The Chinese Century?

During the Asia Business Conference’s first plenary session, “Asia’s Future: Regional Integration or Regional Competition?” Robert Lees, Secretary General Emeritus of the Pacific Basin Economic Council, asked us to stand up, stretch, and exhorted us MBAs to go out and play a role in making the world a better place.

He then declared, “China is the 800 pound gorilla on steroids. And Shanghai is destined to become the financial capital of Asia.” Mr. Gary Rogers, Vice Chairman of General Electric, echoed his thoughts, remarking that the Association of South East Asian Nations (ASEAN), the countries formerly known as the “Asian Tigers,” used to be the world’s export center for technology manufacturing.

No longer so, said the panelists. Everything has moved to China, now the global production center for the computer and cellular phone industries, and it seems for pretty much everything else.

Mr. Homi Kharas, Chief Economist at the World Bank, pointed out that China attracted 83% of all foreign direct investment (FDI) into Asia last year. These are staggering facts and numbers. The panelists suggested that while everyone is somewhat aware of the emergence of China as a major power, we might tend to underestimate the extent of its ascendancy in recent years, and the degree to which this may be taking place at the expense of other Asian economies.

India, the other heavy weight in terms of size and population, has so far not been able to capitalize on its scale in the same way as China. Ambassador Susan Esserman attributed this to India not pursuing an export-oriented growth strategy, and isolating itself from regional multilateral trade agreements.

Esserman proposed India’s socialist heritage since Nehru, and its Ghandi-inspired ideals of self-dependence as possible root causes for its underperformance. However, one problem with this argument is that China does not seem to have been hampered by the fact that, at least theoretically, it is still straddling between communism and capitalism.
Esserman observed nevertheless that China’s emergence at the leading regional power is “shocking India out of its inward orientation”. It remains to be seen whether India can shift gears towards greater regional cooperation, and whether it can capitalize on its intellectual capital to achieve for services what China has accomplished in manufacturing.
Japan, despite constituting 68% of Asian GDP, represented around 10% of the discussion time. Bureaucracy was blamed for Japan’s fall from “economic miracle” to “almost fading entity.” HBS Professor Yasheng Huang, the panel’s moderator, praised the Japanese system for its resilience. Lees felt the Japanese people should instead be praised for their tenacity. To relieve Japan’s economic woes, Rogers suggested a “1980s U.S.-type restructuring” as a remedy, and Lees advised, “Japan needs to make babies” or allow immigration.

Even more so than Japan, other Asian countries were seemingly off the radar screen in the discussion, though Lees noted that a unified Korea could potentially be a formidable economic power. Generally, the following issues were highlighted for consideration when reflecting on Asian integration versus competition:

o The region cannot be viewed as a monolith.

o Minimal institutions and consensus-building characterize Asian regional agreements. Existing frameworks foster cooperation rather than European-style integration.

o Rapid liberalization over the past decade in other regions, such as Latin America and Eastern Europe, has eroded ASEAN’s comparative advantage.

The future of Asia fundamentally depends on the type of leadership that China, and to a lesser extent Japan, will provide and the way the “Rest of Asia” deals with what is going on in China. There is opportunity, with ASEAN countries’ products currently representing 14% of China’s imports.
Yet as Lees observed, “Just because your country is in Asia is no guarantee for a good economy. And just being in the neighborhood of a giant doesn’t guarantee success.”

The thought that hung over the plenary session and yet remained unsaid, is that the 21st century, which academics a decade ago thought may be called the “Asian century,” might instead end up being “the Chinese century.” On the other hand, the meteoric rise of China to preeminence raises uncomfortable questions about the importance of democracy and respect for human rights as prerequisites for continued, robust development. To what extent is China’s success due to technocrats not being “constrained” by democratic processes, compared to Japan or India for instance? This issue was not raised in this plenary session.
The flip side to this question should also be examined: Is our fascination with China’s achievements making us blind to internal structural weaknesses that may impact the sustainability of its growth, as we previously were with Japan in the 1980s and again with the Asian Tigers in the 1990s? Future HBS Asia Business Conferences will tell.
Hisham El-Khazindar (NB) can be reached at helkhazindar@mba