World Economy

Doubts Over China’s Share in Asian Economy

Doubts Over China’s Share in Asian EconomyDoubts Over China’s Share in Asian Economy

Financial markets are focusing on China’s moderating economic growth and on its ability to manage compositional changes of its aggregate demand and alleged excesses in some sectors that may have benefited from administered credit flows.

Beijing’s assurances that these problems are being addressed are registered, but markets continue to doubt positive policy outcomes, despite indicators showing that policies are moving activity and structural changes in the right direction. These doubts persist even after a 60 percent increase of Chinese equity prices in the course of last year, CNBC reported.

Broader market trends in Asia are also missed because this fastest growing segment of the world economy – and by far the world’s largest capital exporter – is incorrectly seen as being entirely dominated by external economic and financial events.

All this stems from improper attention being paid to intra-Asian economic relations, where China, Japan, India and South Korea give the region an increasing influence in shaping the global business cycle and international capital flows.

  Thawing Tensions

China and Japan – the second- and the third-largest economies in the world – could soon turn the page and enter a more constructive relationship.

A restoration of Japan’s strong trade and investment ties with China may well be the missing piece that could help to set the economy on a steady and sustainable growth path.

Equally worrying are Japan’s dwindling direct investments in China. In the first nine months of last year, Japanese companies invested $4.5 billion in their Chinese production facilities. That is less than half of what they invested in China during 2013, and only one-third of their investments in China in 2012.

  Better Ties

This year may hold a promise of better ties. Both countries have made steps in that direction. China has accepted Japan’s overtures last November with regard to competing territorial claims in the East China Sea, and it now seems that events are moving toward some sort of compromise. Last month’s resounding election victory of Japan’s governing Liberal Democratic Party (LDP) gives it a strong mandate to pursue a more constructive dialog with Beijing.

Hostile inter-Korean relations are another obstacle on the way to a stronger economic development in Northeast Asia. China and Japan could help with contacts between Seoul and Pyongyang.

Snarled up by overlapping territorial claims along their 3,500-kilometer frontier, the Chinese-Indian relations also looked hostile and crisis-prone until both countries agreed to move on.

The key points of a Sino-Indian deal involve a settlement of border problems and China’s large infrastructure investments – about $20 billion only in Indian railways. These investments would partly compensate for China’s trade surplus with India, which amounted to $36.2 billion in India’s fiscal year 2013-14.