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Developments in East Asia

ECONOMIC INTEGRATION; CHALLENGES TO MALAYSIA. Developments in East Asia. 26/4/2010 @ NCCIM Forum on “A Strong China: Implications and Challenges” Crowne Plaza Mutiara, Kuala Lumpur. Steven C.M. Wong Assistant Director-General

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Developments in East Asia

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  1. ECONOMIC INTEGRATION; CHALLENGES TO MALAYSIA Developments in East Asia 26/4/2010 @ NCCIM Forum on “A Strong China: Implications and Challenges” Crowne Plaza Mutiara, Kuala Lumpur Steven C.M. Wong Assistant Director-General Institute of Strategic and International Studies (ISIS) Malaysia steve@isis.org.my

  2. Overview

  3. World awash in money Stabilisation, recovery & reform: Crisis management (2008)  demand management (2008-present)  institutional/ regulatory reform (?) • Liberalisation  globalisation financialisation • Inflated asset & commodity prices (bubbles & speculation) • Resource misallocation – capital hoarding, risk/reward tradeoffs  impact on “real activity” • Shape of recovery remains open question  significant residual risks (see, IMF, World Economic Outlook, April 2010) • Significant shifting of liabilities to next generation

  4. World - deficit & debt driven

  5. Competing for global supremacy Off-shoring, outsourcing & ownership concentration: Fragmentation of value chain to continue but business concentration to increase • Dominance of financial capital (M&A, private equity, etc.) • Ownership & control of key technologies and IP • Ownership & control of natural resources • Trade in goods  flattened/competitive/”normal” profits • Trade in service industries  contoured/imperfect/ “excess” profits • New frontiers – knowledge, services, investment rules, etc.

  6. East Asian developments • Managing the differential & eastward shift in economic gravity: Divergence, unease, tensions and low-level conflicts (so far). Key question is how to avoid missteps and escalation • Economic growth between East & West: high unemployment + low/no job recovery  economic stagnation/political consequences • Bilateral currency (esp. RMB) & trade (e.g. tires, steel, chickens, etc) pressure • Decoupling of business cycles/economic growth – more myth than reality at present sustainability @ risk • Conflation of economic, political & security interests  regional architecture & institutions essential

  7. Is China’s economy decoupled? China US EU Nominal GDP US$14.25t $14.25t (PPP) Share of World GDP (PPP) 20.5% Nominal GDP/capita US$46,380 $46,380 (PPP) Nominal GDP US$16.45t $14.79t (PPP) Share of World GDP (PPP) 21.2% Nominal GDP/capita US$38,457 $29,729 (PPP) Nominal GDP US$4.91 $8.76t (PPP) Share of World GDP (PPP) 12.5% Nominal GDP/capita US$3,678 $6,567 (PPP)

  8. Is China’s economy decoupled? V-A: Value-Added Source: G.Pula & T. Peltonen (January 2009) *Excluding China Source: S.Y. Kim, J.W . Lee & C.Y. Park (June 2009)

  9. Balance of forces “STEADY-STATE??” “BI-DIRECTIONALITY” RATE OF RELATIVE CONTRACTION RATE OF RELATIVE EXPANSION “BALANCING FACTOR” Eg. BRI, etc.

  10. Malaysian challenges • It is essential for Malaysian policymakers to adopt systems thinking and not formulate piecemeal policies Systems thinking recognises that the component parts of a system can best be understood in the context of relationships with each other and with other systems, rather than in isolation • There must be clear objectives based on strategic national interests, realistic priorities and logical decision-making Malaysia cannot afford to engage in the global politics of alignment, balancing or exclusion. By paying attention to its economy & development, it can still wield considerable middle power influence • Economic integration may be a necessary (i.e. non-optional) condition for economic growth but is not sufficient Malaysia requires economic integration; non-participation equals peripheralization. But without vibrant investment and innovation, economic integration merely leads to a hollowing-out

  11. Malaysian challenges • Formal economic integration must go beyond the superficial and symbolic if it is to truly encourage economic dynamism Economic arrangements that have neither depth nor speed are not substantive and will be of little interest to the private sector • China is a complex country with extraordinary strengths & weaknesses and represents both threats and opportunities It is not very helpful to regard China in mono-dimensional terms. Like all countries it is a composite of many qualities, some which are to Malaysia’s advantage and others not. • One of Malaysia’s most important challenges will be to locate itself in a global/regional economic sweet spot. China is a growing part of the global economy. For Malaysia to distance itself from it owing to competitive pressures is negative and ultimately debilitating.

  12. Thank you Steven C.M. Wong Assistant Director-General Institute of Strategic and International Studies (ISIS) Malaysia steve@isis.org.my

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