Repositionning Asia after the crisis

Dr. Jacques Attali January 2011

Repositionning Asia?

Before crisis

After crisis

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Summary

So far, everything seems very good in Asia - except Japan However, Asia growth could be limited by short and long term factors
Ecological Financial Political

The path to a sustainable growth in Asia is social and political peace in order to attract and retain world elites An economic and political integration should be the main regional objective

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So far, everything seems very good in Asia - except Japan

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Growth and external balances: the unique position of Asia

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But major differences within Asia during the crisis

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 and higher homogeneity in the post-crisis outlook

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Growing regional trade integration among developing nations of Asia

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with a critical role played by China

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Fiscal positions have deteriorated, but to a limited extent

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A proof of Asian dynamism: patent fillings

R&D wages in China are up to 20 times less in China compared to Europe allowing numerical teams to fill patents.

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However, Asia growth could be limited by short and long term factors
Ecological Financial Political

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Asia Forecoming ecological risks

Water Electricity Agriculture Rare earth elements Carbon emissions Oil & gas prices rises

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Focus on Carbon emmissions: the G2 is everywhere

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Asia Forecoming financial risks

Inflation Asset bubbles Excessive investment 'Overheating'

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Stronger price pressure all over Asia

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Critical prices pressures: the case of food prices in India

In december 2010, Indian food prices have hit their highest level in more than a year, rising at an annual rate of 18 per cent A worrying sign:
Surging commodity prices is hitting the broader economy Food-related riots Poverty

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Rising oil prices theaten the economic dynamism in Asia

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Asia Forecoming financial risks

Inflation Asset bubbles Excessive investment 'Overheating'

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Asia potential asset bubbles

Leverage is gradually starting to build, and the narrative that Asia's rise is making things "different this time" is sneaking up on investors. The risk of asset bubbles is well known. As long as the cost of funds is kept artificially low, it's hard to tell where a healthy rally ends and the bubble begins. Bubbles never grow the same way. Regulator can only chase the obvious bubbles... Indian stock market is the most expensive in the world, average PER is 18,8x 2010 earnings. Shanghai Stock exchange average is 16x. In the first 10 months of 2010, India attracted $78bn in Foreign direct investments, twice as much as in 2009.

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Asia Forecoming financial risks

Inflation Asset bubbles Excessive investment 'Overheating'

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Asia Forecoming financial risks : excessive investments

Excessive investment fuelled by low interest rates : initially, of course, this is the intended effect of monetary loosening. If rates are kept low too far into the recovery, investment will keep rising at an unreasonable pace. Asia appears especially vulnerable to this : for each USD printed by the Fed, 0,40 cents goes directly to China. In Asia, low interest rates doesn't boost consumption but encourages local firms to build empires and governments to race their countries towards the future. Excessive investment, however, eventually undermines returns and can shake the financial foundation of an economy. This happens in the private as well as in the public sector.

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Asia Forecoming financial risks

Inflation Asset bubbles Excessive investment 'Overheating'

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Asia: signs of overheating

China december exports rose 22% y-o-y in december 2010:

As long as we can't trade with martian, an export rise correspond to a negative trade balance eslewhere, mainly in the US and Europe : for the time being, Asia is vulnerable to those countries.

Asia represent in 2010 50% of worldwide commerce going through sea, in a constant rise since 1980 Output in Q4 2010 is up, again. Input price inflation surges Supply chain delays persist

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Political risks

Corruption Intellectual property protection and countertheift Lack of financial regulation Domestic Consumption
Household consumption makes up a small percentage of Asia GDP, with most estimates between 35 to 40%. In contrast, consumption contributes to 65% of the GDP in the United States. Aspiration to consume. Salaries rises > 20% in average in China. Construction of a new economic paradigm.

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The path to a sustainable growth in Asia is social and political peace in order to attract and retain world elites

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Is there an Asiatic developement model?

Is Asia on it's way to Occident? In terms of GDP per capita:

China is today where Japan was in 1965, and Korea in mid-1980. India is today where Japan was in 1950, and Korea in early 1970.

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Asia economic growth and wages

Economic growth does not solve the povertry issue in Asia

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Asia is still one of the most conflictual region in the world

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An economic and political integration should be the main regional objective

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The Noodle Bowl of preferential trade agreements in Asia

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Monetary cooperation: focus on Chaing-Mai agreements

A currency swap signed in december 2009, based on a currency fund of more than 120 billon USD, aimed at containing "currency wars". The agreement became "multilateral" in 2010. A first reflexion on this agreement took place after the 1997 crisis, in order to avoid new occurence. The 2008 crisis legitimated the agreement. The members are 10 ASEAN members (Brunei, Cambodia, Indonesia, Laos, Malaisia, Myanmar, Philippins, Singapore, Thailand and Vietnam), plus China (including Hong-Kong), Japan and south Korea. A first step. However, the amount of the fund is low if a global crisis arise. Beside, most of Asian currencies are anchored to the US Dollar, rather than to Renminbi or Yen. A regional currency unit would be a great progress for regional exchanges.
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Conclusion: The call for an Asian Union

An Asian Union should be the 2020 regional objective.

Without this Regional union, the key risks to address would be: an (armed) conflicts between asian Nations (Korea) A G2 between China and USA, excluding the rest of Asia and Europe In order to complete this objective, Asian governement should: Establishing talks between Asia and Europe: you have a lot to learn from our past experience Asia should stand in favor of a worldwide government

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Thank you for your attention. Comments and views are welcomed : j@attali.com