Asia’s economic prospects remain the brightest in the global economy. The outlook is far better than in recession-afflicted Europe and growth will easily outstrip that of even a recovering US. The slowdown in China is certainly impacting on the region but, short of a hard landing, China’s transition to a more consumer-led and service-based economy will carry Asia through to the next level of development.
This transition, however, will not be entirely smooth, which is why for this special report for the Asian development Bank (ADB) annual meeting in Frankfurt, the front cover shows a rollercoaster.
More ups than downs
Asia’s economic outlook is broadly positive but still investors should expect some thrills and spills along the way. One of the most thrilling rides at present is in India, where economic growth is still forging ahead at 7.5%, slightly faster than the 6.9% chalked up by China last year. This is an unusual turnaround and the first time in the 21st Century that India’s economy has outpaced China’s.
In this month’s cover story, Asia editor Stefania Palma interviews both the finance minister Arun Jaitley and the central bank governor Raghuram Rajan about India’s economic challenges. She also reports on the new age of Indian banking as 23 new licences are handed to a range of microfinance, telcos and other non-bank players.
In this special report, prepared jointly with the Nikkei Asian Review, the ADB’s president, Takehiko Nakao, says in an interview: “What is important is for India to look beyond its borders. It should be more connected with the rest of the world, including east and south-east Asia. It should be part of the global value chain and division of labour which was one of the secrets of Asia’s growth story.”
Asean importance
South-east Asia forms a central part of this report, with a particular focus upon the sweeping changes that are going ahead in the Association of South-east Asian Nations (Asean) countries. Asean was set up in 1967 by Indonesia, Malaysia, the Philippines, Singapore and Thailand and has since evolved into a 10-member regional bloc including Brunei, Cambodia, Laos, Myanmar, and Vietnam. An Asean Free Trade Area was launched in 1993 and in 2007 the leaders of the different countries decided to embark on an Asean Economic Community that would also eventually involve free flows of services, capital and labour flows beginning in 2016.
As Peter Janssen reports, banking liberalisation will take place under the Asean Banking Integrated Framework, with the five founding members, also the largest economies, opening their markets to at least one qualified Asean bank by 2018. As some Western banks retreat from Asia the door is open for regional banks to fill the vacuum.
The Banker’s ranking of the Top 100 Asean banks is published, and in his introduction data editor Matthew Karwacki notes the outperformance of Vietnamese banks.
The downside?
So Vietnamese banks, like those in India, are having a thrilling time. But what about the spills?
China faces a difficult transition but the ADB’s Mr Nakao says: “China’s growth rate will decrease but there will be no hard landing thanks to China’s consumer-based growth and the growth of the services sector.” We also report on the rise of household debt in Asia, and examine whether it poses risks.
Asia, with its transitioning economies and especially the changes in China, is not without its challenges. But the good news across the region is the willingness to work together, as shown by the various regional initiatives.
The China-led Asian Infrastructure Investment Bank is the latest example of this spirit of teamwork and should go some way to helping Asia close its infrastructure gap. Nikkei staff writer Wataru Suzuki describes Asia’s huge infrastructure needs and looks at the challenges of getting these huge transport and power projects – many of them public-private partnerships – both financed and built.
As with other aspects of Asia’s development, the infrastructure will be a bit of a rollercoaster ride with some proposed projects taking off and other falling down. Yet at the end of the day, confidence in Asia’s ability to ride out the ups and downs is justified. After all, its growth story of the past few decades has been unique in history.
