TIME was when important economies in East Asia would catch a cold if Japan were to sneeze. Today, while Japan remains a major player in East Asia, Chinas economic fortunes, on the upswing for long, tend to shape the macro-level sentiment across the region. No less importantly, the West in general and the United States in particular stay substantially relevant as a prime market for East Asian exports. India, an emerging economic powerhouse which raises opportunities and poses challenges for its partners in the forum of East Asia Summit, does not yet match China in shaping the regional sentiment.
In this regional milieu, marked also by the current global economic crisis, Chinas exceptional sense of optimism and Japans eagerness to be the first developed nation to rise above recession are indeed conspicuous. South Korea and Australia, the other high-profile economies in the region, are variously bogged down in crisis. Singapore, the most developed economy among the South East Asian nations, is in recession, while the other states in this sub-region are still in positive territory or are looking at ways to meet an incipient recession or keep it out altogether.
With Singapore likely to host the annual summit of the forum of Asia Pacific Economic Cooperation (APEC) later this year, most East Asian countries have given themselves a new sense of urgency to try and look up quickly. A variety of political styles and policy-setting strategies are, therefore, coming into focus. The common themes, of course, are jobs, domestic demand, export markets, and political stability and related issues of social security and cohesion.
Barack Obamas inauguration as the U.S. President on January 20 on a crest of global expectations about his new-age politics and also the subsequent focus in Davos on capitalisms failings served as a qualitative backdrop for the strategies of East Asian economies. Obamas stimulus-based economic mantra sparked a new wave of political resonance across East Asia, the reason being not far to seek.
There is really nothing new about the idea of state-driven stimulus packages for busting economic crises that border on deep recession or depression. However, what is generally seen as refreshing is Obamas broad political focus on people and human resources at the centre of the economic universe. This aspect is something that a number of East Asian countries may keep in their line of vision, especially during the run-up to the APEC summit. Obama is expected to participate in that summit. The intrinsic political value of people-centred economics is also not lost on the East Asian countries, whose basic state structures have a rich diversity.
Unlike some parts of Latin America, no East Asian country has been quick off the starting block to try and stage an alternative to the World Economic Forums latest annual signature event at Davos. China does regularly organise the Boao Forum, which has often been described by Western commentators as a Chinese version of the Davos event. More relevant to the present worldwide economic context, though, is the question whether the present wave of globalisation, widely portrayed as a gift from the West, will recede or subside or even flow on after an ebb. The scope for an alternative-to-Davos event, in this specific connotation of capitalisms failures, is the issue that came to the fore during the annual event in the Swiss city.
In an altogether different context at the beginning of the present century, some commentators such as Guy Kawasaki had identified the phenomenon of a capitalist manifesto. And, it became somewhat fashionable thereafter, especially in Western diplomatic circles, to view Chinas socialism with Chinese characteristics as the variant of a capitalist manifesto by a governing communist party. The intended anti-China sarcasm, given the political history of the evolution of a communist manifesto, could not have been missed by discerning observers. Significantly, therefore, Chinese Prime Minister Wen Jiabaos statement at this years Davos meeting has served as a stinging rebuke of the uncritical votaries of pristine capitalism of the Western brand. With the citadels of capitalism now under siege, as it were, by the victims of that market-dictated system an empirical reality that came into focus at this years Davos event the Chinese leaders statement has attracted much attention.
Hanging over the Davos conference was the gloomy forecast by the International Monetary Fund that the global economy would register this year its weakest growth rate since the Second World War. Against this forecast of a 0.5 per cent growth rate for the world as a whole, China projected for itself an 8 per cent economic growth this year. On whether China can buck the global trend of recession in a significant way, Wen told the Davos conference: I can give you a definitive answer. Yes, it will. We are full of confidence.
Wens sense of resolute optimism was based on his assessment that Chinas institutional arrangements would help translate its four-trillion-yuan stimulus package into a worthwhile reality. The package, unveiled several weeks ago, was aimed at boosting domestic demand among a huge population in the face of challenges in Chinas traditional export markets in the West and elsewhere. In essence, the stimulus package would provide for such activities as rural development, housing projects, a further boost to infrastructure growth, the modernisation and expansion of the railway network, environment protection and also some new projects to consolidate the process of recovery from the destructive earthquakes of last year.
About an 8 per cent growth rate for 2009, which for many countries would be a pipe dream in the present context, Wen said the target was attainable, through hard work. In a turn of the metaphor to suit the seasons, he said the harsh winter will be gone, and spring is around the corner in China. Elaborating on the harsh winter against the backdrop of the recent trends and current optimism, Wen said: We are facing severe challenges, including notably a shrinking external demand [for Chinese and other products], overcapacity in some sectors [inside China], difficult business conditions for enterprises, rising unemployment in urban areas and a greater downward pressure on [Chinas] economic growth.
Given that some of these challenges were traceable entirely to Chinas external economic environment, Wen said that only with closer cooperation and mutual help [among states as economic partners] can we overcome the crisis.
Chinas optimism has had some positive impact on the overall sentiment across East Asia. Yet, the individual economic circumstances of the various states have had an overriding impact within their borders. Malaysia, while continuing to buck the trend of recession, is evaluating the prospects of taking more stimulus measures.
Two South-East Asian countries found themselves in the maelstrom of political crisis, triggered by a major economic slump, in the latter half of the 1990s. Indonesia went into a political free fall and emerged as a democracy by shedding Suhartos authoritarian system, which was dominated by the military forces as well. In a refreshing contrast today, Indonesia continues to consolidate its democracy even in the face of the global economic slowdown, which is punctuated by outright recession in some key countries.
Thailand, whose currency rate fluctuations had triggered the 1997 East Asian financial crisis, is now facing some political uncertainties. But this is not directly related to the current economic woes in that country, which was put through its paces after the previous crisis by Thaksin Shinawatra, now in self-imposed exile as a fugitive following his overthrow in a military coup in 2006.
Thailands present Prime Minister, Abhisit Vejjajiva, who traces his position to the 2007-end democracy-restoring elections, has spoken of moves for tax reforms and a heightened public spending to keep the economy afloat.
All other South-East Asian countries, especially Vietnam as a possible new economic tiger in this sub-region, are all trying to trim their sails to the harsh winds and navigate to safety and growth through some form of public spending.
In this sub-region, Singapore, as an exceptional city-state, does stand out. Call it a full-fledged developed economy or more cautiously a high-income developing country. Amid the national festivities to mark the Chinese New Year on January 26, Singapore Prime Minister Lee Hsien Loong interspersed his customary greetings to the people with a surprise statement. For the first time, the city-state would seek to dip into its much-safeguarded and robust foreign exchange reserves to finance two novel schemes Jobs Credit that would help companies meet their wage costs and a Special Risk-Sharing Initiative that would give firms greater access to financing. These two would top up a budgetary resilience package of tax incentives and business grants among other measures.
Singapore and Malaysia host a sizable number of foreign workers and high-tech professionals. They include a large number of Indian nationals. The indication, as of January end, was that job cuts in these countries might indeed affect the foreign workers and professionals. Singapores current economic situation, in particular, raises the question whether the gathering storm of recession hits mainly the developed economies or those widely exposed to the Western markets.
Either way, Australia and Japan, which is still the worlds second largest economy after the U.S., have been hit, in different degrees. To build Australias future, Prime Minister Kevin Rudd has announced a business investment partnership scheme. Aimed at protecting jobs, mainly those of the local people, the partnership between the government and some Australian banks would provide liquidity support for projects to construct shopping centres, office towers and factories, Rudd said.
Japanese Prime Minister Taro Aso, under fire from a highly vocal opposition over the current crisis, has gone into a political overdrive, piecing together the second supplementary budget for fiscal 2008 and launching other economic countermeasures. The IMF has predicted a 2.6 per cent contraction of Japans GDP in 2009, higher than that projected for the U.S., a 1.6 per cent contraction.
Taro Aso, pleading with the opposition for cooperation in pushing forward the parliamentary Bills related to his countermeasures, was buoyed towards the end of January on a different but relevant front. Obama had telephoned him, and the two agreed to work hand in hand to address the global economic crisis, among other issues. As a long-standing ally of the U.S., Japan was pleased at this.
Significantly, the new U.S. Secretary of State, Hillary Clinton, told her Chinese counterpart, Yang Jiechi, over the telephone that the two countries should cooperate to respond to the global financial crisis and other challenges. Are these soft signals of a new global order?
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