Will Asia Remain the Workshop of the World?

27.11.2017

The second session of the eighth Asian regional conference of the Valdai Discussion Club, organized in partnership with the Korea Institute for International Economic Policy (KIEP), was dedicated to Asia’s economic prospects. Will Asia continue to be “the workshop of the world” or will it increasingly shift towards more balanced production and consumption?

Lee Il Houng, member of the Bank of Korea Monetary Policy Board, who was moderating the session, pointed to the unique place of Asia in the modern global economy. Consumption in the Asian countries has grown by 14% in recent years and most countries of the region have trade surplus. According to Alexei Volin, Deputy Minister of Telecom and Mass Communications of the Russian Federation, the scope of Russia’s participation in the Asian economy is so far inadequate to the country’s ambitions. He singled out the following reasons: mentally, Russia remains a European country and the Russian Far East is underpopulated. However, in recent years, Russia’s participation in Asian affairs has grown, along with trade. More and more Russians travel to Asia. Today, Russia’s economic policy should be guided by a number of principles, including maintaining ties with the traditional partners and diversification of partners in the Asian countries, keeping the priority of EAEU tasks and balancing bilateral and multilateral mechanisms at the same time. Small and medium businesses should be involved – an interesting sphere can be the development of digital economy, where all participants begin from approximately the same level. Commercialization of the humanitarian sphere is also important. Looking into the future is a crucial task of the conference, Volin said, but this future will result from our efforts.

According to the next speaker, Professor Han Hongyul from the Hanyang University, economic interdependence between the United States and most countries of East and Southeast Asia is a crucial factor of regional economic development. However, international trade tends to decline at the same time. What does it all mean for the Asian economies? Should they become more oriented towards domestic consumption? Today, intraregional trade is growing at a high rate, but infrastructure should develop accordingly. Inequality remains a serious problem, small and medium businesses must be supported. Also, the Korean participant emphasized the need for Asian countries to cooperate in preserving the multilateral trade regulation mechanisms, first and foremost, the World Trade Organization.

The next speaker, Professor Xiang Lanxin, focused on his understanding of the Chinese Belt and Road initiative. According to him, although this initiative resembles the grand infrastructure projects of the second half of the 19th century, it does not pursue similar colonial objectives. Another important part of the initiative is development of China itself, especially its western provinces, and export of production capacities. Will the project be successful? The answer depends on the Chinese government’s ability to find sufficient funds and to solve the problem of human resources in the financial sphere. But potential improvement of relations with the United States can facilitate implementation of China’s projects.

Eduardo Pedrosa, Secretary General of the Pacific Economic Cooperation Council, pointed to a number of challenges faced by the economies of Asia-Pacific. These include the decline in global trade, the slowdown in China, the lack of political leadership, the threat of protectionism, the absence of the necessary structural reform whichs East and Southeast Asia fail to implement fast enough. For example, protectionism has grown twofold over the past five years and is already threatening economic development. Other important factors include population ageing and general relative decrease in the working age population. Fragmentation of international economic governance in Asia-Pacific plays a negative role, too.

During the discussion that followed, participants in the conference raised such issues as the role of digital economy in Russia’s integration with Asia-Pacific, the structure of value added chains in Asia and their impact on the intraregional trade, prospects of return on investment China is planning to make in the Belt and Road countries, development of infrastructure and the investment it requires. The issue of whether China’s initiatives of the recent years are an opportunity for the participating states and whether China aspires to export its model of world economic governance, invited a lively discussion.

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