Strengthening economic cooperation in East Asia

Strengthening economic cooperation in East Asia

By Li Tieying

The following article is based on a presentation at the
Indonesian Institute of Sciences in Jakarta on Feb. 16. This is
the first of two articles.

JAKARTA (JP): From the late 1960s to the late 1990s, the
economics of the vast East Asian region, including Japan, China,
the four small dragons and ASEAN countries, witnessed
unprecedented, fast and sustained development and accomplished
remarkable achievements. The high economic growth rate for more
than 20 years running surpassed by far the rates in other regions
of the world and was hailed as an "East Asia miracle".

Fast economic growth rapidly changed the region's outlook
East Asia, the world's most populous region, was poor and
backward region before the 1960s.

But more than 30 years of high-speed economic development
brought prosperity, during which per capita income tripled, the
number of people in absolute poverty decreased by two thirds and
health and education levels enhanced greatly.

It is fair to say that no other developing countries could
outdo East Asia in promoting economic development and in raising
people's living standards.

In 1966, the regions' gross national product only accounted
for 4 percent of the world total, but in 1996, 30 years later,
this increased to 24 percent.

From the former "sick man" looked down by others, East Asia
became a newly rising region full of vigor and vitality,
attracting the world's investors. East Asians created economic
miracles with their hardworking hands and widely acknowledged
wisdom.

Asian values deeply rooted in East Asia's history and culture
attracted world attention and the ancient oriental civilization
was once again vigorous.

However, the road of development has not always been smooth.

A sudden financial crisis hit the entire East Asia region when
it was undergoing swift development.

The Asian financial crisis that broke out in July 1997 in
Thailand quickly spread to Malaysia, the Philippines and
Indonesia and then to the Republic of Korea. Other economies were
also affected.

The financial crisis has indeed brought about serious losses
to the East Asian economies. Some countries experienced temporary
recessions. But, the aforementioned economic achievements
accomplished over the past 30-odd years have not disappeared, nor
have the arduous struggles of East Asians in the past decade.

More than a year ago, when the aftermath of the crisis was
unfolding, some Western media attempted to totally negate the
economic achievements, the development model and the idea of East
Asian values -- which does not conform to reality.

The financial crisis has certainly taught various East Asian
countries a bitter lesson, making us aware of our own weaknesses.

Some Western scholars simply attributed this crisis to
nepotism, associated with Asian values. The East Asian miracle in
their view was not a genuine "miracle" but only a castle in
Spain, while in fact factors causing the crisis are very
complicated.

Among external factors was the attack of international
speculative capital. Rapid globalization, liberalization and the
information industry has promoted the flow of international
capital.

High economic development in East Asia attracted the inflow of
large amount of international capital, including short-term
capital. The latter included a large amount of international idle
funds including the hedge funds used for speculation.

The market and management mechanisms of some East Asian
countries are not yet perfect and are vulnerable to attacks from
international speculative capital, which found loopholes in the
mechanisms.

In terms of internal factors, major problems were financial:
the proportion of non-performing loans was excessively high, the
financial systems were not perfect, transparency in non-
performing loans transparency was lacking, and so on.

Direct factors of the crisis included excessive short-term
foreign debts and too big deficits; and some countries had a
bubble economy that covered many internal problems.

In East Asia, the bubble economy first appeared in Japan and
then spread to the Republic of Korea and some Southeast Asian
countries. Behind the bubble economy is the disproportion of the
regional industrial structures. Since the early 1990s, the
upgrading of Japan's industrial structures led to stagnation of
the industrial restructuring between different economic entities
at different levels in East Asia.

Does the financial crisis indicate that the East Asian model
and Asian values are not working any more? It would be biased to
attribute corruption and nepotistic practices to Asian values.

The positive factors in the East Asian development model and
the Asian idea of values have played an active role and should be
affirmed. East Asians are hardworking, practice thrift, and
attach great importance to the family, the collective and to
their children's education, all of which are positive factors
conducive to economic development.

High deposit savings rate, high accumulation rate, and the
collective spirit are also conducive factors, which are still
working and should be developed further.

However times are changing, and East Asian countries are all
faced with new and serious challenges.

The bitter lesson from this financial crisis and realized some
problems existing in our systems. East Asia needs reforms --
reforms of ideas, structures, social systems, development
strategies and economic models.

The writer is president of the Chinese Academy of Social
Sciences and a member of the political bureau of the Central
Committee of the Communist Party of China.