Article by Jasmin Justo
On Wednesday April 01, Mr. Shang-Jin Wei, a Chief Economist from Asian Development Bank, hosted a lecture about the growing economic trends in China and India. As Asia becomes a potent economic global player, the lecture is a significant insight to understanding economics within Asia.
In his analysis of Asia’s economy, he highlights the main three factors that have contributed to its success; reforms at home, recovery in advanced economies, and reduction in commodity prices. For example, in China, he highlights that with the increasing aging population, China has increased wages which also appreciates the Chinese currency. Another example is India, where the increased federal investments in its domestic industries has lead to an increase in both business and consumer confidence within the third quarter of 2015. During the lecture, he notes that with the recent recession that occurred in Russia, there has been an increase in Asian exports of valuable resources such as oil and copper, to the U.S and E.U. With high demand in these western markets, commodity prices have become cheaper and has begun easing inflation pressures. He also demonstrates through a bar chart that China and the E.U have been the top contributing players to the global import growth from 2009-2014.
With the decreasing inflation, he notes that this is a vital time for Asia to reconstruct their financial systems to take advantage of Asia’s position in the global market. For example, in percentages of pensions and mutual fund assets that contribute to a countries’ GDP, in 2013, only 1% of pension and mutual fund assets contributed to India and China’s GDP while 25% contributed to the Republic of Korea. This, he says, leads to a lost of potential capital that can be contributed to the countries’ GDP. Asia also has a high lending rate to other countries which he highlights as harmful for its domestic economies. He suggests reforms in bank regulation to improve investments in bonds, pensions, and mutual assets funds which can improve Asia’s GDP especially India and China. He also suggests the creation of macro prudential policies to identify the risks of the financial system so effective solutions and reforms can be made. He also highlights the need for supervising financial development investments (FDI) to ensure the success of Asian oversea companies so they continue aiding the Asian economy instead of becoming bankrupt or a lost investment and diverse funding to mitigate external financial stocks.
He estimates that if current trends continue, Asia will reach 6.3% in 2015 and 2016 as a result of easing inflation pressures and lower commodity prices. His main points from the lecture is that financial development must support growth, inclusion, and stability and steady economic growth can be contributed domestic reform, advanced economic recovery, and commodity price reductions.
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