After a Year of Challenges, Asia Emerges Stronger than Ever
January 4, 2012
In 2011, Asia grappled with a host of devastating shocks, both natural and man-made. As challenging and economically harsh as they have been, they have provided an opportunity for Asia’s emerging economies to dramatically assert their economic resilience and regional influence.
Despite a global economy plagued by low economic growth, high unemployment rates, and threatening debt levels, Asia has emerged as a credible long-term partner for the United States and the European Union, shedding its long-familiar image as merely a trade partner. Driven by emerging super-powers like China and India, Asia in 2012 is more self-confident in positioning itself as a global economic, financial, and political power.
A Year of Challenges
In 2011, two major natural disasters underscored Asia’s place at the center of global trade. March’s massive 9.0 earthquake off the northeast coast of Japan and subsequent tsunami constituted the most expensive natural disaster on global record, with a total estimated cost of $235 billion, according to the World Bank. In Thailand, monsoon flooding over the past six months has resulted in approximately $45 billion in economic losses thus far. In both cases, global supply chains were severely disrupted, sending ripple effects through the global economy.
Additionally, a stagnating eurozone and anemic U.S. recovery have created market anxieties over the strength of Asia’s own recovery. While Asia’s emerging economies are still on a growth trajectory, slumping global trade tied to a potential slide of the eurozone and the U.S. economies back into recession could slow Asia’s growth significantly. At the same time, Asia’s two largest emerging economies face serious domestic challenges of their own. China may find itself face-to-face with its own real estate bubble in 2012, and critics are quick to point out that consumer spending and household consumption lag far behind overall growth. Meanwhile, India’s large fiscal deficits threaten to derail its already slowing recovery. The government now faces the stark choice of raising taxes, which may further dampen growth, or cutting popular programs for the poor.
Asia Rising Internationally
Despite the enormous challenges that these and other events have presented, they have also proven how critical Asia is to the international economy. With a meager 1.3 percent growth forecast for the U.S. and 1.2 percent contraction expected in the eurozone in 2012, the west is increasingly turning to Asia to help lift ailing western markets out of their protracted stagnation. As the world’s second largest economy and largest holder of foreign exchange reserves worth an estimated $3.2 trillion, China finds itself in a position of strength in the face of eurozone woes. While China expressed interest earlier in the year to contribute to the IMF’s eurofund and to buy eurobonds, it more recently indicated that it would not participate in the latest round of fund-raising and would not be involved in a direct bailout. Instead, China is looking inward for ways to deal with a potential local debt crisis precipitated by the housing boom. Nevertheless, the fact that the west is increasingly looking toward emerging Asian economies in general and China in particular underscores their increasing importance as major international players.
Asian countries are also finding themselves in positions of influence over important trade and investment matters. In November 2011, Korea ratified the U.S.-Korea Free Trade Agreement, and following the latest World Trade Organization (WTO) Ministerial talks in December, governments are increasingly calling for India and China to take a larger leadership role in breaking the impasse in the Doha round of trade negotiations. In fact, India has agreed to host the trade ministers from all of the emerging BRIC nations in March of 2012 to discuss the Doha Round and how they can play a pivotal role in pushing the negotiations forward.
With increased wealth and power comes greater responsibility, and many of Asia’s former aid recipient countries are now recognizing this as they become influential donors themselves. Though sometimes characterized as “emerging donors,” many Asian countries have a long history of aid and development cooperation. The Fourth High Level Forum on Aid Effectiveness (HLF4), convened in South Korea at the end of 2011, drew further attention to the role of non-Development Assistance Committee member countries in aid activity, which now constitutes about half of total aid – up from about 20 percent just two decades ago. A highly visible actor across Asia and Africa, China also publicly articulated its foreign aid policy for the first time in 2011 in an effort to increase transparency and to address criticism that its initiatives are driven by a hunger for natural resources. As traditional donor countries contend with domestic constraints, Asian sources of aid have the potential to fill much-needed gaps.
Asia in Search of more Regional Cooperation
As their influence has grown internationally, Asian nations are also realizing the importance of increased economic cooperation in the region to counterbalance global instability. Asian nations are still heavily dependent on exports, particularly to the west, which remain volatile and vulnerable as a result of the dampened economic conditions of the United States and the eurozone. Realizing the renewed importance of regional markets, regional bodies like ASEAN are opening up talks in 2012 to harmonize trade deals among its member countries and other partners like India and China. Such harmonization will act as a counterbalance to the U.S.-promoted Transpacific Partnership Agreement (TPP), which includes Vietnam, Singapore, and Malaysia.
In South Asia, a promising new round of trade talks are taking place between India and Pakistan under the South Asia Free Trade Agreement (SAFTA) to extend tariff concessions between the two countries. Such measures are important in the region, as South Asia is the least economically integrated sub-region in Asia.
Overcoming Future Challenges Domestically and Regionally
Asia has gained prominence on the global stage and has begun to take assertive measures as it steps into its increasingly influential international role. However, if Asia is to take full advantage of this increased international visibility and responsibility, countries will have to strengthen their domestic economies and become more integrated as a region.
Domestically, Asian countries need to generate better conditions for more inclusive growth, which will reduce poverty and offer citizens more broad-based access to economic opportunities. Regionally, countries must work together to gain consensus on matters of pressing consequence, such as trade, human resources and migration, and disaster management. Common issues such as rapidly urbanizing landscapes and ever-growing demands on a finite supply of energy sources also have serious implications that must be mutually and collaboratively addressed. As they work toward greater regional cooperation, Asian leaders, policy-makers, and economic actors will also have to accelerate their efforts to reduce disparities in capacities and infrastructure among Asian countries and narrow the development gap within Asia.
In the long run, these issues will be critical to the continued and sustainable growth of Asian countries. Indeed, the future of the world is Asia’s to shape.
Véronique Salze-Lozac’h is The Asia Foundation’s director for Economic Development Programs and can be reached at VSal[email protected]. Nina Merchant-Vega is assistant director, Katherine Loh is a program fellow, and Reid Hamel is a program associate, all with The Asia Foundation’s Economic Development Program. The views and opinions expressed here are those of the individual authors and not those of The Asia Foundation.
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