Davos was early in proclaiming that the 21st century would be the Asian Century. China’s miraculous development story is central to this vision—a transformation that would inevitably push the pendulum of global power from West to East. This tectonic shift was very much on the minds of most who attended my final Davos session of the year “China, India and Japan: Asia’s Big 3.”
Not so fast, I argued—even though I have made my own career bet on just such a possibility. Yet the Asian century is hardly as preordained as the Davos consensus seems to believe. The main reason, in my view, is that the region continues to rely far too much on exports and external demand. Developing Asia’s export share hit a record high of 47 per cent last year—up 10 full percentage points from levels prevailing in the late 1990s. That hardly speaks of a true economic power that has become increasingly capable of standing on its own.
At the same time, there can be no mistaking the increasingly China-centric character of the Asian economy—another dimension of the region’s search for growth. As China boomed, the rest of Asia was more than happy to go along for the ride. Yet that dependence cuts both ways—a two-way causality that is now complicating the here and now of the Asian century. The China boom was itself very much tied to the record surge in global trade. But now with global trade contracting, China’s export-led impetus has been quick to follow.
This has hit the rest of China-centric Asia extremely hard. The December export comparisons were nothing short of terrible for the other major economies in the region: Taiwan’s exports were down an astonishing 42 per cent year-on-year, with the Chinese piece off 56 per cent; Japan’s exports plunged 35 per cent, with the Chinese piece off 35 per cent; and Korean exports fell 17 per cent, with the Chinese piece also off 35 per cent. In all three of these cases, China had become each country’s largest trading partners in recent years—accounting for 28 per cent of total Taiwanese exports, 23 per cent of Korean exports, and 16 per cent of Japanese exports. The old adage deserves to be modified, accordingly—when China sneezes, the rest of Asia gets a pretty big cold.
I am convinced that the Asian century is coming. But the risk is that it may take a lot longer than we would like. All this underscores the biggest test to the Asian century—the ability of the region to stand more on its own in the event of any type of external shock. The recent export collapse puts the region on notice that its agenda is far from complete. Until export-led growth gives way to increased support from private consumption, the dream of the Asian century—and one of the most vivid of all the Davos dreams—is just that. As for me, I’m still willing to live that dream. Time to go back to Asia.
Stephen Roach is chairman of Morgan Stanley Asia and former chief economist at the bank