[governance-vn] Asia will benefit from this global crisis: Domestic demand and development will shield the region from a slide

[Vern Weitzel]

Subject: [SEA-SPAN] Asia will benefit from this global crisis: Domestic demand 
and development will shield the region from a slide
Date: Wed, 29 Oct 2008 13:41:34 +0700
From: user at sea-user.org
To: vern at coombs.anu.edu.au


Guardian Weekly: Comment & Debate: Asia will benefit from this global crisis: 
Domestic demand and development will shield the region from a slide

BY: Jean-Raphael Chaponniere, Le Monde
Source: The Guardian Weekly, pg 21, October 17, 2008
The current global financial crisis will speed up the shift in the world's 
centre of gravity towards Asia, a process that started more than 20 years ago. 
The crisis in 1997 interrupted the trend and the emerging Asian economies 
recovered at different speeds. Its effects were particularly severe in South 
Korea, Indonesia and Thailand, but largely spared India and China. South Korea 
has recovered since, Indonesia has been sidelined and Thailand is still 
embroiled in political strife.

However all Asian countries learnt from the 1997 crisis and built up reserves to 
guard against future mishaps. Invested in US Treasury bonds these funds helped 
keep US interest rates low and allowed US households to run further into debt. 
Asia thus took advantage of the consumer boom in the US, but these excesses also 
led to the present crisis.

The solution to the turmoil will entail a drop in US growth, with households 
paying off their debts and building up their savings, which have dwindled 
steadily since the 1960s. After a period of shrinkage, we may see slower 
consumer spending, which has enjoyed two-digit growth since 2000, holding back 
US demand for Asian goods and services.

Exports account for a large share of Asian countries' GDP, so declining US 
demand raises the threat of a sudden economic slow-down. However this is 
unlikely to actually happen. Twenty years ago when the US sneezed Asian 
countries were afraid they would catch flu. The US has been suffering from 
subprime flu since summer 2007, and though Asian stock markets have been hit, 
the real economy has not suffered. If there is a recession in 2009 it will 
obviously affect Asian countries, but they should enjoy better growth rates than 
their US and European counterparts.

European analysts tend to think that Asian growth is export driven, a view based 
on the large share of foreign trade in these economies (the ratio of imports and 
exports to GDP as a whole). But such indicators are misleading because Asia has 
a highly integrated regional market. An Apple iPod exported from China to the US 
consists of chips made in Taiwan, a South Korean display and a Chinese case. The 
more countries export, the more they import, boosting the share of foreign trade 
in GDP. But such exports generate relatively little added value, production 
often being limited to assembly operations. In other words exports do not play 
as large a part in the economy as our western perspective suggests.

Furthermore focusing attention on trade overlooks the fact that Asian growth is 
primarily driven by domestic demand. The key factors driving demand in these 
countries are investment and consumption, which will be only marginally affected 
by the crisis. Although most of the world's cities with more than a million 
people are in Asia, the majority of the region's population still lives in rural 
areas: three out of four Indians and two out of three Pakistanis and Chinese 
people. Between now and 2030 China will be developing urban centres at a rate 
equivalent to building a city of one million people every month. India will 
follow a similar route but at half the speed.

This will demand massive infrastructure development and huge investments. Urban 
development will go hand in hand with the rise of the middle classes. In China 
and India this category now numbers 200-300 million. Their purchases explain 
increasing sales of cars, household electrics, information technology and mobile 
phones. Asian governments, and the families that can afford it, will carry on 
investing and consuming. Though they may have suffered from the financial 
crisis, Asian sovereign funds are nevertheless likely to seize this opportunity 
to acquire assets in the US and Europe.

It is still too soon to say whether the crisis will usher in a period of 
recession, as has been the case in the past. Europe and America recovered from 
the "long depression" of the 1870s only at the start of the 20th century. The 
crisis of 1929 plunged the whole world into drawn-out recession.

But each of these downturns coincided with the emergence of new world powers: 
the US and Germany at the end of the 19th century, Japan in the 1920s. By 
speeding up the shift of power towards Asia the present crisis will hasten the 
emergence of a multipolar world.