Rising Asia

As long as row over islands in South China Sea involving China and some of its neighbors does not develop into a serious conflict, ownership claim by Japan and China over Senkaku/Diaoybu islands in East China Sea does not flare into a war- like situ

Feb. 8, 2013, 5:45 p.m. Published in Magazine Issue: Vol: 06 No. -17 Feb 22- 2013 (Falgun 11, 2069)

Asia’s growth potentiality and the way some countries in Asia are growing at a commendable pace, facing bravely both natural and man-made crises from time to time, made many to believe that the region would not take too long to emerge as a global economic power. Of late, observers are being more specific in telling that Asia will be above US and Europe economically in about two decades.Recently, a very senior official of IMF observed that Asia will continue to grow and it has become a matter of common knowledge that it will surpass G7 nations by 2030 to become the biggest force of the world economy. Countries in Asia have to show interest in managing global economic situation, observed the official. To corroborate this assertion, it would be appropriate to delve a bit into the recent performance of some notable economies in Asia that have also shown considerable resilience to crises.

Ending speculations that China would grow by less than 6 percent in 2012/2013, Chinese economy began its rebound in the last quarter of 2012 when it grew by7.9 percent. Chinese authorities are worried that the excessive liquidity, created as a result of aggressive monetary easing by some countries, may find its way into the country. It is understandable that financial markets are flooded with funds and investors are as usual in search of higher return on their capital. An economic rebound in the World’s second largest economy and renminbi’s appreciation could easily facilitate large flows into China of speculative hot money, which could stir up inflation and fuel asset bubbles. Weak economies and low interest rate there as a result of quantitative easing, has already led to a large inflow of capital as is evident by the fact that net foreign exchange purchase by Chinese banks from individuals and corporate is on the rise. It has become crystal clear that the crisis of 2008 could not arrest the growth momentum of the Chinese economy for long and investors have continued to repose their confidence in the economy that is poised to perform better, placing greater reliance on domestic demand instead of exports. While continuing to invest more than 40 percent of its annual gdp of $ 9 trillion, China is expected to be the major investor to the world. Another major economic power of the world, India, slowed down a bit when its impressive growth of 8 to 9 percent achieved during 2004/2010 fell to 5.6 percent in recent times. This rate itself is not at all disappointing when compared with rates of growth of economies all over the world. Only China and Indonesia among the large economies are growing at more than 5 percent. Further, Indian authorities are confident that once fiscal deficit is shrunk, cycle of investment will restart and high growth will be achievable. It may be noted that fiscal deficit in India, 5.8 percent of gdp, probably the highest in Asia, is largely on account of food, fuel and fertilizer subsidy. Authorities plan to realize savings of up to 60 percent in some cases through better targeting and efficient delivery of subsidy only to the deserving. Another advantage that India has is its young population whose average age will remain 29 even by 2020.This restless, questioning and aspirant young population along with strong domestic demand can help India move up the ladder of economic prosperity in an accelerated manner. Southeast Asia is also growing well, notable being the growth of Indonesia, which grew in excess of 6 percent annually in the last three years, attracting global interest in the resource-rich nation. A rising middle class that is consuming more, its resources and a young population are Indonesia’s assets. Domestic consumption which account for more than 50 percent of the economy, helped the country attract a record $22.8 billion in foreign direct investment in 2012. Despite some serious concerns related to fuel subsidy, infrastructure problems and its first annual trade deficit in 2012, this largest economy of Southeast Asia, which showed resilience to the global slowdown, is likely to march ahead in terms of economic prosperity. Thailand that suffered the most during the Asian crisis of 1997 has been moderately affected by the global meltdown of 2008 in that its export of goods and services, accounting for70 percent of the economy, declined by 2.4 percent in 2009 but it did not lose much time in expanding exports by 7.8 percent in 2010.Thailand is trying to reduce its reliance for exports on traditional markets eg EU, Japan and USA and aims to increase exports to dynamic emerging markets. In 1997, shipments to traditional markets accounted for 50.5 percent of the country’s total exports, which fell to 29 percent in 2012.Monitoring the global situation, Thai authorities have succeeded in changing its trade structure. Thailand’s current fear is that the interest rates differential between crisis-hit rich countries and Thailand and external perception of risk that is likely to encourages investment on assets in a developing country could lead to massive flows of capital into Thailand, causing the baht to further appreciate. Regulatory protectionism could soon be in place in countries like China and Thailand to check the flow of speculative hot money. Expected to grow by 6 percent in 2013, Thailand is bound to remain a proud constituent of tomorrow’s very prosperous Asia. South Korea is already a strong economic powerhouse of global recognition and ailing Japan under the leadership of newly elected Prime Minister Abe is all set to rejuvenate the deflationary economy adopting different measures including quantitative easing. Malaysia has a strong economy and Vietnam, still a communist state, has progressed a lot economically. With liberal policies in place and some more in the offing, it seems resource rich Myanmar would not take too long to attract both bilateral and multilateral funds in a huge scale. Tiny Himalayan Kingdom, Bhutan, has become a superb example to show to the world how a country can grow economically while keeping its environment and tradition intact. Civil war-devastated Sri-Lanka that pioneered South Asia’s economic liberalization some three decades ago has been growing impressively in recent times: 8.3 percent in 2011.This impressive growth is attributed to bold private sector investment and forward thinking macroeconomic policies. As long as row over islands in South China Sea involving China and some of its neighbors does not develop into a serious conflict, ownership claim by  Japan and China over Senkaku/Diaoybu islands in East China Sea does not flare into a war- like situation and taking over the management by China of a strategically important port (Gadara) in Pakistan, much to the dislike of India, does not seriously jeopardize the progressing economic cooperation between these countries(mainly China and India),economics is not likely to take a back seat to anything else in the region and Asia’s march towards the top is likely to continue unhindered.

Let Nepal not be singled out as a country where democracy and economic liberalization could not bring positive changes to arrest the allround deterioration in the country’s condition.Expectedly,positive developments seem to be taking place after the reelection of Prachanda as chairperson of UCPN(Maoist) by the party’s general convention held in Hetauda recently. Political leaders should not forget that their tarnished image can improve a bit if they let an unchained election government, be it headed by Chief Justice Regmi or anybody else, come to shape as soon as possible.

Dr. Tilak Rawal

Dr. Tilak Rawal

Dr. Rawal is former governor of NRB.

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