[Global economy] Asia will stay the course of its rapid ascendency
As the rich developed economies now languish in Japanese-like quagmires, there can be no mistaking the dynamism of Asia. The question is, “Can it continue?”
Collectively, the developing and newly industrialized economies of Asia now account for 28 percent of world output, according to the IMF’s purchasing-power parity accounting metrics. That’s more than 80 percent of the combined share of the United States and Europe. With growth in the gross domestic product of Asia’s rapidly growing economies averaging about 8.5 percent in 2010-2011 ― nearly three times the 3 percent growth elsewhere in the world ― the region’s economic power is in a league of its own.
Extrapolation, however, is always fraught with peril. Asia is hardly an exception. Japan, the region’s first growth miracle, has been in tatters since the early 1990s. The widely heralded East Asian growth miracle faced a major crisis of its own in the late 1990s. And, now, with export-led Asia still heavily dependent on external demand in the crisis-battered developed world, and with China and India facing daunting tactical challenges of their own, there are no guarantees that Asia will stay its impressive course.
Out of crisis often comes opportunity. Such is the case for Asia. Yet its opportunities will be realized only if it deepens its focus on three key objectives ― strategy, stability, and internal demand.
Strategy is Asia’s greatest strength. Unlike the West, where the politics of short-term political cycles frame the policy debate in a dangerously myopic fashion, Asia has a much longer decision-making horizon. China’s five-year planning cycle is the most salient example of Asia’s strategic approach to economic growth and development. Strategy is vacuous, however, if it is not accompanied by a commitment and the wherewithal to implement the plan. Again, look no further than China for leading examples on both counts.
Stability is seared into the collective memory of modern Asia. China’s Cultural Revolution of the late 1960s and early 1970s, along with the Asian financial crisis of 1997-98, are important and painful examples of destabilizing threats to economic development. For Asia, these are painful lessons learned. Unlike the West, which recently ignored instability at great peril ― asset and credit bubbles in the United States and a deeply flawed currency union in Europe ― the stability constraint is now central to Asia’s strategic framework.
Internal demand is the third leg to the stool of Asia’s opportunity. It is now time for this export-led region to wean itself from external demand in the crisis-torn developed world. A rebalancing toward internal demand is the only real option. Here, there is nothing but upsides. For Asia’s developing economies, internal private consumption currently stands at a record low of just 44 percent of pan-regional gross domestic product _ fully ten percentage points lower than the share prevailing in 2000. In China, the share is a good deal lower ― currently less than 35 percent.
Opportunities can either be seized or squandered. In recent years, we have seen glaring examples of both. Seduced by the political economy of false prosperity, the West has squandered its strength. Driven by strategy and stability, Asia’s rapidly growing economies offer great potential to fill the void. The big “if” is whether Asia uncovers a new source of internal demand. China’s pro-consumption 12th Five-Year Plan offers strong evidence that Asia will seize the opportunity and stay the course of its rapid ascendancy.
Stephen S. Roach, a member of the faculty at Yale University, is Non-Executive Chairman of Morgan Stanley Asia and the author of The Next Asia.