The Asian Century: more than just China

Here’s a question: are we about to become residents of an “Asian Century’’? And indeed, what is meant by “Asia”?

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Here’s a second - closer to home – question: if Australians find themselves both beneficiaries of an Asian Century and participants in one of the more remarkable transformations in human history, what are the implications of that accident of geography?

"The velocity of this economic shift is extraordinary, and almost certainly unprecedented in world economic history.”

From an Australian perspective, the arrival of an Asian Century - if that is what we are witnessing - is the most profound foreign policy development in our history.

To those who have being paying attention to the region, that observation might seem self-evident, even banal. But what is surprising is a tendency of a security-obsessed Australian foreign policy establishment to persist in the belief that change should somehow be resisted.  

Former Foreign Minister Gareth Evans has a form of words to describe what he believes should be an Australian response to a world that is being turned upside down: “Less United States; more Asia; more self-reliance; more multilateral engagement.”

In that formula, Evans puts his finger on the choices facing the country in positioning itself between its security custodian (the United States) and its economic partner (China). None of this is new but what is changing is a perception of Asia as something more than the sum of its bigger parts.

In other words, it is more than China or India or Japan. Or even China and India and Japan.

Economic velocity

The Financial Times crunched the statistics in its recent survey and came up with some remarkable numbers.

By 2020, Asian economies, as defined by the United Nations Conference on Trade and Development (UNCTAD), will be larger than the rest of the world combined. This is the first time since the 19th century Asia has achieved this dominance.

Perhaps more telling is that by 2020 Asia will become home to half of the world’s middle class. (Defined by those living in households with daily per capita incomes of between $US10 and $US100 at 2005 purchasing power parity (PPP).)

China, on a PPP basis, is now the world’s largest economy. It accounts for 19 per cent of world output. That’s more than double the 7 per cent recorded in 2000.

India is the world’s third-largest economy with a gross domestic product (GDP) double the size of either Germany or Japan, both of which had economies larger than India’s in 2000.

The velocity of this economic shift is extraordinary and almost certainly unprecedented in world economic history.

Geographical accident

Again, none of this should be particularly revelatory but it is well to remind ourselves of the extent to which the world for Australians is shifting - along with the risks and rewards that will accompany this fortunate geographical accident.

Beyond the remarkable transformations taking place in China and India, of hardly less significance, from an Australian perspective, are the changes elsewhere in Asia.

Indonesia, Australia’s closest Asian neighbour, will become the world’s seventh largest economy by next year - en route to being the fifth largest by 2030 behind China, the United States, India and Japan, and ahead of Germany. Indonesia’s economy is now larger than those of Mexico, France and the United Kingdom.

Vietnam is another example of an Asian country whose economy is set to jump up the ladder. By 2023, according to the FT survey, Vietnam will have leapt 17 places since 2000 to overtake countries like Belgium and Switzerland.

Among other Asian countries, Thailand, the Philippines, Bangladesh, Singapore, Kazahkstan (if we include Central Asia), and Myanmar will all move up the PPP table. Myanmar is set to rocket up a remarkable 24 places in 23 years.

This leaves aside established economies like those of Korea, Taiwan and Hong Kong which are set to more or less hold their own.

If we include in Asia - or the Orient as it used to be known - the countries of the Middle East like Saudi Arabia and Iran, or Iraq whose oil reserves match those of Saudi Arabia, the Asian bloc becomes even more formidable.

In all of this Australia finds itself slipping down the table on a global share of GDP on a PPP basis – from 19 in 2000 to 21 in 2023. Below Thailand.

Overly China-centric

Remember: per capita PPP GDP, according to the International Monetary Fund, has China at 78 and India at 121. Australia ranks 18 in a table led by gas-rich Qatar.

American-based Indian-born futurologist Parag Khanna, author of the recently published The Future Is Asian, describes a transformation in which “Asians once again see themselves as the center of the world – and its future’.’

It’s hard to disagree with this statement.

“The Asian economic zone – from the Arabian Peninsula and Turkey in the west to Japan and New Zealand in the east, and from Russia in the north to Australia in the south – now represents 50 per cent of global GDP and two-thirds of global economic growth,’’ Khanna writes in Canada’s Globe and Mail.

“Of the estimated $US30 trillion in middle-class consumption growth estimated between 2015 and 2030, only $US1 trillion is expected to come from today’s Western economies. Most of the rest will come from Asia.’’

Khanna makes the point there are risks in Western thought of being “overly China-centric”.

“China has only one-third of Asia’s population, less than half of Asia GDP, about half of its outward investment and less than half of its inbound investment. Asia is therefore much more than just ‘China plus’,’’ he writes.

Asia is more than the sum of its larger parts (although China’s dominance shows little sign of abating).

Powerful drivers

In launching Khanna’s book earlier this year, former minister Evans observed Australia needed to be “working much harder than we have been in recent years to be, and be seen to be, a regional player than a wistful outpost of western civilization’’.

In the past decade, Australia has sought to come to terms with its geography but it’s not clear it has succeeded. In 2012, the Gillard government produced its Asian Century white paper. This provided a blueprint for closer engagement with Asia by focusing on what might be done domestically to bring that about.

That document served a purpose but was hardly ground breaking.

Fast forward to 2017, a foreign policy white paper cautiously tried to shift the focus of Australia’s foreign policy priorities towards a more realistic view of the region by acknowledging difficult choices in the years ahead. But in that document Australian policymakers had far from resolved contradictions between Australia’s history and its geography:

“Powerful drivers are converging in a way that is reshaping the international order and challenging Australia’s interests,” the paper accepted. “The United States has been the dominant power in our region throughout Australia’s post-second world war history. Today China’s challenging America’s position.”

This brings us back to the original question: are we about to become residents of an Asian Century?

The short answer is yes. With caveats.

For a start, a century is a long time. But it seems inevitable the 21st century will belong to Asia - broadly defined.

In that regard use of the phrase “Asian Century’’ to focus on what is in the Australian national interest  is useful if it helps to clarify choices Australia will need to make to ensure it takes advantage of opportunities available.

Gareth Evans has a point when he says geography will trump history in the next period.

By any reasonable measure the Asian Century is upon us. We are fortunate to be part of it.

Tony Walker is a bluenotes contributor, former Financial Times correspondent in China and former Australian Financial Review political editor.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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