Boosting Asian Confidence


Written by Mohiuddin Aazim • Features • June 2010

China is soon expected to become the world's second largest economic power. This could have a positive impact on many limping Asian economies.

China's increased voting power in the World Bank has certified its growing influence in the global economic system. In effect it has also boosted confidence of other Asian economies. The World Bank has enhanced China's voting share from 2.77 to 4.42 percent, making it the third most influential member country after the U.S. and Japan. They enjoy 15.85 percent and 6.84 percent voting shares, respectively.

The move indicates that the world now recognizes Beijing as a more influential economic powerhouse and is willing to listen to it carefully. But as the U.S. and Japan still remain the top two economies, Americans and Japanese would continue to have a greater say in important economic issues. The Chinese have got higher share in the World Bank not only because China has become the third largest economy in the world but also because it has increased its share of contributions to International Development Association (IDA).

The World Bank decision to accord increased voting share to China would have a lot of implications for the rest of the world and, particularly, for the Asian economies. Much earlier than the announcement of this decision, the U.S. had already started treating China with a more balanced sense of equality. This was primarily aimed at sending a gesture of goodwill to Beijing so that it could be engaged in international economic power-play without any unnecessary hostility towards Washington. But another reason was to pave the way for smooth sailing of America's long-term strategic moves in South Asia without any uncalled-for retaliation from the Chinese.

Regardless of how soon China would overtake Japan to become the second largest economy of the world or whether it would happen at all-Americans know one thing for sure: greater involvement of China in global affairs is inevitable and the sooner the world realizes it the better it is. This is the context in which we have to see whatever development takes place on global political and economic stages today.

From the foregoing one might conclude that a gradual change in the global economic governance is imminent. Such a conclusion seems closer to reality. But it is not only the stunning economic growth of China or increased Chinese share in economic development around the world that has set the stage for a gradual change in global economic governance. The global economic system particularly the financial system had remained flawed ever since the Great Depression of 1930s and the Great Recession of 2008-09 only exposed these flaws too openly to invite the world attention towards the need for a change.

The change for the better that the world is looking for is partly aimed at better resource distribution. It has finally dawned upon the world that unless resources are distributed more judiciously sustaining economic growth over time would be meaningless. And thanks to amazing progress in information technology and advancement of media and decolonization of political powers, this realization is gaining currency. Thus, it is being widely expected that the stunning economic advances of China and their impact on global economy should provide Chinese nation and people living in Asia in particular, and around the globe in general, an opportunity to improve their life styles.

That is not possible unless China itself acquires a new economic model of growth in the first place and its neighboring countries also follow it in essence if not in structure. But that does not necessarily mean that a new multi-polar economic order is going to emerge. The governments in China and in Asia in particular, and around the world in general, are trying to develop various models of economic growth with increased focus on better resource distribution. They are doing so apparently to avoid further collapse of global financial structure that they, together with international financial institutions, have been able to save after the Great Recession of 2008-09.

But countries around the world have not completely shunned their faith in categorization of first and third worlds, donor and supplicant, leader and the led. And frankly speaking, they do not even need to do so. As far as governments and global financial institutions remain effectively and sincerely engaged in constantly improving resource distribution as the core value of a new economic world order hypothetical categorizations make little difference.

South Asia that had made up a large part of the old-days' "third world" can benefit a lot from the growing acceptance of China as a more influential economic power in the world.

India and Pakistan, the two major South Asian economies being located in the neighborhood of China, however, suffer from perception problems. Whereas Indian policymakers live under the illusion that New Delhi is still able to contain growing Chinese influence in the region, Islamabad also suffers from trust deficit with New Delhi. This is impeding an otherwise potential evolution of a new regional economic approach with China in the lead and India and Pakistan remaining fully focused on all-inclusive job-oriented economic growth taking advantage of Chinese economic miracle.

That can lead to a situation where trust deficit between Pakistan and India and between India and China would narrow down allowing much more space for the whole South Asian region to enter into a new era of sustainable economic growth under a more peaceful environment.

On purely economic front, the rise of the Chinese economic power should enable this region to evolve a new more equitable regional monetary system while remaining in the remits of global financial structure but constantly trying to overhaul it. The overhauling of global financial structure is a must because it has so far led to concentration of wealth in a few hands and the trickle-down prosperity theory has only provided it a cover. South Asia-being home to hundreds of millions of the poorest people in the world-ought to take the lead.

The building of South Asian economic growth is erected on four pillars - with variations only in the relative strength that a country attaches to each pillar - namely external sector's drive, services and industrial sector's pull, agriculture sector's promises and financial sector's potentially damaging but apparently effective deliveries.

The drive for constantly improving the external sector performance remains visible. Governments in South Asia continue to raise their shares in global exports, inflows of foreign direct investment and home remittances. For the last two decades they have also been focused on improving the output of the financial sector which serves as a catalyst for exports and investment-led growth. Industrial sector's pull that was noticed in 1960s has also come a long way in the last six decades. But the true potential of agriculture has never been achieved in this region.

Now China taking the lead in powering economic progress in this region and providing a great impetus to overall global growth, the South Asian nations must start vying for revolutionize their agricultural sectors. They should do this primarily to secure food security for their own populations in the first place and using the same to cut deficits in food-related external trade but not much for boosting food exports. Regionally integrated policies need to be put in place to achieve this objective easily.

Secondly, the impact of China's growing influence in global economic affairs should be used to win easier movement of labor across borders around the world - a long-cherished goal of developing economies with population growth rates.