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One of the reasons India’s economy grew slower compared to China was  because they were more domestic oriented.
One of the reasons India’s economy grew slower compared to China was  because they were more domestic oriented.

Closer Cooperation Driving Asia Growth

One key reason behind Asia’s economic growth is its integration into the global supply chain. While Asian economies used to follow a “flying geese” model, which essentially meant countries followed one another in terms of investment, the region today fo

Closer Cooperation Driving Asia Growth

The key to Asian economic growth in 2018 will be greater friendship and cooperation between countries, according to the president of the Asian Development Bank.

One of the reasons behind Asia's success in growth and development is the region's successful fostering of a "sense of cooperation" between countries in Asia, Takehiko Nakao told CNBC on Monday.

"There can be differences in opinions, but it is important to manage and improve cooperation between countries in Asia," he said.

"ASEAN is now more united and heading towards more market-oriented reform policies," Nakao added, crediting Southeast Asia's economic growth to the growing cooperation between members of the Association of Southeast Asian Nations.

Another key reason behind Asia's economic growth is its integration into the global supply chain. Nakao said that, while Asian economies used to follow a "flying geese" model, which essentially meant countries followed one another in terms of investment, the region today follows more of a production sharing model.

"One of the reasons India's economy grew slower compared to China was because they were more domestic oriented. India was not part of the global supply chain as much as China was," he explained.

Today, however, "the Chinese develop in some sectors … the Koreans develop in some sectors, so they are sharing comparative advantages through supply chains," the ADB president said.

Asia-Pacific Region

Yasuyuki Sawada, chief economist at the ADB, in an interview with NHK World said that the Asia-Pacific region has been the growth engine of the global economy, and many are wondering if it will continue to tread a solid path in 2018, NHK.org reported.

The ADB has slightly revised down its outlook for the Asian economy in 2018, and is currently predicting 5.8% growth compared to 6% last year.

Explaining over the lower outlook he said: Behind this revision is basically Chinese growth potential. The Chinese economy is now on a rebalancing phase of its economy from export-driven and manufacturing-driven to the domestic consumption-led, as well as to the service sector-driven economy.

As for the cyclical factors, China has been on its adjustment phase of excess capacity-issues of heavy industrial sectors such as coal, steel and petrochemical sectors. So naturally, the investment rate of China’s growth will decline over time.

"Fifty percent of the Asian economy can be explained by China, so we naturally revised downward our overall Asia-Pacific region’s growth rate."

Low Risks

"We’re seeing some countries’ corporate sector and household sector indebtedness accumulating. For example, China’s corporate sector, overall corporate sector to GDP ratio is as high as 166%. South Korea’s overall household debt to GDP ratio is larger than 90%. These numbers seem to be quite high if we compare them to other countries.

"So, if interest rate hikes by the US Fed are made at a sharper-than-expected speed, then this indebtedness in some Asian countries generates some potential risk for the economy.

"However, the scenario of a sharp increase, or sharp normalization, by the US Fed is unlikely. The US Fed has been very clear, gradual, cautious and well-communicated to the market. So overall, the risk is low," he said.

Labor Market and Investment

Sawada said: "Actually, we have a research program on the consequences of new technologies—AI, robots—and how that affects the labor market in the Asia-Pacific, which we will release in April on this topic.

"According to some tentative findings, the arrival of new technology, labor-saving technology can displace that sector directly. However, that sector affected by robotics or AI can produce services and goods more efficiently. Prices will go down, and that will stimulate other sectors in production and labor input.

"So, this positive effect through the arrival of new technology may end up generating more employment rather than just killing and displacing the immediately affected sector. This spiral effect is quite substantial, so it may not have an overall negative consequence on the labor market," he said.

"Asia is a global engine of growth and now more than 60% of the global economy is driven by the Asian economy. The ADB has been playing a very important role to keep this growth momentum through helping infrastructure investment.

"And there is demand for infrastructure investment—huge needs exist in Asia. According to our studies $1.7 trillion per year is needed. So the ADB will play a very important role, a critical role, to filling this investment gap so that the Asian economy can continue its growth momentum, poverty-reduction trend, and help achieve global climate goals," Sawada said.

 

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