- The Washington Times - Thursday, April 1, 2010

The global balance of power continues to shift eastward, a top Asian economic official said in an interview, noting that nations in the region are bouncing back from the deep worldwide recession much more briskly than the United States and Western Europe.

Within 20 years, India will join China and Japan among the world’s four largest economies, according to projections by the Asian Development Bank. Rajat M. Nag, managing director-general of the ADB, said China is likely to surpass the United States by 2040 as the world’s biggest economy.

The Asian economy “is certainly coming out of the crisis ahead of all the others,” Mr. Nag told The Washington Times. While he would not call Asian growth rates robust, he said the recovery there “is certainly much more than fragile.”

The world economy declined nearly 1 percent in 2009, according to the latest estimates by the International Monetary Fund, fueled by a 3.2 percent plunge in economic output among the advanced countries.

Asia as whole managed to grow at a pace of just under 5 percent last year, but Mr. Nag noted that the region needs to average at least 8 percent a year to prevent increases in unemployment and poverty. As a result, “we did see a fairly severe social impact from the crisis,” he said.

The ADB, a multilateral development finance institution with 67 members, estimates that 57 million more people remained mired in poverty in Asia than would have been the case if economic growth had not slowed. Based on the current standard for poverty ($1.25 per day and less), about 900 million Asians are impoverished, Mr. Nag said. That’s two-thirds of the world total.

Despite the relatively strong rebound, Asia may fail to reach the 8 percent bar for the second year in a row in 2010. In December, the ADB projected a growth rate of 6.6 percent for Asia this year.

China’s economy is expected to grow by 8 percent in 2010, a bit faster than India’s projected growth rate of 6.5 percent. Growth is forecast to accelerate this year in Indonesia, the Philippines and Vietnam, while Thailand, Taiwan, Hong Kong, Singapore and South Korea are expected to return to growth this year after their economies declined in 2009.

The International Monetary Fund in its January forecast projected even better growth rates for leading Asian economies this year, with China projected to grow by 10 percent and India by just less than 8 percent.

In the long term, Asia inevitably will become the world’s dominant economic region, Mr. Nag said.

“The center of economic gravity is certainly shifting eastward,” Mr. Nag said. “Asian economies will increasingly constitute a larger portion of the world economy. Three of the four largest economies are going to be in Asia in the next 20 years or so. China, by all measures, will become the world’s largest economy in about 30 years’ time, if not sooner.”

As Asian economies expand faster than those in the West, they must rebalance growth by depending more on consumption and less on exports, Mr. Nag said.

“The crisis has served as a good wake-up call for Asia. The export-led model, which has served us very well over the last three to four decades, must be revisited,” Mr. Nag said. “Exclusive dependence on exports is now no longer appropriate.”

To rebalance its growth, Asia must save less and consume more, he added.

“The bottom line is that just as Asians probably were saving too much, the U.S. and some other Western economies were saving too little,” he said.

Economic friction between Washington and Beijing has been on the rise, with U.S. lawmakers accusing China of manipulating its currency to boost exports and not being open to more U.S. goods. The Obama administration lodged some complaints of its own Wednesday.

The U.S. Trade Representative’s Office (USTR), in its annual report to Congress, said China still maintains a large number of non-tariff barriers, including tax rebates and quotas, that discriminate against foreign manufactured and farm goods, despite its entry into the World Trade Organization in 2002.

“Eight years after China’s WTO accession, many U.S. industries complain that they face significant non-tariff barriers to trade,” the USTR said in its report.

Many economists, including former Federal Reserve Chairman Paul A. Volcker, say that skyrocketing global imbalances, most clearly manifested by China’s soaring trade surplus and America’s exploding trade deficit, were a major factor precipitating the global economic crisis.

Mr. Nag disagreed.

“Very clearly, the driver of the crisis was the U.S. financial markets because of the toxic assets, because of the derivatives, which obviously went out of control. And there was very inappropriate and inadequate risk management,” he said.

Though Mr. Nag says the crisis erupted in America’s financial markets, he said he was not concerned that financial regulatory reform has yet to be adopted in the United States.

While he appreciates “the desire to do something,” he emphasized that new regulations “must be thought through because you do not want the law of unintended consequences to start playing.”

LOAD COMMENTS ()

 

Click to Read More

Click to Hide