HONG KONG — The 21st century is supposed to be the Asian century. But it is looking increasingly possible that the continent is actually in the last phase of its period of economically outperforming the rest of the world. Its future needs to be measured not in terms of its recent past, but in light of the problems it faces and the economic potential of other regions.
The assumption has been that the successes of Japan, South Korea and Taiwan are being mimicked by the Chinese juggernaut and will be followed by the Indian one, pushing Asia to its rightful place in the world, with the income to match its half share of the global population. But it is not so simple. Rich Asia, middle-income Asia and poor Asia all face huge problems that will make it difficult to sustain the continent’s leadership in economic growth rates much beyond the next decade.
The Asian rich face even bigger demographic challenges than their counterparts in the West. South Korea, Taiwan, Hong Kong and Singapore are at most only a decade behind Japan in aging and have even lower fertility rates. Demographers suggest that over the next decade Japan will see some growth in its workforce as retirement is delayed and more women work. But later retirement is also coming in the West, where fertility rates are higher and demographic change has been less abrupt. Thus the West’s relative economic decline should be slower than that of East Asia.
The problem for middle-income Asia, including China, is even more challenging. Can these countries make the leap to top-tier status that has thus far eluded Latin America? China might seem to have the best chance because it is pouring money into higher education and has the savings to invest in the newest technology. Many analysts believe that, at least for the next decade, these efforts can propel growth of 7 percent, even thought the workforce is static. But as the Asian Development Bank recently noted, two other qualities are needed to advance to the top tier: good governance and more equal income distribution. The bank suggested that middle-income Asia has been doing badly on both counts, with standards of governance actually falling in some countries.
China is not winning its battle with official corruption, and the state’s huge role in the economy may smother innovation. Japan, South Korea and Taiwan all set an example of good income distribution that is not being followed by China or Southeast Asia, where patterns look more like those in Latin America, a region which has been stuck in the middle-income trap for decades, partly because of poor income distribution and low standards of public education. Both those deficiencies are evident, for example, in Malaysia and Thailand.
Improved income distribution is necessary if demand is to grow rapidly and quality education is to be available to all. Middle-income Asia has also made inadequate effort to address pollution and climate change, to advance regional trade and support the open global trading system from which it has so much benefited. Demographics too are mixed, with China in particular beginning to age rapidly.
The burden of overall Asian growth will increasingly have to be borne by South Asia, which by 2050 will account for about 45 percent of the continent’s population. But the “demographic dividend” of a youthful population cannot be reaped while poor use is made of human resources. India lies at the bottom of Asia by overall education measures, below even Pakistan and far below most of Africa and the Middle East. Bangladesh, despite its poverty, now surpasses both India and Pakistan on employment and empowerment of women. Savings rates in the region are well below those in East Asia and are likely to remain so until the median age of the population increases significantly.
As a whole, Asia still has lots of promise. But challenges from other regions persist. Who’s to say that Egypt and its neighbors cannot build economic success on the foundation of political change? Or that Brazil won’t overcome its difficulties and deliver on its economic promise. Or that population growth and sheer energy won’t make Africa the global growth center by 2030. It’s time to stop talking about the Asian century before it has arrived and focus on what is needed to make it a reality.