《亚洲和当前的经济环境》(Asia and the Current Economic Environmen)

　　辛格(Singh)先生，博鳌论坛秘书长、东盟前秘书长

　　Speech by Tan Sri Dato’ Ajit Singh

　　At the Technical Consultancy Development Programme

　　for Asia and the Pacific 2001 Annual Meeting

　　Three Gorges, China, 22nd October 2001

　　‘Asia and the Current Economic Environment’

　　The theme of this workshop, “Ushering in a New Era for International Cooperation between the Engineering Consulting Industry in Asia and the Pacific Region”, is one which is both timely as well as relevant. Timely, in that the current winds of recession which are blowing throughout the region and the world necessitate a response of greater cooperation, and relevant in the sense that greater regional cooperation is something that we at the Boao Forum are committed to. I have chosen to speak on ‘Asia and the Current Economic Environment’, for two reasons. Firstly, Asia is of course a large part of the ‘Asia Pacific Region’. Ideally, we would want see Asia being the lynchpin of many of the Asia Pacific activities in the future. Secondly, if the goal is International Cooperation, then much of the cooperation which we have now, and will have in the foreseeable future, will be centred on economics and commerce.

　　 The environment which we are faced with today is indeed a grim one, at least economically. Even before the horrendous and despicable September 11 attacks in New York and Washington, the consensus was that the world was about to enter a period of significantly slower growth. The U.S. economy had entered a slowdown phase, and this had created knock-on effects on many Asian countries. Indeed, Japan and Singapore were already assessed as being in recession, as the effects of slower U.S. growth hit their export-oriented economies. After the tragedies in New York and Washington, the consensus is now that the U.S. cannot avoid a recession. The signs pointing to this are manifold. Firstly, the U.S. stock market is down. After September 11, the Dow Jones Industrial Index fell below 9,000 points, and came close to 8,000, before recovering. Given that not so long ago it was at 11,000, this shows that markets are jittery. In addition, various sectors in the U.S. have been hit extremely negatively, not the least airlines and travel. Also, there is a large amount of anecdotal evidence that in the weeks following September 11, American consumers stayed at home, watched TV, and did not shop. Due to the consumer-oriented nature of the U.S. economy, this alone would be enough to guarantee recession. Finally, there are of course the job losses in America. It is estimated that more than 100,000 jobs will be lost in New York alone as a result of the September 11 attacks. All of this is points incontrovertibly in the direction of a U.S. recession, and most economists have agreed that this will be the case.

　　From the point of view of the rest of Asia and the Pacific, this is of course bad news, since the strength of the U.S. economy has been the prime driver of regional growth for the last several years. Many countries in East Asia and on the Pacific Rim are highly dependent on U.S. demand for their products. Some Asian countries, especially those with smaller populations, count trade as more than 100% of their GDP. Many of these countries have in turn a high dependency on electronics and semiconductors. Unfortunately, this has turned out to be an Achilles heel this year, as semiconductor demand in the U.S has fallen by more than 40%, with a similar fall for electronics. Further, American tourists have always been a welcome source of business for the tourism industry in the region. Therefore, the impact of the U.S. recession, and the probable global slowdown, will most likely affect the region significantly. This is all the more unfortunate if we consider that the Asian Crisis of 1997 / 1998 is still recent history. Although many of the countries of East Asia which were hit by the crisis had made a full recovery, external factors now seem to conspire to provide another difficult period.

　　 What though of countries in South and Central Asia, not to mention China, which have in the past been less affected by financial developments elsewhere? Whilst it is certainly the case that these countries have a more domestic-demand based economy, and are relatively more immune to external factors, even they have been affected by the current circumstances. For instance, China’s growth rate, which has been averaging 7 to 8% for the last 3 years, is expected to slow to roughly 6.5% for this year.

　　The subcontinent, on the other hand, has had a fairly good time of it, having recently increased its growth rate to 4.4%, but even there the most economically vibrant sectors of their economy, in particular the IT services sector, will be hard hit by the present global difficulties. Furthermore, with the current military activity in Afghanistan, it is natural that the focus of the countries of the subcontinent and of West Asia would turn to security rather than economic matters. Again, the likelihood is then for a period of slower growth.

　　Overall, this has resulted in some commentators and pundits wringing their hands and speaking in apocalyptic terms of the problems of Asia as a whole. It has been suggested in some quarters that the current difficulties are an extension of the Asian Crisis because, ‘The Asian Crisis never ended, in that the necessary reforms to correct its causes did not take place’.

　　This seems disingenuous. Despite the very real problems facing the region, many of the countries in Asia have made great strides in banking reform, corporate governance, bankruptcy law and other such matters over the last several years. Indeed, if not for the worsening environment, I am certain that many of these same commentators would be speaking instead of how Asia’s difficulties were only temporary, and of how the tigers were back. It is unfortunately always the case that hyperbole is excessive, both at the peak, and also now, when we seem to be entering a trough.

　　In fact, from a political and policy standpoint, many of the responses to the current environment have been gratifying. The current environment has underscored the need for political courage at a time of economic challenge. Many of the countries in the region are already responding aggressively to this challenge. For instance, in the most recent ASEAN economic ministers meeting in Hanoi, the possibility of an ASEAN-China Free Trade Area was broached. Given that China has no current regional trade agreements of any kind, this should be a welcome initiative. Should it materialise, it will build well on China’s coming entry into the WTO as well as ASEAN’s own efforts to solidify the ASEAN Free Trade Area. In the longer run, the benefits from these kinds of agreements will far outweigh the pain caused by the recession we are entering.

　　Additionally, of course, many of the countries of the Asia-Pacific region, including the U.S., are resorting to different forms of economic pump-priming in order to help support their economies. This time around, no one seems to be advocating the kind of belt-tightening that some parties recommended as the appropriate response to the Asian Crisis, since belt-tightening as a response to recession has since been thoroughly discredited. Economic stimuli packages in the region encompass initiatives ranging from reducing taxes and lowering interest rates to various forms of infrastructure spending. Certainly from the point of view of the engineering consultants, the latter two types of stimulus should be welcome. Any incentives for construction and infrastructure should be opportunities for engineering consultants to increase their business.

　　Furthermore, many Asian countries have natural protection mechanisms in a time of crisis. In particular, they are producers of oil and other commodities. Whilst these commodities are not totally recession proof, they are at least, for the moment, better than electronics and semiconductors. Certainly, the price of oil, at approximately US$ 22 a barrel, whilst off its highs, is significantly above the average for the last decade. This will cushion the impact of the recession on countries fortunate enough to have oil resources. Having said that, in the longer term, of course, the countries of Asia should not rely over-much on commodities, but should rather be concentrating on building human capital and developing other forms of value-added production, be it in manufacturing, services or agriculture.

　　With this picture of the current economic situation as the backdrop, let us focus though on what might happen in the future. In particular, when will Asia likely recover, and what are the prospects for the longer term?

　　Let us look first at the longer term prospects for the region. I believe the longer term prospects are still good, for a multitude of reasons. These reasons can be broadly lumped under the headings of human capital, financial and physical capital, technology, corporate governance and political stability.

　　Firstly, human capital. As we know, much of the rise of the East Asian economies over the last few decades was, at least initially, based on cheap labour. Even now, there are many Asian countries where cheap labour is the principle source of factor advantage. However, throughout the region there has been a continuous process improvement in the quality of human capital. This was so throughout the Asian Crisis and continues to be so today. This process of improvement in the quality of human capital can be seen in reduced illiteracy rates, increased rates of university enrollment, increased rates of post-secondary education, and, possibly most importantly, reduced rates of female illiteracy.

　　Furthermore, this rate of improvement in human capital is faster than can be found in any other region in the world. Part of that is for positive reasons, such as the traditional Asian respect for learning, and part of it is for negative reasons, in particular the fact that many Asian countries have so far to go in catching up with Western levels of human capital development, and are therefore starting from a low base. However, whatever the reasons, the implications are very positive. We can therefore expect that the current high levels of human capital investment in Asia will eventually allow economic take-off in many Asian countries, especially those which have thus far been sidelined in the economic race.

　　A second reason for optimism is the availability of financial and physical capital. As we know, Asian countries have, by and large, a very high savings rate. In fact, the initial countries of the Boao Forum for Asia, which are a cross-section of the Asian continent as a whole, save an average of 24% of GDP annually. This means that, despite having in it some of the poorest countries in the world, Asia has the highest savings rate, and therefore the highest rate of gross capital formation, in the world.

　　Many of the members of the engineering consultancy community have benefited directly from this high rate of capital formation, especially as financial capital in Asia has always been rapidly transformed into physical capital, in the form of infrastructure, plant and equipment, and ultimately projects for engineering consultancies. In this regard, the value of the engineering consultancy industry in Asia in particular is clear. You have helped the various countries of Asia design and build the physical capital that is so important to a prosperous future. Asia would not have come so far, nor have such a bright future, if not for the ability to build the physical capital that forms the foundation for our future prosperity. Again, here then we see a situation where the financial and physical capital in Asia, although not necessarily world-class in many regions, shows a rate of development which bodes well for the future, and encourages an optimistic view of the longer term.

　　 Thirdly, let us look at technology. Here the picture is more mixed, but is still optimistic if one considers Asia in comparison to other developing regions in the world. If we were to consider a fairly arbitrary benchmark of 10 patents per year per million population as the cutoff for technologically innovative societies, then only 2 countries in Asia, namely Japan and South Korea, would qualify. However, that would be a somewhat unfair standard, since no developing country in the world would qualify under that criterion, and of course, Asia is still largely a region of developing countries.

　　If we look instead at the number of countries which are aggressive technological adopters, using the benchmark of, say 2% of GDP being composed of high-tech exports, then we discover that a much larger proportion of the Asian continent would qualify. In fact, this benchmark would classify most of South-East Asia, coastal China, and significant parts of India as being technologically adoptive societies. History teaches us that countries which have made the step from developing to developed countries have always taken the intermediate step of technological adoption. This has been so for all countries since the time of the original industrial revolution in Britain. Given that at this stage, Asian countries are probably better off importing technology rather than conducting their own R D, I am confident that this state of affairs bodes well for the future, as the Asian countries which are now technological adopters grow in their own mastery of technology. Again, engineering consultancy has a role to play here, since much of the technological adoption will be via companies such as yours here today. This of course represents a significant business opportunity, which will continue for an extended period of time.

　　 The fourth reason I mentioned as to my confidence in the future of Asia was corporate governance. This is probably the most controversial of my reasons to be confident, at least in some quarters, but nevertheless I stand by it. Many of the countries of Asia have in the past, and even now, been accused of poor corporate governance. This is reflected in the terms ‘business Asian style’, ‘government-industrial complex’, ‘government bail-outs’, ‘crony capitalism’, and so on. However, underlying this, many countries in the region have been slowly opening up, reducing government interference, increasing transparency, and so on. This can be seen in countries ranging from China, which has made great strides in codifying laws more clearly, for instance, to Singapore, which has been, and continues to open its banking sector to competition, to India, which has seen the demise of the licensing raj. These, and related activities such as setting up securities commissions have in themselves resulted in an increasingly level playing field.

　　Of course, there is still room to improve. However, if we look at the multilateral picture, we see that there are forces such as WTO commitments, China’s WTO accession, the ASEAN Free Trade Area and so on, which, having been committed to by various Asian countries, will force them to continue the process of increasing good governance. This in turn will be of tremendous benefit for the countries concerned, and will result in both stronger economies and societies in the longer term.

　　 The final reason for my confidence in the future of Asia is political stability. This is an old saw which has been mentioned many times as a source of Asian strength, although less so since the 1997 / 1998 Asian Crisis. Still, it bears mentioning. The countries of Asia are far from monolithic, either collectively or individually. Virtually every country in Asia has sizeable minority populations and some are true multiracial countries, especially in South-East Asia. Coincident with this, there are also a wide variety of religious beliefs held in Asia, with each adherent holding equally strongly to his or her faith. Due to the geographic layout of Asia, and the relatively high population densities of many Asian countries, these different communities, each with their own race, creed and culture, live cheek by jowl with each other. In many other regions in the world such a mixture would be explosive. To put this risk into perspective, even in Western Europe, which has much richer societies, this has resulted, in some countries, in decades of sectarian violence and terrorist activity. The strange thing is that, in Asia, there have been few countries which have experienced significant violence on racial or religious grounds, during the last fifty years. Even in the countries which are exceptions to this generalisation, the difficulties have been as much due to political differences as religious or racial ones.

　　In addition, whilst it is at the same time true that there have been difficulties in some countries due to differences in political ideology, these have slowly receded into the background as virtually all countries in Asia have opted to become market-oriented societies. Therefore, we now have an Asia where there is a more-or-less common belief in the economic ideology of the market and multi-ethnic countries with a history of peaceful coexistence. If we add to that the fact that by and large governments in Asia have the support of their citizens, then we can see that the present political stability of Asia, although slightly battered by the economic difficulties of the past few years, continues to be a source of strength and should remain so for the foreseeable future.

　　 Nevertheless, many of us here today are as concerned with immediate term challenges as we are about the long term future. The immediate question is of course, when will Asia recover? Let us in this regard divide Asia into several sectors. Firstly, China and India, secondly Japan, thirdly East Asia, and finally central and West Asia.

　　 China and India of course do not have a recovery issue at all. In fact, China is estimated to have grown its GDP at 7.8% in quarter two of this year, and India at 5.7% for quarter three. These are very respectable showings given the current global environment, and are reflective of their relatively low export dependency, notwithstanding my earlier statements of them being both somewhat affected by the current economic difficulties.

　　 Japan is a different kettle of fish entirely. It was shrinking at a rate of 0.8% as early as quarter one of this year, and has been through four recessions in the past decade. Japan has difficulties which extend well beyond the current global environment. Fortunately, her current administration also looks to be getting to the roots of their difficulties, and we can only wish her well.

　　 The rest of East Asia is perhaps the region of the world which is most dependent on the U.S. market, and most dependent on manufacturing and electronics. Countries here have of course been badly hit by the U.S. slowdown, and growth estimates have been reduced significantly since the beginning of this year. In general, this region can be said to be entering a period of slow to no growth, if not outright recession. Of course, this will be a tough period. Fortunately, though, the consensus amongst economists is that the U.S. economy will experience a shallow, two quarter recession, and should be in recovery by the second quarter of 2002. Therefore, whilst in the long term it is still true that East Asia will have to think about diversification of markets, shortening of the supply chain and so on, in the immediate term, it is likely to be able to coast on the back of a U.S. recovery sometime before the second half of next year.

　　 Finally, of course, we have central and west Asia. Many of these countries have economic issues which are related more to transitioning into market based economies or building industrial bases, than they are to the U.S. slowdown. Thus, they are unlikely to be affected by the current downturn, in that they are only semi-connected to the global economy. Even the current difficulties in Afghanistan are unlikely to make much difference in this regard, since there is no apparent reason why this should impact the ability of the various countries of central and west Asia build the foundations required for economic take-off.

　　 So, overall then, amongst the Asian countries, it is only the East Asian ones with real difficulties arising from the current economic environment. From what we can see now, even these countries are likely to recover by sometime in the first half of next year, and in the meantime, as mentioned earlier, it should be especially heartening to the engineering consultancy community that infrastructure spending is one of the preferred methods in Asia for pump-priming economies.

　　 Having acknowledged the immediate term economic difficulties facing the region, and described my long term faith in the region and the likelihood of a steady recovery, let me touch for a moment now on what the Boao Forum for Asia can do for you, and what our focus is. The Boao Forum for Asia was conceived as a place where Asians could meet in order to generate Asian ideas on issues of importance to Asian companies and societies, in an Asian setting. We have been set up in recognition of the increasing interdependence of the Asian region, and the concurrent need to promote closer integration in order to better manage that interdependence for the benefit of all.

　　 In Asia, regional integration is often thought of as an intergovernmental process. However, we at the Boao Forum are of the belief that company-to-company and person-to-person contacts are just as important. As I mentioned at the beginning of my speech, much of the cooperation which we in Asia can look forward to in the foreseeable future will have economics, and commerce at its centre. This of course underscores the need for company-to-company and person-to-person contacts, which can best be facilitated by regional conferences and fora.

　　 Any organisation which runs meetings and conferences attempts to have interesting topics which are germaine to the moment and to its membership and attendees. In addition, any such organisation will also want to influence ideas and provide networking opportunities. Whilst it is true to say that the Boao Forum for Asia is not the first, and will certainly not be the last organisation in the region attempting to organise such meetings, we are different in several ways.

　　 Firstly, we have an unmatched level of moral support from the governments of the region. In particular, the 26 initial countries, and especially China, have been very supportive. As such, meetings of the Boao Forum will provide members with the opportunity to interact with Asian leaders at a level unmatched by other fora and conferences. We anticipate that as the value of these networking opportunities becomes clear, many senior corporate figures will also attend our meetings, providing additional opportunities for making business contacts at a senior level.

　　Furthermore, we intend to provide members with a high level of access to these government leaders and senior corporate figures, including private as well as public meetings. We anticipate that this would be of value to our membership, as it would provide the opportunity for more open discussion and dialogue.

　　In addition to the networking aspect, another advantage that the Boao Forum has is its uniqueness. We are the only such organisation with a Pan-Asian focus, and have chosen to specifically reach out to organisations in parts of Asia which so far have not participated in discussions relating to Asian businesses. We believe this will be of value to our membership because, in many parts of Asia, there is still the opportunity for first mover advantage. First mover advantage in turn is often an opportunity to combine good business with good corporate citizenship.

　　For instance, in the countries of Central Asia, many organisations are attempting to make the transition to market economies. We of the Boao Forum believe that helping them to make that transition would be beneficial to all. From the point of view of any suppliers, specialists or consultants who wish to take up the challenge, there are the obvious business opportunities, certainly for Engineering Consultants, owing to the relative lack of infrastructure and skills in many of these countries.

　　In summary, we believe that the Boao Forum for Asia has something to offer to each of your organisations. The offering may not necessarily be the same for everyone, but it will centre around the opportunity for high quality networking, and the opportunity to develop Asian ideas in an Asian setting. These are certainly opportunities which will be of benefit, not just now, in the current difficult environment, but also in the future,

　　 To close then, I would like to say that the current market environment is difficult. It is difficult around the world, and certainly it is difficult in Asia. The market for engineering consultancy will no doubt be affected due to many organisations coming up against capital constraints. However, I have also tried show that many countries in the region, recognising these difficulties, are taking the right steps to address them. In the long run, these steps, involving significant structural reform and improvement, will yield many benefits. In addition, in the longer run, the old strengths of Asia, in terms of human capital, financial capital, political stability and the like will also come back to the fore. So, whereas in the short term the outlook is a little grim, in the long term I am certainly optimistic, and hope that you are too. The Boao Forum for Asia is an institution which represents a belief in this bright future for the region. I hope that you will join us to help build this future.

　　Thank you.