Government and business leaders warned Friday against withdrawing stimulus programs too quickly amid a growing recognition the global economic recovery will be led by China, India and other Asian countries.
The biggest economic crisis since the 1930s has been the focus of this year’s Asia-Pacific Economic Cooperation forum, an annual gathering of 21 member economies from Asia and the Pacific Rim.
“The measures the governments will take in a few months ... will determine how quickly we can recover and whether we can sustain our growth,” Singaporean Prime Minister Lee Hsien Loong said in a keynote speech at a conference of business and state leaders on the sidelines of APEC.
An electronic poll of the audience -- made up of top business executives -- showed that a majority thought the worst of the crisis was over but major challenges to stable growth remained.
Following the crisis, governments across the world pumped huge amounts of money into the system to promote economic growth. A large part went to provide liquidity to banks and major companies facing bankruptcy. Money was also given directly to households, sometimes in the form of shopping vouchers. Rebates were paid for car purchases.
The United States injected $787 billion in stimulus plans. Asia, led by China’s $586 billion package, pumped in more than $1 trillion. Policy makers worry that a sudden reduction of such spending will destroy consumer and business confidence.
“There must not be any premature withdrawal of fiscal incentives or fiscal packages until there is real recovery led by the private sector,” Malaysian Prime Minister Najib Razak said during a panel discussion later.
Singapore’s leader said governments worldwide must coordinate the timing of withdrawal of their stimulus packages. Deferring the withdrawal for too long risks creating asset bubbles that can become a “serious problem.”
“How to withdraw that in a coordinated way ... that’s going to be a very delicate exercise,” Lee said.
World Bank President Robert Zoellick, also attending the conference, noted that among the greatest threats to recovery were protectionism, lack of private sector initiative, unemployment in the West and inflation.
But the general consensus was the balance of global growth has shifted to Asia, with China, India and to some extent Indonesia leading as the global economy emerges from recession.
The “world needs China for development,” China’s President Hu Jintao said at the conference.
Asia’s economies are expected to grow 2.75 percent in 2009 and 5.75 percent in 2010, far outpacing the West, according to International Monetary Fund.
“So we are in the right region of the world. But risks still remain,” Lee said.
But many say stable growth hinges on the success of government measures to increase spending by Asian consumers, who whose high savings and low consumption reflects a lack of retirement systems and affordable health insurance.
“Our focus in countering the crisis is to expand domestic demand, especially consumer demand,” Hu said, promising to make China less reliant on exports.
Lee noted that Americans, whose big-spending consumerism has traditionally driven the global economy, are now saving 3 percent to 5 percent of their income, which he called sensible.
“But if Americans are saving, somebody else has to spend more somewhere else in the world. This has to be in Asia. How this is achieved is not just a matter of printing (shopping) vouchers,” he said.
Not everybody agreed that Asia will be the world’s savior. Victor Fung, chairman of Hong Kong-based trading company Li & Fung, said the whole world has to pull together.
“In order for this recovery to be sustainable, we really have to actually think about how we generate global demand,” said Fung, noting that 60 percent of global consumption comes from the West.
“Fixing the financial system stops the bleeding,” he said. “The body needs a fundamental rebuilding, and that’s rebuilding domestic demand.”
The financial crisis resulted in a loss of about $1 trillion in U.S. demand alone {mdash} equivalent to the entire Chinese market.
“You can’t expect the Chinese economy to pick up the slack,” he said.
The APEC forum culminates in a weekend leaders’ summit that will include President Barack Obama, Chinese President Hu Jintao and Japanese Prime Minister Yukio Hatoyama, as well as leaders from Southeast Asia and Latin America.
On Thursday, APEC ministers agreed to make it 25 percent cheaper, faster and easier to do business in the region by 2015. They also set an interim target of 5 percent improvement by 2011.
The members of APEC, which is devoted to free and open trade and investment, account for more than 54 percent of world gross domestic product and more than 40 percent of the population.
