Is Asia in A Golden Age?

high-speed rail to linked Asia
(Picture above) The Singapore-Kunming Rail Link (SKRL) will ease travel between various Southeast Asian countries and China. 

The emerging roles of China and India in the world economy over the past decade have offered the opportunity to many regional economies to accumulate wealth. Many economists regard this as Asia’s time to shine.  On February 2011, Bank of Thailand governor Prasarn Trairatvorakul was a keynote speech at the Post Today Investment Expo 2011 in Bangkok. According to the governor,‘‘In many cultures, three characteristics must be present: harmony, stability and wealth. If any particular period is filled with these, the time will offer hope and opportunity.’’ Asia now cooperates better in the area of international relations, including the ASEAN Economic Community which will kick off in 2015, and there is a determination to cooperate financially, reported the Bangkok Post newspaper.

Sharing the podium with Bank Governor Prasarn was Simon Tay who is Chairman of the Singapore Institute of International Affairs who wrote on January 11, 2011, in the Guest Column of The Nation Newspaper that, "if Asia rises, as most predict, Asian companies and Asians would want to be deeply involved in that rise and maximize their benefits". "As such, Asians and Asian companies will face even greater competition", he said.  In Tay's opinion, "Everyone predicts Asia will rise. Probably. But who will win in Asia's rise - which countries and which companies and products? That is far less certain".

The World Bank said on January 14, 2011 that China’s rapid growth should slow to 8.5% in 2011 from 10% in 2010 but the world’s second-largest economy would remain the focus of Asia’s expansion, reported AP news. The bank’s forecasted for developing economies in East Asia and the Pacific include China, Indonesia, Thailand, Vietnam, the Philippines, Malaysia that there is still Chinese demand for raw materials and components which should continue to stimulate exports by its Asian neighbors. Region-wide, exports should expand by 12% in 2011-12, down slightly from 15% during the boom, the bank said. Indonesia’s 2011 growth should accelerate to 6.2% from last year’s 5.9%, the bank said. It warned that Thailand’s expansion should slow sharply, falling to 3.2% from 2010’s rapid 7.5%. Vietnam’s growth should moderate to 6.5% from last year’s 6.7%, the bank said.

Factors that challenge and support Asia's rise:

1. Asia has an Inflation Problem

Monthly Consumer Price Index: Asia
(Source: IMF, DEIC Database and the Economist, compiled by the Research Department, Bangkok Bank PCL)

YoY % Lastest
5.1% Nov-2010
Hong Kong
2.9 % Nov-2010
India 8.3 % Nov-2010
Thailand 3.0 % Dec-2010
11.8 % Dec-2010
Indonesia 7.0 % Dec-2010
Malaysia 2.0 % Nov-2010
Philippines 3.0 % Dec-2010
Singapore 3.8 % Nov-2010
South Korea
3.5 % Dec-2010
Cambodia 3.7 % Oct-2010
Laos 6.7 % Nov-2010

Asia has an inflation problem. The sooner Asia acts to temper inflation, the better.  Trends of inflation in the region’s many countries are worrisome: the 5% threshold in China; 8% in India; 7% in Indonesia; 11% in Vietnam; 3.8% in Singapore; 3.5% in South Korea; and 3% in Thailand.

Inflation is always followed by higher interest rates. Asia must face up to the critical challenges that may come with its new leading role.  Inflation, if not addressed quickly, could seriously compromise the region’s ability to meet those challenges.

2. Costs Increases

Minimum wages have been rising throughout China since the end of 2010 in the wake of labor shortages, a spate of strikes and surging inflation (read our "China Raises Minimum Wage Up To 21%" for more details).  Salaries in Thailand in 2011, on average, the minimum wage has now increased by nearly 7% (read our "Thailand - Minimum Wage 2011 Increases")  The trend in salary increases is being seen across Southeast Asia, supported by improving economic conditions, said Surendran Ramanathan, head of Aon Hewitt's Southeast Asia Rewards Center, reported the Bangkok Post.

According to the paper, Vietnam is expected to lead the SE Asia region with an 11.5% rise in 2011 (read our "Vietnam's Labor Problems amidst its High Inflation"), followed by Indonesia (7.9%), the Philippines (7%) and Malaysia (5.8%). The high salary increases in Vietnam, Indonesia and the Philippines are due mainly to high inflation. Singapore should see the lowest increase at 4.4%, as the inflation rate for the city-state has always been low at about 1%, reported the Bangkok Post newspaper.

The turnover rate for Thailand for 2011 is estimated at 8%, having been quite stable over the past three years; while Vietnam will see the highest turnover rate in the region at 14.8%, followed by Malaysia (13%) and Singapore (10%), said the paper.

In our view, in looking at areas for investment we believe investors need not only to look at the minimum wage rates plus also the expected wage rates for the actual types of employees that the new factory or company will be hiring.  Generally, we find minimum wages to not be as good a measure of a country's investment potential as is a more detailed analysis of the particular jobs your company will actually need to staff your new office or factory.

3. China takes the lead

China's private sector has become a major player in foreign-trade markets. Since the global financial crisis, those enterprises have taken full advantage of the country's stimulus policies and made much headway in tapping the international market," said a report published by the All-China Federation of Industry & Commerce (ACFIC), which governs the nation's more than 40 million private and individual businesses and quoted by Xinhua News recently.

Overseas investment by China's private enterprises is no longer limited to economically underdeveloped regions, such as Africa and Latin America, but has been extended to many other, more mature markets, such as North America, Europe, Japan and South Korea, the ACFIC report said. Huang Mengfu, chairman of the ACFIC, told China Daily earlier that private businesses, which are mostly small- and medium-sized enterprises (SMEs), have grown rapidly in number in recent years and have started to extend their businesses into previously monopolized areas, such as energy and electronic communications. The number of private enterprises in China exceeds 8.4 million after a yearly increase of 14.3 percent on average over the past five years, Huang said earlier. They account for more than 74 percent of China's total enterprises. However, private industry will come under greater pressures in the next five years as inflation increases, labor cost rises, and trade protection measures from foreign countries increase, said Huang. Moreover, "financing difficulty will still be a crucial problem," he said

Japan's technological expertise and strong export-driven economy has made advances on the manufacturing of high quality products including automobiles, electronics, semiconductors and optical fiber. Other robust industries include energy and engineering solutions, shipping and finance. As the middle class continues to grow in China, China has become a huge and important market for Japanese companies. China's rapid industrialization has also required more green technology and efficient energy solutions, fields in which Japan has extensive expertise.

"As China has overtaken the US as the world's largest automobile market, Japanese auto parts makers are renewing their commitment to the Chinese market," said Takahide Takahashi, Japan Auto Parts Industries Association vice president, who estimates that overall vehicle sales may exceed a staggering 18 million units this year. Japan also continues to be popular with Chinese students, who comprise 60 percent of all international students in the country. There are about 79,000 Chinese students out of 133,000 international students at Japanese universities.

Thai economists urged the government and the private sector to build better co-operative relations with western China where economic growth presents strong opportunities for Thai exporters, reported Bangkok Post.  Of the 12 western provinces, Sichuan has the highest economic growth rate, ranking ninth out of the country’s 31 provinces. Beijing wants Chongqing to become the ‘‘Shanghai of the West’’ under its policy to develop western China. This will create greater opportunities for Thai exporters in the region. 

On moving forward with Asia, the Bank of Thailand Governor Prasarn said in a seminar recently reported by Bangkok Post that,‘‘If we want to position ourselves firmly in this network, we need to catch up with technology and innovation. We must innovate in the end as most value-added comes from research and development, while our wage competitiveness is gradually decreasing,’’  He said the country also needed to have a clearer direction in macro and micro development policies for education, health care, basic infrastructure and the private sector.  However, Thailand is still facing its internal political troubles and the chaos is expected to continue during and after the upcoming election.

4. Improvement in Inter-linking Infrastructure among Asian Countries

Business-in-asia.com has reported and updated information on the Singapore-Kunming Rail Link (SKRL) for our readers (read at: http://www.business-in-asia.com/asia/SKRL_railway.html)  Now, the rail portion from the China border to Vientiane, Laos is scheduled to start ground laying in April 2011. The construction is expected to be completed in 4 years. The rail speed will be 200km/hour. The 420km railway will include 190km of tunnels and 90 km of bridges due to the mountainous ranges of northern Laos. The rail, which is a Chinese-funded project, is projected to cost approximately US$7 billion. This high-speed train route will ease travel between various Southeast Asian countries and China. 

Also, Trans-Asia Rail Link - A long link between China, various countries in Asia and Russia (information at http://www.business-in-asia.com/asia/tranasia_rail.html) should provide another good links in Asia.  However, the Trans-Asian Railway Project has not been a great success so far. Very little railway has actually been built along the planned corridors during the past years.


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