Over the last few decades, economies in Asia have been growing rapidly, until the economic crisis appeared in 2008. This acceleration of growth, in which international trade has played an important role, has helped Asian economies make impressive strides in economic development. The globalisation process has resulted in an increase in the number of international exchanges of products (and services) in both extensive and intensive margins.
Most of Asian economies have become part of growing international economic networks through exchange of goods, services and capital. Asia?s production is more fragmented than what was in 1980s or early 1990s. Today, Asia accounts for about one-fourth of world trade and world GDP, respectively. Undoubtedly, Asian economies by and large have benefited from this globalisation process.
Asian economies are now facing deceleration and increased vulnerabilities amid deepening financial crisis. Some advanced economies are advocating protectionism in trade & investment. According to some commentators, globalisation has come to a screeching halt. The World Bank in its latest forecast said economic growth among the developing economies of Asia will slow in 2009 to less than half its rate in 2007 because of slumping demand in Europe and the US. Collectively, the region will likely grow 5.3% this year, down from 8% last year and 11.4% in 2007.
At the same, the World Bank also pointed to promising developments in China, where the large stimulus package is boosting consumer and industrial demand. ?There are signs that China is beginning to turn the corner,? the World Bank report said. It predicted China?s economy would grow 7.5% in 2010, up from a forecast 6.5% rate this year.
The unfolding global financial crisis is already having major repercussions on the Asian economies differently from the one of 1997. It is quite certain that the ongoing crisis is expected to damage the existing trade pattern of Asia and subsequently production structure of the Asian economies which was built over the last few decades. The US has been Asia?s major export destination (until the crisis). It accounted for 14.10% of India?s and 19.19% for China?s total exports in 2007 (see the table). China-Asean and India-Asean exports were even much less. Now, due to crisis, the demand from advanced economies (read, EU and the US) for Asian exports has been decelerating fast, thus slowing down Asia?s production, be it manufacturing or services. If the crisis is prolonged, a structural shift in export-led production structure of Asian economies away from the advance economies to the regional market in the medium to long run is inevitable. This also gives opportunities to expand trade and investment in unexplored and potentially strong markets in Asia such as between India and China or that in the entire Asia. Asia will continue to exhibit highest growth, and hence the regional and international demand will inevitably rise.
Asia?s high underutilised savings have indirectly fuelled the ongoing global crisis, some commentators have pointed out. As the world has both Bank (World Bank) and the Fund (International Monetary Fund), Asia has a Bank (Asian Development Bank), but no Fund. Asia has to find the ways and means through a greater and balanced financial cooperation so that Asia?s vast savings is invested in the region for rejuvenating its domestic demand through increased investment in infrastructure. In doing so, short run adjustment costs would be certainly high. But, long run benefits would be even much greater. Cost of this adjustment will be much less if Asia?s trade is complemented by adequate infrastructure?regional or otherwise.
Trade is good, while protectionism is bad. More trade is part of the solution to the global crisis. Therefore, killing Doha round of negotiations means crisis will be longer, and will put the world, in popular terms, in the Kennedy round of 1960s. Therefore, Asia should intensify regional trade through greater liberalisation which will nonetheless strengthen the Doha round.
Since tariff barriers are already low, cutting a few more percentage points from already-low tariff levels wouldn?t add much to the global trade and prosperity. This is the time we give more focus on non-tariff barriers, which are voluminous. In some sense, world is yet to witness perfect and open trade regime.
Falling communication and transport costs is likely to reshape countries? (and region?s) comparative advantages in the post-crisis period in the medium to long run. Putting it differently, the benefits of national comparative advantages may wipe out, if not complemented by regional advantages such as improved trade costs and regional connectivity. Asia is standing at a juncture when regional trade has started shrinking and bringing trade facilitation initiatives to a standstill, if not tackled properly. Therefore, the need for integrated transport and logistics network in Asia is most important when ongoing global financial turmoil making it necessary for Asian countries to strengthen its regional infrastructure networks and improved trade costs in order to enhance regional demand.
To further strengthen the trade and investment climate, Asia needs much stronger regional infrastructure, which includes not only physical assets, but also ?software??such as the policies, governance, regulations and institutions that enable the development and operation of Asia?s infrastructure. Here, there is a strong role of Asia?s Bank in strengthening Asia?s regional infrastructure.
Advanced planning and coordination of Asia?s infrastructure development to support further strengthening regional production network to accommodate or adjust to the changing trade and production pattern is thus very important. This calls for a regional forum for planning and coordination of Asia?s infrastructure development.
Crisis also means opportunities. An enabling environment to trade in this new era would be that offers lower trade costs, which can fuelled Asia?s trade at faster pace when crisis is about to over. The agenda of the Asian regional cooperation therefore has to go beyond ?policy? barriers and include ?non-policy? barriers.
Asia is vast and heterogeneous. Top-down approach is better than a Bottom-up one while framing policies and institutions. To help the region overcomes the crisis and to protect it from future disaster, Asia needs a strong regional organisation which can guide and manoeuvre the regional cooperation and integration process. Towards this vein, a regional think-tank has been set-up at Jakarata with the help of Japan when the crisis was about to happen. Time has come we support and strengthen this regional organization to work effectively.
Many regional organisations appeared in Europe after the World War II and also disappeared. OECD was established in another crisis period. It was set-up to look after the implementation of the Marshal Plan in post-war crisis in Europe, but it survives from getting faded because of its high quality research agenda and guidance provided to its members. Asia should now have its own regional organisation to fill-up the gap.
It is time that Asian leaders and policy makers should start thinking how to realign production networks and supply chains to rejuvenate the regional demand. A stronger regional demand also means a much stronger global demand, deepening the globalisation.
?The writer is fellow, Research and Information System for Developing Countries, New Delhi. These are his personal views
