From the softly juddering bridge of the APL Almandine, a 290-m-long container ship anchored in Singapore's port, I feel the new Asian rhythm of global trade beating beneath my feet. The claws of three mechanical gantries snatch and lift 6- and 12-m container boxes from a bow the length of two football fields and lower them onto trucks lined up on the dock. The gantries work feverishly, at a pace of roughly 30 boxes an hour, because within 16 hours of its arrival in Singapore, the Almandine is scheduled to sail on to the Chinese port of Xiamen with a cargo of animal feed, chemicals and scrap iron. The voyage will be quick, as such trips increasingly are. "The longer the sea passages were, the more I liked it," says the ship's captain, Teoh Beng Teik, with a sigh. "It was so quiet and calm."
Those tranquil transpacific journeys to California are receding like a ship over the horizon, supplanted by accelerating intra-Asian trade. The shift has done more than force shippers like Singapore-based Neptune Orient Lines, owner of the Almandine and one of the largest container-shipping companies in the world, to quicken the pace of operations as sailing distances shrink. Management's focus has also sharply swiveled to Asia. "Before, we mainly used to worry about the Christmas season in the U.S.," says Eng Aik Meng, president of APL, Neptune's container-shipping division. "Now we also look at Ramadan, Diwali and Chinese New Year."
He's not the only one looking. "There is a very clear surge in intraregional trade in Asia," says Dong Tao, chief Asia economist with Credit Suisse in Hong Kong. Intra-Asian trade (imports and exports) grew at an average annual rate of 13.4% from 2000 to 2009, according to HSBC and the IMF, and is now valued at roughly $1 trillion. Nearly 50% of Asian exports (excluding Japan) now go to other Asian countries (excluding Japan), according to Credit Suisse, more than the current demand for Asian exports from the U.S., the European Union and Japan combined.
The great decoupling argument of the early part of the decade that Asian prosperity was no longer linked to Western demand got an empirical test during the Great Recession. The result: "Asia mildly decoupled from the U.S. during the last global financial crisis," says Johanna Chua, Citigroup's chief Asia economist. What is more compelling, however, is that greater trade within Asia is deepening and diversifying the region's economy as well as calling into question the primacy of the U.S. dollar as a reserve currency and an instrument of trade. Asia's economic integration, in short, is starting to mirror that of the European Union over the past two decades.
The rest of the world matters, of course, as both customer and competitor. That point will be underscored at the mid-November gathering in Yokohama, Japan, of the 21 countries of the Asia-Pacific Economic Cooperation (APEC) forum, which encompasses much of Asia in addition to big non-Asian nations like Canada, the U.S., Mexico and Russia. Even so, the main drama will be played out inside Asia.
The chief actor in this drama is China, which like a powerful sun is pulling the smaller planets of the continent into its economic orbit. According to research by Citigroup economist Kit Wei Zheng, 73% of Indonesia's exports to China in 2008 were consumed inside China. Citigroup says 71% of Vietnam's exports to China that year also fed domestic demand. About a tenth of all exports from both Indonesia and Vietnam currently go to China, making the Middle Kingdom one of their top trading partners.
To be sure, the bulk of China's imports from countries like Indonesia and Vietnam are commodities such as coal or tin or foodstuffs like coffee or shrimp. Even Singapore and South Korea, although more developed economies, still ship primarily electronic components that are assembled in China and re-exported to the U.S. and Europe. Those patterns are changing. Nearly a fifth of South Korea's largely electronic exports to China in 2008, says Citigroup, ended up in China's own stores. A third of Singapore's exports to China that year, similarly, were consumed solely by the Chinese.
The fearsome arowana fish that Kenny Yap raises on his jungle-fringed farm in Singapore are one such product. With an opalescent skin of gold or orange and growing as long as a man's arm, a single fish can cost as much as $20,000. That isn't merely because it's beautiful. It is also reputed to bring fantastic luck. "This fish is believed to be a reincarnation of the dragon," Yap says, explaining that his arowana are carnivores that will eat or kill one another. Exports to China for Yap's publicly listed ornamental-fish-breeding company, Qian Hu, accounted for roughly 10% of its $69 million in 2009 sales, but Yap aims to triple that number over the next five years. (The rest of his arowana are carefully packed in oxygenated cold water and flown to more than 80 countries around the world.)
In some ways, Asia's developing economic unification isn't new. The ancient Silk Road linked China to Persia via the South Asian deserts of Rajasthan, where moneylenders and maharajahs lined the caravan routes and profited by trading in gems and spices. Several centuries later, in 1916, the Nobel Prize winning Indian poet Rabindranath Tagore roamed from Calcutta to Tokyo in search of "one Asia." The poet's vision was misty, yet by the end of the century Asia was knit together in a manufacturing supply chain that stretched 4,800 km, from Seoul to Singapore.
Now history is repeating itself, but with a couple of twists. One of them is pertinent to the global debate swirling around the weak U.S. dollar. Partly because the yuan is widely seen as undervalued, making it a potentially attractive currency to acquire, China is increasingly using the yuan under a series of swap arrangements to trade with its Asian partners, including South Korea, Malaysia and Indonesia. Citing a deal HSBC brokered recently between a Chinese tin-can maker and one of its suppliers in Singapore, which was settled in yuan as opposed to U.S. dollars, HSBC's global co-head for commercial banking, John Coverdale, says the bank will focus on more such deals linking Chinese manufacturers with Asian suppliers. "It's not new, but we're going to ramp up this part of our business even more," he says.
For China, the incentive to do more such swap deals in Asia is twofold: First, they extend the geographical reach and deepen the liquidity of the yuan. Equally important for a country awash in trillions of dollars, they do not burden China with even more risky, weakening greenbacks.
Although the combined value of swap deals is tiny compared with the daily trade China is still doing in U.S. dollars, analysts say China may be in the early stages of creating a yuan currency zone in Asia. Such a plan could eventually make the dollar debate, passionate though it is, a sideshow in Asia. Says Steve Okun, chairman of the American Chamber of Commerce in Singapore: "Look, no American company in Asia is complaining to us about a weaker dollar. It has benefited some of them. But the issues that come to us are still more about market access and regulation."
In both areas, the U.S. is falling behind in Asia, largely because of its reluctance to implement free-trade agreements in the region. The numbers speak for themselves. China has signed bilateral free-trade agreements with 15 countries in the Asia-Pacific region, including a sweeping pact with the 10 countries of the Association of Southeast Asian Nations that went into effect at the beginning of 2010. The U.S. has signed only two, with Singapore and Australia.
Partly as a result of China's enthusiasm for free-trade agreements, HSBC predicts that trade among Asian countries will rise at an annual average rate of 12.2% until 2020. That is 70% faster than trade between Asia and the U.S. is projected to grow over the same period. "The frustration is palpable among our trading partners as to why we don't get it," says Kevin Thieneman, president of Asia operations for industrial-equipment giant Caterpillar. Thieneman rejects the argument that free-trade agreements hurt the U.S. by outsourcing American jobs. "Naysayers conveniently forget the fact that we have a manufacturing trade surplus with the 17 countries [as a group] with whom we do have free-trade agreements," he points out.
Trade between Asia and the U.S. wasn't so contentious a century ago. America's hunger for raw materials was so vast that ships steamed across the Pacific with hulls full of Chinese pig iron and Philippine mahogany to help build out the railways, roads and ports that eventually tied together America's once scattered economic hinterland. The shipper that ruled the waves of the Pacific in those days? A venerable 162-year-old company called American President Lines now known simply as APL that was bought by Singapore's government-owned Neptune Orient Lines in 1997. As I gaze over the seas around Singapore from the thrumming bridge of one of APL's ships, it is hard not to be struck by the irony.