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Yes, East Asian economy can

By Yang Mu (China Daily)
Updated: 2009-09-04 07:54

It is reported that the US economy began pulling out of recession in August. The US consumer confidence index reached 54.1 in August, a better than expected 6.7 points higher than in July, and a record since May. We should, however, note that the US recovery is a bit later than other economies in this recession.

China's rebound began in the first quarter of 2009. Its GDP growth in the first half year rose by 7.1 percent over the same period of last year. Major economies in East Asia have, in general, seen recovery in the second quarter, including Hong Kong SAR with a 3.3-percent rise, Singapore with 20.7 percent, the Republic of Korea (ROK) with 2.3 percent and Japan with 3.7 percent. In developed countries, only Australia, Germany and France saw a slight growth while negative growth prevailed in the European Union, the US and the UK.

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In the earlier economic crises, the US played a leading role in bringing the world economy back from brink. This time it is different. It is China and other East Asian emerging economies that first rebounded, and led import and export worldwide and global consumption to recovery. Since the second quarter of 2008, the US economy has contracted for four consecutive quarters by 3.9 percent - the worst since the 1930s.

More than 7 million Americans lost their jobs since Dec 2007 when the recession began. Although the economy is recovering, the unemployment rate in US and Europe is still expected to reach 10 percent, dubbed by economists a "jobless recovery".

According to Justin Yifu Lin, World Bank senior vice-president, one of the main reasons of the international financial crisis is the world's excessive manufacturing capability. With the development of automation, intelligentizing and informationization and the scientific and technological progress these brought, the overall demand of manufacturing capability will be limited; the employment opportunities they offer will also be limited.

This financial crisis has seriously damaged the once-booming modern banking industry while having a negative impact on traditional banking. Although the business is picking up steam, US banking experienced its second quarterly loss of $3.7 billion in 18 years in the second quarter of this year. A total of 81 banks have closed and hundreds more are to follow suit.

The huge amount of capital invested in new energy and environment protection by the Obama Administration cannot create enough jobs for the Americans. However, the driving force of consumption recovery is very weak, for without employment and income growth, how could we expect consumption expansion?

If the US economy recovery remains slow, can we find a new development powerhouse, such as the emerging economies in East Asia, the most vigorous region in world economy, as a replacement?

The Democratic Party of Japan winning in the historic House of Representatives election on Aug 30, has time and again elaborated its "new security policy". According to it, the new Japanese government will seek a less subservient partnership with its traditional ally, the US, and actively promote its relationship with other East Asian countries such as China and ROK.

China has become the largest trading partner of Japan and ROK, while ROK is the third largest trading partner of Japan. The total trade volume among China, Japan and ROK has surpassed that among UK, France and Germany. Rana Foroohar said in a recent signed article in Newsweek that Japan can seek new growth points from its cooperation with China, ROK and Association of Southeast Asian Nations (ASEAN), just like France whose per capita income has risen by 42 percent thanks to the EU common market, since the establishment of European Union in 1993.

The China-ASEAN Free Trade Area would be set up on Jan 1, 2010 as scheduled. The world's largest free trade zone with a population of 1.8 billion will definitely accelerate regional economic development. Although the EU and the US are still China's No 1 and No 2 trading partners respectively, trade between China and other East Asian countries has maintained a robust momentum.

Meanwhile, there are also worries among East Asian countries, such as the increasing inflow of hot money, instability of exchange rates among East Asian currencies due to the fluctuation of US dollar, and interest rate hike by some central banks in East Asia as the volume of circulating currency expanded grossly.

Therefore, ASEAN plus Three (ASEAN plus China, Japan and South Korea) need to make their cooperation closer and practical for maintaining development continuity inside the region and improving their capability as a whole against possible financial and currency risks outside. The subtle change in East Asia has been sensed by the US government, which is trying to utilize its "soft power" to engage in the game as part of its global strategy. In the future, competition and cooperation in East Asia will become more and more complicated as well as fascinating.

The author is coordinator of China Cooperation Program of the East Asian Institute, National University of Singapore.

(China Daily 09/04/2009 page8)