Asia is taking steps to insulate its economies from another global slump, even as it wins the race to recover from this one.
As countries such as China and Singapore experience economic growth that is the envy of other nations that have been crippled by the recession, Asian policy makers and business leaders are seeking to lessen their reliance on the Western consumer.
China's economy grew an impressive 7.9 per cent annualized in the second quarter, according to data released on Thursday, fuelling hopes that Asia will be the first region of the world to recover.
“The economy is rebounding and the strength of the recovery is increasing,” said National Bureau of Statistics spokesman Li Xiaochao – though he cautioned that China is not yet out of the economic woods.
“The difficulties and challenges in the current economic development are still numerous,” Mr. Li told a news conference on Thursday, upon the release of details of China's second-quarter gross domestic product growth. “The basis of the rebound of the people's economy is not stable.”
China's numbers, which exceeded independent projections of about 7.5-per-cent growth, come on the back of a startling recovery in Singapore showing a 20.9-per-cent increase in gross domestic product over the previous quarter; a revised forecast from South Korea's central bank that its GDP would decline a modest 1.6 per cent in 2009 before increasing next year; and indicators that even Japan – experiencing its worst recession since the Second World War – has seen a bottoming out in its decline.
The combination of China's increased imports (mainly in raw materials and intermediate goods used in production) and consumption is seen helping regional economies get back on line, as well.
“Everybody is appreciating the pickup in China. They carry a bigger weight on the world stage than ever before and I think it's fair to say their growth is boosting demand for exports elsewhere,” said David Cohen, Singapore-based director of Asian forecasting for Action Economics.
Warnings remain, however, that China's centrally controlled economy and its massive state spending on infrastructure programs, alongside record-level bank loans, mean this level of growth isn't sustainable without increased consumer demand at home and abroad.
New bank lending in China this year is expected to reach a record nine trillion yuan (about $1.47-trillion), money used by companies to invest in new equipment and to pay workers otherwise at risk of layoff. The massive level of lending is also raising fears that bad loans could hamper China's recovery.
More significantly, the drop in U.S. consumer demand has brought home to Asian governments and companies the need to develop domestic markets and local economies beyond export-driven growth, to insulate themselves from future downturns.
Regional efforts are fledgling so far, such as expanded rail lines between Thailand and Laos, as well as efforts to bolster regional trade, including between traditional rivals China and Japan.
“For other Asian economies, really strong import growth [in China], going forward, is good news,” said Shen Minggao, senior economist at the leading Beijing-based business magazine Caijing.
Mr. Shen said that although the current global crisis has inspired regional discussions, it will take years to cement a system to replace Asian dependency on trade with the West.
“Some actions are going on but it still takes time because, unless China's domestic demand and consumption take the lead in growth, China does not have the capacity to pull other economies out of the current crisis. But it depends how long we are talking about,” Mr. Shen said. “If we are talking a decade or longer, then interactions with the Chinese market should help reduce dependence on external markets,” he said.
Japan, which has the world's second-largest economy but is mired in recession, is looking to China – the world's third-largest economy and growing – to replace the United States as a major importer. Despite historical tensions between the two, China is already Japan's second-biggest destination for exports and the country's top two-way trade partner.
“We must diversify the export market and we must develop and expand the domestic market,” Akira Kojima, a trustee and senior fellow with the Japan Centre for Economic Research, said in a recent interview.
“In the long term, gradually, China and the Asia region can be a big engine for global growth, not depending on the engine of export,” he said.
In April, a summit meeting of Japanese Prime Minister Taro Aso, Chinese President Hu Jintao and Chinese Premier Wen Jiabao resulted in pledges to co-operate on boosting domestic consumption in both countries and to guard against protectionism in trade.
South Korea has also taken the lead in pressing for closer ties between east Asia and the Association of Southeast Asian Nations, expanding free-trade agreements with its members.
Work is also under way to ease transportation of goods among countries, focused primarily on links between China and its southern neighbours in a kind of modern Silk Road route of railways and highways.
China has announced plans to establish a $10-billion (U.S.) investment fund to promote infrastructure development, following on current projects to improve roads for truck traffic between its southern provinces and the rest of Southeast Asia.
And last month, Thailand, Laos and Vietnam agreed to permit cargo trucks to cross the three countries without tedious unloading and inspection, to make shipping faster and less costly.
Railway improvements are also under way under the auspices of the Trans-Asian Railway, a decades-old plan revitalized as a crucial link for the transport of people and goods. In March, Laos and Thailand opened their first rail link, over the Mekong River.
Special to The Globe and Mail
