Those of you who thought the baton of global economic leadership is being seamlessly passed to the BRIC nations, in particular China, here is a reality check. While Asia is rising, the coming power shift from West to East won’t be as easy as everyone thinks.
That’s the central theme of Stephen S Roach’s new book—The Next Asia: Opportunities and Challenges for a New Globalization. And the author lives up to his reputation as Wall Street’s perennial bear once again in this collection of 70 of his essays on the debate that embroiled financial markets and policy circles during the critical period of 2006-2008.
The 414-page book has five critical building blocks: The world after the financial crisis, Asia's critical role in globalization, the upcoming rebalancing of the Chinese economy, a new pan-regional framework for integration and competition and a discussion of the biggest risk to this transformation in the form of US-China trade tensions.
The Morgan Stanley Asia Chairman’s prescription is simple: spenders need to start saving and savers need to start spending, and the only way Asia can avoid getting whacked by the next global downturn is to promote more internal private consumption. During the boom, China and the rest of Asia reaped enormous benefits from a mercantilist growth model that was tied to the voracious appetite of the American consumer. With the US in the early stages of a multiyear “consumption retrenchment”, the problems of an Asia, which did not hedge its bet properly, could face a prolonged economic crisis, more so as the US economic recovery will be anemic and is growing very close to what people refer to as a stall speed.
Consider the data: Although America accounts for only about 4.5 per cent of the world’s population, its consumers spent about $10 trillion in 2008. By contrast, although China and India collectively account for nearly 40 per cent of the world’s population, their combined consumption was only about $2.5 trillion in 2008.
Roach, who has been a major supporter of Asian economic dynamism, says the continent can never be an engine of global growth until it really takes actions to stimulate its own internal private consumption. Nowhere is that more evident than in China where the private consumption share has fallen to a record low of about 36 per cent of its GDP.
The challenges become more critical, given Asia’s increasing over-reliance on exports. The export share of developing Asia’s GDP went from about 36 per cent in 1997-98 to 47 per cent by 2007. This strategy was brilliant while global trade was booming. But now that this boom has gone bust, Asia has no option but to come up with a new growth strategy.
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Roach should know. For years, as Morgan Stanley’s chief economist based in Asia, he was one of those who had warned boom-day investors to be wary of the imbalances that eventually led to the financial crisis.
Owing to his heavy content, The Next Asia... could easily have become a boring compilation of essays, but Roach’s brilliance lies in the fact that he makes the book eminently readable through, for example, his despatches from Davos in 2008. Roach pokes fun at those who cling to “dreams of decoupling—a scenario where the world no longer sneezes when the US catches a cold”.
The book is an interesting read also because of the insider details of events like Davos and the National People’s Congress in China, where in 2007 Roach sat next to senior Chinese officials “who gasped” when Premier Wen Jiabao pronounced that his country’s economy was “unbalanced, unstable, uncoordinated and unsustainable”.
However, readers interested in the Indian economy may feel a tad disappointed as the book’s title may flatter to deceive them. It may not perhaps have been a bad idea to name the book ‘The Next China’ as it is heavily lopsided toward that country, which gets over 150 pages. India gets just seven, as a result of which the author seems to be in a tearing hurry while saying some nice things about the country. The author says India could become Asia’s biggest surprise in the years immediately ahead and that the country’s economy has actually been performing much “better beneath the surface than the China comparison might otherwise suggest”, but fails to flesh out any of these arguments.
“The world has fallen in love with the China miracle. India has slipped between the cracks in all this euphoria,” Roach laments in his book. But many Indian readers might feel Roach himself has the same mindset.
Another problem is the repetition of themes and even the language across chapters. But perhaps that’s inevitable in a book that comprises shorter, stand-alone pieces written over three years. Also, some readers would wish Roach had given a more detailed road map showing how to solve the problems.
Overall, The Next Asia… will make thought-leaders deliberate on Roach’s argument that Asia can lead—if and only if it becomes better-balanced, drawing increased support from internal private consumption.
The Next Asia: Opportunities and Challenges for a new Globalization
Stephen Roach
John Wiley & Sons, Inc
432 pages; Rs 2,165