We have published earlier our look at the challenges facing China economically. Our Strategic Inflections Report was based on interviews with the Chinese investor class and looked at the prospects of a hard economic landing.
A new report released by London-based Centre for European reform underscores some of the same skepticism about the notion of continuing rapid Asian economic growth. To be sure, Asia is a key and significant region in the global economy and a growing source of security and military flashpoints.
But the author of the report, George Magnus, warns against projecting the growth of the past two decades into the next two.
According to conventional wisdom, Asia, with a rising China at its heart, is the future. The popular proliferation of estimates about when China’s economy will overtake the US, or when other Asian economies will rival or overtake those in Europe, adds a certain frisson to this perspective.
Yet he cautions against taking this prediction too seriously. Among the key elements of his argument are the following:
- Many things will have to go right if Asia’s economy is to maintain its rapid rate of expansion. The economic models that worked over the last 30 years have either developed flaws or will not work as well in the future. And changing a model always throws up greater challenges and uncertainties than incremental changes in policy.
- What has sometimes seemed like an economic miracle in Asia can be explained by conventional economic theory, aided and abetted by rapid globalization. Asia’s ability to weather the global financial crisis is not down to a superior economic model, but the fact that its own financial crisis occurred a decade earlier, and private sectors had repaired their balance sheets by 2007.
- Increased dependence on credit, and economic weakness in the West, threaten financial stability and economic growth across Asia, especially in China. Manufacturing competitiveness may also start to tilt back to advanced economies as the latter benefit from new production technologies, and in the US case, cheap energy. Without vigorous reforms, many Asian countries could get caught in a ‘middle income’ trap.
The report can be found at the following link:
Or can be downloaded here:
For our own look at the energy dynamic and its impact see the following: