Lancaster Eagle Gazette
The world economy is experiencing its worst crisis since the Great Depression. Asia, the continent with world’s highest growth rate for almost 40 years, is not immune from the crisis.
There was a time not too long ago when pundits and policy makers were contemplating the gravity of the arrival of an “Asian Century.” In a February 2008 article appearing in
Los Angeles Times, Kishore Mahbubani, author of “The New Asian Hemisphere,” declared confidently, “We are entering a new era of world history: the end of Western domination and the arrival of the Asian century. The G-8 represents a sunset process. Let us focus on the new sunrise organizations in Asia.”
That was then, this is now. As David Pilling of
Financial Times tells, “Pick a number, any number. For Asia, they are all likely to be bad. The whole Asia is in trouble. All over the region, particularly in manufacturing-heavy southeast and northeast Asia, government statisticians have been summoning up evil-eye numbers.”
All “Asian Tigers” – Singapore, South Korea, Hong Kong and Taiwan – are facing serious downturns. “Singapore, the canary in the coalmine of global trade because of its open economy, could contract by up to 5 percent this year in what would be the deepest recession since the city-state’s birth in 1965. IMF is predicting a 4 percent contraction in South Korea,” reports
Financial Times. And Hong Kong’s economy will contract more than 3 percent in 2009 and slipped into its first recession since the 2003 SARS epidemic, reports Goldman Sachs.
Nor is China immune from unnerving statistics. Chinese exports dropped more than 25 percent in the first quarter of the year. More than 70,000 factories have been closed down. More than 20 million workers, or 15 percent of the total Chinese labor force, had lost their jobs as export-oriented factories shut their gates. A majority of China’s top 50 companies, also the ones most exposed to international trade, have seen a string of losses.
Across Asia, IMF puts the region’s growth in 2009 at only 2.7 percent; a fraction of the 9 percent growth achieved in 2007 and one percentage point lower even than Asia managed during its own, self-inflicted, financial crisis 12 years ago.
The speed and gravity of Asia’s plunge has stunned even the pessimists. Why is Asia falling so hard so fast?
The short answer is export. According to Credit Suisse, exports account for as much as two-thirds of GDP in Hong Kong and Singapore, almost half of the output of Malaysia and Thailand and one-third for South Korea and Taiwan. As a result, “the region has grown spectacularly on the back of exports,” says David Pilling, “but the ‘bad side of the coin’ is that this makes it vulnerable. The upshot was that Asia swapped dependence on external financing for dependence on external demand.”
In the long run, the collapse of Asia’s export-led development model means more than a “cyclical shock” to Asian economies. It will have huge and negative impacts on Asia’s economic and political future.
For almost four decades, the cutting edge of Asian economy has been Export-Oriented Industrialization. The success of Asia’s export-driven economies made the world to believe that EOI was the wave of the future. However, “as goods pile up in wharves from Bangkok to Shanghai, and workers are laid off in record numbers,” said Walden Bello of University of the Philippines. “People in Asia are beginning to realize they aren’t only experiencing an economic downturn but living through the end of an era.”
Economically, Asia’s export-led development finally might have outlived its usefulness. “China and others,” warns Clyde Prestowitz of the Economic Strategy Institute, “will have to engineer a massive rebalancing of their economies towards domestic-led growth. In the best possible world, Chinese consumption would rise by exactly the same amount as U.S. consumption drops. But given that the U.S. economy is more than three times the size of China’s, the magnitude of such an adjustment is likely to be beyond it.”
The failure of Asia’s EOI development model will not be just a matter of economy. “The collapse of Asia’s export markets and the end of the export era,” suggests Professor Bello, “is going to have ugly consequences. Asia may now be returning after a gap of three decades to a period of radical protest and social revolution.”
Social unrest and volatility will, in turn, feed the growing of authoritarian regimes, autocratic rule and assertive nationalism in Asia.
Together, economic difficulties and political uncertainty are about to set the continent’s clock to go backwards.
Dr. Xiaoxiong Yi is a professor at Marietta College and Director of the China Program.