Asia | 19.06.2009
Financial crisis sees Asia poised to lead in global economy
The forum, held in Seoul, South Korea, wrapped up on Friday after examining the impact of the financial crisis on East Asia. And while the region has not emerged unscathed, many experts present agreed that the crisis has highlighted a shift in economic power from the West toward Asia.
As a result, Asia is poised to take on a greater leadership role in the global economy, although sweeping changes are needed both on the domestic front, and on the level of international institutions such as the International Monetary Fund (IMF) and the World Bank.
"Even before the financial crisis, this change was taking place, but the crisis has perhaps been making it more evident," said Syetarn Hansakul, an economist with Deutsche Bank Research in Singapore. "And it has shown that it's not very desirable to rely on a single engine for economic growth."
Tending to matters at home
Asia's growth is being driven especially by a burgeoning middle class, the arrival of which is expected to result in East Asian economies focusing more on their domestic markets, and less on export-led development.
"Asian countries will have to adjust their export-led model to reduce dependence on the global economy," Deputy Prime Minister of Vietnam Hoang Trung Hai said during the forum.
But while this means catering more for domestic and regional demand, it also entails addressing a host of serious social and governance issues. According to Hansakul, these include improving health care and education, improving access to insurance coverage and pension funds, and raising the income level of the people.
"In China, per capita income has doubled in recent years, but the wealth distribution is just not there," she said. "The middle class is not evenly spread, if you are talking about a middle class with US-level spending power."
Having recently returned from China, Hansakul said it was clear to her that government officials have a game plan, and know what has to be done. But at the same time, the crisis has reinforced a sense of caution, especially when it comes to making changes in the capital markets.
"I don't think there will be a big bang liberalization of the financial markets," Hansakul said. "The changes are characterized by high degree of caution, and what happened in the credit markets has only vindicated the prevailing view that when greed is good and there's not enough regulation, it's very damaging. So China, for example, will proceed in a much more gradual fashion toward its goal."
Protectionism a threat to free trade
With this greater focus on bolstering domestic markets, some experts have begun voicing fears that Asian governments may slide into protectionism.
Kiat Sittheeamorn, trade representative at the office of Thailand's prime minister, told the Associated Press that although the G20 has called for its members to avoid implementing protectionist measures, the reality looks different.
He said that since summit meetings in November and April, 17 of the 20 members had imposed protectionist steps, including farm measures and export refunds.
"If all countries that participated in that kind of meeting do not walk the talk…then we have a significant problem," he said.
Indeed, even as the forum was being held, China's economic planning agency was making headlines for issuing a document ordering local governments to favour domestic companies when purchasing goods. A foreign ministry spokesman denied that the document amounted to protectionism.
"This document is aimed at maintaining a fair market environment for competition, which is also in line with China's law on government procurement," spokesman Qin Gang said. "Therefore, there is no such thing as discrimination against foreign enterprises or products."
For her part, DB Research analyst Hansakul said she is not overly concerned about the possibility of a rise in protectionism in Asia, adding that such concerns are inevitably raised whenever there's a shift in wealth to a new player.
"If we have more rich people in the world, it can only be a good thing, and if the old boys club can get rid of that way of thinking, it would be good for them."
Region aims for greater international influence
Asian countries may now have a greater degree of economic power, but the experts gathered in Seoul agreed that in order to exercise this power, they need to take a more active role in international institutions. Hansakul is confident that the economic shift will drive structural change, citing the G20 as an example.
"A few years ago, we only talked about the G7, now, people are comfortable talking about the G20," she said. "Sooner or later, this change will be reflected in the shareholder structure of international institutions like the IMF and the World Bank."
China, for example, recently committed to buying some $50 billion in IMF bonds as the institution seeks to replenish its coffers, and like the other emerging nations expressing interest in the bonds, it undoubtedly hopes its contribution - and growing clout - will soon be reflected in a greater share of voting power.
Author: Deanne Corbett
Editor: Rob Mudge