Asia’s economic prospects are looking bright in the lunar Year of the Pig, with the rise of China and India having a positive impact on regional trade and investments despite earlier concerns that the two emerging giants would suck FDI from other Asian countries and push up costs of raw materials and manufactured goods. Vietnam, which this year became a WTO member, has been an outstanding performer.
Moderator Victor L. L. Chu, Chairman and Chief Executive Officer, First Eastern Investment Group, Hong Kong SAR; Member of the Foundation Board of the World Economic Forum, noted too that regional groupings like ASEAN Plus Three and the East Asia Summit are progressing well. But offsetting those optimistic developments are the perennial security risks from terrorist threats, the nuclear ambition of North Korea, and the energy and environmental problems that accompany rapid growth.
On regional integration, Jusuf Wanandi, Member of the Board of Trustees and Senior Fellow, Centre for Strategic and International Studies (CSIS), Indonesia, pointed out that 55% of total Asian trade has been within the region, higher than NAFTA. He does not see Asia adopting the European top-down, legalistic approach but rather developing trust and relationships among regional members.
Ashwani Kumar, Minister of State, Department of Industrial Policy and Promotion, Ministry of Commerce and Industry, India, agreed that regional integration on an economic basis is already well advanced and that the rise of China and India has added prosperity to the region. Other Asian countries have enjoyed spillover benefits in terms of exports and a shift in productive capacity. Globally, the shift of power has taken place but questions remain as to whether some of the existing multilateral institutions are capable and competent enough to forge a global agenda that is seen as equitable and just to all stakeholders. He reckoned that "the Bretton Woods institutions seemed to have outlived their utility."
Dae-Whan Chang, Chairman and Publisher, Maeil Business Newspaper and TV, Republic of Korea, punched a hole in the bubbly outlook, wondering if Asia can sustain its economic growth and noting that the cold war is not over yet in the Korean peninsula. He also pointed out that many young people in South Korea and Japan are still struggling to find a job or afford their own housing. Two developments of note in his country this year: the presidential elections and the signing of the US-South Korea FTA.
Heizo Takenaka, Minister for Internal Affairs and Communications of Japan (2005-2006); Director, Global Security Research Institute, Keio University, Japan, outlined three constraints to Asia’s growth – shortage of food and energy and the dual structure of most Asian economies. In Japan’s case this has produced globally competitive industrial giants like Toyota and Panasonic on the one hand, and undeveloped agriculture and banking sectors on the other. Citing his own experience in politics, he said that many vested interests have made reforms difficult and that former Prime Minister Junichiro Koizumi was "unique" in supporting him continuously despite opposition from vested interests.
Supachai Panitchpakdi, Secretary-General, United Nations Conference on Trade and Development (UNCTAD), Geneva, said the growth of East Asia will lead to three paradigm shifts: one, Asian countries will increasingly invest in real assets in the West as against portfolio assets such as US treasuries; two, there will have to be adjustments in the trade regime, in financial markets and currency imbalances, as growth in Asian production of manufactured goods, at 40% against 25% for the rest of the world, continues unabated; and finally, there will have to be a reallocation of Asia’s massive surpluses back to the region to meet its current capital scarcity.
Concerns arising from these shifts, highlighted by Supachai, are that the public sector, which has dominated the long-term debt market in the region, will crowd out the private sector as Asian foreign reserves find their way back to the region. Another concern is the proliferation of regional FTAs.
"The are more than 25 bilaterals going on," the UNCTAD Secretary-General lamented, noting that with intra-regional trade at such a high level, bilateral trade agreements are both unnecessary and costly. Finally, he stressed that Asia needs to do more about its lack of "governance maturity" by strengthening and harmonizing the rule of law.