Posted on 22 Jul 2014
A pickup in China’s growth has fortified
confidence the world’s second-biggest economy will avoid a precipitous slowdown
as the past decade’s explosive growth decelerates to the 7% range.
China’s economic transformation since the 1980s
has relied heavily on industrial investment and exports, but those engines have
run out of momentum. Chinese export manufacturers are surrendering some of
their low-cost advantage as workers demand higher wages. Industrial growth has
been so intense that many industries now have too many factories and suffer
diminishing returns on every dollar of new investment. The cost to the
environment and public health has been high.
Now the government wants Chinese to save
less and spend more to make the country’s consumers a bigger driver of growth.
China’s economy expanded 7.5% in the
April-June quarter after growing 7.4% in the first quarter. Some 7.4 million
new jobs were created in China in the first half of the year, a boost for
country’s authoritarian rulers who fear politically destabilising job losses.
The second-quarter figure is positive but
isn’t a game changer for Asia or the global economy. China has overtaken Europe
and the US to become the biggest market for numerous Asian nations so it must
also adjust to its slower growth rates while dealing with sluggish recoveries
in the West. Some of the challenges in Asia are outlined here.
JAPAN
Long a manufacturing and technological
powerhouse, Japanese pride was injured when China leaped ahead to become the
world’s second-biggest economy. Japan remains far more affluent than China but
its political and business elites are plagued by a sense of insecurity as
population decline generates a powerful backdraft against efforts to inject
vigour into the economy.
Cue Shinzo Abe, Japan’s energetic prime
minister, who has pushed through a lavish expansion of the money supply to counter
the deflation, or falling prices, that has had a dissipating effect on the
economy for two decades.
In the very short term, Japan’s economy is
weathering the impact of an increase in sales tax that was needed to help repair
tattered government finances. The economy likely contracted in April-June after
surging at a 6.7% annualized pace in the first quarter when spending, to beat
the tax increase, rose sharply.
The longer-term outlook turns on an
economic policy overhaul needed to boost Japan’s waning competitiveness and cope
with its declining and aging population. “We are looking for ways to change the
Japanese economy,” said economy minister Akira Amari.
INDIA
A new government is boldly promising to
lift India’s economic game and if it delivers, India could quickly outshine
China as the region’s fastest-growing economy. But right now, the Indian
economy is close to bedridden.
A tough global economic climate was part of
India’s problem. But erratic government policymaking that chilled new investment
by foreign and local businesses was also a significant culprit and added to the
drag on growth from India’s Soviet-like bureaucracy.
Just three years ago, officials were brash
enough to insist India would grow at rates above 10%. They had some justification
because growth rates were already approaching those levels before plunging to
settle below 5%.
While developed nations would be thrilled with
growth of even 3%, poverty-ridden India needs very rapid growth to provide jobs
and improve living standards for the estimated two-thirds of its 1.2 billion
people who live on under $2 per day. The IMF forecasts growth of 5.4% this year
and 6.4% next year.
One catch for the rest of Asia is that
India’s heavy reliance on imported oil means many of the benefits of faster
growth would flow to the Middle East and other oil producers. Stronger Indian
demand for crude could also jack up prices, troubling neighbors also reliant on
imported energy.
Partly for cultural reasons, Indians are
prodigious importers of gold, so an economic recovery might boost gold imports but
at the expense of a greater rise in imports of manufactured goods from its
Asian neighbours.
SOUTH KOREA
South Korea ranks behind China, Japan and
India in overall GDP but its rapid industrialisation following the Korean War made
it wealthy and a powerful global player in industries including autos, consumer
electronics, nuclear power, shipbuilding and entertainment.
Despite all that success, South Koreans are
habitually looking over their shoulders and comparing their progress to the rest
of the world. Part of the insecurity might stem from having bellicose and
unpredictable North Korea and Asia’s two powerhouses -- China and Japan -- as
neighbours.
Like other wealthy nations, South Korea is
also constantly noodling whether its progress has come at too high a price.
Those fears were realised earlier this year
when hundreds of teenagers died in a ferry sinking that South Koreans blamed on
a culture of profit first, safety last.
The central bank said earlier this month
its growth outlook would be reduced to 3.8% this year from 4.0% as consumer spending
wilted after the disaster.
That would still be the fastest growth
since 6.5% in 2010, but disappointing given how much stimulus the government added
to the economy.
The near- and medium-term prospects for
South Korea’s export-reliant economy hinge on recoveries in China, Europe and
the US. Longer term, policymakers want to make domestic consumption and
entrepreneurship bigger factors in growth. That will be a difficult shift
because of the immense power wielded by the country’s industrial conglomerates.
SOUTHEAST ASIA
As individual countries, the 10 nations of
Southeast Asia often fall off the international radar unless a big news event
such as a natural disaster, coup or plane crash draws attention to the region.
But grouped together as Asean, the region boasts 625 million people, a GDP of
$3.8 trillion and annual trade with the rest of the world of $2.4 trillion.
Growth in Southeast Asia, which spans
countries as different as the wealthy city-state of Singapore and poor
landlocked Laos, is likely to be driven in the next decade by rising numbers of
middle-income households, trade within its fledging customs area, and massive
expansion of infrastructure.
After a 5.2% expansion in 2013, the Asian
Development Bank expects growth in the five largest economies of Indonesia, Malaysia,
the Philippines, Thailand and Vietnam to be steady in 2014 and accelerate to
5.6% in 2015.
Yet the outlook could be derailed because
the region’s two biggest economies, Indonesia and Thailand, face political ruptures.
Indonesia’s recent presidential election
failed to produce a clear winner, sparking fears of instability. The official
results were scheduled to be released by July 22. A coup earlier this year in
Thailand followed months of destabilising street protests. Military rule has
ended the protests but the political divisions may re-emerge once new elections
are called.
