Asia stands poised to recapture the global economy. But the success of this process will depend on right political decisions and appropriate action being taken by governments and civil society in the region.
By the 4th century B.C., Asia had begun its first cycle of economic growth and power. This was the reason why Alexander the Great decided to travel eastward to establish an empire. At that time there was nothing worthwhile to the west of Greece. On the other hand, to the east of Greece was Persia, and beyond Persia were rich kingdoms in India and China. A Roman Emperor once complained that Rome had to import all its luxuries from India and China, but had, in turn, nothing to offer these Asian countries. In fact, until the 1820s, Asia accounted for 60 to 75 per cent of the world's Gross Domestic Product.
Asia is not a continent that can be brought together like the European Union. Historically, culturally and climatically, it falls into five distinct categories: East Asia, Indo-China, Central Asia, the Indian Ocean and West Asia regions. In the past, these regions were all integrated by the Silk Route. This is why I have titled this speech “The Return of the Asians” — because contrary to common opinion, what we are witnessing today is not the rise of Asia but the return of the Asian countries to recapture the global economy.
The first cycle of Asian dominance was crushed, above all by the rampant forces of European colonialism, and then by the Industrial Revolution which led European manufacturers to look to Asian markets for their manufactured goods. Thereafter, for the greater part of the 19th and 20th centuries, Asia was turned into a captive market for European industry. No Asian country other than Japan benefited from the Industrial Revolution. As a result, by 1940, Asia accounted for only 20 per cent of the world's GDP.
In a reversal of fortunes, however, the affluent western consumers of the 1970s enabled Japan and the four Asian Tiger economies — South Korea, Singapore, Malaysia and Taiwan — to emerge as low-wage manufacturing bases for consumer goods. The story of the return of the Asians begins here. The next phase was in 1979; the year which ushered in the Thatcherite revolution. I remember listening to Margaret Thatcher at the Commonwealth Summit of 1979 explaining her policies for promoting economic competitiveness. That same year, Jiang Zemin, who succeeded Deng Xiaoping, visited Singapore and Sri Lanka to study free trade zones there. That visit paved the way for the creation of special economic zones in China. This was the start of the migration of industries to China as many firms decided to relocate in China in order to remain competitive. Thereafter, China became the workshop of the world. China, which produced barely a few thousand air-conditioners in 1978, today manufactures nearly 50 million air-conditioners. In addition, half of the world's microwave ovens, one-third of its television sets, 70 per cent of its toys and 60 per cent of its bicycles are manufactured in China. Chinese exports in 2005 was worth $1.15 trillion.
Watching a television programme on the Shanghai Expo a few weeks ago I was reminded of my visit to Shanghai in 1979. Today the Mao jackets have been replaced by designer styles and labels. Global hotel chains have sprung up in Shanghai. The teeming bicycles and Red Flag cars have been traded for international car brands — and they are manufactured in China. There are ultramodern airports and ingeniously-designed expressways. And Pudong — which was a swamp at the time — has become a futuristic city.
In 1992, I visited New Delhi just as India was awakening from its economic slumber. Prime Minister Narasimha Rao and Finance Minister Manmohan Singh had just announced an economic re-structuring programme that ended India's socialist economy. The collapse of the Soviet Union had left them with no other option. At that time, Bangalore was for us a holiday destination. And Hyderabad was famous for its biryani. I met with the Tatas who were preparing a new strategy to face liberalisation. Companies such as Reliance, Wipro and Infosys were just starting out. Indians proudly informed me that they had earned $200 million from IT exports. Today, as much as China is the centre of global manufacturing, India has become the international hub for global service industries. India's IT and outsourcing exports amount to over $40 billion. The economic resurgence of China and India has also paved the way for the emergence of Thailand, Indonesia, Pakistan and Vietnam as manufacturing bases.
This shift of world economic power from the West back to Asia is highlighted in the Asian Development Bank Key Indicators (for Asia and the Pacific) for 2010. Today, the Asia-Pacific accounts for 36 per cent of the world economy. Europe comes second, and North America, third. Within Asia, over 65 per cent of the GDP comes from three countries — China, India and Japan. It is predicted that Asia will be the main driver of global growth over the next two decades with a newly emerging Asian middle class of nearly 1.5 billion. Since 1980, some 400 million Chinese people have transcended the poverty line. By 2030 the Chinese middle class is expected to exceed 600 million. In number terms this will be the largest middle-class group in the world, comprising the world's third largest consumer market. India will be the fifth largest market in the world with 520 million consumers. It is this demographic transformation of 1.5 billion Asian middle-class consumers that will fuel global economic growth.
This trend has been evident during my visits to India over the last two years. There has been a channelling of new products specifically aimed at the Indian low-income domestic market by Indian entrepreneurs. The best example of this is the Nano car that costs around Rs.1 lakh, which targets the lower middle class. It is the Indian version of Ford's Model T.
This is what I call the return of the Asians. The Asia of 2050 will be similar to the Asia of the mid-17th century which dominated the world in terms of total wealth — what we call GDP today — despite the fact that some of the European countries had a higher per capita GDP. Similarly, by 2050, most of Asia will be middle-income economies while the West will constitute high-income economies.
However, the return of the Asians will not be an automatic phenomenon. Nor can it be allowed to be confined to economic growth. The success of the region depends on correct political decisions and appropriate action being taken by governments and civil society — if it is not to be a flash in the pan. In the remaining part of my speech I propose to speak on the key issues that will require our attention in the years to come.
At one time the regions of the Indian Ocean were the richest in the world — even richer than East Asia. This was what compelled Elizabeth I of England to send an ambassador to the court of the Mughal Emperor Akbar the Great in the 16th century. The wealth of the Nizam of Hyderabad in the 19th century (valued according to the present day) will be $200 billion, four times the wealth of Bill Gates.
Once the sailors had mastered the Asian monsoons, the merchants wove a web of trade across the seas. It was a maritime crossroads bringing together traders from the Mediterranean, Arabia, South Asia and China. The kingdoms of South India, Sri Lanka and Sri Wijaya rose to prominence due to two reasons. One reason was merchandise exports. The second was the fact that they were the centres for trans-shipment from the East to the West.
By 2030, not only will India become the world's third largest economy, it will also be the world's fastest-growing major economy. Indonesia, the successor to Sri Wijaya, will become the fifth largest economy, overtaking Russia. By then the combined GDP of India and Indonesia will be $39 trillion — the same as the predictions for the U.S. during this time. Add to this the fast-growing economies of Pakistan, Bangladesh, Malaysia, Tanzania, Mozambique and Uganda on the one hand, together with the Gulf oil economies, Singapore, Brunei, Iran, Myanmar, South Africa, Kenya and Australia, and you have a cocktail of rapid growth.
Unlike East Asia and the Pacific which has APEC (Asia-Pacific Economic Cooperation), the Indian Ocean has no regional mechanism for trade and economic cooperation. The Indian Ocean Rim Association for Regional Cooperation (IOR-ARC) has been a non-starter. This is a serious omission since the potential for growth in the second half of the century lies in this region. One reason for this is the predicted increase in its population — an additional 500 million by 2050. Furthermore, the lower income levels of the Indian Ocean region gives a natural advantage to Indian enterprises that have already commenced designing low-price products and services to reach lower-income rural consumers. The Asian Development Bank calls this response in production to low-income demands ‘frugal innovations', and foretells its prospects of reaching East African coasts, thereby creating new trade linkages.
Given such exciting possibilities, it is time that the South Asian Association for Regional Cooperation (SAARC), the Association of Southeast Asian Nations (ASEAN), the Organisation of African Unity (OAU), and the Commonwealth that has 19 members in the region, initiate discussions to seriously consider this new alignment of trading nations, and create a formal mechanism to bring together Africa, Asia and Australia, the three continents that border the Indian Ocean. Those of you who are part of civil society can make people-to-people contact within this region and thereby complement regional level economic cooperation. Rotary International should take the lead in bridging the continents of the Indian Ocean.
This is the first part of the text of a speech made by Sri Lanka's Leader of the Opposition and former Prime Minister, Ranil Wickremesinghe, at the South Asia conference of the Rotary International in Bangkok on November 27.
The second part will be published tomorrow.