Asia's growth forecasts are being revised upwards daily, spurred by the US revival and China's powerhouse performance, but Japan's woes show no sign of abating, writes Miriam Donohoe, Asia Correspondent

It's official. As the global economic slump runs its course, Asian countries are on the cusp of a turnaround, with all indicators showing the region is well on the way to exporting its way out of trouble.

Driving this welcome revival is the US economic recovery, which few predicted would rebound so quickly after September 11th.

American consumers and companies absorb nearly a quarter of Asia's exports, and the region is set to cash in on the surge in US demand for computer chips, PCs, DVD players, petrochemicals, and home appliances.

Asia economic growth forecasts are being daily revised upwards, and some analysts see a solid recovery well into 2003. Excluding Japan, there are predictions that the Asian economy may grow 7 per cent this year, up sharply from last year's 5.1 per cent

Leading the way in Asia's growth spurt is its shining star and new powerhouse, China, which recorded GDP growth of 7.6 per cent for the first quarter of this year.

That is up 7.3 per cent in 2001 but is still below the 8 per cent of 2000.

The past month has brought encouraging signs across the region.

For example in South Korea, Japan and Taiwan, increased US demand has raised profits for memory chipmakers.

In Singapore and Malaysia, electronics companies that only months ago were laying off staff are reporting a jump in orders.

In China exports jumped in the first quarter by a healthy 9.9 per cent, reversing the slump the country witnessed last year.

Last week, the Asian Development Bank increased its growth estimate for Asia to just under 5 per cent for the year, excluding Japan.

But some experts say this is too cautious and are far more bullish, predicting that the Asian economy may grow by as much as 7 per cent this year and even further in 2003.

According to Mr Anthony Muh, Asia regional head of Citigroup Asset Management, economic indicators across most of the region suggest that the slowdown has troughed and that recovery is well under way, as the US rebound brightens growth prospects globally.

He said the positive outlook was supported by an increase in US orders for electronics and information technology goods, a factor that is boosting Asian exports.

He also anticipates an improvement in consumption and investment spending over the short term.

Mr Muh forecasts a possible rise in interest rates in the second half of 2002 as the region's central banks are likely to move policy stance from easing to neutral when economic conditions strengthen.

However, he noted that the positive long-term outlook is based on the premise that the global economic recovery, led by the US, does not decelerate and the Japanese financial crisis does not worsen.

But there are differences in country-by-country performances in Asia. While China and South Korea are outshining the rest of the pack, Japan and Hong Kong don't seem to be able to get started at all.

Undoubtedly one of the big talking points in the region is China's economic growth and the threat it may pose to other Asian countries, in particular Japan, which is experiencing dramatic hollowing out.

The rise of China as a manufacturing power is causing great concern to all of its exporter neighbours, and not just Japan. Some analysts claim that competition from China could cost some countries as much as 2 percentage points off their economic growth rates.

Chinese politicians and economic experts are doing their best to convince people otherwise. At the Boao Forum for Asia last week many speakers said a more open China will contribute to the stability, development and prosperity of Asia and the world as a whole.

In his keynote speech to the conference, the Chinese Premier, Mr Zhu Ronji, said that Asian countries must focus on economic co-operation and gradually expand their co-operation to all other fields.

The reality is that foreign investors are greedily eyeing China's huge market and endless supply of cheap labour and have been happily pumping billions of dollars into Chinese factories over the last two years.

Domestic Chinese enterprises are also increasing production and the result is a flood of cheap Chinese exports that is reducing the profits and the market share of regional rivals.

Chinese-made goods are steadily taking a larger share of imports in Japan, Europe and the United States, and in the process squeezing out goods from other Asian countries.

Hardly a week goes by without an announcement that a major manufacturer from Japan, Hong Kong or Taiwan plans to expand production in China.

The main engine of China's economic growth, though, remains pro-active fiscal policy. Public spending has rocketed by 24 per cent during the first quarter.

Government debt has risen to $193 billion, although it makes up only 16 per cent of GDP, one of the lowest percentages in the world.

According to Mr John Llewellyn, global economist with Hong Kong Investment Bank, Lehman Brothers, China's economy will grow by an average of 6 per cent a year for the next two decades, making it the second largest economy in the world by 2030.

While China's membership of the World Trade Organisation may cause disruption in the short term, ultimately the benefits will outweigh the costs, he said.

"As China will face many issues of adjustment as it moves forward, we remain basically optimist that China will overcome the obstacles and grow fat in coming years" he added.

"We have been impressed by the way the Chinese government and the Chinese people have learned from the experience of other countries which have attempted similar transitions"

But he warns that continued structural reform of the economy is vital for the more optimistic growth targets to be achieved. Without reform, China will grow an average of under 4 per cent a year but with reform that could reach six per cent.

Putting a damper on all the bright news in Asia is Japan, whose economy is expected to shrink 0.6 per cent during the coming fiscal year.

Still, even though Japan as a whole may not benefit from a US recovery, some companies will get a lift, especially ones like Panasonic and Sharp that have moved a lot of production to China and south-east Asia.

But it would be wrong to say that China is getting all the action. Singapore won a big vote of confidence in January when Advanced Micro Devices of California and Taiwan's United Microelectronics Corporation announced a multibillion-dollar 12-inch wafer plant for the island state.

There is another, beneficial side to China's increasing dominance, say analysts. Competition from China will speed up the lowering of trade barriers in the rest of Asia.

While thing are on the up, the recovery in the US will have to last if Asia is to bounce back strongly.

Companies in much of the region are not yet hiring. And foreign direct investment has yet to recover the levels of the mid-1990s.

Therefore growth throughout the region will continue to be uneven and there is plenty that can go wrong.

But with a revived US economy and a steadily growing China, Asian companies can look forward to some bright years ahead.