The world has seen a significant amount of rebalancing in recent years, perhaps most noticeably when it comes to the global economy, where there has been a growing shift towards fast-growing developing economies since the global financial crisis in 2008/2009.
Contrary to the developed countries in the West, which suffered deep and potentially permanent scars as a result of the crisis, most developing economies, in Asia and elsewhere, have seen V-shaped recoveries that have allowed them to recover whatever ground was lost back then.
But Asia hasn’t decoupled, Supachai Panitchpakdi, the secretary-general of the UN conference on trade and development (Unctad), argued at the CLSA Investors’ Forum earlier this week. The proof, he said, is in China, which is still feeling the effects of the malaise in Europe in terms of a slowdown in exports.
Sure, domestic consumption has been able to pick up some of the slack, but China began to feel a while back that “it needs trade to drive growth — hence why it has allowed the renminbi to depreciate a little”, he said.
A former head of the WTO, Supachai said he is concerned about the level of protectionism that has emerged since the crisis — not in terms of tariffs, because they have been coming down, but in non-tariff areas, such as product standards, technical regulations, rules of origin, subsidies, health and safety regulations, and complex border procedures. The result of this is that “the growth rate of trade has been shrinking”, he said.
While acknowledging that Unctad cannot tell governments what to do, Supachai said that if it could do so, he would stress the need to get back to the trade negotiation table and to try and finish the Doha negotiation round. “I would tell them to keep their markets open and don’t negotiate more restrictions. We need to depend on trade.”
“People are saying that Asia needs to consume more to make up for the short-fall in exports, but that isn’t the problem. Asia is consuming. The most important thing is that regional markets remain open, so that rising domestic demand in each country is met not only by domestic enterprises but also by those operating in other countries of the region,” he said.
At the same time, he argued that China should make use of the current “growth pause” to reduce the imbalances in its domestic economy, which are impeding its progress. For one, private consumption needs to take on a greater role relative to investment. But China, like many other countries, also needs to deal with increasing inequality and a widening gap between rich and poor that has become more pronounced in the past 30 years and which is having an impact on total demand, job creation and, importantly, social stability. Higher wage growth would help address this issue, he said, and added that China made a mistake in trying to continue to compete with lower wages.
“Just because you grow, doesn’t mean you eliminate inequality,” he said, while noting that a commonly used measure shows that inequality is a phenomenon that is rising in the US too.
Another global imbalance that needs addressing, according to Supachai, is the under-representation of developing countries in key global institutions, such as the IMF (this is the case even after the latest adjustment to quotas and voting shares), and more generally with regard to their voice when it comes to global economic governance.
“There is a need for global governance and collective solutions on issues like climate, energy and infrastructure,” he said and added that globalisation has moved so far beyond us and is driven by factors that we cannot control, like the ease by which we can travel and connect around the world, that it cannot be ignored.
Despite the current problems in the eurozone, he argued that Asia needs more economic and financial integration and a mutual recognition of standards and regulations (as opposed to more cooperation), in order to strengthen its voice in a global context. Asean is a real opportunity, he said, but the members are wasting the opportunity somewhat by focusing mostly on lower tariffs and more trade. This is not as important as becoming more integrated in terms of the overall economy and financial systems, Supachai said. To make it as effective as possible, the integration needs to include Asean plus three (the 10 Asean member countries, plus China, South Korea and Japan), although he acknowledged that this is difficult due to geopolitical issues.
On a separate note, he argued that a key issue in the West is that “we have not yet dealt with the guys that are so big that they cannot be allowed to fail.”
“Why should we allow banks to be mismanaged? I was quite pleased when the US let Lehman Brothers collapse and I wish more banks in Europe and the US would be dissolved. When it comes to rescuing, we need to focus on rescues that maintain productivity and labour growth,” he said, and pointed to the bailout of General Motors as one of best things done by the Obama administration in the past four years.