Economists urge Asia to end its addiction to exports
With the economic crisis dampening the world's appetite for Asian exports, economists are urging the region dubbed the "factory of the world" to rely less on foreign demand and buy more at home.
Asia's heavily export-driven economies have been hit hard by the crisis, which has led to consumers from the United States to Europe buying fewer Asian-made goods.
In export-dependent South Korea, exports fell a year-on-year 32.8 per cent in January. In Japan, the December drop was 35 per cent and in Taiwan it was a record 41.9 per cent.
In China, for years the engine of much of the region's growth, exports fell 2.8 per cent in December, its second consecutive drop and its largest in a decade.
The slowdown means Asian economies have to rethink the old model of "Asians make it, Americans buy it" and start promoting more domestic consumption, Asian Development Bank (ADB) Institute head Masahiro Kawai said. "This pattern (of US consumption propping up Asian growth) is rapidly changing and I believe that this change is not simply a temporary phenomenon. It is going to be more permanent, or at least semi-permanent."
He was speaking at a seminar held by the Association of Southeast Asian Nations (Asean) last week.
"Asia should remain the factory of the world, but Asians have to start consuming more. Asians have to start spending more."
Asian governments have already announced a slew of stimulus plans worth hundreds of billions of dollars to pump-prime their economies, but deeper reforms are needed, HSBC Economist Frederic Neumann said.
If the global downturn proves to be short-lived, Asian governments may be able to get away with minimal changes but, "if by 2010 US growth does not pick up, then Asia will face structural challenges," Neumann said.
The key to these changes will mean tackling one of the region's traditional strengths – its high savings rate – and to get Asians feeling comfortable about spending their money, Neumann said.
In China, the government should introduce a proper safety net of pensions, health care and education as well as focus on stimulating the economy in its impoverished countryside, the ADB Institute's Kawai said.
In India and Asean countries, governments need to promote investment and spend more money on creaking infrastructure while governments across the region must avoid the "beggar-thy-neighbour" policies of competitive currency devaluations, export subsidies and import restrictions, he said.
The benefits of being less dependent on exports and more focused on domestic consumption can already be seen in Indonesia, Southeast Asia's largest economy, according to William Wallace, the World Bank's Economist in the country.
For years, Indonesia fell behind regional competitors such as Vietnam and Thailand in export growth, but so far it has weathered the crisis relatively well, with the government paring back its 2009 growth forecast to between 4.5 and 5.5 per cent from an earlier 6.2 per cent, Wallace said.
"You would hesitate to say looking backwards that export-led growth was a mistake (for Asia), but looking forward it may not work again,: he said.
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