ST Future Economy Roundtable: 3 Risks and positive trends for Asia – The Straits Times

Q. Professor Mahbubani, what is the big picture on Asia?

KISHORE MAHBUBANI: The Western countries are in trouble. Europe is drifting. The United States is agonised because they might actually have Donald Trump as their next president. But it’s a mistake to think that just because the advanced, developed countries are going through these paroxysms, Asia will be affected.

No. 1, Asia will keep rising. And it’s quite remarkable that I can confidently predict the three biggest, most populous, countries in Asia – China, India and Indonesia – can keep growing at roughly 6 to 7 per cent per annum for the next few years comfortably. And India has a faster growing economy than China.

No. 2, there will be no wars in Asia. But at the same time, geopolitical competition will definitely intensify in Asia. But geopolitical competition brings both dangers and opportunities. And so if you have the US pushing the Trans-Pacific Partnership (TPP) and China pushing One Belt, One Road (OBOR), that’s good news for the region.

Q. Not to speak of the Japanese…

  • PANELLISTS

  • LYDIA LIM

    Associate opinion editor, The Straits Times

    JOHANDE VILLIERS

    Country managing director, Swedish-Swiss automation giant ABB

    KISHORE MAHBUBANI

    Dean, Lee Kuan Yew School of Public Policy

    PARAGKHANNA

    Managing partner, Hybrid Reality, and senior research fellow at the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy

    LUTFEY SIDDIQI

    Adjunct professor, National University of Singapore Risk Management Institute

    TANSOON KIM

    Assistant chief executive officer, IE Singapore

  • MODERATOR

  • RAVI VELLOOR

    Associate editor, The Straits Times

KM: That’s right. The Japanese will throw in something. And the third point is that Asean will keep together and keep on integrating economically.

LUTFEY SIDDIQ: I I do think that we probably need a healthy dose of realism with some of the cross currents that the West is facing – Asia is not immune too. It’s important to acknowledge while we’re talking about the future of everything, in this mother of all disruptions that you described, even though it’s characterised as a technology- driven industrial revolution, it’s impacting us in all dimensions – social, political, economic, and so on.

For me, the most important is identity. It’s disrupted our sense of identity at every level. What does it mean to be Asian? Coming over here, I’m not sure that the man or woman on the street feels that there is an Asian identity.

And this is important because you mentioned Brexit. It’s important that we try and keep the forces of integration, the forces of some amount of globalisation alive, not for reasons of idealism – this is where I think the European Union overstretched itself – but purely for enlightened self-interest. For economic reasons, for what’s going on in the rest of the world, with the epicentres of the US and China both going to be less friendly to the economic growth of the rest of the world, it’s important that South-South linkages are strengthened. Asean needs to be strengthened as a concept.

LYDIA LIM: As a Singaporean, I would love to share Kishore’s optimism. But I’ve many questions about the future of a global city like Singapore. It’s not just that the West is drifting and suffering problems, but there’s also this tendency to turn inwards, and people are now talking about deglobalisation as a trend. That would be more worrying for us than all these technological disruptions we paid a lot of attention to.

There’s also the issue of leadership. What I see lacking in Asean is, who is leading this organisation? The large countries like Indonesia, they are very focused inwards. And Thailand – in terms of the economy, Singapore found a very good partner under previous administrations. Add to that, the China factor in Asean’s integration.

Q. Global trade growth is slowing. Productivity, too, is a big worry. What are your big concerns and how confident are you that we can ride this situation?

INTENSIFIED COMPETITION

There will be no wars in Asia. But… geopolitical competition will definitely intensify.

PROFESSOR KISHORE MAHBUBANI, dean, Lee Kuan Yew School of Public Policy.

TAN SOON KIM: There are three trends to note. First, the growing clout of China as an outward investor. Second, the emergence of South-east Asia and India as key growth drivers. And, third, the impact of technology and digitisation on regional economies.

STAYING INTEGRATED

It’s important that we try and keep the forces of integration, the forces of some amount of globalisation alive, not for reasons of idealism – this is where the European Union overstretched itself – but purely for enlightened self-interest.

PROFESSOR LUTFEY SIDDIQI, adjunct professor, National University of Singapore Risk Management Institute.

The Chinese economy is slowing down. So it has to diversify its sources of growth. And one good example is the OBOR. Companies and countries have to learn to cooperate and work with Chinese companies. Singapore companies are in a good position because we’ve got a good track record in China.

DIPLOMATIC MATURITY

Asia … has to demonstrate a significant amount of diplomatic and strategic maturity. That will be the final step to ensure it is really the centre of gravity in the 21st century.

MR PARAG KHANNA, managing partner, Hybrid Reality, and senior research fellow at the Centre on Asia and Globalisation at the Lee Kuan Yew School of Public Policy.

Second, India is the fastest growing Asian economy right now. Prime Minister Narendra Modi has rolled out a series of reforms – Make in India, Digital India, the building of smart cities. These are all very good programmes that will propel India to the next stage of development. South-east Asia has a huge population. It is both a manufacturing and a consumption base. So IE Singapore is helping our companies tap this trend. Two common sectors which I think Singapore could take note of are consumerism and infrastructure building.

GROWING MIDDLE CLASS

Two-thirds of the world’s middle class will be in Asia by 2030.

MR JOHAN DE VILLIERS, country managing director, Swedish-Swiss automation giant ABB.

On technology – (this) can work for us. It can be a creator of jobs. It can also be a disruptor. So, countries have to be able to harness technology properly and harmonise it to their developmental needs. I think in future two types of jobs will be very important. First, workers who can deal with technology-enabled machines. And, second, we need workers who can mine the data, interpret the data and workers who can then execute according to the information that we receive.

USING TECHNOLOGY WISELY

Countries have to be able to harness technology properly and harmonise it to their developmental needs.

MR TAN SOON KIM, assistant chief executive officer, IE Singapore.

If Singapore can address these three areas – China; South-east Asia and India; and technology – we’ll be on a very good foundation.

Q. That gives us a perfect opportunity to segue to robotics and automation. Are we handling technology right? Are we going too fast?

JOHAN DE VILLIERS: I am absolutely positive on Asia, driven purely by demographics. Two-thirds of the world’s middle class will be in Asia by 2030. In 2009, that was only one-third. And that connects with the age of the customer, to be close to market is going to be essential. That has a huge implication for the manufacturing sector. When you look at these trends of automation, I think human nature is to underestimate what you can gain from change and to overestimate what you can lose. I’m convinced that automation and areas like robotics, digitalisation, are going to be job creators.

If you simply look back, 2002 to now, all the economies except Japan have seen increased employment as they have increased automation. In Asia, we see a rapid change because we’re playing catch-up. South Korea has 400-500 robots for every 10,000 workers. In China we’re setting at 33. So you see rapid rate of catch-up, and that’s why you see the largest number of robots getting deployed there.

Q. Parag Khanna, you came up with this fabulous book Connectography (2016). You talk about linkages between major metropolises and sometimes fault the lack of those linkages for slowing growth. At the same time we cannot deny there are also stresses that could unravel this.

PARAG KHANNA: There are huge gaps in connectivity and in wealth in Asia. The income gap – per capita median income in Singapore versus in Myanmar is about 40 to one. By contrast, in Europe the gap would be about less than two to one between the richest and poorest European countries. So that’s the challenge. It’s the challenge of connectivity, of development, of investment. But it’s also an opportunity because you’re talking about a population that aspires to move into the middle class, one that is generally young.

So the more we invest in infrastructure, in connectivity, in skills, in technology, in trade relationships and in bringing the world supply chains here into other parts of Asia besides China, the more we can stay on that trajectory. But bear in mind there are at least five tiers of modernisation in Asia. So it’s a very long way to go. Hence, I’m a big supporter of initiatives like OBOR (and) AIIB (Asian Infrastructure Investment Bank), which aim to bridge those gaps.

It also could have a significantly positive geopolitical impact. We’re obviously consumed by the bad news around the maritime tension in the South China Sea; at the same time we’ve had enormous growth in the volume of intra-Asian trade and intra-Asian investment. Countries in this region stand to gain the most from either TPP, if it happens, or RCEP (Regional Comprehensive Economic Partnership), because countries such as the Philippines or Vietnam or Singapore have positioned themselves to follow the ambition of open regionalism.

That said, I’m concerned with the lack of diplomatic maturity in the region. If Asia wants to stay on this course, it has to demonstrate a significant amount of diplomatic and strategic maturity. That will be the final step to ensure it is really the centre of gravity in the 21st century.

Q: What could go wrong?

KM: I see three big risks. One, there could be a military accident. In the South China Sea you’re less likely to have a military accident because both sides are very careful. Frankly, no Asean country wants a military clash with China. And the Chinese, even though they’ve been very aggressive in terms of reclaiming land, they, too, want to avoid a military accident. But the place where increasingly I worry about a military accident is between China and Japan.

The second risk, of course, is problems of a domestic nature. And here I agree with Lydia that there is a leadership issue. And you’re right, Thailand is the country that has the most uncertain political future. And Malaysia, too, is a country that we need to worry about. And the third and most obvious risk and the one that we know for certain is going to happen is that there will be terrorist incidents. The question is, have we developed our capacity to manage it? And I think probably we have.

Q. You seem to be fairly sanguine about the China-India relationship.

KM: Over time, as the weight of China and India grows in the global system, inevitably there will be some kind of rivalry. But for now I agree with what former Indian prime minister Manmohan Singh said, which is that the world is big enough for China and India to grow. The very important common point between (Chinese leader) Xi Jinping and Modi is that they are both very strong leaders but also very pragmatic leaders. I am going to stick my neck out and say there will be no military clashes between China and India.

Q. The Chinese complaint is that outside powers are stirring up trouble. Do you agree?

KM: Geopolitical competition between the US and China will rise in the next 10 years, regardless of whether it’s Hillary (Clinton) or (Donald) Trump (in the White House). And the fundamental area of sensitivity is that the US doesn’t accept the legitimacy of Communist Party rule in China. If you push for democracy in China, you are destabilising the regime and you’re creating problems. So in that sense, China has a legitimate complaint but I don’t think the Americans are making a great push to destabilise China in any big way.

Q. What could come in the way of middle-income countries like China and Malaysia attaining rich nation status, and lower-income nations like India and Vietnam moving on to middle income?

LS: These are extraordinary times. In many ways, we are at the frontier and there isn’t a blueprint. From a risk management view, there are at least three things. The range of possible outcomes is a lot wider now. The likelihood of extreme outcomes, both on the catastrophic end and the extremely fortunate end, is also high. Thirdly, the stability of either outcome is low. So you can switch from one to the other very quickly. The immediate risk from China is economic. So those that sell in China – the Asean 5 – the estimate is between a third and half a percentage point of GDP impairment if China drops growth by one percentage point. So we all need to find new engines of growth. And Singapore needs to continue maintaining relevance to the world, (and) be outward-facing.

Q. How is China handling its transition to a consumption-based economy?

TSK: First, they need to diversify their sources of growth. They need to shift more towards internal consumption and also to the service sector. Second, they need to guard against continued capital accumulation to drive productivity, for that is registering diminishing returns. The third thing is to ensure that their assistance to state-owned enterprises does not crowd out the private sector. So they have to look at innovation-driven growth.

Q. Which countries in Asia are the fastest adopters of technology?

JDV: When you talk about automation or robotisation, we often go to hard manufacturing – food and beverage, car manufacturing, that kind of thing. But digitisation is dramatically changing things and that’s going to be a source of many, many jobs.

Another trend that’s going to shape the future of Asia dramatically is sustainability in terms of nation- building, how you deal with people, how you deal with the environment. Renewables is one of the fastest growth areas for employment in Asia. Digitisation is the same thing.

If you look at one statistic – investment in R&D as a percentage of GDP – South Korea is leading, followed by Japan. You see rapid increases in investment in R&D in China and in many other countries. It’s difficult to pick a country because Asean and Asia are so diverse. So in automotive manufacturing, you see every country wanting to build up some of that with automation, with the whole value chain. When you talk about electronics, countries like Malaysia are doing well in attracting investment in electronics. Taiwan keeps reinventing itself.

ST Future Economy Roundtable: 3 Risks and positive trends for Asia – The Straits Times}

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