Home COVID-19 Is this still going to be the Asian century?

Is this still going to be the Asian century?

John West
After much optimism over the past two decades, COVID-19 has raised several question marks over the region’s march to prosperity
Executive Director of the Asian Century Institute
The cityscape of Taipei, Taiwan from a hilltop

Asia’s economies began growing rapidly after World War II. The continent’s high-growth, economic-catch up started with Japan, and Hong Kong. South Korea, Singapore, and Taiwan followed. Then growth took off in Southeast Asia, China and Vietnam, and then India.

This led many analysts to speculate that Asian economies could dominate the 21st century, which could become the Asian Century.

The impressive economic advances notwithstanding, there are some very important differences between these economies that are relevant today. Japan, Hong Kong, South Korea, Singapore and Taiwan all reached high income status. China may follow in their footsteps in the coming years. However, the others are still middle-income economies, and may never become high-income countries.

What is the key difference between these groups?

Japan, Hong Kong, South Korea, Singapore, Taiwan and China all have strong and effective states. This is evident in several factors – high quality infrastructure, a high level of education, good health systems, relatively low levels of corruption, and well-managed urbanisation. The middle-income countries score much lower on all these fronts.

All of these aspects of a strong and effective state are helpful for handling any economic or political shock, like a pandemic. But two factors stand out as being critical in a pandemic – a good health system and well-managed urbanisation. 

In general, spending on healthcare is low in the middle-income countries. For example, India only spends 3.5% of its GDP on health, while Indonesia spends just 3% and the Philippines 4.5%. By contrast, Japan spends 11% and South Korea 7.6% of vastly higher GDPs.

Similarly, Asia has some of the world’s best managed and liveable cities—like Hong Kong, Singapore and Tokyo—but also some of the worst managed, such as Dhaka, Jakarta, Manila and Mumbai. These latter cities, which are very densely populated and have grown rapidly without proper urban planning, are riddled with slums that can be ideal breeding and transmission grounds for pandemics.

While Asia was slowly but surely on its way to prosperity, COVID-19 has stalled progress in many respects. Indeed, it has arguably set parts of the region back in their socio-economic development objectives.

And while Asia has been very successful in generating prosperity and reducing extreme poverty, in countries like India, Indonesia and the Philippines, many people live in near poverty, and can be easily thrown back into poverty by a pandemic, a natural disaster, or an economic downturn. For example, more than 40% of the Indian population lives on less than $3.20 a day and over 80% lives on less than $5.50 a day. Asia’s near poverty is one consequence of the region’s unbalanced development, which has resulted in massive income inequality.

In sum, Asia’s high-income economies have all been able to provide critical public goods, which are necessary for managing pandemics, but the same cannot be said of the poorer economies.

Asia on the eve of COVID-19

Despite the hype of a possible Asian Century, Asia was already showing some weak spots on the eve of COVID-19.

The advanced economies of Japan, Hong Kong, South Korea, Singapore and Taiwan were already growing much more slowly than during their high-growth periods. Growth slows naturally as economies mature and economic catchup gains are exhausted. Demographics are playing an important role through aging populations, especially in Japan whose potential growth is now less than 1%.

For similar reasons, China’s economic growth has slowed down markedly, albeit to a 6% range, and will likely slow down to the 3-4% range over the coming years. Countries such as Malaysia and Thailand seem to be stuck in middle income traps, with growth at around 4-5%. Meanwhile, India and Indonesia need to grow much faster to make more meaningful development progress.

In short, Asia is now growing much more slowly than it was in previous decades, although China has emerged as an economic and political giant. But despite its rapid economic transformation, China’s GDP per capita of $16,800 (in purchasing power parity terms) is only 25% of the US’s $65,100

COVID-19 strikes Asia and the world

The actual management of COVID-19 in Asia has been very diverse, with the strong states in general doing pretty well – Taiwan, Singapore, South Korea, Japan, Hong Kong and China, along with Vietnam.  Although China greatly mismanaged the initial outbreak of COVID-19, it subsequently got on top of it, using very strict methods.

Countries with weak states, poor health systems and densely populated cities, have performed poorly, especially in the cases of developing Asian economies such as India, Indonesia, Bangladesh and the Philippines.

Going forward, the problems will be compounded by the fact that their economies—while performing substantially better than advanced economies in Asia and elsewhere—are expected to cumulatively have contracted by 0.4% in 2020 according to the Asian Development Bank (ADB), putting immense pressure on their fiscal positions as they look to grapple with the twin impacts of increased healthcare costs and diminished government revenue.

Owing to these fundamental features, COVID-19 is exacerbating Asia’s yawning inequality, which is most pronounced in China and India. Poorer people are being more hit by the virus. They are less able to work from home, in contrast to white-collar workers, and suffer more from unemployment. They also have less access to information technology, quality healthcare, and social safety nets. 

Looking ahead, the concern is that poorer people will have less or slower access to a vaccine. Western countries are focused on delivering the vaccine to their own populations first, ahead of developing countries. In sharp contrast, China is offering to vaccinate developing countries. But Chinese companies have not been as transparent as Western companies about data on their clinical trials. And China’s vaccine diplomacy will likely come with political strings attached.

Asia’s high-income economies have all been able to provide critical public goods, which are necessary for managing pandemics, but the same cannot be said of the poorer economies.

The ADB has launched a $9 billion vaccine initiative to provide “rapid and equitable support” to developing countries in the region seeking to roll out mass COVID-19 inoculations. The ADB said the $9 billion facility would support the rollout of either COVID-19 vaccines procured by the Global Vaccine Alliance’s Global Access Facility (Covax), those pre-qualified by the World Health Organization (WHO), or those whose manufacturing has been authorised by national drug regulatory authorities recognised by the WHO. 

Prospects for an Asian century

Given longstanding trends and recent developments, what can we now say today about the prospects for an Asian century and the factors that will influence its march?

Economic growth. Asia will likely continue to be the fastest growing part of the world economy and contribute the most to world GDP, unless there is a crisis. It is still on track to account for half of the world economy in the coming years. And within Asia, China continues to have a growing share. The growth notwithstanding, the gulf between the richer and poorer economies is deepening.

Geopolitics. Fractures are increasingly evident between China and its few friends (Cambodia, Laos and Pakistan), and much of the rest of Asia which has a very low level of trust in China. This is despite Asia’s continuing deepening economic integration, especially with China. “Asian” is not a cohesive force and cannot in any way be compared with the “West” which, despite the damage inflicted by Donald Trump, is still very much alive, as seen in Europe’s warm embrace of US President-elect Joe Biden.

It is perhaps problematic to speak of an Asian Century, when we have such a fractured Asia.

A more pertinent question might be whether the 21st century will be China’s century. The answer to this question depends on at least two factors:

Can the Chinese economy—the basis for the country’s power—keep growing? There are indeed many question marks hanging over the economy which is threatened by an aging population, enormous public debt, and the increasingly heavy hand of state intervention and control. And we can only wonder for how long its politics can survive when they are dominated by repression, control and authoritarianism.

And second, can powers like the US, Japan, India, Australia, South Korea and Europe work together to effectively balance China’s rise and protect the values that the West stands for – democracy, human rights, market economy and rule of law?

While the continent was slowly but surely on its way to prosperity, COVID-19 has stalled progress in many respects. Indeed, it has arguably set parts of the region back in their socio-economic development objectives. How long will it be before Asia can put this crisis behind it?

The answers to these various questions will determine the future of Asia and whether we will indeed see an Asian century after all.

* This article is based on John West’s presentation in a seminar on comparative political economy at the Universidade Candido Mendes, Rio de Janeiro, Brazil. Mr West expresses his gratitude for the invitation to Antonio José Junqueira Botelho, Full Professor, Graduate Program in Political Sociology at IUPERJ, Universidade Candido Mendes.

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John West
Executive Director of the Asian Century Institute

John West is author of the recent book, “Asian Century … on a Knife-edge,” and executive director of the Asian Century Institute. He is also adjunct professor at Tokyo’s Sophia University and contributing editor at FDI-Intelligence, a Financial Times magazine. These positions follow a long career in international economics and relations, with major stints at the Australian Treasury where he was director of balance of payments, OECD (head of public affairs and director OECD Forum) and Asian Development Bank Institute (senior consultant for capacity building and training).

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