrenegotiation

since2000.SinceChinaisfarfromopen

aboutitslending,thenumberisprob­

ablyanunderestimate.Itincludes 149

cancellationsorreschedulingsofsmall,

interest­freeloansbyChina’scommerce

ministry,mostlyinthe2000swhendebt

reliefbecamea causecélèbre,embraced

byg7 governmentsandIrishrockstars.

Another 28 werepaymentholidaysgrant­

edtocountriesinnogreatdebtdistress

aspartoftheg20’sresponsetothepan­

demic.Thatleaves 84 restructurings

proper(ofwhich 30 werealsopartofthe

g 20 initiative,buttocountriesunder

financialstrain).

China’s 84 creditmishapscompare

with 158 intotalbyall 22 membersofthe

ParisClub,aninformalgroupofrich­

countrygovernmentsincludingAmer­

ica,JapanandBritain(seechart).China

wasperhapsunluckyinlendinga lotata

badtime,justbeforethepricesofoiland

othercommoditiesexportedbyAfrican

countriesbegantodropin2014.Inal­

mostallthesecases,Chinasimplygave

borrowersmoretimetorepay.Inonly

fourdidit reducethefacevalueofthe

debt(Cuba,IraqandSerbia,twice).Its

approach thusresemblesthatofWestern

lendersinthe1980s,whentheyseldom

provideddeepdebtrelief.

ThepandemicmayforceChinato

movefromforbearancetoforgiveness.

Otherwisetheauthorsfearthata debt

“overhang”mayinhibitgrowthinpoor

countries.Chinahasjoinedtheg20’s

“commonframework”fordebtrelief,

whichismeanttobringit intolinewith

theParisClub.Inbecominga biglender

topoorcountries,Chinahasfollowedin

thefootstepsoftheclub’sleadingeco­

nomicpowers.Ithasalsorepeateda

numberoftheirblunders.Nowit must

followtheminwritingoffsomeofits

pastmistakes.WhoisChina’sBono?

Debtrelief

How to defaulton China

H ONGKONG

Asia’ssuperpowerdoesnotalwayscollectitsdebtsontime

Stress without the relief

Number of distressed debt restructurings

by lender

Source:Horn,Reinhart

andTrebesch, 2022

20

15

5

10

0

2000 05 10 15 21

China Paris Club* Withface-valuereduction

*Group of traditional

creditor countries