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Asia’s rise: Undoubted but not unimpeded Published : 1:22 am August 26, 2014 | 2,483 views | No comments so far | | Email to friend

By Anushka Wijesinha – IPSIf there is one defining feature of the tectonic shifts in economics, geopolitics and society taking place today, it is the rise of Asia. Asian economies –particularly those in East and South East Asia as well as India – are at the heart of the changes that are underway in the global economy.

Asia is now home to about 60% of the world’s population, generates around onefourth of global output (set to rise to half by 2050), and produces 47%of the world’s manufacturing. With this has come a rise in prosperity – around onethird of global middleclass spending is by Asians. The spectre ofthe Asian Financial Crisis that badly hit the region’s key Eastern economies (primarily, Korea, Malaysia, Indonesia, Hong Kong, Thailand andPhilippines), has, 17 years since, faded into distant memory. In the six or so years following the onset of the global recession, projected and actualgrowth rates in emerging and developing Asia were often as much as six percentage points higher on average than that of advanced economies.

“Some argue that China’s rising preeminence in Asia could be countered by a growing US engagement in the region – rekindled by the Obamaadministration’s “pivot to Asia” strategy. The muchtouted TransPacific Partnership (TPP) appears to be the key tool in this. It is not a typical tradedeal – it straddles trade, investment, and strategic economic cooperation. Asian countries that are wary of the security implications of China’s rise maywarmly welcome a heightened US presence in the region. The TPP could prove to be a key factor in the USChina rivalry over economic leverage inthe region, and a tool for Asia’s other economies to hedge against the rise of China“

In 2014 and 2015, while advanced economies are set to grow at 2.2% and 2.3%, emerging and developing Asia is set to grow at 6.7% and 6.8%,respectively. This is higher also than the 4.9% and 5.3% forecast for the wider group of emerging markets and developing economies.

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“Some argue that China’s rising preeminence in Asia could be countered by a growing US engagement in the region – rekindled by theObama administration’s “pivot to Asia” strategy. The muchtouted TransPacific Partnership (TPP) appears to be the key tool in this. It is nota typical trade deal – it straddles trade, investment, and strategic economic cooperation. Asian countries that are wary of the securityimplications of China’s rise may warmly welcome a heightened US presence in the region. The TPP could prove to be a key factor in the USChina rivalry over economic leverage in the region, and a tool for Asia’s other economies to hedge against the rise of China”Asian vitalityChina, one of two regional anchors along with India, has long surpassed Germany as the world’s leading exporter. Asian firms are among the world’smost valuable brands, Japanese and Korean cars are ubiquitous on European roads, American technology giants like Apple source billions of dollars’worth of advanced components from Korean and Taiwanese suppliers, and Chinese firms are buying into German, British and American companiesacross a slew of sectors.

“Sri Lanka cannot forget that it lies in an enviable geographical location that connects this rising Asia with the rest of the world. While looking atlatching on to rising Asia, Sri Lanka cannot ignore countries to its West – whether it is in Africa, the Middle East, or traditional partners in theindustrialised West. Although many are quick to assume it, the countries in Europe and North America are not in systemic decline. They will continueto be poles of innovation, creativity, consumption, and global leadership, and failing to recognise that and navigate accordingly, will only be to SriLanka’s peril“Western multinationals and consumer brands have flocked to Asian cities to gain a foothold in the growing markets, as Asians aspire to a Westernstandard of living, and increasingly, can well afford it. Industry estimates suggest that Asian consumers account for half of the $ 80 billion globalluxury brands market.Technology diffusion is not only enabling Asian firms to compete better on a global scale but also giving rise to disruptions in consumption patternsthrough ecommerce. China’s Alibaba online marketplace, for instance, now boasts 180 million users, handled around US$250 billion worth oftransactions in 2013 (more than eBay and Amazon combined), and has filed for what is arguably the world’s largest technology IPO valued at close to$ 20 billion (higher than that of Facebook’s).

Meanwhile, intraAsian trade is proving to be a most vital element of Asia’s economic vibrancy, postcrisis. Exports to China by the top10 exportingASEAN countries now exceed their exports to either the NAFTA region or the EU.Newer emerging Asian economies are also showing promise. The Philippines, for example, is making great strides away from being “the sick man ofAsia”, following sweeping reforms by the current President, Benigno Aquino III. GDP grew by 7.2% in 2013, the fastest in ASEAN, and this toodespite the devastation wreaked by Typhoon Haiyan. Philippines sovereign debt was upgraded to investment grade and the country rose up 26 places inthe Global Competitiveness Index (since 2010) and 30 places in the Doing Business Index.But the rise of Asia is by no means a foregone conclusion – many factors will influence the future trajectory of this rise. Aside from countryspecificchallenges too numerous to be reviewed here, some wider challenges merit discussion.Inclusive growthThe rise in wealth and affluence in Asia is startling, but not surprising given the rapid growth seen there. Industry estimates suggest that Chineseconsumers lap up 10% of worldwide luxury sales and East Asian shoppers account for between onefourth and half of all purchases at designer stores

in Europe.Just 60 years ago, the picture in Asia was very different. It was the world’s poorest region. Strong growth has lifted millions of out poverty, but muchremains to be done. The ADB estimates that around 1.7 billion people in Asia still live on less than $ 2 a day, and roughly 700 million on less than $ 1a day.

“Sri Lanka cannot forget that it lies in an enviable geographical location that connects this rising Asia with the rest of the world. Whilelooking at latching on to rising Asia, Sri Lanka cannot ignore countries to its West – whether it is in Africa, the Middle East, or traditionalpartners in the industrialised West. Although many are quick to assume it, the countries in Europe and North America are not in systemicdecline. They will continue to be poles of innovation, creativity, consumption, and global leadership, and failing to recognise that and navigateaccordingly, will only be to Sri Lanka’s peril”Disparities exist among subregions of Asia as well – poverty remains highest in South Asia and is lowest in East Asia (driven mainly by China’sslashing of poverty from 85% in 1990 to 30% by 2008).Income inequality, too, is a challenge for the region.According to further ADB estimates, in the 12 countries that account for more than fourfifths of Asia’s population, income disparities worsened overthe last two decades. During this period, the Ginicoefficient (measuring inequality) in Asia has deteriorated sharply from 38 to 47.While the glitzy Chinese city of Shanghai has achieved living standards similar to Portugal, the number of poor in just eight Indian states is more thanin 26 of the poorest African countries combined.Ageing populationAnother characteristic of the rise of Asia is the seismic shifts in its demographic structure. Asia is ageing at an unprecedented pace. Emerging evidencesuggests that this increase in the ‘ageing population’ will occur more rapidly than in the West, giving rise to numerous public policy challengesincluding financing of healthcare and social welfare (pensions, etc.).Some countries like Japan and South Korea will experience this more rapidly than others like India and Indonesia. China will be particularlychallenged, as its onechild policy will cause a sharp rise in oldage dependency. Slowly, the demographic dividend – which helped many of theseAsian countries attain rapid growth – will wane.Rapid urbanisationAnother prominent feature of the Asian growth has been the rapid urbanisation of Asian cities, characterised by extensive ruralurban migration,heightened pressure on urban infrastructure like transport, water, housing and sanitation, and the concomitant rise in pollution.While the more newlyindustrialised countries in Asia such as China and India still do not have a majority urban population yet, the number of urbaninhabitants is growing fast. It is estimated that by 2025, over half of the population in Asia will be urban.Environmental pressuresLinked to this is the growing concern around the environmental outcomes of rapid growth. It is now widely accepted that Asia cannot grow under thesame ‘pollute now clean later’ pattern as the West. Certain parts of Asia, especially countries located in the tropical region and in islands, are amongthe most vulnerable to impacts of global climate change.Asia is facing serious environmental degradation issues linked to poor land use management, unsustainable energy consumption, and overuse of naturalresources. All of these appear to be influencing changing weather patterns, including freak events. The frequency and the intensity of natural disastersin Asia are showing an increasing trend. During the period 1980 to 2009, over 38% of global economic losses due to natural disasters were reportedfrom Asia.Regional tensionsAcross Asia, the geopolitical landscape is littered with hostilities. Some of the most critical ones are the maritime tussles in the South and East Chinaseas, particularly between Japan and China, linked to the territorial claim of the Senkaku/Diaoyu islands; between China and the Philippines, linked todemarcations of the Exclusive Economic Zone in the sea; and among China, Vietnam, Brunei and Malaysia linked to the Spratly Islands. Heightenedhostility around the former in 2012 caused China to impose a boycott on Japanese goods, resulting in a 20% yearonyear decline of Japanese exportsto China. In the aftermath, Japanese firms sharply cut their foreign investments in China (from 13% of total FDI to 7% in 2013).Meanwhile, South and North Korea continue to be at loggerheads, oscillating between good relations and dangerous escalations. Farther West in Asia,the hostilities are dominated by India and China as well as India and Pakistan. In the former case, the two countries have longstanding tensions aroundthe control of South Tibet (currently in India’s Arunachal Pradesh) along the disputed ‘McMahon Line’. In the latter case, the conflict around Jammuand Kashmir has been the overwhelming narrative shaping the two countries’ relations, and by extension, the region’s.While India continues to be an influential anchor in South Asia, it is China that has emerged as influential across the region through strategicinvestments and assistance. Some argue that China’s rising preeminence in Asia could be countered by a growing US engagement in the region –rekindled by the Obama administration’s “pivot to Asia” strategy. The muchtouted TransPacific Partnership (TPP) appears to be the key tool in this.It is not a typical trade deal – it straddles trade, investment, and strategic economic cooperation. Asian countries that are wary of the securityimplications of China’s rise may warmly welcome a heightened US presence in the region. The TPP could prove to be a key factor in the USChinarivalry over economic leverage in the region, and a tool for Asia’s other economies to hedge against the rise of China.Asian integrationAll of these developments have unravelled how far Asia has to go in terms of a common vision around its ascendance. The closest effort towardsbridging this is of course the moves by ASEAN to establish a fullyfledged ‘diplomatic and economic community’ by 2015. But one cannot forget thatthis is limited to just a subset of Asian nations. Asia would need an ambitious regional effort of the type seen in Europe.But unlike the ‘European project’, few political leaders have come out as willing to stake their careers to further an ‘Asian project’. Groups of countriesswing between fear/suspicion of, and mutual gain from, the two regional giants – China and India.Little regional cooperation on security and military affairs prevail. There is also a notable absence of panAsian institutional arrangements andagreements (similar to the European Commission) to further all these agendas in a manner that is strong, consistent, and widely accepted. Nevertheless,cooperation on trade and investment appears to be growing ever stronger.While much of the attention is on the TPP, another panAsian trade deal is taking shape more quietly – the Regional Comprehensive EconomicPartnership (RCEP). As Ganeshan Wignaraja, Director of Research at the ADB Institute, remarked at a recent IPS seminar: “The RCEP could createthe world’s largest trading bloc and have significant implications for the world economy.”The RCEP bloc – that includes three of the largest economies in the world, China, India and Japan – would represent half of the world’s population,nearly onethird of global GDP and global trade, and onefourth of global FDI inflows. The RCEP, an example of “megaregionalism”, has thepotential to not only bring large gains to Asia, but also carve even stronger position for Asia in the world economy.Sri Lanka must take a strategic view of Asia and beyondSri Lanka has much to learn from what has and continues to take place in Asia. This is what the forthcoming IPS flagship annual report, ‘Sri Lanka:

State of the Economy 2014’ takes a look at. It argues that, while the Sri Lankan context is no doubt different, and following the Asian trajectoryidentically may not be feasible or desirable, there are salutary lessons to draw from Asia’s rise, both for Sri Lanka’s own development journey but alsoin understanding how to best latch on to it.Amidst this, however, Sri Lanka cannot forget that it lies in an enviable geographical location that connects this rising Asia with the rest of the world.While looking at latching on to rising Asia, Sri Lanka cannot ignore countries to its West – whether it is in Africa, the Middle East, or traditionalpartners in the industrialised West.Although many are quick to assume it, the countries in Europe and North America are not in systemic decline. They will continue to be poles ofinnovation, creativity, consumption, and global leadership, and failing to recognise that and navigate accordingly, will only be to Sri Lanka’s peril.

(Anushka Wijesinha is a Research Economist at IPS. This article is based on the ‘Policy Perspectives’ chapter of the forthcoming ‘Sri Lanka: State ofthe Economy 2014’, the IPS flagship annual publication. To comment and to view references, visit ‘Talking Economics’www.ips.lk/talkingeconomics)

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