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The Reorientation of the Asian Economy Has Begun

In early 2007, HS Dent published the special report Changing Global Demographics.  One of the central themes of the report was the gradual decline of the West relative to some of the younger emerging market countries with more favorable demographic trends.  In some ways, our views are similar to those of Fareed Zakaria, CNN host and author of the insightful 2008 book The Post American World, which we quote extensively in the July 2008 HS Dent Forecast.   Zakaria believes that the era of overwhelming economic dominance by the West–and particularly the United States–is waning, not necessarily because the United States is in decline but because the rest of the world is catching up.   We have a lot of respect for Zakaria’s work, and we highly recommend his book.  But if anything, we thing he may be a bit too optimistic. 

We use Japan as an example.  Japan’s retreat from the world stage in the 1990s was relative to an extent.  Japan’s economy stagnated while America’s grew by leaps and bounds.  Japan’s standard of living didn’t decline per se,  but it certainly didn’t go anywhere.  And Japan’s presence in the world economy and capital markets decreased both in relative and absolute terms.  Gone were the days of high-profile trophy properties purchased by Japanese buyers–such as the Rockefeller Center and the Pebble Beach Golf Course.   And gone were the days of best-seller business books with Japanese buzz words.  Japan as an economic force and even as cultural force began a long contraction. 

This brings us to today’s Financial Times.  The FT reports that the collapse in the global economy has led to a reconciliation of sorts between bitter rivals Taiwan and China.  Taiwan’s orientation has been towards Washington since 1949, when Mao’s communists forced the Kuomintang government to retreat to Taiwan, which they continue to govern today as the “Republic of China.”  Full political reconciliation is unlikely any time soon; Beijing still considers Taiwan a rebel province, not a sovereign state.  But the ice is starting to melt, and economic integration continues apace.   

The FT writes,  ”[In April], Beijing dropped its long-standing opposition to Taiwan participating in the World Health Organization’s ruling body–setting the stage for Taipei to attend a United Nations meeting for the first time in almost 40 years.  Then, the government-owned China Mobile proposed to take a 12 percent stake in Far EasTone, a Taiwanese mobile operator, in the first mainland investment in a Taiwan-listed company.” 

For countries that currently have missiles pointed at one another, these are positive steps.  The FT continues, “The detente could not have been more opportune.  The global economic crisis is accelerating Taiwan’s reconsideration of its stance towards China.   …as Western markets wilt, contributing to a near halving in Taiwan’s exports between June and December of last year, the groups are recognising the increasing importance of China itself as a market.” 

Taiwan is wise to hedge its bets, because Western demand may not recover to it pre-crisis levels for many years to come.  We expect the other exporting nations of Asia to do much of the same.  The increased integration of intra-Asian trade will likely be one of the major forces driving the world economy in the decade ahead.