Can Asia really fulfil its promise?
SCMP May 8 2011
Maybe this is not the Asian century after all. After 40 years of global outperformance, Asian success has become a given, with China now providing the leadership once shown by Japan, South Korea, Taiwan and Southeast Asia.
But maybe it is time to think again. Even the Asian Development Bank has been doing just that. In a look at Asia over the next 40 years, it comes to the conclusion that the region as a whole will have to raise its game. If it does, its share of global gross domestic product could reach 50 per cent by 2050, or almost equal to its global population share by then - 53 per cent. If not, its GDP share may rise only slightly from 27 per cent now.
There are several reasons the Asian promise may not be fulfilled. Take the current first-tier economies, the rich Asia of Japan, South Korea, Taiwan, Hong Kong and Singapore. Their combined working-age populations are peaking about now. Their actual workforces may grow for the next decade or so as people retire later or they accept permanent migration. But fertility rates will have to change a lot, and soon, if ageing is not to outstrip ability to keep raising income levels through innovation and investment.
Then there is mainland China. For the next decade, its high savings rate and improving educational standards may ensure that its worker productivity keep growing by 6-7 per cent a year so that the absolute size of its economy keeps growing faster than any other country. Its demographic challenge of a rapidly ageing population will not hit until around 2030, by which time fertility may have picked up again. But, in any event, China is about to face what is known as the middle-income trap. Years of fast growth through urbanisation and industrialisation hit a ceiling as the potential for moving people from farms to factories dwindles while skill shortages or institutional obstacles prevent further big gains in productivity. Brazil has been in this trap for 50 years. Thailand and Malaysia may also be in it now. Can China avoid the trap?
Sheer size may help and education and savings certainly do. But the Soviet Union had those too and got stuck at middle- income levels in the 1960s after threatening to catch up with the US. China has a more open economy but it also has huge income imbalances and governance issues. These are far more serious in mainland China than they were in Japan, South Korea or Taiwan when they made the leap from middle- to upper-income levels.
The ADB rightly contends that middle-income Asia must take income distribution more seriously for economic reasons, not simply for social justice reasons. It also contends that governance is getting worse in some important countries, with more corruption and less transparency and accountability. These are not only necessary in themselves but, with the growth of communications, a failure to provide them can lead to social unrest and economic damage.
As for the poorer and mostly younger parts of Asia - India, Bangladesh and Pakistan - their demographics can provide a dividend of a young and plentiful workforce and keep Asia as a whole a growth leader well past 2050. But they cannot do so until they invest much more in education and health. According to other estimates, because of poor education, low income and savings levels, India's per capita income growth looks likely to lag behind a slowing China for at least a decade.
Asia also needs to do a lot more to help itself through regional co-operation on issues from trade to maritime security, and by contributing more to keeping global markets, on which it has relied, open.
Co-operation is particularly weak in South Asia and between South and East Asia. Yet this region has 40 per cent of Asia's population and will have 45 per cent or more by 2050. In sum, Asia's century may have started in 1950 and be over by 2050.