Should Asia Try to Rescue Europe?
Image Credit: World Economic Forum

Should Asia Try to Rescue Europe?

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The leaders of debt-ridden Europe have got Asia on speed dial. The answers to the solvency nightmares of Greece and Europe’s other struggling economies, be they the purchase of bonds or contributions to the European Financial Stability Fund (EFSF), seem to European leaders like France’s Nicolas Sarkozy to lie at least in part in Asia’s cash-rich, high-growth nations.

Of course, the money trail that Greece and other eurozone debtors are now obliged to follow doesn’t only lead to Asia: the International Monetary Fund (IMF), the European Central Bank (ECB), the European Union (EU), the G-20 and the United States all have critical roles to play in restoring the economic equilibrium. There are many potential lifelines.

So where does Asia come in? Nowhere, many Asian leaders are arguing, pointing to the political folly of still predominantly poor countries like China or India spending their hard-earned reserves on restoring the comfortable lifestyles of better-off Europeans. However, a more self-interested approach would be to ask how vulnerable Asian economies really are to the eurozone’s potential failure, and to determine whether Asia, for its own sake, should take action to stop the European ship from sinking.

The global financial crisis of 2008-9 was instructive in revealing the extent to which Asia’s economic fate is still tied to that of the West. It became clear then that Asia wasn’t immune from catching the West’s colds, and that the continent was vulnerable through its reliance on a mixture of American and European trade and capital. Only a colossal stimulus package saved China, for example, from following the United States and Europe into crisis. So would things be any different this time around?

As of late 2011, Asia had only experienced marginal downgrades in expectations for the year ahead. The Asian Development Bank (ADB) has trimmed its regional growth forecast for next year from 7.8 percent to 7.5 percent; China is expected to grow by 9.3 percent, less than the 9.6 percent previously anticipated; and India’s growth outlook has dipped from 8.2 percent to 7.9 percent. These are hardly forewarnings of another 2009-style slump, never mind something even worse. Unfortunately, growth forecasts are fluid – and they could be revised much further downwards should Europe fail to effect a coherent rescue plan.

“If the current situation and political debate in Europe didn’t deteriorate further, Asian exports can continue to grow although with a bit of moderation,” explains Minsoo Lee, Senior Economist at the ADB. “In this case, the impact on Asian exports growth may still be kept limited. A slowdown in Europe and the U.S. can be compensated by healthy private consumption and investment, supported by growing intra-Asian trade. On the other hand, a disorderly resolution for the EU followed by another financial crisis could provoke a large negative impact on the U.S. and the world economy. In the case where the U.S. and EU slip into another recession, Asian exports will also be affected negatively.”

Rajiv Biswas, Chief Asia Economist at IHS Global Insight, subscribes to the view that Asia’s trajectory remains dependent on how Europe’s crisis plays out. Biswas regards Europe as being at a fork in the road, with the “muddle through scenario” on the one hand and the “chaotic scenario” on the other. “The muddle through scenario can enable Europe to have a mild recession and not a deep recession,” he explains. “In that scenario, Asia comes out fairly well, growth forecasts only slightly downgraded, they’re still relatively resilient.” This option is currently the more likely, Biswas believes, so long as the EFSF can be expanded beyond its current €1 trillion capacity, and provided the new Italian government implements convincing reforms. “However, if we go into the more chaotic scenario,” he warns, “bond yields rise, Italy starts to default, and you go into a more dangerous meltdown scenario. That would hurt Asia very badly.”

Comments
29
priest
December 1, 2011 at 11:47

ROTFL at the india related comments. why are indians so anxious to be recognized as a “global superpower”?

the fickle admiration of the global community isn’t going to put food on the table for millions of starving indians, restock medicines in indian hospitals, improve the quality of indian universities or contribute towards a scientific breakthrough in indian laboratories.

speaking as a chinese guy, i don’t think china ever consciously sought recognition as a “global superpower”. it’s very much more a liability than anything. having europe or USA telling you that you’re a superpower now and then asking you in the next breath to pay their debts or do ridiculous things like sacrifice economic growth on a massive scale to cut carbon emissions (when the USA itself never bothered to sign kyoto) is like having bernie madoff flatter you to bits so you can sign over your life savings. try getting him to return your phone calls after you’ve signed those savings over.

i have nothing but great respect for both the chinese and indian peoples. we’ve come far through *hard work*. don’t throw it away going ard looking for worthless flattery.

zha
November 28, 2011 at 20:25

I doubt whether the China can rescue itself in 10 years. The worries of every classes in the society become overwhelming. We can see more and more rich people immigrate abroad and more and more resources are grasped by previlieged groups.The consequences seem not to stop becauses we don’t have a way to seek solutions. I would like to come back to China. But there will be no places for me because I have no personal human accesses. I am a scientific researcher. If I get a position as a scientist, I need to spend much time on other political things.

Jung
November 28, 2011 at 16:41

Having lived and worked in China for 6 years, I strongly beleive that in 10 years time the world will see that China never stopped being “the sick man of Asia”… it just got better at hiding it.
China’s current economic growth represents that sudden burst of energy you often see in patients who are about to die.

captainjohann
November 25, 2011 at 22:50

How many Indian babies live beyond 5 Years?
What is our rank in the poverty index?
What is our rank in the female gender protection index?
what is our rank in the transparency Index?
Of course our so called billionaires in Forbes list are mostly western educated as they are feudal siblings who could not get into Harward or yale without monetary donation and so may owe their western counterparts some of their loot stashed in swiss banks or Isle of man

captainjohann
November 25, 2011 at 22:44

who is the host and who is the parasite?

Asoka
November 24, 2011 at 19:05

“only china could help europe. It has the resources and also the incentive. ” Only an arrogant and ignorant Chinese could have said such thing. Don’t ever pretend to be an Indian and speak for us. We know you are a Chinese.

“only china could help europe.” What about India? We have the largest foreign reserve in the world. And our citizens have trillions and trillions of dollars saved in the secret Swiss bank accounts. And we have tons and tons of gold in our central bank’s vault. Indians consume over 50% of world’s gold each year. This is how rich we are.

I am tired of hearing that India is behind China and that she will one day catch up to China. Let me tell you the Truth India is already a global superpower. Forget about G2, G8, G20, India is class by itself. India is G1, the lone hyper-superpower in the world.

Let me tell you something about our Great Country India.

1>India Largest Democracy in the world-: Population: 1.2 Bn. India’s population will surpass china’s by 2030. India has the largest middle class in the world –> Population superpower.

2>India the most industrialized country. India produced the cheapest car, the Tata Nano. Tata owns the European car makers Jaguar, Land Rover. Mittal Steel is the world’s largest steel producers. India’s IT industry is second to none. –>Industrial superpower.

3> India never lost a war in its 8000 years history. –> War superpower.

4> India never invaded other country in history. –>Peace Superpower.

5>Largest english speaking nation by 2010. The world’s biggest back office. world’s largest skilled workforce. World’s largest working age population. –>People superpower.

6> Over 800 movies made anuualy–bollywood overshadows hollywood. –> Movies superpower.

7> 6 Miss Universe / Miss world titles in last 10 years: –> Beauty superpower

8>Per capita income US $9550 ; 2% live in poverty, literacy levels at 88%. Over 1 Billions middle class consumers. India has the world’s largest number of millionaires and billionaires: –> economic superpower!

9>The Indian Diaspora
38% of Doctors in AMerica are Indians
36% of NASA employees are Indians
34% of Microsoft employees are Indians
28% of IBM employeesare Indians
17% of Intel employees are Indians
13% of Zerox employees are Indians

–> Intellectual superpower!

10>India will eventually become world’s largest economy in 2083–Goldman Sachs

11>India is fastest growing GDP’s in the world, averaging over 10% growth since 1990.

12>India’s GDP will exceed that of Italy in 2020, France in 2020, Germany in 2025 and Japan in 2035 — USA in 2050, China in 2082 –Goldman Sachs

13>India’s Foreign exchange reserves history
1990-91 $40 billion
1995-96 $200 billion
2001-02 $600 billion
2002-03 $760 billion
2003-04 $1000 billion
2004-05 close to $1500 billion
2006-10 over $ 3000 billion

14>Indian Economy
Robust hyper growth of manufacturing, agriculture and services
Low external debt, low deficit, high trade surplus

299 Fortune 500 companies outsource IT work to India
Increased disposable income, increased wealth
Large emerging affluent middle class

15>Indian Aviation
Air deccan–1 st low cose domestic carrier
Most international carriers now target India for network growth and profitability
$5 bn capital infusion in govt owned carriers
Airport privatization

The Indian LCA supersonic fighter, with 30 years under development, is the best light weight fighter in the world, second to none.

16>India will be the second fastest growing travel and tourism market over 2005-2014 at 8.8%– WTTC

17> Size of indian tourism is 330 million as of 2004

18>Indians going abroad as of 2004
Singapore — 375,658
Saudi Arabia — 373,636
UAE — 336,046
Kuwait — 293,621
Thailand — 280,641
Bahrain — 268,383
USA — 257,271
China — 213,611
U.K — 205,065
Hongkong — 193,705
NewZealand — 16,862

19> India growth projections
1999 — 2.7%
2000 — 3.4%
2001 — 3.6%
2002 — 4.2%
2003 — 4.5%
2004 — 5.9%
2005 — 6.9%
2006 — 8.0%
2007 — 9.4%
2008 — 11%
2009 — 12.8%
2010 — 15%
2011-2050 — 16.8%

20> Drivers of outbound growth
Increased charter operations
Upper middle income group will remain largest segment
potential consumer pie will grow to 300 billion
Age group of 15 to 49 likely comprise 62%
Self-employed who account for over 40% will emerge as
high potential target market
Holiday finance will become popular

21> Over 500 million Indian’s will travel overseas by 2020 — WTO

22> india discover water in moon, space superpower

23> 15 indian awarded Nobel prize.

24> Indian Prime Minister Nehru gifted the UN Security Council Seat to China, and now India is the leading candidate for the permanent member, winning endorsement from USA, Great Britain and Russia. –> Diplomacy Superpower

ricky
November 24, 2011 at 01:18

@ raj
As for saving europe, dont live in a fools’ paradise. We ourselves dont have the adequete resources to wipe out our malaise. Our budget and fiscal deficit shows that.
Some 300 billion dollars is just a drop in the ocean for europe. Also, a lot of that is ‘hot’ money.

And again, we are no superpower. Not even a proper regional power.
It’s better to realise and accept the truth and work on setting them right rather than making laughable claims.

It’s always better to know where you stand and accept it with honesty and dignity. It goes a long way.

Raj
November 23, 2011 at 12:38

And you are a real Indian? What kind of Indian name is “Ricky”? I have never heard such Indian name. Before you pretend to be an Indian and try to speak for us, have the decency to use an Indian name before you post. We don’t need a white man to speak for us, we can take care ourselves, thank you very much. What is wrong with rescuing Europe and save the world. India is Great. India must do great things to match our status as the Superpower of the world.

Liang1a
November 23, 2011 at 11:56

John Chan wrote:
Your confidence and assessment of current China’s capabilities in science and technology is not realistic and overblown. Blaming some of China’s internal incompetence and social issues on foreign trade is nothing but ad hominem fallacy. Without vigorous foreign trade, there will be no science, technology and idea interactions and exchanges with rest of world, those China’s achievements that your are proud of will be hard to come by, because in a closed door China, there will be simply no incentive, drive and push to force China to compete and invent.
———————————————–

The fact is China’s development based on exports has come to a dead stop. The future development of China is based on its own domestic development based on the urbanization of the farmers predicated on China’s own indigenous technological advancement. Below is a quote in an article published in the last day where a Chinese official explains that China’s economic growth will depend more on its own technological advancement and its own urbanization of the farmers. The quote is self-explanatory. You can go and read the rest of the article at the link provided.

I will just point out that foreign trade is no longer mentioned. And if you have kept up with the Chinese official economic policies, the emphasis now is on domestic development and no longer on foreign trade.

——————————————-
Quote from peopledaily.com:

http://english.peopledaily.com.cn/102774/7652854.html

Looking forward to the future, we have many advantages for maintaining fast economic growth.

First, the domestic consumer market is expanding rapidly. Second, there is great scope for improvement in human capital. Third, we have greater scientific and technical innovation capability. Fourth, the country is being urbanized at a fast pace. Fifth, the regions have much leeway in development.

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