Will Asia use crisis as catalyst for change?

Special Report:Global Financial Crisis

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BEIJING, April 25 -- Will Asia - in particular China and India - be able to
avoid a deep recession amid the current breakdown of the global financial system
and the resultant collapse of international trade and investment?

Some observers paint a rosy picture of a region that will fare much better
than during the 1997 Asian financial crisis. Some even talk about signs of
recovery. But the data contradict these expectations. In fact, Asia is suffering
even more today than it did in 1997. The speed and ferocity of the region's
economic downturn have shocked even the pessimists.

Asian Development Bank projections for 2009 show a 3.4 percent decline of
gross domestic product in Asia (outside of Japan), down from 6.3 percent growth
in 2008. By contrast, IMF data show that even during the peak of the 1997
financial crisis, Asia continued to grow by around 3.7 percent.

We need to discard the rosy picture and address explicitly the potentially
game-changing impact of the crisis. An important characteristic of the current
crisis is that the more export-oriented a country, the more vulnerable it is.

Korea - a leading exporter of memory chips, mobile handsets, cars and ships
- has been hit hard by the global downturn. In February, Korean exports dropped
as much as 26 percent from a year ago and imports plunged 40 percent, dragging
down industrial production and investment and increasing unemployment.

And what about China, a country whose rise as the dominant global factory
has catapulted it over the last few years into the exclusive club of global
economic powers?

The World Bank projects a 6.5 percent growth this year. While this looks
like a dream figure from a US perspective, from a Chinese perspective it
actually represents quite a dramatic decline from the 9 percent growth in 2008.
Most importantly, a 6.5 percent growth may be insufficient to cope with China's
growing unemployment.

Of particular concern to the Chinese government is rising unemployment for
migrant workers and university graduates. The government estimates that 20
million migrant workers lost their jobs or were unable to find employment in
2008, and the picture may grow worse in 2009. China's Academy of Social Sciences
reports that 7.8 million graduates will search for jobs this year. Of these, up
to 40 percent - around 3 million - will not find jobs. Pieter Bottelier, a
respected China expert, projects that, overall, 48 million Chinese may be
looking for jobs this year, while the number of newly created jobs is likely to
be less than 7 million.

How deep and persistent will Asia's downturn be? If the world economy will
take years and not months to recover, which I think it will, it follows that
profound adjustments may well be necessary in Asia's export-oriented development
model.

Take China for instance. Driven by a rapidly expanding global economy, its
dependence on international trade has doubled since 1998, from 30 percent of the
GDP to as high as 60 percent in 2008. But this year, both international trade
and investment are falling off the cliff.

As the global crisis deepens and hits demand in the US and Europe as well
as in emerging economies, Chinese exports have suffered the biggest slide in a
decade - 26 percent in February - while its imports fell almost 24 percent.

Coping with these fundamental external disruptions will require profound
adjustments. Hence the real question is, both for China and for Asia at large:
Will governments be able to use the crisis as a broad catalyst for change? There
is much talk that Asia needs to upgrade its economies through innovation. Such a
shift in strategy is necessary to address the region's vast needs for food,
shelter, medical services and infrastructure, and to counter its environmental
degradation.

But as of now, Asia is still ill-prepared to mobilize resources for
economic recovery. As a share of the GDP, the stimulus packages announced in
much of Asia are considerably smaller than in the US (8 percent), Japan (6
percent) and Germany (3 percent) - with two exceptions: Singapore (3.2 percent)
and China (7.1 percent). What sets China apart from its Asian neighbors is that
high fiscal reserves and a very low level of debt provide ample resources to
continue priming the economy.

Most observers expect China to move sooner than most other countries to
economic recovery. This could facilitate attempts to implement real "upgrading
through innovation" strategies. But a relatively quick recovery could also
undermine such efforts as so many vested interests (in State-owned enterprises
and the national security apparatus) are pushing for the status quo.

There are some positive changes already in the works - efforts to promote
new domestic industries like next generation vehicles and creating a domestic
solar market. China's stimulus package also includes substantial investments in
healthcare and education, two key aspects of building up a more diversified
economy, where manufacturing is complemented by a domestic service economy.

Yet even for China, the barriers remain stacked high against attempts to
use the crisis as a catalyst for change. For instance, the freefall in global
demand, combined with widespread excess capacity, is giving rise to price
deflation and reduced wages, which in turn will constrain China's own
consumption.

The scariest prospect is that the crisis may well prompt governments
worldwide to move toward more protectionist policies, possibly igniting trade
wars with global ramifications.

Let's hope that leaders in Asia as well as in the US, Japan and the EU
recognize the urgent need for new strategies and new economic growth models
before that disturbing scenario comes to pass.

The author is a Senior Fellow in Economics at the East-West Center in
Honolulu Research Program.

(Source: China Daily)

A new G2 in Asia to help steer the way

Special Report:Global Financial Crisis

by Dennis Pamlin

We have a financial crisis that has forced any traditional superpower to
understand that the emerging economies must be given a more important role when
global economic policy is being developed. So far this has resulted in G8+5, a
bigger role for G20 and a number of crisis meetings.

But the financial crisis is nothing more than the tip of an iceberg and
much more is needed. Below the su***ce we have a number of trends that require a
dramatic change in how the current global governing system works, including the
Bretton Woods institutions that were created after World War II.

The firm action that the current financial crisis requires is a perfect
opportunity to begin looking toward a new global architecture. At the very
center of this architecture are two different G2's that will play a very
important role.

The first G2 is the one that has been discussed in media since the
beginning of the financial crisis, that of China and the United States. This is
the G2 that follows the logic of the current system. Few would disagree that the
G8 that exists today is increasingly outdated and that something new is needed.
The G8 was a response to the oil crisis in 1973 and when it was formed in France
in 1975 it was the major Western countries that came together. That time is gone
and we have a different situation today.

The two major economies on the planet should have a special relationship
and the "strategic and economic dialogue" mechanism that was launched during the
G20 meeting in London provides a great opportunity.

It is important that China is clear and does not allow the old, polarized
agenda to dominate, so that G2 becomes a smaller, more effective version of G8.
China's global role so far has been a breath of fresh air as it does not seek
global leadership, but instead wants to work in collaboration with all countries
and on all levels.

With the U.S. as a major consumer and China as a major producer, we can
hope for a "global collaboration" initiative. This could focus on the major
challenges we face and how China and the U.S. could together, with other
countries, to find solutions for them.

These solutions could range from major initiatives with incentives that
support sustainable innovation and standards that ensure future buildings are
net producers of energy. Instead of being the largest problem for climate change
and resource use, the buildings of the world could become the epicenter for
climate-smart and resource-efficient solutions. For this to happen, China and
the US must cooperate.

This G2 could also encourage micro collaborations. I myself carry around a
bag with solar panels that can charge my laptop; it is made in the U.S. and
costs a lot. I would like to see these kinds of solutions being made in places
like Baoding, the city south of Beijing that wants to be a center for renewable
energy production that Silicon Valley is to the computer industry. At the same
time, companies in China could be invited to the U.S. to explore how joint
construction projects for solar buildings can be launched.

This kind of practical collaboration could be linked to more strategic
collaboration in trade, investments and finance, as well as in security policy
and other important areas.

In order to identify the second G2, we must take a step back to the macro
level. It is easy to see that the center of the global economy is moving east.
The need to find long-term solutions for a financial system where the money can
move at the speed of light will require new regulations and new institutions.

But there are other issues that are harder to see, issues that will not hit
the headlines before it is too late, as they happen slower. These include issues
such as the demographic crunch with an aging global population, the increased
population pressure as the world moves toward 10 billion people, growing
inequalities within and between countries, and finally an accelerated
development of new technologies.

All these can bring humanity fantastic gifts if they are met with the right
framework, but they could also drive the world into conflict and problems beyond
imagination. Especially since natural resources on the planet are not enough to
provide everyone with a "G8 lifestyle".

This brings us to what I think is the more interesting, and less discussed,
G2 - China and India. I was fortunate to be in Delhi during President Hu
Jintao's visit in 2006. During this trip, a number of initiatives were started
and it is clear that the 2 billion-plus population countries share many
challenges and opportunities.

Cynical observers have focused on the differences between the countries and
many Western observers seem to view China and India as pawns in the power play
between the G8 countries. But anyone that can do the math and look at the
history of these two countries will realize that there will be a very
interesting G2, whether we like to call it that or not.

By ensuring closer and more strategic ties between China and India, the
world will get two countries with long, proud histories that are a welcome
balance to the dominating Western narrative in most of today's global
institutions. The world would also get two countries that are reflections of how
the world as a whole looks like, with a mix of rich and poor people and
different development paths.

The most interesting aspect of the "Chindia G2" would probably be the end
of the idea of Western countries as the goal of "development". We could also get
a discussion about where the world can and should go next. We need a global
circular economy for that and the two countries that probably have the best
opportunity to provide guidance on how this can be done in a practical way are
China and India.

Every time I visit China and India, I see more and more similarities when
it comes to the big challenges. With their roles as global economic engines, it
becomes very important what direction those engines will move and what fuel they
will use. If China and India start collaborating in a way that shows the world
the two countries - which together contain about 40 percent of the world's
population - can develop joint innovative strategies for global sustainability,
it will be a very good step forward for this current crisis.

This G2 understands the need for innovative solutions that deliver more
than incremental improvements, as this is necessary to lift people out of
poverty and deliver solutions that do not result in conflict over natural
resources a few years from now.

So while most people are looking for a U.S.-China G2 along the lines of the
old school, the most important G2 will probably be that of China and India. We
should see these two in a relationship that is mutually beneficial.

With a global agenda that delivers global benefits, China would start
building a global governance culture beyond narrow self-interest that also
includes scientific consideration for the planet in a way that the current
economic system has failed to do. This would be a very good start for the 21st
century and a way to turn the current economic crisis into something that will
benefit both the people and the planet in a way that we never done before, but
that we urgently need.

Deng Xiaoping once said that a real Asian century will arrive only when
China and India are developed - this time is now emerging and for it to deliver
a positive outcome, the two G2s could play a crucial role.

The author is a global environment policy advisor specializing in China and
India.

(Source: China Daily)

Platform helps push for expanding role of Asia

Special Report: Boao Forum For Asia
2009

by Zhai Kun

BEIJING, April 21 -- This year's annual conference of the Boao Forum for
Asia, which concluded on Sunday in the scenic town bearing its name in Hainan
province, heralds a strengthened role of the China-sponsored event in promoting
Asian cooperation and development.

As the eighth of its kind, this year's forum has brought people more hope
for deepened Asian integration and cooperation amid global efforts to tackle the
financial crisis. Since its creation in 2002, the annual forum has acted as an
important platform for Asian leaders and economic circles to exchange views on
Asian affairs and to work out practicable formulas for win-win cooperation among
regional members.

At a time when the global financial crisis has yet to bottom out, this
year's forum is aimed at promoting deepened cooperation between China and other
Asian countries in grappling with the global financial crisis and pursuing
win-win results. To pull the regional economy out of the current predicament as
early as possible, a comprehensive prescription that should not only involve
close cooperation and collaboration among regional members but also include
various fields such as trade, investment and finance, is desperately needed.

The tour of Europe by Premier Wen Jiabao in early February and President Hu
Jintao's participation in the G20 London summit earlier this month have offered
chances for China's top leaders to talk with European leaders and those from
other countries about a panacea for the world's ailing economy. The Boao Forum,
however, has presented Asian leaders a chance for face-to-face consultations
about concerted measures to offset the impact of the ongoing financial crisis on
regional members and boost the slowing regional economy.

At the conference, Premier Wen delivered a keynote speech, mapping out ways
to deepen regional cooperation and boost confidence. He introduced to other
participants the measures China has taken to cope with the crisis and said the
stimulus packages the country has launched are paying off.

"Positive changes have taken place and situations are better than
expected," Wen said. The Chinese premier's remarks have boosted other
participants' confidence on the prospect of the regional economy. Undoubtedly,
as the world's third largest economy, a China that is on the way out of an
economic slowdown will inevitably help extricate Asia from the current financial
crisis.

At the forum, Premier Wen said China would continue to embrace a
long-cherished friendly and neighborly foreign policy. He also raised a series
of proposals to deepen Asian economic and trade cooperation, as well as maintain
regional financial stability. Proposals such as developing an investment-driven
economy, pressing ahead with "green" growth in Asia and promoting world peace,
stability and prosperity were also put forward. Covering a wide range of fields,
from the establishment of a free trade zone between China and the Association of
Southeast Asian nations (ASEAN) members, to expediting regional and sub-regional
traffic, power and communication cooperation, these workable proposals will
greatly boost regional economic development if they are to be effectively
implemented.

China has also decided to set up a 10 billion U.S. dollars fund to promote
investment cooperation with ASEAN members, in support of infrastructure
development in the region.

A proposal to expand bilateral swap volumes and membership was put forward
by some participants. That could herald a multilateral development of the Chiang
Mai Initiative, which was signed by financial ministers of the 10-member ASEAN
and China, Japan and South Korea in May 2005 and was aimed at setting up a
network of bilateral swap arrangements among the 10+3 countries.

Participants at the forum also reached a consensus on increasing the
region's stockpile of foreign reserves from the current 80 billion U.S. dollars
to 120 billion U.S. dollars. According to the proposals, the initiative's
membership would possibly extend to Australia, New Zealand and India, in
addition to its 13 members. So far, China has decided to conduct yuan settlement
for transnational trade in Shanghai and three of its other coastal cities. The
adoption of yuan settlement in business in international trade will surely
contribute to the development of the Chinese currency as a regional reserve
currency.

At the forum, participants also touched on other wider topics, ranging from
the promotion of deepened cooperation among APEC members, to the Asia-Europe
Summit, Asia-Middle East dialogue and plans to strengthen and improve Asian
cooperation with other regions.

Since its adoption of the reform and opening-up policy and its integration
into the outside world, China has been committed to creating an Asian forum that
strengthens exchanges and cooperation for regional members. With its political
and economic influence growing on the regional and international stage and in
particular, its growing contribution to Asian recovery and global efforts to
handle the ongoing financial crisis, the Boao Forum is expected to play an
increasingly major role in promoting cooperation and development within Asian
countries, and between Asia and the rest of the world.

The author is deputy director of the Institute of Asian and African Studies
under the China Institutes of Contemporary International Relations.

(Source: China Daily)