Asia’s policy makers wrapped up a three day meeting on Sunday brimming with optimism that last year’s economic woes were over, but institutional investors warned recovery was still fragile.
Asia may be banking too much on a strong global rebound to lift the exports that power regional growth, fund managers said on the sidelines of the Asian Development Bank annual meeting in Shanghai, mainland China’s richest city and a stark reminder to neighbors of its vast potential and competitive threat.
A stronger-than expected recovery in the first quarter may also sap Asia’s commitment to the reforms and restructuring essential to preventing a repeat of the crisis that pummelled the region in 1997 and 1998.
“We may be a little more cautious than some others. For one reason, they seem to link a lot of the recovery here on a very strong rebound in the U.S.,” Richard Frank, chief executive officer of Darby Overseas Investments, a private emerging market investment firm, told Reuters.
“I’m still not so sure we’re going to have such a strong recovery in the United States and in turn that would provide less of a pull here,” he said.
Most of the ADB’s 43 Asia Pacific members, gathered amid the towering skyscrapers of the thriving Chinese financial hub, extolled a rapid turnaround from 2001, when several countries slipped into their second recession in just four years.
“The regional economy is showing resilience,” ADB President Tadao Chino said in closing remarks. “In fact, many developing member countries are achieving faster economic recovery than we had anticipated earlier.”
Indian Finance Minister Yashwant Sinha boldly predicted the world’s second most populous country would eradicate poverty by 2015, while booming mainland China was supremely confident of continuing to lead the pack after escaping relatively unscathed in 2001.
With growth picking up and financial strains conspicuous by their absence, a spat over an ADB-funded water treatment plant in Thailand drew some attention away from the meeting.
Developed world finance ministers slammed the project for dumping toxins on mussel farms and called on the Manila based bank to review its lending practices. A contrite Chino, calling the episode very painful, promised to comply.
Asian finance chiefs fretted about their ability to rival China’s vast pool of cheap labor, which is sucking in hundreds of billions of dollars of foreign investment.
Mainland China accounts for around three percent of global trade now but economists said this could easily double over the next two decades raising China’s profile further. It would also make specialization key for its Asian neighbors.
“China will therefore have a much greater role in the world economy than Korea or Japan. China will have big U.S. companies lobbying on its behalf. Japan doesn’t,” said David Hale, global economist at Zurich Financial Services.
For its part, Chinese policy makers were keen to be seen supporting regional cooperation. Please see ADB on page
Finance Minister Xiang Huaicheng said China would put aside political rifts with Japan in lending its hand to promoting Asian development.
However, the 10-member Association of South East Asian Nations plus Japan, China and South Korea (ASEAN+3), failed to announce concrete measures to strengthen an embryonic web of central bank currency swaps to ward off a repeat of the 1997 crisis.
Fund managers said the biggest risk to a sustainable recovery would be if Asia failed to deepen painful reforms — eradicating bad debt, shutting excess capacity, boosting corporate governance and developing bankruptcy laws.
“I think the investor would probably take a fairly prudent view. The world today is a far more unpredictable one than say 18 months ago,” said Victor Chu, chairman of Hong Kong-based private equity firm First Eastern Investment Group.