HONG KONG (AFP) – Asia’s regional economy could see a period of contraction next year with a currency crisis, a widening wealth gap, rising protectionism and bird flu posing longer-term threats, a study by a regional think-tank has warned. Based on a survey of opinion leaders and the views of a panel of experts, the Pacific Economic Co-operation Council forecasts regional growth of 5 percent this year slowing to 4.3 percent next year.

The bulk of the decline is expected to be linked to the contraction of the United States’ mighty economy, where demand for Asia-produced products is due too weaken.

“A slowdown in 2007 has been widely anticipated and is largely due to faltering demand in the United States and the effect of monetary tightening around the world,” the survey report, entitled “The State of the Region”, released Monday said.

While the report says Japan’s once faltering economy was back on the up and looking likely to stay that way, China was becoming a concern as its booming economy threatened to overheat and a decline in American demand for its goods posed the possibility of a hard landing.

Full article here.   The U.S. midterm elections, incidentally, may call out another interesting dynamic in the yin-yang relationship between the U.S. and Chinese economies:

 “China and the U.S. now have Schumer to fear,” says Charles Dumas, a director of Lombard Street Research in London.

The reference here is to Senator Charles Schumer of New York, a Democrat who has been pushing for tariffs on Chinese goods amid charges it artificially keeps an undervalued yuan to make exports cheap. Along with Senator Lindsey Graham, a Republican of South Carolina, Schumer wants a 27.5 percent levy on imports from China.

Do you really want to mess with folks to whom you owe $340 billion? That is the value of U.S. Treasuries that China owns. Were it to dump them suddenly, prompting other Asian nations to follow suit, the world’s biggest economy would be in for a rough time.

Sure, let us not exaggerate the potential effect. The U.S. economy is 5.6 times bigger than China’s, it prints the world’s main reserve currency and its per-capita income dwarfs China’s.

And pulling the rug out from under the United States would be a pyrrhic victory for China. If rates shoot higher, U.S. consumers will be buying fewer of the made-in-China goods that create tens of millions of jobs for the 1.3 billion Chinese people. Even so, one wonders how wise it is to wag your finger at a country that has the upper hand on your monetary policy.

It is important to note two things here. First, a stronger yuan would not fix the U.S.-China trade imbalances. Second, the United States needs China, and vice versa. China needs U.S. investment and for consumers to keep consuming; the United States needs China to hold down costs for everything from money to goods to services. The United States also needs Chinese help in dealing with North Korean nuclear ambitions and in efforts to stop terrorism.

Full article here.