Cutting Asia's reliance on exports for
growth has taken on new urgency as the global economic crisis sends
trade into a tailspin. But many economies in the region are
unprepared for such a profound shift.
As some 3,000 officials wrapped up the Asian Development Bank's
annual meeting Tuesday held in Bali, Indonesia, there was no
shortage of exhortations for Asia to boost domestic consumption - or
risk remaining captive to the economic fortunes of the U.S. and
Europe.
Declaring the era of rich Western countries having unlimited
appetite for exports "has passed," ADB president Haruhiko Kuroda
urged Asia's governments to reduce dependence on trade. Japan's
Finance Minister Kaoru Yosano said the region must lift consumer
spending to "avoid economic meltdown."
Such calls aren't new. "Rebalancing" and charting a new
"growth paradigm" have been much-discussed at Asia's economic
talkfests for years. Yet the backdrop of the global slump and the
possibility of years of feeble growth in the U.S., one of Asia's
biggest markets, may add some substance to the rhetoric.
"Now that Asia has experienced the drag from slow overseas
demand, countries may be more inclined to rebalance," said David
Cohen, head of Asian forecasting at Action Economics in Singapore.
"There is no guarantee that the U.S. is going to get back on track
anytime soon."
The head of the U.S. delegation to the ADB, Karen Mathiasen, said
the shift would be a "profound adjustment" that won't be easily
realized but is essential to sustaining a global recovery.
Japan, Asia's biggest economy, has already outlined yet another
program to move its focus from exports to domestic sectors like
"green" technologies, medical services and pop culture, though
details remain vague.
Prime Minister Taro Aso said last month the long-term plan aims
to increase domestic demand by at least 40 trillion yen ($400
billion) within three years and add between 1.4 million and 2
million new jobs.
Japan first began trying to boost domestic demand in the late
1980s, but it remains heavily reliant on exports as households
continued to be subordinated to corporate priorities.
China is also trying to turn the tide. Its $586 billion stimulus
package aims to boost consumer spending by pumping money into the
economy through higher spending on highways and other public works.
But there too consumer welfare is sacrificed for big, politically
powerful corporate interests.
Efforts to prop up recession-hit economies with massive spending
won't make much difference if they're not combined with a
fundamental change in direction, experts say.
"It would take some years before we see any significant shift"
toward domestic consumption, said Cohen.
As a strategy for powering growth and lifting tens of millions
out of extreme poverty, exporting has proved remarkably successful
for Asia. Exports account for about 50 percent of developing Asia's
GDP, up from nearly 30 percent in 1990, according to the
International Monetary Fund.
But it has come at a cost. Exporting created jobs but competition
in international markets gave an advantage to the nations with the
cheapest labor costs, keeping wages in poor nations low and stunting
the growth of domestic service industries.
Meanwhile, China has for years plowed its ballooning reserves
into low yielding assets like U.S. Treasury bills at the expense of
bigger investments in schools, hospitals, roads and other
infrastructure that would boost growth in the longer term.
"In small economies, it's always easier to export to the global
market" than develop their domestic market, said ADB's chief
economist Jong-Wha Lee. "But for a big country, like China, you
cannot assume that you can export your way to growth continuously,"
he said.
To maintain or enlarge its share of export markets, a developing
country faces pressure to keep lowering prices, often through
keeping its currency weak, Lee said.
"That's not in China's interests or global interests," he said.
"It suppresses consumption" by keeping wages low, and holds back
domestic industries.
Analysts say stock and bond markets in Asia's emerging nations
aren't yet developed enough to efficiently channel money from savers
to the entrepreneurs thirsty for capital to start businesses serving
their local markets.
A lack of state pension systems and affordable health insurance
also keeps domestic spending in check. Knowing there's no safety
net, Asia's workers save more than they otherwise would while also
using part of their incomes to support their parents.
Saving rates in Asia are high because "people are worried about
their future" said Lee, the ADB economist.
Change will be nearly impossible for some economies. The
populations of Hong Kong and Singapore, both rich from exports, are
deemed too small to support big industries focused on their domestic
markets.
The overhaul will take time, the ADB's president says.
"It's not a matter of months. It's a matter of a few years but
not decades," Kuroda said. "The U.S. economy is making such a huge
adjustment, so why not the Asian side?"
