china keeps building, page-12

today's Australian

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Asia to emerge stronger from credit crunch


Rowan Callick, China correspondent | October 27, 2008

HERE'S the good news. No country in Asia will fall into recession from the meltdown.

Everywhere is slowing, since everyone's export sector -- the cornerstone of the Asian economic surge -- is falling harder and faster than any government-stimulated domestic demand can compensate for. But in Asia this is not, as in the West, a financial sector crisis.

Risk management, which failed in the US and Europe, is not done better in Asia. But most Chinese and Indian savings remain in conservatively run, state-owned (government-guaranteed) banks.

Japan's banking system has been purged of much of its weakness through its own struggle to escape stagnation in the past decade. Southeast Asia largely cleared up its financial institutions after its own crisis a decade ago.

And as the rest of the world steadies -- a move towards guarded optimism, perhaps triggered by a Barack Obama win -- it will be seeking a new safe haven, a zone of reliable growth, for its savings.

That is Asia -- from India eastwards. Asia's weighting, financially and geo-strategically, is emerging enhanced from the meltdown.

The good news for Australia, in particular, is that it does most of its trade with this region. Not so good, is our failure to invest adequately there. That's one reason why our pensions have been so painfully clobbered. We have been overweight, for too long, on the US and Europe. Investing in Asia is still not easy, but these days it shouldn't be beyond our corporate wits. Asia's economic strength will seek a geo-political expression.

The big change the present disaster will most likely trigger is the entry of Asia's big powers to all-important policy setting institutions. If that doesn't happen, the outcome is clear: as at the World Trade Organisation's Doha round, and as at the talks surrounding the successor to the Kyoto Treaty on climate change, those big Asian powers -- China and India -- will do their own thing instead. They won't walk away, but they simply won't buy the ready-made recipes handed down to them by the West.

Japan remains economically crucial of course, but still fails to box that weight politically. But it too will find ways to express itself within this emerging world of influence.

It's not that the Asian giants are likely to lose their immense capacity for globalisation. In fact, they are becoming the standard bearers for this economic thrust, which since China opened in 1978 and India in 1991 has delivered hundreds of millions of their people out of poverty.

It's more that the rewards for co-operating in implementing decisions made for them by North America and Europe, are less attractive.

Things will stabilise and get back to something like normal but it won't readily happen in the power game. Places need to be found for China, India and Japan at the top tables -- starting with the UN security council, and the G7 or whatever configuration succeeds it.

After Asia's own financial crisis a decade ago, China -- whose currency steadiness played a crucial role in rescuing the region -- decided that it should build on that leadership by helping develop more useful regional institutions.

Thus its stress, since then, on the formulation that places together the countries of the Association of South East Asian Nations with it, Japan and South Korea -- imaginatively branded "ASEAN Plus Three". This has shifted the Asian centre of gravity north, away from the old ASEAN comradeship among leaders based on "eating durian, singing karaoke and playing golf".

ASEAN Plus Three is the cornerstone of China's regional vision. But nothing is quite settled on this front. Although Prime Minister Kevin Rudd's own recent suggestion of an Asia-Pacific Union was hazily conceived, the timing now looks good.

The institutions we have don't measure up to the realities of today's Asia. But whatever new body, or reshuffled body, may emerge, it almost certainly won't include the US, as Rudd has proposed.

This isn't such a disaster, though. Most countries in Asia want to see a strong continued US security presence -- including China, which prefers that to the alternative of a massively re-armed Japan.

The Chinese people broadly, feel a strong affinity with Americans. And politically, the connection is intense -- underpinned by the six-monthly "strategic economic dialogues" between most of their cabinets.

But the US encouraged the emergence of the European Union without insisting that it become a member, and there's no reason why it shouldn't take the same position on the development of a more effective Asia-wide body.

The election of Barack Obama would ease the acceptance in the US that this is already a multi-polar world. The strategic landscape immediately after the collapse of the Soviet empire in 1991, with a single superpower, has proven unsustainable.

Even within Asia itself, while China is clearly the superpower, India is emerging as a massive influence. Its "Look East" focus, while still needing greater energy, is crucial for it and for the region.

Already, 3000 Indian companies are operating in Singapore, its principal base for its drive back into southeast Asia, a zone of half a billion people where a millennium ago it was the great player.

Its sources of "soft power" in the rest of Asia are considerable, including its role as the birthplace of Buddhism and its democratic governance. Most Asian countries are today democracies.

But India's leaders are not setting the country up for power-rivalry with China. They prefer the notion of multi-polarity. They admire China, and wish to emulate its social and economic success, in which they are lagging, but clearly on the same road, with China evolving from its base as "the factory of the world", India as "the office of the world".

Today, it is increasingly natural for Australians to engage as insiders in discussion about the evolution of Asia. The Howard government's hard-won achievement of having Australia accepted as a full member of the East Asia Summits was a catalyst and a product of this change. Another big driver is the wave of Asian students. Australia is today the biggest target for Chinese students overseas, and the second biggest, after the US, for Indian students.

Agencies like Melbourne University-based Asialink, chaired by Sid Myer, are helping this process. For instance, a fortnight ago it organised -- not in Australia but in New Delhi -- the latest of its series of regional "conversations".

This conversation brought together businesspeople, diplomats, academics and non-government players round a table with counterparts from India, including MPs, with the Confederation of Indian Industry the joint host. One of the three top economic decision makers in India, Montek Singh Ahluwalia, and Foreign Secretary Shivshankar Menon, spoke.

What especially surprised and impressed the Indian participants, was that Asialink brought to the table movers and shakers from southeast Asia such as Vietnamese entrepreneur Ly Qui Trung, Laos' ambassador-at-large Sayakane Sisouvong, the dean of the Arts and Social Sciences faculty at the University of Singapore Tan Tai Yong, and the executive director of the Kuala Lumpur-based international NGO Global Knowledge Partnership, Rinalia Abdul Rahim.

In a parallel meeting at the same time, delegates at the India-Japan-US Trilateral Dialogue, in which Richard Armitage led the US delegation, raised concerns about the "Finlandisation" of Australia -- its readiness to take the part of its increasingly dominant economic partner, China.

Insofar as some influential international players view it as an issue, it is one. But it is less of a problem than being disregarded as irrelevant to the region of which we are a part.

It is a suitable subject for domestic debate, of course. But it is most readily answered by our participation in the talks on the emerging structures, and hopefully more also, as an investor, in Asian economies.