ECONOMICS IN ASIA IN THE EARLY AND MID 2000s
Economies in the early 2000s were hurt by dot.com bust, economic down turn in the United States, and zero-interest rate policy in Japan, but Asia bounced back. The Economist reported: It never pays to underestimate the bounciness of Asia's emerging economies. After the region's financial crisis of 1997-98, and again after the dotcom bust in 2001, outsiders predicted a lengthy period on the floor---only for the tigers to spring back rapidly.”
The mid 2000s by and large was a period of strong growth in Asia. Economic growth in East Asia was 7.2 percent in 2004. The tsunami that killed about 230,000 people in December 2004 didn’t have that much of an impact on the economy in the region. Growth in China that year was 9.5 percent.
Economic growth in Asia, including China, India, South Korea and Japan, was 7.4 percent in 2005 according to the Asian Development Bank. Growth in China that year was 9.9 percent. In India it was 8.1 percent.
Economic growth in Asia was 8.3 percent in 2006 and 9.2 percent in 2007. China and India accounted by about 70 percent of the growth. China had a growth rate of 11.1 percent in 2006. The Malaysian and Philippine stock exchanges doubled in value the same year. Much of the growth in Asia was fueled by exports and investment that was increasing at 20 percent a year. In Inflation Asiawide was 4.3 percent in 2007
William Pesek of Bloomberg wrote: “To understand what kind of year 2006 has been for Asia, look no further than the stock tables. Of the world's top 10 performing equity bourses, Asia boasts four: the Vietnam Ho Chi Minh Stock Index, up 150 percent so far in 2006; the Shanghai Shenzhen 300 Index, up 109 percent; Hong Kong's Hang Seng China Enterprises Index, up 68 percent; and Indonesia's Jakarta Composite Index, up 67 percent. Stock rallies in many Asian markets reflect rapid growth, young populations, swelling cities, growing ranks of middle class consumers and undervalued companies. They also point to resilience in the face of the crises that did flare up in the region. [Source: William Pesek, Bloomberg, December 19, 2006]
Explaining some of the forces behind high growth in the mid 2000s and reasons why investors poured money into the region, Pesek wrote: Asia “shored up its banking systems, improved transparency, unpegged currencies, made central banks more independent and privatized many state-owned assets . Corporate balance sheets are cleaner and a sense of political stability has returned to many countries.
2008-2009 Global Economic Crisis in Asia
Asia was relatively insulated from the financial turmoil that began in the United States in 2007. At that stage many in Asia took pride to the region’s resiliency to the crisis and lessening reliance on the U.S. economy. Asia began to get more deeply caught up in the crisis as 2008 wore on---months after the United States and Europe. By July, exports were falling off in Japan, food prices were up 76 percent in Vietnam. The crisis peaked in Asia in late 2008 and early 2009. The economies of Malaysia. Singapore, Thailand, Cambodia and Brunei shrunk in 2009 as a result of the 2008-2009 Lehman Brothers’ global economic crisis (See Economics in Japan and China for details of what happened there).
The Economist reported: “The scale and speed of that downturn is breathtaking (see article), and broader in scope than in the financial crisis of 1997-98. China's GDP, which expanded by 13 percent in 2007, scarcely grew at all in the last quarter of 2008 on a seasonally adjusted basis. In the same quarter Japan's GDP is estimated to have fallen at an annualised rate of 10 percent, Singapore's at 17 percent and South Korea's at 21 percent. Industrial-production numbers have fallen even more dramatically, plummeting in Taiwan, for example, by 32 percent in the year to December. [Source: The Economist, January 31, 2009]
Noeleen Heyzer, Under-Secretary-General of the United Nations, wrote in The Strait Times: Equity markets have experienced severe losses as risk-averse investors flee. Similarly, a number of major banks have suffered losses due to their linkages to failed financial institutions in the United States and Europe. [Source: Noeleen Heyzer, The Strait Times, October 1, 2008]
Notwithstanding this grim global picture, there is some solace to be found in the fact that the Asia-Pacific region is battle-hardened. The 1997 financial crisis and the ensuing regulatory reforms implemented as a result of it have enabled countries here to withstand the worst of the financial sector fallout until now. The share of non-performing loans in total loans has declined significantly from levels in the early 2000s, while foreign exchange reserves have increased seven-fold to more than US$4 trillion in the region’s developing economies.
However, “even in our battle-hardened, economically dynamic region, the real economy has been hit, and the situation is worsening. Growth is under pressure across the entire region as the export engine decelerates. This slowdown, together with the scarcity of global credit, will further curtail the ability of domestic consumption and investment to take up the slack. The effects of declining growth for the region are compounded by continuing high food prices
Causes of the 2008-2009 Global Economic Crisis in Asia
The Economist reported: “The immediate causes are plain enough: destocking on a huge scale and a collapse in exports. Even in China, exports are spluttering, down by 2.8 percent in December compared with the previous year. That month Japan's fell by 35 percent and Singapore's by 20 percent. Falls in imports are often even starker: China's were down by 21 percent in December; Vietnam's by 45 percent in January. Some had suggested that soaring intra-regional trade would protect Asia against a downturn in the West. But that's not happening, because trade within Asia is part of a globalised supply chain which is ultimately linked to demand in the rich world. [Source: The Economist, January 31, 2009]
“Some Asians are blaming the West. The Western consensus in favour of globalisation lured them, they say, into opening their economies and pursuing export-led growth to satisfy the bottomless pit of Western consumer demand. They have been betrayed. Western financial incompetence has trashed the value of their investments and consumer demand has dried up. This explanation, which absolves Asian governments of responsibility for economic suffering, has an obvious appeal across the region. [Ibid]
“Awkwardly, however, it tells only one part of the story. Most of the slowdown in regional economic growth so far stems not from a fall in net exports but from weaker domestic demand. Even in China, the region's top exporter, imports are falling faster than exports. Domestic demand has been weak not just because of the gloomy global outlook, but also because of government policies. After the crisis a decade ago, many countries fixed their broken financial systems, but left their economies skewed towards exports. Savings remained high and domestic consumption was suppressed. Partly out of fright at the balance-of-payments pressures faced then, countries have run large trade surpluses and built up huge foreign-exchange reserves. Thus the savings of poor Asian farmers have financed the habits of spendthrift Westerners. “hat's not all bad. One consequence is that Asian governments have plenty of scope for boosting domestic demand and thus spurring economic recovery.
Asia’s Poor and the 2008-2009 Global Economic Crisis in Asia
In late October 2008, AFP reported from Jakarta: “Oblivious to the global crisis, food vendors, cleaners and gardeners at the Indonesian Stock Exchange struggle to make ends meet on a few dollars a day while brokers gamble millions inside. "I have no idea about what's happening," said Firman, one of the army of cleaners who service the bustling exchange, as he swept the marble lobby and emptied standing ashtrays outside the trading floor.The 28-year-old who earns 30,000 rupiah (three dollars) a day rubs shoulders with some of the elite of Jakarta's business world, but he doesn't know them and he doesn't care very much for what they do. "I'm just an ordinary man, I don't understand their business," he shrugged. [Source: AFP, October 22, 2008]
“Indonesia's stock market has shed 12.5 percent of its value since early October and almost 50 percent since the start of 2008, buffeted by the global economic meltdown which has hit share prices around the world. Trillions of dollars have been thrown at failed banks and frozen financial markets in the biggest challenge to free-market capitalism since the Great Depression. [Ibid]
“But as credit dries up and investors lose their shirts on Asia's fickle share markets, life is only set to get harder for the roughly 70 million Indonesians who earn less than two dollars a day. "What I'm doing now is just enough for today," Firman said, adding that he couldn't comprehend the sheer volume of rupiah being exchanged every day on the Indonesian bourse. "I know that they're trading shares inside this building but I don't understand what that means exactly. I can't imagine doing business with that kind of money." [Ibid]
“Outside the high-rise stock exchange in Jakarta's business district, 43-year-old gardener Ari watered the decorative plants and tended the lawn under the blazing sun. "It makes no difference to me," he said. "Everything is just as difficult as before." He said he earned 22,000 rupiah a day and the world economic crisis hadn't touched him. What concerned him more was a 30-percent hike in the price of subsidised fuel in May. [Ibid]
"It's difficult as I haven't had a salary rise despite the fuel price hike. It used to be enough to feed my family but with the fuel hike it's very tight," the father-of-two said. He offered a word of advice about frugality which the rich executives of Lehman Brothers and Bear Stearns might wish they had heard before the economic whirlwind sank their firms. "Poor people like me need to be smart to manage our limited money. If we cannot eat tempeh (soybean cake) we eat only rice and vegetables," he said. [Ibid]
“To help pay his rent of 300,000 rupiah a month and put his daughter through school Ari does extra gardening work in his spare time. But he insists he is not greedy and he wishes no harm to others. "I don't have other skills but I do have the spirit to work hard to raise my family as far as it doesn't harm people," he said. Despite his poverty he has no ambition to be a rich Wall Street banker. Money is nothing without your health and the health of your loved ones, he said. "Even a rich man will never feel satisfied with all that money he has. They stress out easily and get sick," he said."I simply want good health for me and all of my family." [Ibid]
Using Stimulus Packages to Escape from the 2008-2009 Global Economic Crisis in Asia
China was able to ride out the global financial crisis with a generous stimulus package. The Economist reported: “China, in particular, has the wherewithal to make good on its promises of massive economic stimulus. A big public-works programme is the way to go, because it needs the investment anyway. When Japan spent heavily on infrastructure to boost its economy in the early 1990s, much of the money was wasted, because it was not short of the stuff. China, by contrast, could still do with more and better bridges, roads and railways. [Source: The Economist, January 31, 2009]
“Yet infrastructure spending alone is not a long-term solution. This sort of stimulus will sooner or later become unaffordable, and growth based on it will run out of steam. To get onto a sustainable long-term growth path---and to help pull the rest of the world out of recession---Asia's economies need to become less dependent on exports in other ways. [Ibid]
“Asian governments must introduce structural reforms that encourage people to spend and reduce the need for them to save. In China, farmers must be given reliable title to their land so that they can borrow money against it or sell it. In many countries, including China, governments need to establish safety-nets that ease worries about the cost of children's education and of health care. And across Asia, economies need to shift away from increasingly capital-intensive manufacturing towards labour-intensive services, so that a bigger share of national income goes to households. [Ibid]
“For Asian governments trying to fix their countries' problems, the temptation is to reach for familiar tools---mercantilist currency policies to boost exports. But the region's leaders seem to realise that a round of competitive devaluation will help no one. China has responded to American accusations of currency “manipulation” by denying it has any intention of devaluing the yuan to boost exports. Structural reforms to boost demand would not only help cushion the blow to Asia's poor and thus help avert an explosion of social unrest that governments such as China's fear; they would also help counter the relentless rise in protectionist pressure in the West. [Ibid]
“If emerging Asia needs a warning of the dangers of relying on exports, it need look no further than Japan. Japan's decade-long stagnation ended in 2002, thanks to a boom in exports, especially to China. Now, largely because of its failure to tackle the root causes of weak domestic demand, it is taking more of an economic hiding than any other rich country. Japan used to see itself as the lead goose in a regional flight formation, showing the way to export-led prosperity. It is time for the other geese to break ranks. [Ibid]
Recovery from the 2008-2009 Global Economic Crisis in Asia
Asia bounced back quickly after the 2008-2009 Lehman Brothers’ global economic crisis. Not only that it helped give the world economy a big boost that brought it back from the edge of depression. Growth in Asia was 7 percent in 2009 and that was while the crisis was still going on. Growth in China was 8.2 percent in 2009,
In August 2009, The Economist reported: “Earlier this year it was argued that Asia’s export-dependent economies could not revive until customers in the rich world did. The West still looks weak...yet Asian economies, increasingly decoupled from Western shopping habits, are growing fast. The four emerging Asian economies which have reported GDP figures for the second quarter (China, Indonesia, South Korea and Singapore) grew by an average annualised rate of more than 10 percent. Even richer and more sluggish Japan, which cannot match that figure, seems to be recovering faster than its Western peers. But emerging Asia should grow by more than 5 percent this year---at a time when the old G7 could contract by 3.5 percent. Western politicians should brace themselves for more talk of economic power drifting inexorably to the East. How has Asia made such an astonishing rebound? [Source: The Economist, August 15, 2009]
South Korea's GDP grew by an annualised 10 percent in the second quarter. Taiwan's probably increased by even more: its industrial output jumped by an astonishing annualised rate of 89 percent. India was hit less hard by the global recession than many of its neighbours because it exports less, but its industrial production has also perked up, rising by a seasonally adjusted rate of 14 percent in the second quarter. Output in most of the smaller Asian economies is still lower than a year ago, because they suffered steep downturns late last year. But at economic turning points, one should track quarterly changes.
Asia's rebound has several causes. First, manufacturing accounts for a big part of several local economies, and industries such as cars and electronics are highly cyclical: output drops sharply in a downturn and then spurts in the upturn. Second, the region's decline in exports in late 2008 was exacerbated by the freezing up of global trade finance, which is now flowing again. Third, and most important, domestic spending has bounced back because the fiscal stimulus in the region was bigger and worked faster than in the West. India aside, the Asians entered this downturn with far healthier government finances than rich countries, allowing them to spend more money. Low private-sector debt made households and firms more likely to spend government handouts; Asian banks were also in better shape than their Western counterparts and able to lend more. Asia's prudence during the past decade did not allow it to escape the global recession, but it made the region's fiscal and monetary weapons more effective.
Asia cannot replace the American consumer: emerging Asia's total consumption amounts to only two-fifths of America's. But it is the growth in spending that really matters. In dollar terms, the increase in emerging Asia's consumer-spending this year will more than offset the drop in spending in America and the euro area. This shift in spending from the West to the East will help rebalance the world economy.
Problems that Cropped Up After Recovery from the 2008-2009 Global Economic Crisis in Asia
The Economist reported: “It is easy to boost an economy with lots of government spending. But Asian policymakers now face two difficult problems. Their immediate dilemma is how to sustain recovery without inflating credit and asset-price bubbles. Local equity and property markets are starting to froth. But policymakers' reluctance to let their currencies rise faster against the dollar means that their monetary policy is, in effect, being set by America's Federal Reserve, and is therefore too lax for these perkier economies. The longer-term challenge is that once the impact of governments' fiscal stimulus fades, growth will slow unless economic reforms are put in place to bolster private spending---something Japan, alas, never did.
Part of the solution to both problems---preventing bubbles and strengthening domestic spending---is to allow exchange rates to rise. If Asian central banks stopped piling up reserves to hold down their currencies, this would help stem domestic liquidity. Stronger currencies would also shift growth from exports to domestic demand and increase households' real spending power---and help ward off protectionists in the West.
Another problem was dealing with all the U.S. dollars that flooded the market as a result of U.S. stimulus package to pull itself out of the crisis. The Wall Street Journal reported: Many Asian nations peg their currencies, formally or informally, to the greenback. So they are getting a huge dollar liquidity kick from the carry trade, in which people borrow U.S. dollars at exceptionally low U.S. interest rates and invest them for higher returns elsewhere. As a result, Asia's stock markets are outstripping U.S. and European bourses by a country mile. Shanghai alone is up nearly 80 percent this year-to-date. Hong Kong property is climbing through the roof, with one recent apartment sale mooted at $57 million. As the region's main exporter, China has tried to keep its currency stable against the dollar. But it's facing a flood of hot money. Asset bubbles that build and burst in Asia will eventually cause trouble here, much as they did in the Asian monetary crisis of 1997. [Source: Wall Street Journal, November 17, 2009]
The impact of high food and oil prices was a problem during and after the 2008-2009 global financial crisis.
Spending in Asia Picks Up After the 2008-2009 Global Financial Crisis
In December 2009 AFP reported: One year after a financial crisis wrought devastation on the world's economy and pounded retail sales, shoppers in Asia are cautiously loosening their purse strings. From India and Taiwan to Indonesia and Korea, improving consumer sentiment is driving a general uptrend in spending amid stronger economic data. And low retailer inventories mean shops likely won't be slashing prices in a desperate bid to lure customers, said Aaron Fischer, head of consumer and gaming research at brokerage CLSA in Hong Kong. "Retail sales have been quite strong pretty well across the region, except for Japan," he said. "The main reason is consumer confidence is pretty high." [Source: Peter Brieger, AFP, December 20, 2009]
Industrial activity in Chinese factories has picked up after millions of workers were laid off last year, with toymakers in particular rushing to fill Christmas orders from the United States. "Christmas orders this year should be better than last year as the sentiment last year was very bad," said Ren Xianfang, a Beijing-based analyst with IHS Global Insight, pointing to a recovery in industrial production since September.
In Singapore, the glitzy Ion Orchard mall has drawn 22 million shoppers since opening its doors in July, according to a spokeswoman. "The past year has been a difficult one for many Singaporeans, but we're already seeing signs of recovery with reports of improvements in the labour market this quarter," she said. Still, Thailand's retail sales have drooped in 2009 and the story isn't much better in Japan where price-chopping retailers are fighting to woo unenthusiastic shoppers through the door.
As the country crawls out of its worst post-war recession, Japanese consumers are keeping a tight grip on their wallets, although some say they won't let the financial gloom dampen the holiday spirit. Housewife Akemi Oura, 63, said she will have to watch her gift budget, but still plans to treat herself. "Probably I will spend just as much as I did last year (on myself). But for presents, I will probably keep my budget under about 10,000 yen (US$112)," she said as she strolled through the upmarket Ginza shopping district. Oura's caution may remain for some time as the Japanese economy lags behind that of neighbouring countries. "It's been really tough in Japan for some time," said Fischer of CLSA in Hong Kong. "Japan hasn't been enjoying the kind of recovery we've seen in the rest of the region."
Even in Hong Kong, a key factor behind the boost in retail sales has been mainland Chinese - not locals - flocking to the city to spend their hard-earned yuan. Since the end of November, throngs of mainland Chinese have booked holiday shopping trips to Hong Kong and nearby Macau. Recent economic data, including falling unemployment may suggest better times are ahead for Hong Kong, but 28-year-old Hong Kong born Candice isn't rushing to the ATM machine. "Even though the economy is doing better, it's not time to splurge," she said.
High Food Prices in Asia
Many Asian countries are vulnerable to high oil and gas prices in part because they have so many mouths to feed and so many vehicles to move and they don’t have enough resources to meets it own needs. The poorm who spend beteen 50 to 70 percent of their incomes on food, are particularly vulnerable to high food prices.
In July 2008 when oil and food prices were particularly high the Keith Bradsher wrote in the New York Times reported: “The biggest increases are being felt in Asia, and countries like India and Vietnam are already having to deal with double-digit inflation. Sharp rises in global food and oil prices are now spilling over into wages and broader measures of inflation across Asia, as the Asian Development Bank noted in a report.[Source: Keith Bradsher, New York Times, March 29, July 23, 2008]
Workers are demanding higher wages to cover their rising living costs, and companies are imposing higher prices for a wide range of goods to cover accelerating production costs. “The epicenter of the inflationary storm is really in Asia,” said Cyd Tuano-Amador, the managing director of monetary policy at the Philippines Central Bank.
“There is a legitimate concern about the recent developments on the inflation front,” said Y. Venugopal Reddy, the governor of the Reserve Bank of India, in a speech late last month. “Oil price increase is now a global problem, making inflation a problem for all countries, both developed and developing. Hence, our solutions to the problem will also be similar, but tailored to suit our conditions.”
Shortages and high prices for all kinds of food in March 2008 caused tensions and even violence around the world. There were food riots in Uzbekistan. Thousands of troops were deployed in Pakistan to guard trucks carrying wheat and flour. Protests erupted in Indonesia over soybean shortages, and China has put price controls on cooking oil, grain, meat, milk and eggs. This came on back of food prices rising 40 percent globally in 2007, setting off protest in Indonesia, Malaysia, Myanmar and Pakistan.
In May 2008, AP reported: “High oil prices, growing demand, flawed trade policies, panic buying and speculation have sent food prices soaring worldwide, triggering protests in Asia and raising fears that millions more suffer malnutrition. Surging food prices have fed worries about supplies in the Philippines.” Factors that contributed to the high prices included drought and bad weather, high oil prices causing transportation and fertilizer costs to rise, increasing biofuel demand, low reserves of grains and changing tatses for meat and airy products which feed demand for more grain,
Many experts say the threat of high food prices and shortages will remain a threat in the future due population pressures, rising numbers of middle class, high oil prices and global warming. Joachim von Braun of the Washington-based International Food Policy Research Institute told AFP: There has been “a lack of investmnet in agriculture, particularly in science and in irrigation.
Asian Development Bank and High Food Prices in Asia
In May 2008, AFP reported: “Asian Development Bank President Haruhiko Kuroda announced that the Manila-based lender will offer $500 million in emergency funding to developing countries in the Asia-Pacific region to help the poor and needy in the region cope with surging food prices across the world. ''The situation demands early responses by governments with targeted programs that provide direct assistance to the poorest and most vulnerable, as well as policy measures that support open trade and distribution of basic commodities across the region,'' Kuroda said. [Source: Kyodo, May 6, 2008]
Kuroda also vowed to double ADB lending to the agricultural sector in the Asia-Pacific region to $2 billion for 2009. He also said the ADB will furnish up to $500 million to Asia-Pacific countries facing the food crisis to help them build safety nets meant to protect the poor and vulnerable in the region in the wake of soaring food prices. ''This will help governments alleviate the fiscal burden so that they can bring food to the table of the vulnerable, poor and needy. These resources could also be used to import food grains and agricultural inputs such as fertilizers,'' said Kuroda, a former Japanese vice finance minister for international affairs.
According to the ADB, more than 1 billion people in the region are seriously affected by the food price surge with spending on food representing 60 percent of their total expenditures. Food and energy together account for more than 75 percent of total spending of the poor in the region, the ADB says. Food prices have been soaring across the world due in part to growing consumer demand in China and India, and the spread of biofuel production. The Bangladeshi ADB representative asked the international community for assistance, saying soaring cereal prices could hamper his country's efforts to curb poverty, while the Pakistani representative asked for expanding aid to increase agricultural production.
High Rice Cost Creating Fears of Asia Unrest
World rice prices tripled in Asia over the course of the year in 2007-2008, peaking in April 2008 when Vietnam and Indian cut sales to maintain local stockpiles. Internationally, rice prices skyrocketed by about 76 percent from December to April while overall food prices have risen 83 percent in three years, according to the World Bank. In Asia, the regional benchmark hit $1,038 a ton for Thai 100 percent grade B white rice triple what it was a year before.
Keith Bradsher wrote in the New York Times, “Rising prices and a growing fear of scarcity have prompted some of the world’s largest rice producers to announce drastic limits on the amount of rice they export. The price of rice, a staple in the diets of nearly half the world’s population, has almost doubled on international markets in the last three months. That has pinched the budgets of millions of poor Asians and raised fears of civil unrest. [Source: Keith Bradsher, New York Times, March 29, 2008]
Moves by rice-exporting nations---meant to ensure scarce supplies will meet domestic needs---drove prices on the world market even higher. This fed the insecurity of rice-importing nations, already increasingly desperate to secure supplies. President Gloria Macapagal Arroyo of the Philippines, afraid of increasing rice scarcity, ordered government investigators to track down hoarders.
Even before export restrictions by Vietnam and India, bids for commonly traded grades of Thai medium-grain rice had doubled this year to $735 a metric ton. Vietnamese medium-grain rice had almost doubled to more than $700 a ton, with most of the increase coming in the last four weeks. Bids jumped as much as $50 a ton on Friday.
Poor countries ranging from Sengal in West Africa to the Solomon Islands in the South Pacific are heavily dependent on imports and now face higher bills. Vietnam’s government announced here on Friday that it would cut rice exports by nearly a quarter this year. The government hoped that keeping more rice inside the country would hold down prices. The same day, India effectively banned the export of all but the most expensive grades of rice. Egypt announced that it would impose a six-month ban on rice exports and Cambodia banned all rice exports except by government agencies.
Governments across Asia and in many rice-consuming countries in Africa have long worried that a steep increase in prices could set off an angry reaction among low-income city dwellers. “There is definitely the potential for unrest, particularly as the people most affected are the urban poor and they're concentrated, so it’s easier for them to organize than it would be for farmers, for example, to organize to protest lower prices,” said Nicholas W. Minot, a senior research fellow at the International Food Policy Research Institute in Washington.
Causes of the Sharp Increase of Rice Prices
Keith Bradsher wrote in the New York Times, “Several factors are contributing to the steep rice in prices. Rising affluence in India and China has increased demand. At the same time, drought and other bad weather have reduced output in Australia and elsewhere. Many rice farmers are turning to more lucrative cash crops, reducing the amount of land devoted to the grain. And urbanization and industrialization have cut into the land devoted to rice cultivation. [Source: Keith Bradsher, New York Times, March 29, 2008]
In Vietnam, an obscure plant virus has caused annual output to start leveling off; it had increased significantly each year until the last three years. Until the last few years, the potential for rapid price swings was damped by the tendency of many governments to hold very large rice stockpiles to ensure food security, said Sushil Pandey, an agricultural economist at the International Rice Research Institute in Manila. But those stockpiles were costly to maintain. So governments have been drawing them down as world rice consumption has outstripped production for most of the last decade.
The relatively small quantities traded across borders, combined with small stockpiles, now mean that prices can move quickly in response to supply disruptions. At the same time, prices set in international rice trading now have an increasingly important effect on prices within countries. This has been particularly true in an age of Internet and mobile phone communications when even farmers in remote areas can learn about distant prices and decide whether their own buyers are giving them a fair price.
Even before governments imposed restrictions, trading companies in exporting nations had become increasingly reluctant to sign contracts for future delivery as they wait to see how high prices will go. “The market has pretty much ground to a halt for the past few weeks,” said Ben Savage, the managing director for rice at Jackson Son & Company, a commodities trading firm in London. Soaring prices are already causing hardship across the developing world.
Governments have been reluctant to tell farmers to sell their rice at low fixed prices, for fear that farmers would hoard rice or not bother to grow as much as they could. On Friday, China, which is virtually self-sufficient in rice, raised the minimum prices for rice and wheat that it guarantees to farmers.
Impact of High Rice Prices and Response to Them
Keith Bradsher wrote in the New York Times, “In a crumbling covered market in an old neighborhood of Hanoi, Cao Minh Huong, a ceramics saleswoman, said that rising food prices, especially for rice, were forcing her to change her diet. “I’m spending the same amount on food but I’m getting less,” she said. [Source: Keith Bradsher, New York Times, March 29, 2008]
Together with rising prices for other foods, like wheat, soybeans, pork and cooking oil, higher rice prices are also contributing to inflation in many developing countries. Retail rice prices have already jumped by as much as 60 percent in recent months in Vietnam, trailing increases in wholesale prices but leading a broader acceleration in inflation. Prime Minister Nguyen Tan Dung of Vietnam announced Wednesday that the government’s top priority now was fighting inflation. Overall consumer prices are more than 19 percent higher this month than last March. . The inflation rate has nearly tripled in the last year.
In Japan, a government official announced that his nation would release some of its huge stockpile of rice to help ease the crisis. Thailand’s prime minister assured the Philippines during a visit there that his government was willing to increase Manila’s rice inventories, an official said.
Nguyen Van Bo, the president of the Vietnam Academy of Agricultural Sciences, which oversees government farm research institutes, said that the government expected rice production to rise further by 2010 despite the rapid expansion of residential housing and factories into what had been prime rice-growing land. But the government needs to train farmers to alternate corn with rice to defeat rice pests like the virus, he said.
Vietnam, Egypt and India all limited rice exports last year, but the limits were much less drastic and were imposed much later in the year, after much more rice had been shipped. The government of Thailand, the world’s largest rice exporter followed by Vietnam, has not yet limited exports. But a national debate has started in Thailand over whether to do so ,and Thai exporters have already practically stopped signing delivery contracts, Mr. Savage said.
FAO said rice production is expected to hit a new record of 666 million tons worldwide by the end of 2008, a global increase of 2.3 percent. Production in Asia is forecast to rise to 605 million tons from 600 million tons, with particularly large increases in Bangladesh, China, the Philippines, Thailand and Vietnam, the agency has said.
Economics in Asia in the 2010s
Growth in 2010 was 9 percent, pushed upward by China’s high growth rate of 10.4 percent. In 2011 the growth rates was 8.2 percent. That year China boasted growth of 9.2 percent while growth in ASEAN’s four middle income countries---Indonesia, the Philippines. Thailand and Malaysia---posted growth of 4.7 percent. Thailand’s growth in 2011 was only 2.4 in part because of flood damage to the electronics and automobile industries. Tsunami damage slowed growth in Japan in 2011 but reconstruction afterwards gave the economy a push in 2012. The disaster didn’t have that much of an impact outside of Japan other than disrupting the supply chain because of shortages of parts produced by tsunami- and earthquake-damaged factories.
According to a May 2011 United Nations report emerging economies in Asia and Latin America---namely China, India and Brazil---were still leading the global economic recovery. In the past when economic growth stalled globally consumption in the United States helped reverse the trend. This time the mechanism was in reverse. While growth in Asia and elsewhere in the developing world did not bring the U.S. and Europe back to robust growth it did give their economies a push and prevent them from slipping into deep recessions.
Growth for exporting countries in Asia was slowed by economic problems in the eurozone and a sluggish growth in the United States. Inflation and food prices again became major concerns as prices of corn and wheat soared on the back of bad wheat harvests in Russia and drought in corn-growing regions in the United States.
China as an Economic Threat in Asia
China has become a manufacturing threat to many Asian countries, not only in low tech areas but also in high tech fields and in industries like automobile manufacturing. China has taken away foreign investment from the other Asian countries and takes business away with its unlimited supply of cheap labor. China-bashing books fill bookstore shelves in Asia.
China has been able to undercut is neighbors in key export markets. Many of the sectors that China’s is doing well in---light industry, electronics, chip making---are sectors that other Asian countries had hoped to do well in but aren’t do as well in as they hoped because of China. In the 1990s, China’s exports to the United States tripled while those of Japan fell by half and those of the four tigers---South Korea, Taiwan, Hong Kong and Singapore---shrank by a third.
Thailand and Malaysia took 10 years building the expensive, production base and infrastructure for a precision metalworks that could sell components to Swiss watchmakers. The Chinese took over the business in only a year.
More and more China is seen as a positive force as well as a negative one. It is proving to be a large buyer of goods produced by Asian countries and a source of foreign investment. China ran a trade deficit with Asia in 2003. It imported steel from South Korea and Japan used in construction and car making, imported basic commodities from Malaysia and Indonesia such as palm oil and oil and imported chips from Taiwan used to make products for export such as laptop computers and calculators. Chinese tourist are popping up all over Asia.
China is replacing the United States as the economic engine in Asia. It buys up huge amounts of raw materials, goods and parts and pour in large amounts of foreign investment. into its Asian neighbors. In 2002, China proposed setting up an Asian free-trade zone.
According to United Nations Development Program report issued in 2006: “China’s stunning economic growth, in so many was an inspiration to its Asian-Pacific neighbors isn’t delivering reciprocal benefits to its regional trading partners and in some cases is causing difficulties for them.” The report find that Asians least-developed countries are experiencing a “severe trade imbalance” with China. Cambodia for example imported $452 million worth of goods from China in 2004 but exported just $30 million. Bangladesh imported $1.9 billion worth of goods from China but exported just $57 million the same year.
ADB on the Coming 'Asian Century'
Frank Zeller AFP wrote: “Asia could be as wealthy as Europe by mid-century, but only if it tackles key challenges from inequality and corruption to climate change, an Asian Development Bank study. On current trends, Asia will make up half the world's economic output by 2050, and another three billion people will have joined the ranks of the affluent, their incomes matching those of Europe today, said the report. [Source: Frank Zeller, AFP, August 1, 2011]
“But the ADB study also pointed to a paradox -- the fact that the world's fastest-growing region, dubbed "Factory Asia", is still home to almost half the world's absolute poor, who earn less than $1.25 a day. Under the best-case scenario, Asia's combined GDP -- also including poorer nations such as Laos and Pakistan -- will rise from $17 trillion last year to $174 trillion in 2050, with per capita GDP of $40,800 in current terms. [Ibid]
“But in order for Asia's rise to be sustainable, the study warns, the diverse region must emulate the past successes of top performers Japan, South Korea and Singapore by promoting inclusive and equitable growth. ADB president Haruhiko Kuroda pointed out that developing Asia has led the way out of the global financial crisis and recession with a V-shaped recovery. On current trends, the study said, "by 2050 its per capita income could rise sixfold in purchasing power parity terms to reach Europe’s levels today. It would make some three billion additional Asians affluent by current standards. "By nearly doubling its share of global gross domestic product to 52 percent by 2050, Asia would regain the dominant economic position it held some 300 years ago, before the industrial revolution." [Ibid]
The report warned that emerging economies face the risk of being stuck in the "middle-income trap" as bursts of rapid growth, driven by export-based manufacturing, are followed by periods of stagnation or decline. The report highlights other key challenges -- rising inequality within and between countries, poor governance and corruption in many of them, and intensifying regional competition for finite natural resources. In the worst case, it warned, Asia could face "a perfect storm" of bad macro-economic policies, unchecked financial sector exuberance, conflict, climate change, natural disasters, changing demography and weak governance. To make Asian growth sustainable, the study said, its countries must address poverty, equality of access and opportunity, and focus on education, entrepreneurship, innovation and technological development.
“Climate change is "a wild card for Asian development", warned the study, which stressed that Asia is already hit by more storms, floods and other natural disasters than any other region. Global warming threatens to melt the glaciers that run from the Himalayas and other mountain ranges to feed Asia's major rivers, which provide water, food, fish and power for 2.8 billion people, it said. "Climate change will affect everyone. With over half the world's population, Asia has more at stake than any other region," said the study. [Ibid]
"The anticipated affluence of some three billion additional Asians will put tremendous pressure on the earth's finite natural resources. "Out of self-interest," said the study, Asia "will need to take the lead in radical energy efficiency and diversification programmes by switching from fossil fuels to renewable energy." Launching the report, Kuroda said: "How we handle vital resources such as water and food will determine whether we stay on the path of economic growth and development, or stumble into conflicts of scarcity. "Asia must take radical steps now toward investing in innovation and clean technology to ensure that our quest for prosperity for all does not end in environmental
Image Sources: Wikimedia Commons
Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.
© 2008 Jeffrey Hays
Last updated November 2012