Academic journal article The Journal of East Asian Affairs

The Fragile Foundations of the 'Asian Century'

Academic journal article The Journal of East Asian Affairs

The Fragile Foundations of the 'Asian Century'

Article excerpt

INTRODUCTION

It is widely accepted that we are now entering the second decade of what will become known as the 'Asian Century'. This argument is based on the argument that economic power is shifting from West to East, and such economic shifts will invariably have strategic and military implications. In short, the economic rise of East Asia, and relative economic decline of North America and Europe will fundamentally reorganise the distribution of power in the world.

The evidence that we are well into an Asian Century appears compelling. In 1960, and using World Bank figures, East Asia accounted for a mere 14 percent of global GDP , rising to about 27 percent currently. If linear trends continue, the region could account for about 36 percent of global GDP by 2030 and over half of all global output by the middle of the century. As if symbolic of a handover of economic pre-eminence, China which only accounted for about 5 percent of global GDP in 1960 will likely surpass the United States as the largest economy in the world over the next decade.

The link between rising economic wealth and increased military spending also seems compelling. According to figures produced by the Stockholm International Peace Research Institute or SIPRI , East Asia accounted for 6.4 percent of global military expenditure in 1988, rising to 13.2 percent in 1998, and 19.5 percent in 2014. (SIPRI 2015) If past record is an indicator of future performance, then the 'Asian Century' prediction is close to a sure thing.

In reality, the arrival of the Asian Century is no sure thing. More than this, there are significant headwinds or obstacles which may prove difficult for many Asian countries in the region to overcome. These range from the declining effectiveness of an export-dependent growth model, developments in manufacturing technologies that will dilute the region's existing advantages, and the problems and cost of aging demographics which will be challenging for many countries to manage.

This means that while it might still be prudent for governments to prepare for the challenges and complexities associated with an 'Asian Century' such as increased military spending and competition normally associated with rising economies, serious thought should also be given to the possibility of problems associated with large and populous countries with struggling economies and unstable political-economies and societies.

STRAINS IN THE 'EAST ASIAN' EC ONOMIC MODEL

Rapidly developing East Asian economies since after the Second World War - Japan, South Korea, Taiwan, Singapore, Malaysia, Thailand, and most recently China - have all relied upon a remarkably similar export-manufacturing model. While there are differences as to the level of state involvement and intervention in these countries during their stage of rapid economic development, their developing models all essentially involve producing exported products for advanced economy consumers cheaper, faster and more reliably than can be done in other countries or regions. Those predicting the 'Asian Century' assume that what worked in the past and present will continue to work for populous countries such as China, Indonesia, Vietnam and Burma -still low- to middle-income economies seeking to replicate what fully industrialized neighbours have achieved.

At the heart of this so-called East Asian model of rapid economic development and industrialization is the emphasis on developing a strong export-manufacturing domestic sector that is bolted onto a highly protected domestic consumption market. In addition to the natural advantage of being able to offer a cheap and plentiful supply of low cost labour, state interventionist policies were implemented to attract foreign firms and capital into the export-manufacturing sectors. These include tax concessions and subsidies given to domestic and foreign firms to locate manufacturing plants in various East Asian countries. Export-enhancing policies also include East Asian currency regimes that artificially suppress the value of the domestic currency from rising against Western currencies, making the cost of capital entering into these East Asian countries and buying products made in these countries cheaper for Western firms and consumers respectively. …

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