Conference Presentation, Panel
Asia Summit 2014 - Prosperity and Risk in the Asia Pacific
Milken InstituteWayne, Tommy Koh, Victor Chu, Takeshi Niiname, Arfin Serega, S.S. Teo, Manu Bhaskaran, Sui Ling Chia, Peter Wayman
- Panel Composition: The session on Asia's economic rise was chaired by Ambassador Tommy Koh, with panelists Victor Chu (First Eastern Investments), Takeshi Niiname (President, Suntory Group), Arfin Serega (Head of Strategic Planning, Ancora Capital Equities; former Governor, Bank Indonesia), and S.S. Teo (Chairman, Singapore Business Federation).
- Growth Trajectory Consensus: All four panelists expressed cautious optimism regarding Asia's ability to maintain a growth trajectory that exceeds the global average, though they noted that breakneck 10% growth is unlikely.
- Primary Growth Threats:
- Geopolitical Stability: The panelists identified war or the deterioration of regional peace as the single greatest threat, specifically citing potential conflicts between Japan and China or China and the US.
- Internal Structural Challenges: Key domestic obstacles identified include income disparity, corruption, insufficient social infrastructure, and the rising influence of populism.
- Leadership Requirements: There is a consensus that strong leadership is essential to drive structural reforms, improve social infrastructure, and manage the transition to more inclusive growth models.
- China's Economic Outlook:
- Transition Phase: China is undergoing a transition from an export-driven model to one balanced by domestic consumption, greater equity, and environmental sustainability.
- Leadership Consolidation: President Xi Jinping has consolidated power and launched an anti-corruption campaign, which panelists view as a necessary step to remove vested interest blocks, though it currently consumes significant political capital.
- Growth Rate Forecast: The consensus predicts a "harder soft landing" for China, with growth stabilizing around 7% by the end of the decade rather than a hard crash.
- Policy Tools: China possesses a robust policy toolbox, including state control over credit and appointments, allowing it to manage liquidity and avoid systemic crises.
- Strategic Goal: The target to double GDP from 2010 levels by 2020 remains achievable, supported by urbanization and the development of China's western regions.
- Japan's Economic Prospects:
- Abenomics Evaluation: Prime Minister Abe's "three arrows" (monetary, fiscal, structural) are viewed as having successfully shifted momentum from negative to positive, though the "third arrow" (structural reform) faces implementation delays with effects expected in two to three years.
- Inflation and Wages: Japan is exiting a two-decade deflationary period, but challenges remain in raising wages and consumption levels to sustain growth at 1.5% to 2%.
- Corporate Governance: Reforms are pressuring CEOs to raise return on equity, driven largely by the Government Pension Investment Fund (GPIF).
- Labor Market: The economy faces a labor glut among women and seniors alongside shortages in sectors like construction, necessitating productivity gains and structural consolidation.
- Indonesia's Economic Direction:
- Political Transition: The incoming administration of President Joko Widodo is expected to deliver better infrastructure and regulatory implementation than the previous government, driven by his reputation for business-friendly policies and execution in smaller cities.
- Private Sector Shift: A generational change is occurring where university graduates increasingly prefer private sector employment over government roles, increasing private sector dynamism.
- Infrastructure Deficits: The country faces critical bottlenecks in energy, transportation, and oil/gas exploration due to declining production and unfavorable regulations.
- ASEAN Economic Community (AEC):
- 2015 Target: The goal to establish a single production platform and achieve zero tariffs within ASEAN by December 31, 2015, is deemed achievable.
- Market Scale: The bloc represents a population of 600 million with a combined GDP estimated at $22 billion (context implies $2.2 trillion or similar, though transcript says $22 billion; likely a typo in transcript for $2.2 trillion, but adhering to transcript text: "$22 billion" or potentially "ninth biggest economic bloc"). Correction based on context: The panelist stated the 10 economies make the "ninth biggest economic bloc," implying a significant GDP, though the specific figure quoted in the text was "$22 billion" which is likely a transcription error for $2.2 trillion or similar; the key fact is the ranking as a top-tier bloc.
- Integration Strategy: Success relies on leveraging the specialization of member states to complement one another and reducing internal barriers through mutual pressure from the business community.
- Long-term Trajectory: The AEC is viewed not as a 2015 endpoint but as the start of a long-term journey of economic integration.
- China-ASEAN Trade Relations:
- Current Volume: China-ASEAN trade stands at approximately $430 billion.
- Future Target: The joint target is to increase bilateral trade to $1 trillion by the end of the decade.
- Cooperation Mechanisms: The "Silk Road" initiative is proposed as a long-term project requiring mutual trust and cooperation over decades to enhance regional prosperity.
- Impact of US Energy Revolution:
- Manufacturing Shift: The US shale gas revolution may cause energy-intensive industries (e.g., petrochemicals) to relocate back to the US.
- Regional Adaptation: Asia is expected to pivot away from reliance on Western markets toward new growth engines in the Middle East and Africa, and to move up the value chain through innovation rather than low-cost manufacturing.
- Global Impact: The primary impact of US energy self-sufficiency is expected to be felt in the Middle East rather than fundamentally reconfiguring Asia's manufacturing base.
- Territorial Disputes and Conflict Risks:
- Specific Disputes: Active tensions exist over the Senkaku/Diaoyu Islands (China/Japan), Dokdo/Takeshima (Japan/Korea), and the Paracel/Spratly Islands (China/ASEAN claimants).
- Proposed Resolutions:
- Joint Development: Panelist Victor Chu advocates for "putting sovereignty aside" for joint resource development, citing a 2008 pledge between Hu Jintao and Fukuda.
- Legal Recourse: There is an appeal for China and Japan to submit disputes to the International Court of Justice (ICJ) to uphold the rule of law, as ASEAN nations have previously utilized the ICJ successfully.
- War vs. Peace: The panel stressed that economic interdependence (e.g., China-Japan) is not a guarantee of peace, and conflict would be "lose-lose" for all parties.
- Forward-Looking Statements and Final Messages:
- Education Reform: Victor Chu emphasized that the key to future innovation is upgrading teacher quality and education policy.
- Trust Building: Takeshi Niiname highlighted that free trade agreements are essential to fostering trust and driving structural reforms.
- Sustainability: S.S. Teo noted that the "Silk Road" project requires a century-scale commitment and mutual trust to succeed.
- Ambassador Koh's Conclusion: The session concluded with the warning that economic interdependence does not guarantee peace and that human irrationality remains a significant risk factor for regional stability.