Tigers fear globalisation too

Between a fifth and a third of the world’s total output comes from Asian countries. They account for around half the world’s population and a quarter of world exports.

The region is home to four of the world’s 12 largest economies - Japan, Korea, China and India - as well as several of the fastest growing, notably China, whose gross domestic product (GDP) has been expanding at an average of 9% a year for 25 years, and India, whose growth has been a relatively sluggish (given its exploding population) 6% a year since 1980, but which, following economic reforms, is showing signs of accelerating towards the 10% expansion rate the government has targeted.

Japan, however, remains by far the biggest, richest and most technologically advanced Asian country. Its economy, which accounts for 10% of world GDP (in nominal terms), is twice as large as China’s even though its population is less than a tenth of the size. China’s economy in turn is twice as big as India’s and India’s roughly the same size as the now ten members of the Association of South East Asian Nations (ASEAN), all of whom participate in the Asia-Europe Meeting (ASEM). One of the original ‘Asian tigers’ which led the region’s industrialisation in the 1980s, Taiwan, is not a participant - China would find that too provocative.

From a European perspective, Asia’s developing countries are often perceived as the embodiment of the emerging threats to EU-based jobs and incomes stemming from globalisation. But, as the International Monetary Fund (IMF) says in a recent report on Asia, just as for Europe, adapting to globalisation is also "the most important challenge the Asian region faces".

The challenge is different from but no less acute than that facing EU member states. Perhaps the biggest threat remains the abject poverty endured by most of their people. While the middle-classes in China, India and Malaysia are growing as the pace of development hots up, the adjustment costs of globalisation "are already evident in growing income disparities", the IMF says.

For China the key question remains, will it get old before it gets rich? China’s demographic profile is ominous. India’s demographics are much better, one reason it thinks that it will be able to match its rival’s economic development. But last month India’s prime minister, Manmohan Singh, echoing the words of India’s first prime minister, Jawaharlal Nehru, 59 years ago at the time of independence, told his countrymen: "We have yet to banish hunger from our land. We have yet to eradicate illiteracy. We have yet to ensure that every Indian enjoys good health."

Few doubt, and China’s leaders fear, that political stability will be put at risk if the gains from economic growth that are now accruing are not more fairly distributed and adequate social security nets constructed. Achieving this will require far-reaching economic reforms in Asian countries too.

The example of Latin America’s decades of near stagnation demonstrates how easy it is for promising economic foundations to be undermined by poor governance and economic policymaking. Several Asian countries discovered in the 1997-98 regional economic crisis how quickly globalised financial markets can punish vulnerable economies. During 1996-98 East Asian stock markets alone lost the equivalent of two-thirds of their countries’ GDP. Bank losses were also massive as loans went sour.

Professor Andrew Sheng of the University of Malaya argues that that crisis spurred major changes in Asia’s financial system. But he says further reforms are needed. Financial markets need to be deepened and broadened and corporate governance improved if larger companies are going to be able to tap into international financial markets effectively. Banking and legal systems need to evolve in order to bring credit facilities to smaller entrepreneurs and farmers. Most developing Asian countries also have enormous infrastructure needs, roads and water treatment works in India, for example, whose construction will have to be financed.

Then there is the challenge of finding a balance between competition and co-operation in the region. China, for example, has sucked in massive volumes of foreign direct investment from around the world, close to $60 billion (€46.75bn) last year and even now more than ten times as much as India. Recent studies, some by the IMF, have argued that China’s success has not diverted investment from other Asian countries. Perhaps not, but it has certainly intensified competitive pressures on them.

At the same time there is evidence that Asian competitors are trying to work more closely together. This is partly aimed at trying to ensure that the most dynamic region of the world economy punches its weight on the global stage. Recognising the importance of facilitating this transition in the balance of global economic power, China and India are among the developing countries that are now invited to participate, so far informally, in meetings of the Group of Seven advanced economies.

Intensifying regional co-operation is also aimed at improving the economic performance of a group of countries, 40% of whose trade is now intra-regional, and at protecting them against another bout of global economic instability. The ASEAN countries plus China, Japan and Korea (ASEAN+3), have, for example, launched the Chiang Mai Initiative, a system of currency swaps aimed at fending off short-term financial crises. They have also built up massive official foreign exchange reserves. Today 60% of the world’s $4.2 trillion of official dollar reserves are held by East Asian central banks, with China’s reserves alone heading for $1 trillion this year.

At their August meeting in Kuala Lumpur, the ASEAN group again discussed deepening regional integration through the creation of an EU-style single market. Fred Bergsten, director of the Institute for International Economics in Washington and a former US Treasury official, is among those pressing for the creation of a free trade area of the Asia-Pacific region (FTAAP) which would include the US.

Meanwhile the US government, increasingly worried about America’s $800bn current account deficit, is pushing China and other Asian economies to do more to boost domestic demand and help rebalance an increasingly exposed global economy.

• Stewart Fleming is a freelance journalist based in Brussels.

Between a fifth and a third of the world’s total output comes from Asian countries. They account for around half the world’s population and a quarter of world exports.

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