7 Jun 2020

Will Covid-19 make or mar Asia’s 21st Century?

Ehtesham Shahid

Much before the dawn of the new millennium, the 21st century was declared as the Asian Century. There was near consensus that, if certain demographic and economic trends persist, the Asian dominance would soon be complete, and even extend to politics and culture. From being a mere participant in the global trade and innovation, the continent rapidly moved to the one determining their shape and direction.

The euphoria was based on facts on the ground and figures collated from various quarters. Already home to more than half of the world’s population, Asia is on way to generate more than 50 percent of global GDP by 2040, almost 40 percent of global consumption and half of the world’s middle class. Asian economies are still on track to outgrow the rest of the world put together in terms of the purchasing power parity (PPP).

However, the plot has thickened with the Covid-19 pandemic, turning things upside down for Asia, as it has for the rest of the world. The slump is likely to be more pronounced in Asia considering the continent was among the fastest-growing regions in the world. The saving grace for Asia has been how at least some of its countries have tackled the pandemic.

In April 2020, the International Monetary Fund (IMF) announced that for the first time in 60 years, Asia as a region will not register any economic growth[i]. “While there is huge uncertainty about 2020 growth prospects, and even more so about the 2021 outlook, the impact of the coronavirus on the region will be severe and unprecedented,” the IMF said[ii].

So even as the fundamentals remain strong for Asia, the economic environment has changed drastically. But, has the Asian century dream turned into a nightmare? On the face of it, this will depend on how quickly normalcy returns to the continent and its engines of growth go on overdrive. It will also depend on how other parts of the world grow after the pandemic.

This insight examines the merits and parameters of Asia’s rise as a continent and analyses the extent to which Covid-19 has dampened its prospects. It looks at the challenges ahead for the continent and highlights the shortcomings of a region characterized by inherent strengths but also numerous contradictions.

This study is divided into three parts. The first part – Asia before Covid-19 – sums up the genesis of its rise from the ashes of World War II and its stupendous journey over the last few decades. This section dissects the many factors and theories behind the obvious shift of economic power to the East and what is often called the “Asianization of Asia”.

Part 2 – Controlling Covid-19: The Asian response – deals with Asia’s relative success in responding to the pandemic and the emergence of a model of best practice, which has been widely acknowledged. The concluding part – The future won’t be Asian – is a counter-argument to the main thesis, detailing what has and could go wrong for Asia.

  1. Asia before Covid-19

Projections favoring Asia’s rise as an economic powerhouse has been going on for years. In his book – The Future is Asian – global strategy advisor and author, Parag Khanna, famously wrote[iii]: “In the nineteenth century, the world was Europeanized. In the twentieth century, it was Americanized. Now, it is being Asianized – and much faster than you may think”.

These projections were being made on some robust economic parameters. Asia accounted for around one-third of global trade in goods, growing from about a quarter 10 years ago. During this time, the share of global airline travelers in Asia went up from 33 percent to 40 percent, while capital flows went up from 13 percent to 23 percent.

The Asia story was getting a thumbs up in academic quarters too. In the year 2011, an Asian Development Bank (ADB) report[iv] claimed that the continent is in the middle of a historic transformation. It surmised that if Asia continues its run, by 2050 it’s per capita income could rise six-fold in PPP terms to reach the levels that exist in Europe today, making some 3 billion additional Asians affluent by current standards.

Going by this calculation, by the middle of the century, Asia would regain the dominant economic position it held 300 years ago. The continent accounted for nearly 60 percent of the global GDP before the Industrial Revolution[v] began in the late 18th century. If Asia were to reoccupy the center of the global stage, the world will have come a full circle. (Graphic 1)

The trajectory of growth – going back to the 1980s when China first opened up – suggests that Asia was set to become much more central to the global economy in the next 40 years. This optimism was based on another related factor – the growing interconnectedness – as the share of inter-regional trade in Asia exceeded 60 percent of all the trade.

Graphic 1: Asia’s Share of Global GDP, 1700-2050

image for Will Covid-19 make or mar Asia’s 21st Century insight

Source: Asian Development Bank

Such reports, however, always have caveats attached. In this case, it hastened to add that Asia’s rise is “by no means preordained”. Despite promising growth projections, it was still premised on Asia’s major economies (Graphic 2) sustaining their momentum. More importantly, it does not mean that the path forward is easy or requires just doing more of the same.

It was obvious that, to succeed, Asia will have to maintain a certain pattern of growth and resolve a wide range of issues, especially difficult political challenges. For this to happen, it is imperative for Asian countries – more importantly, its leaders – to address the increasing inequality, which could undermine social cohesion and stability.

A lot will also be determined by Asia’s engagement with the rest of the world as it moves toward the center of the global economy. It will be in the continent’s interest that the rest of the world also does well on economic and political fronts. No region can grow in isolation, certainly not in today’s interconnected world.

Sustained progress across the world is essential for Asia’s long-term prosperity, which has been disfigured to an extent by the pandemic. However, even before Covid-19 surfaced, it was argued that, in a broader context, Asia has a long way to go before it gets anywhere close to the industrialized Western world.

Asian Century Institute[vi], an e-publication that supports Asia’s renaissance in the 21st century, points out that Asia’s share of the global economy remains still around 30 percent, despite the region being home to what, it claims, is 60 percent of the world’s population.

There is little doubt that Asia has the potential to reach the levels of development achieved by advanced economies. Some institutions, such as the Asian Century Institute, expect it to happen during this century, which basically means Asia regaining a share of the world economy equal to its share of the world population.

According to one school of thought[vii], “Asia has emerged as an economic zone as closely integrated as the European Union” and is “increasingly insulated from economic shocks from the United States or Europe”.

Exceptions notwithstanding, this claim is also based on Asia’s growing tendency to look inward for trading purposes. Around 60 percent of Asia’s trade is happening within the continent, which is the same proportion as the European Union.

Asia has done reasonably well in several other areas. A study[viii] claims that 44 percent of international students are Asian and so are 119 of the world’s 235 unicorns. Moreover, around 50 percent of the growth in consumer demand and consumption over the next decade is going to come to Asia.

The process of integration – labeled as “Asianization of Asia” – is starting to bear fruits as intra-Asian growth exceeds Asia’s trade with the rest of the world. “This internal process has been very successful in promoting Asian economic resilience and will continue to do more things as the regional comprehensive economic partnership unfolds,” says a McKinsey study.

Graphic 2: Real GDP of Asian Pacific Economies

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Source: IMF World Economic Outlook report

 

 Trumpeters of Asia and shift of power to the East

The call for Asia occupying its deserved place in the economic and political pecking order is also an expression of an urge to undo the “injustices” of the past. Those making relentless demand for making world bodies, such as the United Nations, more representative of countries with a bigger population and burgeoning markets, point toward countries in Asia that haven’t received their due.

Not surprisingly, the inadequate response to the Covid-19 crisis by some developed countries has given trumpeters of Asia the opportunity to suggest that the West has lost the plot. Some go even claim that the “West’s incompetent response to the pandemic will hasten the power-shift to the East.”

“The resurgence of Asia in world affairs and the global economy, which was happening before the emergence of Covid-19, will be cemented in a new world order after the crisis,” Kishore Mahbubani, a former Singaporean diplomat and author of Has China Won? wrote in The Economist[ix] recently.

  1. Controlling Covid-19: The Asian response

Varying degrees of response to Covid-19 has become another parameter to judge the performance of countries and regions. During May 2020, the Google daily data on workplace mobility claimed that when most Asian economies bounced back to full employment, the West languished in coronavirus lockdown.

That may not seem very charitable for crisis-hit countries but isn’t far from the truth. Asia’s response to Covid-19 has by and large been rapid and adequate. By the beginning of June, most countries across the region announced plans to reopen for business, focusing on rebooting economies devastated by the pandemic.

A tally of deaths[x] in the month of May claimed that despite the body count rising to a quarter of a million, Asia accounts for only 7 percent of global cases, compared with 40 percent for Europe and 34 percent for North America. In other words, the region where the pandemic started has fared better overall than North America and Europe.

Graphic 3: Workplace Mobility by Country (Google Estimate)

image for ASIAN CENTRUY-TABLE03 insight

Source: Asia Times

The instance of Vietnam[xi] is particularly noteworthy. The country of 97 million did not report a single death due to Covid-19 and, by May 30, had only 328 confirmed cases. Vietnam shares a long border with China and gets millions of Chinese visitors every year.

South Korea has been praised for some of its best practices[xii] in tackling the pandemic and for learning from its previous public-health crises, such as the SARS outbreak of 2002, which killed several hundred people across East Asia.

The workplace mobility numbers (Graphic 3), quoted in an Asia Times report, was corroborated by China’s April trade data, which suggests that the intra-Asian trade surged year-over-year, while trade with the United States stagnated.

An unequal continent

Despite claims and calls for homogeneity, Asia continues to be an unequal world so much so that various classifications apply for a different set of countries within the continent.

The April 2020 IMF Economic Outlook Report puts Asian countries into different sub-categories. Japan, Korea, Australia, Taiwan, Singapore are labeled as Advanced Asia while China, and India as Emerging and Developing Asia. Indonesia, Thailand, Malaysia, Philippines, and Vietnam are put under the ASEAN-5 category. The remaining countries are categorized as Other Emerging and Developing Asia.

What is often labeled as Asia’s diversity is also seen by many as its complexity, and for a good reason. So, the four “Asias”, at different stages of economic development, cannot be measured with the same yardstick even though optimists argue that their differences are complementary and make integration a force for progress.

Graphic 4 – Asia’s Covid-19 Curve

Image for Asia’s Covid-19 Curve-Yable04 insight

Courtesy: McKinsey & Company

  1. The future won’t be Asian

For all its potential and upward trajectory, there are still around two billion poor people in the continent, mostly in South Asia or Southeast Asia.[xiii] That is around 35 percent of the world’s poorest, according to the World Bank. Given the heavy economic impact Covid-19 is having on these economies, Asia’s struggle to alleviate poverty is going to be long-drawn.

Other shortcomings and contradictions are also expected to pose a challenge. The success of Asian economies over the years has been largely export-driven and based on cheap labor. It helped labor-intensive industries and expedited the process of development. However, that cannot be the formula in its next phase of growth as the global value chains are increasingly service-driven and digital.

Historian and Stanford University Professor, Michael R. Auslin[xiv], emphasizes that those certain about China’s domination of the world have ignored Asia’s weaknesses. He maintains that, in the long run, Asia will see ups and downs in growth and periods of cooperation alternating with a crisis – just like everywhere else.

“Contrary to popular opinion, the future won’t be Asian,” Auslin writes. According to him, too many of the region’s key indicators are trending in the wrong direction and that Asia will struggle to create better lives, and governments will find their capabilities taxed by structural weaknesses and diplomatic disputes.

The April 2020 IMF report doesn’t paint a very gloomy picture for Asia[xv] and projects emerging Asia to be the only region with a positive growth rate in 2020 (1.0 percent). The catch, however, is that it will be over 5 percentage points below its average in the previous decade.

Intra-regional trade

Asia’s trade movements have been characterized by a handful of abbreviations such as RCEP and BRI. A group of 15 Asia-Pacific countries is aiming to sign the Regional Comprehensive Economic Partnership (RCEP) by the end of this year. Once enacted, the trading bloc will become larger than the European Union, and will focus on features such as lowered tariffs, standardized customs rules and procedures, and widened market access.

The participating countries – except India[xvi], which pulled out of negotiations in November 2019 – believe that as a region-wide free trade area, RCEP will provide a more stable and predictable economic environment to support the much-needed recovery of trade and investment in the region.

Some observers believe that one of the positive long-term outcomes of the Covid-19 crisis will be a coming together of Asian countries requiring improved public health capabilities, along the lines of the Belt and Road Initiative (BRI). This line of thinking may not be without merit but remains another pipe dream at the moment.

It is also believed that China wants to emerge in the post-Covid world with a narrative that paints it not as a negligent member of the global community, but as a leader in global health. “It wants to garner greater support for reorganizing international institutional systems; and it wants newer markets for its healthcare products and services, traditional and modern,” a Carnegie Asia report claims[xvii].

China watchers also getting a sense that the sequence of events, in the aftermath of the Covid-19 pandemic, may prompt Beijing to advance a key BRI objective of redrawing international institutional mechanisms, this time in public health.

What else could derail the ‘Asian Century’?

While the fear of the unknowns associated with Covid-19 is going to be part of the equation for some time, several other factors could turn the tide against Asia. There are always possibilities of a flare-up of the many conflicts that have kept the continent on tenterhooks.

North Korea – the biggest security threat in East Asia – is an obvious ticking time bomb. It will require forces in the region and beyond to keep Pyongyang in check.

But that’s not the only troubled spot in the region. From renewed pitched battles on the streets of Hong Kong to the unending saga of Rohingya refugees in Myanmar, conflicts across Asia are craving for attention.

A lingering political dispute between South Korea and Japan, rooted in Tokyo’s occupation of South Korea in the previous century, has now transformed into a 21st-century trade tussle.

Japan gets routinely alarmed over China’s military activities in the East China Sea where Beijing has been accused of using its naval forces to pressure the littoral nations, especially Vietnam and the Philippines. This has emerged following “China’s relatively successful containment of coronavirus and fast moves to restart its economy”.

Thankfully for countries in the region, China appears willing to share the resources and wisdom gathered during the pandemic with its neighbors. According to the Nikkei Asian Review report[xviii], the Chinese are in a position to offer economic and soft power incentives to countries around the periphery of the South China Sea.

Recent skirmishes on the India-China border have raised concerns about the equilibrium going haywire when the last thing the region needs is a flare-up between the two giants. The India-China border tension hasn’t eased matters on the other side in South Asia, where two nuclear-armed nations, India and Pakistan, remain eyeball to eyeball over age-old conflicts.

Conclusion

Covid-19 has turned a sustained period of growth in Asia into a tumultuous uncertainty. Some of the challenges the continent faces may have come irrespective of the pandemic struck but now they seem to have raised their head at the wrong place at the wrong time.

A near non-existent multilateral response to the pandemic points to a prolonged tussle for control over world bodies. Any reform is unlikely to materialize in the absence of a collective and decisive global leadership, battered by a deadly pandemic. That means Asia will continue to remain in a position of weakness and disadvantage at multi-lateral platforms.

If the treatment of the WHO, following the pandemic, is anything to go by, the role of global institutions in determining the shape of the new world order only gets murkier. One can anticipate greater tussle for control over other key world bodies such as the United Nations, the WTO, the IMF, World Bank, etc.

The Covid-19 pandemic has necessitated a massive re-orientation of resources, a major re-think in economic policies, and a huge mobilization of the animal spirit. With wind gone from its sails, this could be quite choppy waters to navigate for Asia.

How efficiently Asia tackles the crisis and takes off as the world re-opens for business will determine the race of the century. Whichever way one looks at it, the Covid-19 pandemic will be seen as the tipping point for Asia, and beyond.

References:

[i] Asia’s growth to grind to halt for first time in 60 years, warns IMF – Financial Times, April 16, 2020

[ii] COVID-19 Pandemic and the Asia-Pacific Region: Lowest Growth Since the 1960s – April 15, 2020

[iii] We’ve entered the Asian Century and there is no turning back – World Economic Forum, October 2019

[iv] Asia 2050: Realizing the Asian Century – August 2011

[v] Asian Economy: Past, Present, and Future – Keynote Address at the Securities Analysts Association of Japan International Seminar, by Hiroshi Nakaso, Deputy Governor of the Bank of Japan, April 24, 2015

[vi] Asia and the World in the Asian Century

[vii] Asian century began in May 2020 – David P. Goldman MAY 21, 2020

[viii] The Asian Century has arrived – McKinsey & Company – November 2019

[ix] The world after Covid-19: Kishore Mahbubani on the dawn of the Asian century – April 2020

[x] Asia coronavirus cases hit quarter million but pace much slower than U.S., Europe – Khaleej Times, May 5, 2020

[xi] How Vietnam managed to keep its coronavirus death toll at zero – CNN, May 30, 2020

[xii] Tackling Covid-19: International Best Practices and Paths to the Future – TRENDS Research & Advisory, May 12, 2020

[xiii] Year in Review: 2019 in 14 Charts – The World Bank, December 20, 2019

[xiv] The “Asian Century”—Over So Soon? – Michael R. Auslin, January 20, 2020

[xv] World Economic Outlook – International Monetary Fund (IMF) – April 2020

[xvi] Why India pulled out of the RCEP free trade deal – DW Akademie, November 6, 2020

[xvii] The BRI in Post-Coronavirus South Asia – May 26, 2020

[xviii] World cannot ignore Chinese aggression in South China Sea – Nikkei Asian Review May 30, 2020

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