Coming to terms with the Asian century

Author: Peter Drysdale, Editor, East Asia Forum

No matter how one looks at the numbers, the Asian economies are bound to have a central role in the global economy this century.

This fact has many implications. First, it suggests where the opportunities for growth are going to be in the world economy over the coming decades.

Asian economies are bound to have a central role in the global economy this century. The Asian century is here. (Photo: AAP)

Already the Asian economies, including Japan, South Korea, China and the other East Asian economies such as ASEAN and Australasia as well as South Asia, account for almost 40 per cent of global output. The Asian century is here. Within Asia there are already half a billion consumers who, by OECD reckoning, are among the world’s middle class, compared with a billion in Europe and North America. On conservative estimates of relative income and population growth, the middle class will grow to 3.2 billion in Asia by 2030 and remain a bit under a billion in Europe and North America. Second, the remarkable change in the structure of the world economy that has seen economic weight realign roughly with population weight after 200 years of being out of sync, is being accompanied by Asia’s growing political influence. The rise of China, and also India, challenge the role of the established industrial powers in Europe and North America in a number of ways.

Already managing economic crises has required incorporation of the emerging powers in Asia and other parts of the world into global economic governance, notably with the establishment of the G20 heads of government summit after the global financial crisis of 2008. The post war Bretton Woods international system is under review. International financial and currency arrangements are changing in ways that are difficult to predict. The post-Cold War political and security architecture is under scrutiny, with the rise of China and the new powers. Asia’s rise is also influencing the centre of cultural gravity. Countries not only within the region but around the world are adjusting in various ways and with varying degrees of purpose to these realities.

As Jayant Menon, at the Asian Development Bank, points out in this week’s lead essay from the latest East Asian Forum Quarterly (EAFQ), ‘Asia’s rise as an economic force over the past 40 years is one of the most successful development stories of modern times. If Asia can continue to expand at the robust rates of recent history, it could account for more than half of global output in 2050. Average per-capita incomes could rise above US$40,000 (in constant purchasing power parity terms), similar to that of Europe today, and there may no longer be any poor countries in Asia’.

But, Menon also warns, if this is indeed to be Asia’s century, then there are some significant near- and long-term problems that Asia will have to deal with along the way. Strategies and policies that were effective in the past when Asia was largely a low-income, capital-scarce region, far less important in the world scheme of things, are less likely to work so effectively in the future.

Asia, Menon argues, needs to lift its remaining millions out of poverty, and the pattern and quality of growth will be important. If growth continues to increase inequalities and polarisation within countries, then social and political cohesion will be put at risk. Rising inequalities between countries could result in mass migrations and even conflict. A number of countries are also finding it difficult to break out of the middle-income trap. So they need investment in human capital and R&D to make the transition from ‘catch-up’ to ‘frontier’ entrepreneurship. They also need a structure of governance that will support these changes and the socialising of creativity that is at the foundation of modern high-income economies. Some countries, like China and Japan, Menon notes, have to prepare for ageing populations, while others need to find fruitful and satisfying employment for their rising working-age populations. Populous countries like India stand to benefit from the demographic dividend only if sufficient jobs can be created to absorb their growing labour force. If they fail, massive unemployment and associated social ills are the likely result. A lot of Asia’s future growth, perhaps up to 80 per cent, will be generated in urban centres, and it is estimated that Asia’s urban population will likely double to three billion by 2050. Rising urbanisation, and the stress that it imposes on its cities, is another significant challenge requiring early planning.

All of these issues need to be addressed within the overarching ambit of environmentally sustainable growth as the race for resources gathers pace.

In this issue of EAFQ leading analysts from throughout Asia, from America and from Europe address these developments. Some things are clear, though they may have been until recently under-recognised and difficult to accept. China, India and the other Asian powers will have a greater role in global affairs. But there is much that is yet to be determined, and it is clearer still that this theme is one to which we shall return.

Peter Drysdale is Editor of the East Asia Forum.