With the balance of economic might shifting from West to East, Asia’s regional experts are optimistic about continued robust growth in Asian economies but also warn of several political and economic downside risks that could cause many countries in the region to fall into the middle-income trap.
Bank DBS CEO Piyush Gupta and chief economist David Carbon briefed a group of around 500 businesspeople and analysts attending the DBS Asian Insights Conference in Singapore on Friday on how the growing power of Asian giants (notably China, India and Indonesia) would change the structure of the global economy.
Even with growth in China declining to around 7.6 percent and the expansion in India and Indonesia also moderating, Asia (excluding Japan) is still set to put three eurozones (in economic size) on the global economic map within 25 years, Carbon noted at the conference’s first plenary session.
The growth of China’s US$8.5-trillion (based on market exchange rate) economy has slowed from nearly 9 percent as it gradually rebalances and undergoes structural transformation. The expansion of Indonesia’s $900 billion economy has also declined to below 6 percent growth and India’s $2-trillion economy to less than 5 percent.
“But Asia [excluding Japan] with a combined gross domestic product [GDP] of $16 trillion, or about similar to the US economy, will continue to be the main locomotive of the world economy,” Carbon added.
However, the four panelists at the plenary session warned that political divisiveness, inadequate pace of reform measures and widening inequality in income distribution and asset ownership could stifle growth and lead major Asian economies into the middle-income trap.
Singapore’s Deputy Prime Minister and Finance Minister Tharman Shanmugaratnam shared the panelists’ views on rising Asian economic power, but cautioned that the shifting of economic gravity from the West to the East was the easy part of the transformation.
“But in the long term, economic growth cannot continue to depend mostly on domestic demand. Of more importance now is how to improve the supply-side economy, increase the productivity of workers and improve the way business is done,” Shanmugaratnam noted.
This second phase of transformation is even more difficult because it requires structural reforms that are often politically complex and challenging, the Singapore finance minister added.
This is relevant especially for Indonesia, with its a large youth population, and India, as these two countries have to work harder to increase productivity, otherwise demographic dividends will not materialize, he added.
“Without better education and training of their young population to enable them to get productive jobs, Indonesia and India will continue to underperform their economic potential,” Shanmugaratnam asserted.
Two of the panelists at the plenary session, Jusuf Wanandi, co-chair of the Pacific Economic Cooperation Council (PECC), and Tommy Koh, Singapore’s ambassador at large, cited the tensions between China, now the world’s second-largest economy, and its neighbors over the South China Sea as a major political downside risk to sustainable growth in the region.
“Indonesia has been enjoying good relations with China and our bilateral economic ties have been quite strong, but China seems to be more assertive now with its rising power,” added Jusuf who is also vice chair of the board of trustees of the Jakarta-based Centre for Strategic and International Studies (CSIS) Foundation.
“How China with its rising economic power will behave toward its neighbors will have an impact on the future economic growth and integration in the region,” Koh pointed out.
The two other panelists, Duvvuri Subbarao, former governor of the Reserve Bank of India, and Li Mingjiang, coordinator of the China Program at the S. Rajaratnam School of International Relations in Singapore, pointed to the need for a continued high pace of structural reform in Asia, otherwise many major economies in the region would remain trapped in the middle-income club.
Subbarao and Mingjiang shared the view that high Asian growth would be sustainable only if reform and infrastructure deveopment was accelerated and clean governance strengthened.
The DBS Asian Insights Conference also held separate sessions on other economic issues such as the impact of digital technology on consumer behavior, urbanization, equity and property market outlooks and China’s renminbi internationalization.
The first plenary session was supposed to focus on the economic issues related to the Asian giants, but participants at the meeting and journalists at a later news conference bombarded Jusuf with questions about the upcoming presidential election in Indonesia and how the outcome would affect future economic policies.
“To be honest with you I am a partisan supporter of Jokowi [presidential candidate Joko ‘Jokowi’ Widodo], so please be critical about what I say. But the stark reality is I don’t want authoritarian rule back in my country,” Jusuf said.
He said the development concepts of both candidates were strikingly different: While presidential candidate Prabowo Subianto aspired to curb democracy and return to a Soeharto-type regime, Jokowi was strongly committed to strengthening democratization.
Optimistic about Asia"s rising power, analysts also warn of risks