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.