The theme of this year’s World Economic Forum meeting in Davos is undeniably ambitious: “Improve the State of the World: Rethink, Redesign, Rebuild.” Such aspirations reflect the timing of this year’s event, as economies around the world look to rebuild confidence after the global financial crisis. I look forward to the Davos sessions, but, whatever the outcomes, it is clear that the rebalancing of global leadership towards the East will be a key trend.
In the 1960s, even the most optimistic would have found it hard to imagine Asia’s achievements of recent years. In his book Asian Drama, Gunner Myrdal, the Nobel Prize-winner, could find no cause to be positive about Asia’s prospects.
The transformation since then has been nothing short of extraordinary. I do not recognise the countries I visited during my first trip to Asia, in 1984. With average annual growth rate of nearly 6 per cent in the past ten years, Asia’s share of the global economy has risen to a third. The strength of Asia’s economies has helped them to weather the global financial crisis, as both governments and households avoided the excessive leverage prevalent in the Western economies. The IMF expects Asia to grow by nearly 6 per cent next year — almost double the rate forecast for the global economy.
“A changed world order is upon us,” Lee Kuan Yew, Singapore’s Minister Mentor, said in Washington last year. It is time for Asia to use its stronger voice to take a more prominent role in this new world order. The progression from the Western-dominated G8 to a more inclusive G20, with meaningful positions for leading Asian economies, rightly reflects the shift to a new equilibrium in which Asia has much greater weight.
In recognising Asia’s changing and increasing role, business and government leaders need to keep in mind that the region is extremely large, diverse and complex. Economic growth rates, demographics and political systems vary greatly across countries.
I view Asia as consisting of four distinct groups:
First, there are the mature, OECD economies of Japan, South Korea and Taiwan, which are very similar to those in the West.
Second, the new economic powerhouses of China and India. They both logically attract the most attention, given their size and growth, yet understandably, both of them, because of that very size and conscious of their attractiveness, are cautious in the way they grant access to their domestic markets.
Third, the city-states of Hong Kong and Singapore, which have unique dynamics and continue to see strong economic growth.
Last, but not least, the emerging economies, such as Indonesia, Vietnam, Malaysia and Thailand. They have been experiencing rapid growth and should continue to do so, given the open nature of their economies, low government borrowing and consumer debt, and their young, growing populations.
The debate of only two years ago about whether Asia is decoupled from the rest of the global economy is now academic. Without doubt, Asian and Western economies are linked in complex ways. Trends across the region will strengthen Asia and benefit the global economy. China and India will continue to grow and offer more opportunities to international companies. Across the region, reliance on export-led growth is likely to decrease and, in the long term, currencies are unlikely to stay pegged to the dollar.
Asia’s changing role represents a clear opportunity. With unemployment in the West growing, it is understandable that some may see Asia’s increasing role more as a risk than an opportunity and look for safety in protectionist measures. That would be a short-sighted answer with damaging effects for the long-term growth prospects of the world economy as a whole.
We must work together to contain the protectionist threat. The UK is well positioned to influence this. It can also benefit from Asia’s growth and increasing wealth, given its historic ties with the region, its language, its location and its long commitment to free trade.
Today, every company with international ambitions knows that it needs a meaningful presence in Asia. This requires allocation of capital and senior management time to the region, determined investment in local talent and linking with local universities and business schools.
Prudential is an example of the benefits of looking East for a British household name. We have had thriving operations in Asia for well over 80 years. More than half our new business profits come from Asia and we expect this to continue to grow. Like the UK as a whole, our future prosperity will be determined by continuing to approach this exciting part of the world with determination, patience and creativity.
? Tidjane Thiam is Group Chief Executive of Prudential