Risks ahead if Asia to drive world growth—experts

Workers load goods on a truck near a wholesale market for fashion clothing in Beijing on Sept. 10, 2012. Asia must fight complacency and transform its economic and social models if it is to keep driving global growth in years to come as Europe and the United States slow, experts say. AP PHOTO/ANDY WONG

TIANJIN, China—Asia must fight complacency and transform its economic and social models if it is to keep driving global growth in years to come as Europe and the United States slow, experts say.

The region, which includes more than half the world’s population and two of its three largest economies in China and Japan, has long been touted as the economic hub of the future.

But while the global economy rebalances from West to East, Asia has serious challenges ahead, analysts warned at the World Economic Forum’s summer meeting in Tianjin.

“First and foremost, there is a tendency for Asia to become complacent,” said Indian lawmaker N.K. Singh at last week’s gathering of the global political and business elite in the sprawling port city southeast of Beijing.

“Are we too prematurely declaring a victory, that Asia as the 21st century power has arrived on the scene?”

Asia faces strong outside pressures due to the impact of Europe’s debt crisis and the still weak US, which is weighed down by stubbornly high unemployment.

The continent’s economies grew rapidly in the decades after the Second World War by taking advantage of cheap labor and favorable exchange rates to export manufactured goods to developed economies.

But that model suffered a serious blow in the wake of the 2008-2009 global financial crisis when US consumers in particular pulled back and turned instead to paying down years of debt amid growing job insecurity.

Asia grew 5.9 percent last year, far outpacing Europe and the US, and should expand a slightly weaker 5.5 percent in 2012, still well ahead of average world growth of just over three percent, said International Monetary Fund official Zhu Min.

But over the past two years Asia’s performance has been substantially below 2010’s 8.5 percent expansion, he pointed out.

“Asia has to be the global growth engine for decades,” Zhu said in a discussion on the region’s future, adding that to do so its economies need domestic demand to play a greater role, especially in China.

At the same time, Asia also cannot sacrifice manufacturing and must improve productivity and efficiency in the sector, he warned, saying a key issue was whether it could continue to “export to the whole world” despite slowing global growth.

Gordon Brown, who sought to tackle the meltdown of 2008-2009 in his then role as British prime minister, said the shift in the “center of gravity” of the global economy toward Asia was itself likely to slow growth.

“The producers are in the majority in the emerging markets, the consumers are still in the majority in America and Europe and we are having to deal with an unbalanced world economy as a result,” he said.

Asia also needs to improve social infrastructure such as education and welfare, experts said, and must be wary of pitfalls that have plagued advanced democracies.

“What if, for instance, Asia tends to become an entitlement-driven society?” Singh asked, expressing worry the region’s growth engines could be endangered.

A key factor in how Asia negotiates its future will be China, where leaders are aiming to shift the economy to one where internal, consumer-driven demand plays a larger role.

Three decades of economic reform have resulted in eye-popping growth rates that have lifted hundreds of millions of people out of poverty, according to official figures.

Yet uncertainty engendered by China’s secretive political system was on full display during the three-day WEF gathering, one of the speakers pointed out.

The meeting took place with the unexplained absence of Vice President Xi Jinping, the man widely touted to replace Hu Jintao as Communist Party general secretary this year and president early next year.

Xi’s two-week disappearance ended on Saturday with state media reporting a public appearance at a Beijing university and releasing photos, but in the meantime it had prompted widespread speculation of a power struggle.

After Premier Wen Jiabao made a speech to the forum he answered questions put by WEF founder and Executive Chairman Klaus Schwab, but they steered clear of sensitive issues.

Robert Guest, business editor of The Economist, said: “The prime minister was on the stage the other day and no one was able to ask him ‘Excuse me, sir, where is Xi Jinping?'”