Australia is awash with hype about the "Asian Century". This is natural. Asia is the world's fastest growing region, and accounts for the lion's share of Australia's exports. Asia's rapidly urbanising and industrialising economies need Australia's natural resources, and have a strong demand for our education and tourist services. This "love affair" between Australia and Asia has only intensified in recent times as Europe and the US try to muddle through their financial crises.
However, a close reading of Asia's situation suggests that there are many risks in Australia's high dependence on Asia ...
To date, the many fractures in Asia's development models may have affected the quality of growth more than the quantity of growth. But looking ahead, there are great threats to the sustainability of Asia's high growth path.
Asia's successful economies have generally relied on export-oriented growth, buttressed by high domestic investment. The limitations of this model are evident in Japan whose economy has been in a deep funk for two decades. Japan never made the transition to a domestic-demand and innovation-driven economy. Rather it spent its way to a massive public debt, and failed to prepare itself for the burden of an ageing population. Most other Asian countries face more difficult challenges as they need to rebalance their growth away from Western export markets at an earlier stage in their development process, and many like China have very rapidly ageing populations. In contrast to Japan, China will become old before it becomes rich.
Rapid urbanisation is also an important driver of growth, as people move from rural to urban areas, and shift from low value-added agriculture to higher value added manufacturing and services. Hong Kong, Singapore and Tokyo have succeeded very well, and become global centres of finance, business and culture. But the cases of Kolkata, Djakarta, Dhaka and Manila to name just a few show the downside of urbanisation. Their vast swathes of slums and squalor are breeding grounds for crime, violence and instability, which can undermine the economic growth process.
What's more, 15 of Asia's cities figure among the world's twenty cities which are the most exposed to rising sea levels due to global warming, namely: Kolkata; Mumbai; Dhaka; Guangzhou; Ho Chi Minh City; Shanghai; Bangkok; Rangoon; Hai Phong; Tianjin; Khulna; Ningbo; Chittagong; Tokyo; and Jakarta. And the concentration of Asian populations in cities means that they are more vulnerable to natural disasters like earthquakes, floods, tsunamis, and typhoons which strike the region with great regularity.
Providing citizens with the opportunity of participating in economic growth ("inclusive growth") can be a very important contributor to development. But as reflected in the region's widening gaps between rich and poor, too many people are excluded from opportunity through inadequate access to education and health services. Discrimination also excludes too many groups from opportunity -- like women and youth (especially in Japan and Korea), lower caste citizens in India, and indigenous peoples in many countries.
Effective democratic governance, which is essential to become an advanced economy, has very shallow roots in Asia. Only three countries have mature, well-functioning democracies, namely Japan, Korea and Taiwan. But even Japan has long suffered from a chronic lack of leadership. Fragile democracies like India, Indonesia and the Philippines are riddled with corruption and bureaucratic red-tape which undermine the business investment climate. The Chinese Communist Party has proved to be very effective in mobilising resources for development. But it is looking very fragile in the face of an increasing prosperous, well-educated and well-informed population which is disgusted by corruption and human rights abuses, and wants freedom. A deeply worrying governance problem in Asia is the rise of international economic crime, in the form of human trafficking, money laundering, counterfeiting and piracy, and many forms of cyber-crimes.
Cooperation between neighbouring countries is essential for peace and prosperity. And Asia has many examples of successful cooperation -- like intra-regional trade and investment, free trade agreements, the ASEAN community, and other organisations like APEC, the East Asian Summit and so on. But the region is bristling with tensions due to lingering historical ill-feeling toward Japan, disputed borders between almost all Asian neighbours, and the growing conflictual relationships between China and its neighbours in the East and South East China Sea. While no-one wants war, history shows that accidents can always happen.
In the global arena, Asia has still not made its mark effectively -- despite its potential for great contributions. Japan has always been a quiet participant. China is still too preoccupied by domestic stability to take a lead globally. India remains a feisty, though perhaps not very effective, participant in global discussions. In contrast, Korea is demonstrating a capacity for global leadership on issues like green growth, information technology and education. Overall, while the West is in relative decline, it still dominates multilateral cooperation.
Asia has managed to stun the world to date with its rapid and massive reduction in poverty, and the rise of its middle class, despite fractures like corruption and over-dependence on exports to Western markets. But rapid development has also been responsible for opening new fractures like social inequalities and tensions between more self-confident neighbours.
All of these fractures have now reached the point where they will bite not only the quality of growth, but also the quantity. And the development challenges facing Asia remain enormous, with half the region still living on less than $2 a day, and the majority of its much-vaunted middle class being in the lower middle class category (consumption of $2-4 a day).
Where does all this leave Australia?
The land "down-under" should keep surfing the Asian wave for all long as it lasts. But our business and government leaders should refrain from putting all their eggs in the Asian basket, and should certainly diversify away from their China-centric approach. The Australian government should also make better efforts to capture more of the "rents" of the resources boom, and invest them in other national assets like education, research and development, and infrastructure. Moreover, business and government need to engage more seriously with the whole region in the Asian Century project, whose successful realisation is still very much a possibility if the quality of political and economic governance can improve dramatically.