Asia: One Year Later
On the first anniversary of Asia's worst recession in half a century, it is clear that the geoeconomic shape of the Pacific Rim will be far different from what anyone anticipated just a year ago. The fulcrum of growth is slowly shifting from a senescent Japan and stagnant Southeast Asia to a dynamic, confident China. President Clinton's remarkable journey will likely mark this tectonic shift for future histories. Consider these events taking place:
-- China is choosing a strategy of pumping up domestic-led economic growth, in contrast with the International Monetary Fund's policy of austerity and Japan's weak yen-and-export push. By cutting interest rates, privatizing housing, inviting foreign investment, and keeping the renminbi stable, Beijing is increasing domestic demand and growth. Certainly, China shares many of the woes afflicting Asia--insolvent banks, lax regulatory enforcement, and corruption. Yet its vigor in attacking these problems and its decision to opt for a strong currency set it apart and show real leadership.
Clinton's televised debates with President Jiang Zemin and Beijing University students over the utility of American-style freedom in the Information Age may well signal a new openness in China's polity. Human rights are still a huge problem. But the country has moved from totalitarianism to a looser form of authoritarianism. The hope is that China will follow Taiwan and Korea down the road to democracy.
-- Japan, in contrast, is stuck in a hermetically sealed society. Despite the rhetoric of reform, its political and bureaucratic elites deny there is anything basically wrong and run the country as a pension state focused on an aging population. Problems are described as isolated, and solutions take an inordinate amount of time. Seven years into a severe banking crisis, Tokyo is just now passing legislation to create a Resolution Trust Corp.-type unit. Meanwhile, the unemployment rate soars to new records. Among men, who constitute most of the labor force, it hit 4.3% in May. It is worse for the young. The jobless rate for men 15 to 24 years old rose to 8.4%.
Foreign investment should be pouring in to reinvigorate growth, but little is allowed. Mergers and acquisitions should be consolidating companies, but few are permitted. Immigrants should be arriving to give new life to society and support the elderly, but they are forbidden. Outside CEOs should be taking over failing corporations, but that is not accepted. As much as China is invigorated, Japan is stultified. The contrast is startling.
-- Southeast Asia is in agony. A huge nascent middle class is being pushed back into poverty. Depression is looming. Indonesia is deindustrializing, with people leaving cities to return to villages. Chinese merchants are fleeing (up to 100,000 have left). Overseas Chinese capital that funded much of Southeast Asia's past three decades of growth is drying up.
-- IMF doctrine is being repudiated. Investor confidence has not been restored a full year after the Asian crisis began and the IMF stepped in demanding high interest rates and tight fiscal restraint. A call for looser monetary policy, more government pump-priming, and increased domestic growth is spreading. Thailand and Korea have already cut interest rates, along with Malaysia, China, and Hong Kong.
President Clinton got it right. His was not a boastful exhibition of American triumphalism but rather a forceful statement of American principles. The changing shape of Asia requires a strong U.S. foreign policy that promotes American values, strategic interests, and economic well-being. In that context, China's efforts to modernize deserve U.S. support.