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Asia Unbound

CFR experts give their take on the cutting-edge issues emerging in Asia today.

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Showing posts for "Financial Crisis"

Will There Be Another Asian Economic Meltdown?

by Joshua Kurlantzick
A pawn shop worker sorts through gold jewellery at Easy Money Pawn shop in Bangkok on August 27, 2013. Faced with rising living costs and unable to wait until pay day, growing numbers of Southeast Asians are putting their gold jewelry and designer watches in hock, creating a boom in pawnshops across Singapore, Malaysia, Thailand and Vietnam. Thailand's largest private pawnshop operator, Easy Money, has seen a 15-20 percent rise in the number of customers in recent months, especially in areas near Bangkok, said Managing Director Sittiwit Tangthanakiat. (Athit Perawongmetha/Courtesy Reuters) A pawn shop worker sorts through gold jewellery at Easy Money Pawn shop in Bangkok on August 27, 2013. Faced with rising living costs and unable to wait until pay day, growing numbers of Southeast Asians are putting their gold jewelry and designer watches in hock, creating a boom in pawnshops across Singapore, Malaysia, Thailand and Vietnam. Thailand's largest private pawnshop operator, Easy Money, has seen a 15-20 percent rise in the number of customers in recent months, especially in areas near Bangkok, said Managing Director Sittiwit Tangthanakiat. (Athit Perawongmetha/Courtesy Reuters)

Since the middle of this summer, emerging markets, particularly in Asia, have witnessed massive sell-offs of their bonds, enormous slides in their stock markets, and investors dumping their currencies as fast as they can. Many Asian and foreign analysts of Asian nations now worry that the easy credit masked huge problems in the foundations of emerging economies, and that Asia could witness an economic and financial crisis similar to the devastating meltdown that crushed the region in the late 1990s. This time, such a crisis would be even tougher for the world to withstand: emerging markets are far larger than they were 15 years ago, and a crisis in Asia could take down the entire international economy. Read more »

Is Southeast Asia Headed for a Repeat of the Late 1990s Financial Crisis?

by Joshua Kurlantzick
A money changer holds stacks of Indonesian rupiah notes in Jakarta on August 20, 2013. Asian emerging market currencies extended losses on Tuesday, with the rupiah hitting a fresh four year low. (Beawiharta Beawiharta/Courtesy Reuters) A money changer holds stacks of Indonesian rupiah notes in Jakarta on August 20, 2013. Asian emerging market currencies extended losses on Tuesday, with the rupiah hitting a fresh four year low. (Beawiharta Beawiharta/Courtesy Reuters)

Quarterly growth reports released in recent weeks for the major economies in Southeast Asia have been pretty grim. This week, Thailand surprised investors and analysts by reporting that its economy had contracted in the second quarter of 2013, falling into a technical recession. In Indonesia, second quarter growth came in below forecasts, while in Taiwan, although the second quarter produced strong growth, the government reduced its forecast for 2013 overall. Meanwhile, Malaysia’s economy grew at a slower-than-expected rate in the second quarter, and the government slashed its forecast for 2013 as a whole. Read more »

The World’s Imminent Deglobalization?

by Joshua Kurlantzick
People attend a demonstration against the government’s proposed plan for increased immigration at Speakers' Corner in Singapore February 16, 2013. People attend a demonstration against the government’s proposed plan for increased immigration at Speakers' Corner in Singapore February 16, 2013 (Edgar Su/Courtesy Reuters).

On Saturday, 3,000 demonstrators turned out in Singapore—in one of the biggest protests in the country’s history—to protest the government’s new plan to increase the tiny nation-state’s immigrant population by nearly two million people by 2030. And who are this proposal’s greatest opponents? The Singaporean middle class, which has increasingly seen its political capital and purchasing power strangled by the influx of wealthy immigrants, mainly from China. Read more »

Why So Gloomy, India?

by Evan A. Feigenbaum
People look at a large screen displaying India's Finance Minister Mukherjee announcing the federal budget on the facade of BSE building in Mumbai (Arko Datta / Courtesy Reuters). People look at a large screen displaying India's Finance Minister Mukherjee announcing the federal budget on the facade of BSE building in Mumbai (Arko Datta / Courtesy Reuters).

Over at “India Ink,” the India blog of The New York Times, there’s a terrific interview with Ajay Banga—the CEO of Mastercard and the new chair of the U.S.-India Business Council. It’s a striking presentation at a time when there’s been little but gloom and doom about India in the markets.

Why all that gloom? Here are six reasons:

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Don’t Bet on the BRICs

by Joshua Kurlantzick
(L-R) India's Prime Minister Manmohan Singh, Russia's President Dmitry Medvedev, China's President Hu Jintao, Brazil's President Dilma Rousseff and South African President Jacob Zuma attend a joint news conference at the BRICS Leaders Meeting in Sanya, Hainan province April 14, 2011.

(L-R) India's Prime Minister Manmohan Singh, Russia's President Dmitry Medvedev, China's President Hu Jintao, Brazil's President Dilma Rousseff and South African President Jacob Zuma attend a joint news conference at the BRICS Leaders Meeting in Sanya, Hainan province April 14, 2011 (How Hwee Young/Courtesy Reuters).

In the midst of the Eurozone crisis and the G20 summit, many commentators are hailing this moment as a key sign of America’s decline and the rise of emerging powers – principally China but also India, Brazil and others. In the new issue of Bloomberg Businessweek I argue that this optimism over the BRICS’ ability to aid the world economy is, for now, wildly overrated.

You can read the article in its entirety here.

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“Paulson’s Principles” for the United States and China

by Evan A. Feigenbaum
U.S. Treasury Secretary Henry Paulson leaves after making closing statements after the 5th U.S.-China Strategic Economic Dialogue in Beijing, December 5, 2008. (Jason Lee/Courtesy Reuters)

U.S. Treasury Secretary Henry Paulson leaves after making closing statements after the 5th U.S.-China Strategic Economic Dialogue in Beijing, December 5, 2008. (Jason Lee/Courtesy Reuters)

With the glaring exception of Japan, Asian economies are recovering earlier and stronger from the crisis than nearly all others. And China has now cemented its place alongside the United States and Europe as a growth engine.

But China faces large—and intensifying—vulnerabilities.

Readers of Asia Unbound will know that I’ve talked here and written here about some of these challenges.

And so I thought I’d flag for interested readers a major speech delivered this morning in Washington by former Treasury Secretary Hank Paulson (full disclosure: my boss).

He has a deep history with the U.S. and Chinese economies—at Goldman Sachs, and then as the Treasury Secretary. As a banker, he worked on historic but thorny issues in China, like privatizations. And at the Treasury, he established the Strategic Economic Dialogue and played a central role in the creation of the Ten Year Energy and Environment Cooperation Framework.

The basic thrust of his speech is twofold:

First, both countries face growing economic challenges and vulnerabilities. And for its part, it is decidedly in the U.S. interest for China to get ahead of these challenges. As Paulson puts it, “China’s success at sustaining growth, fighting inflation, and transitioning from an economic model too dependent on exports and fixed asset investment is closely connected to our own success.”

Second, “the U.S. and China need to take steps—mostly individually, sometimes together—that will have the mutually beneficial effect of supporting and sustaining economic growth.”

That’s a striking formulation because it’s not focused on “cooperation” for its own sake. Rather, as Paulson argues, the U.S. and China “don’t always need to act jointly.” They can take separate and self-interested steps that, in the bargain, put their two economies onto a more complementary footing.

You can read the entire speech here, or watch it delivered here.

But for the central message, here are his five principles—let’s call them, “Paulson’s Principles”—quoted verbatim from the speech:

Read more »

Can India and America Up Their Investment Game?

by Evan A. Feigenbaum
Commuters on a suburban train during the morning rush hour in Mumbai.

Commuters on a suburban train during the morning rush hour in Mumbai.Danish Siddiqui/Courtesy Reuters.

My latest column is out in India’s financial daily, the Business Standard. I used this month’s column to talk a bit about structural impediments hindering U.S. investment in India. These challenges will grow if, as many economists suspect, India’s growth continues to slow from its restored post-crisis clip of 8 to 9 percent a year to something more on the order of 7 to 7.5 percent. And in that context, it’s worth noting that Indian stocks have just completed their worst quarter since 2008. And of course food price inflation remains as stubborn as ever.

Here’s my argument, which reflects in part a perspective from my new perch in Chicago rather than Washington, DC:

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My Kind of Town

by Evan A. Feigenbaum

The Chicago skyline in fog caused by extreme cold temperatures of -21 degrees. Courtesy Reuters.

Regular readers of this blog will know that I’ve had a day job at Eurasia Group, a global political risk consulting firm. And they’ll know, too, that I’ve sometimes blogged or talked about the firm’s work, including what my time there has taught me about the relationship between politics and markets in Asia and around the world. For a guy with a background principally in foreign and national security policy, intensive exposure to the markets—and to financial market participants—has been a great experience. But today is my last day at Eurasia Group. I’ll remain an adjunct senior fellow at CFR and will, of course, continue blogging here at Asia Unbound. But I’m taking up a new job as the first executive director of the Paulson Institute, an independent center, located at the University of Chicago, established by former Treasury Secretary and Goldman Sachs CEO Hank Paulson. The institute will promote economic activity and cross-investment, leading to the creation of jobs, as well as encourage progress in environmental protection and the development of alternative sources of clean energy. Its aim is to promote sustainable economic growth and a cleaner environment around the world, focusing initially on concrete actions by businesses and governments in the United States and China—the world’s two largest economies and energy consumers. I’m readying myself for a steady diet of Cubs games, Bears tailgates, and a very cold winter. And I’m looking forward to continued interchange with readers of Asia Unbound.

Read more »

China’s Great Rebalancing Act

by Evan A. Feigenbaum

A resident cycles past the Wumen Gate of the Forbidden City in Beijing. Reuters/Jason Lee.

As Vice President Biden meets with Xi Jinping and other Chinese leaders this week, his number one economic talking point is almost certain to be about “rebalancing.”  Nearly all of Washington’s principal economic concerns, from currency valuation to Chinese industrial policy, touch this central issue.  But, quite frankly, rebalancing is not just an American goal.  It is, too, a Chinese objective because Beijing’s existing growth model—predicated on the two pillars of exports and capital-intensive investment—is delivering diminishing returns, and China’s savvy leaders know it.

A major new report from Eurasia Group, China Great Rebalancing Act, explains why.

First, a little truth in advertising:  I’m the head of the Asia practice group at Eurasia Group, so I helped write the report.  But our team’s report is well worth reading because it provides a very comprehensive overview of the forces and dynamics shaping the future of China’s political economy.

Read more »

What Will Vice President Biden Find in China? Take Two

by Evan A. Feigenbaum

U.S. Vice President Biden speaks at the U.S.-China Strategic and Economic Dialogue (S&ED) in Washington, DC, May 2011 (Courtesy Reuters/Kevin Lamarque)

In her latest post, my colleague, Liz Economy, asks:  What will Vice President Biden find in China?  I thought I’d try out my own response to this very direct question:

1.  Biden will find a China whose rise depends on economic growth but whose growth model is no longer sustainable.

Bluntly put, China’s leaders know that their capital-intensive, export-oriented approach is delivering diminishing returns and threatens to become a major political vulnerability for the government. The global economic crisis provided clear evidence that China’s export-driven economy is vulnerable to dips in demand in the rest of the world. Meanwhile, its dependence on investment has introduced distortions and imbalances into the Chinese economy.

Why should this matter to Biden and the United States?

Read more »