China Leads Asia's Growth but India more Sustainable

China is outstripping India in the economic growth stakes, agreed participants at a session examining the impact of 'New Asia' on other economies and businesses in the region.

However, India could win out in the long-term given its demographic profile which indicates a lower dependency ratio and a larger working population, argued Sriram Venkataraman, Vice-President, Infosys Technologies, Japan.

Medium-sized economies in the region can best respond to India and China's rapid rise by "complimenting" the two giants such as with increased exports; "competing" with India and China in areas like labour costs; and by "creating critical mass" through regional integration.

The Key to Asia's Success - Deregulation, Liberalisation and Reform

On the second day of the World Economic Forum’s Asia Roundtable in Singapore, five key personalities from major growth markets in Asia (Japan, Republic of Korea, China, Singapore and Hong Kong SAR) brought their experiences to the table and candidly shared their thoughts on deregulation, liberalization and reform strategies that have been hailed as success catalysts for growth in the private sector.

Despite a recent OECD report stating that the Japanese economy is in its best shape in the last ten years, many problems are brewing in the face of the reality that Japan’s population is decreasing with an ageing society. With this, it seems that there is an urgent need for more aggressive strategies to secure Japan’s competitiveness against the background of the declining and ageing population.

“Japan’s 21st century vision focuses on proactive reforms instead of reactive reforms,” said Heizo Takenaka, Minister of State for Economic and Fiscal Policy and for Privatization of the Postal Services; Member of the House of Councillors. “Two strategies that will allow Japan to prosper as the central growth area in Asia are maximizing productivity to bring about new value-added and making the most of globalization through free trade agreements (FTAs) and economic partnership agreements (EPAs)”.

“Participating in trade allows you to participate in the entire value chain so that you can fit the part where your country has the highest competitive advantage,” said Lim Hng-Kiang, Minister for Trade and Industry of Singapore, agreeing with Minister Takenaka’s endorsement for globalization. Lim further noted that there is an East Asian movement where societies are transforming from agrarian societies to industrial societies. In this East Asian Development Model, emphasis is given to the export market, mobilizing of national savings, the use of foreign direct investments (FDIs) as well as massive infrastructure. This creates a domino effect where the model unleashes the potential or a relatively cheap but reasonable skilled, educated workforce that, in turn, attracts the intrusion of national and foreign capital.

“The key to Asian success is not just embracing globalization, trade and investment as the key factor in past success but is a sustainable strategy going forward,” said Minister Lim. “Embracing global markets has also instilled discipline. Industries exposed to the winds of global competition have learnt to be nimble and highly efficient.” Minister Lim believes that embracing global markets is a “sustainable strategy”.

Kim Hyun-Chong, Minister of Trade of the Republic of Korea, pointed out that there is only a window of opportunity and what is done in this small window will affect us for the next ten years. He attributes the nation’s recovery from the 1997 financial crisis to massive restructuring. “Promoting further trade, promoting transparency, promoting democratic values… Reforms have to be supported by liberalization,” said Kim Hyun-Chong. He emphasized that countries have to deal with their sensitivities and promote transparency for reforms to be successful, citing the Korean-Chile FTA.

Despite the common viewpoint that China may be developing too quickly, Chen Feng, Chairman, China Hainan Airlines, People’s Republic of China, emphasized that China is developing at a rate that is “not too fast” but “still too slow”. He substantiated his view saying that while most major markets in Asia started development much earlier, China has only recently joined the league. He attributed China’s leap forward to good reform strategies and low labour costs, teamed with a hard-working culture that contributes to the global economy. As he candidly put it, “Taking care of others means that you’ll take care of yourself.”

“The role of governments and regulators should really be to open up and allow a level-playing field and intervene only when they see market failure,” said Michelle Guthrie, Chief Executive Officer, Star Group Limited, Hong Kong SAR; Young Global Leader. “Reform is inevitable, but there is an increasing tendency to try to regulate with a certain outcome in mind.” In Guthrie’s perspective, barriers are not coming down enough.

Global Economic Focus Shifts to Asia

The World Economic Forum held its second Asia Roundtable in Singapore from 28 to 29 April in cooperation with the Singapore Economic Development Board (EDB). Over 250 participants from 34 countries gathered together to identify the critical issues and generate insights necessary to develop the right strategic response. The theme of the Roundtable is “Tilting the Global Balance: The Strategic Implications of Asia’s Growth”.

One of the key issues discussed during the opening plenary session was the rise of China and India as the new economic juggernauts that would outstrip the US and Europe to drive global growth, and the social and economic consequences of such a breakneck speed of growth.

“The rise of China and the opening up of India is probably the biggest story this century. China and India are the fastest growing economies in the world,” said Raymond Lim Siang Keat, Minister in the Prime Minister’s Office, Second Minister for Finance and Second Minister for Foreign Affairs of Singapore. “Already, China is overtaking the US as the major trading partner of Japan; some analysts reckon that in 50 years’ time, China will overtake the United States as the world’s largest economy and India will not be far behind.”

Claude R. Béglé, Chief Executive Officer, GeoPost International Management & Development Holding, Germany, agreed that Asia would indeed play a vital role on the world economic stage. “Before you had basically one tonne of cargo from Europe towards Asia and vice versa; three years ago it was a ratio of one to Asia and two from Asia; this year, it’s already one from Europe, three from Asia.” He also highlighted the importance of Japan and India. “Definitely the centre of gravity of the world is moving towards Asia. The big question is the relative weight of China and India versus the traditional giant which is Japan and I think the shift is good for the world and for Europe.”

Lim also said that this has created an imbalance that has brought about the recognition within ASEAN countries that integration is crucial. “ASEAN countries recognize that integration is not a matter of choice but really a matter of necessity. That an ASEAN of half a billion people spread over ten fragmented markets is quite a different proposition from an ASEAN of ten integrated markets and economies.” He added this has given rise to a common resolve to reduce tariffs, unify standards and develop a habit of consultation with neighbour countries. Indeed, during the SARs crisis, Lim pointed out that we saw an instinctive reaction to coalesce and deal with issues together. But Lim stressed that this regionalism is one that is open and inclusive, not insular.

Also discussed was the issue of bilateral tensions between China and Japan and the necessity for putting the past aside and recognizing Japan’s important constructive role in the region and beyond. Ichiro Aisawa, Senior Vice-Minister for Foreign Affairs of Japan, highlighted the economic importance of China to Japan and the world. He said that Japan’s trade with China now exceeded the volume of its trade with the US. “The smooth progress and good bilateral relationship between Japan and China will be extremely vital to the continued growth of the global economy and that incidents that might arise between the two nations I’m sure can be dealt with successfully “ He added that his vision is for both countries to lead global growth.

Aisawa stressed the need to leave the past behind while remaining sensitive to the situation. Jiang Jianqing, Chairman and President, Industrial and Commercial Bank of China, People’s Republic of China and Co-Chair of the Asia Roundtable 2005, echoed his sentiments, saying it was important for both countries to look ahead and resolve their differences amicably. “As two major countries, if we want to maintain a stable economy for Asia, the two countries should work and survive in a very harmonious manner.”

Lim also stressed the need for regional governments to balance the factors to make this pace of growth sustainable as Asia makes the transition to becoming the economic centre of the world, a point that was taken up by Mohamed A. Alabbar, Chairman, Emaar Properties, United Arab Emirates and Co-Chair of the Asia Roundtable 2005. “I have no doubt in my mind that the shift has taken place, the growth potential in the region is unbelievable but the risk is really the speed of growth. I’m always worried about energy and natural resources to supply this unbelievable rate of growth.”