Asia’s economy is undergoing economic structural changes that poses some risks. But if these risks are overcome, countries will undergo a new phase of growth.
The SIIA invited business leaders and academic experts to have a discussion on whether factors such as the economic structural imbalance of a few of Asia’s countries, the reduction of the available capital in the region, as well as the significant depreciation of currencies in Asia, will lead to a financial crisis in Asia.
Centennial Asia Advisors CEO Manu Bhaskaran says that China faces the biggest financial risk, because its financial system in the past had not strictly controlled loan giving and risk assessment of companies, and gave out too many loans. The country is also experiencing explosive growth in the shadow banking sector, which is unregulated.
The Chinese administration will find it a challenge to eliminate this risk and to strike a balance to keep its economic growth. So far, the Chinese government has not intervened to rescue companies that are overburdened with debt, and by doing so they will be able to test out the reaction of the financial market. Mr Bhaskaran also forsees that there will be more closures of such companies.
Keppel Corporation’s Ong Ye Kung is more optimistic, and he expects that 300 million people will move from rural to urban cities in China. This, he says, will help to maintain China’s steady growth. China is also making changes to its state-owned enterprises, dumping investment that does not have any economic benefit. This will help to reduce the competition in the market. If they are able to build up good corporate governance, and invest in research and development, those companies that remain will emerge the strongest.
China is also opening up and becoming increasingly globalised, and in this process, the Reminbi will appreciate, which will boost the spending power of the Chinese citizens. The economy will change to one that is driven by domestic demand. Mr Ong explains that once China is able to make this transition, the country will enter into another stage of growth.
Participants also discussed another country in the region – Indonesia, and the challenges that it faces. The Indonesian economy has been growing very fast and the stock market has been doing well. However, last year, the country experienced a current account deficit due to capital pullout from emerging markets. As a result, in the past year, the Indonesia rupiah has depreciated by 25 per cent against the USD.
Morgan Stanley (Southeast Asia) Chairman & CEO Ronald Ong says that overall, ASEAN governments and corporations have reduced their borrowing quite significantly, and are in better financial health than before. He is not too concerned about the situation in Indonesia because he believes that as long as the economy continues to grow, the corporations will continue to be profitable. As long as they do not make any mistakes in terms of financial management, they should be able to avoid a crisis from taking place.
This article first appeared in Chinese in the Lianhe Zaobao (login required) on 22 January 2014. A PDF download of the original Chinese article is available.
Photo Credit: Singapore Institute of International Affairs
