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In keeping with the Asia Business Conference 2002 conference title, "Phoenix Rising," a plenary panel, moderated by HBS associate professor Yasheng Huang, provided a snapshot of Asia's economic recovery and asked this question: Given the variety of cultures and macroeconomic policies being implemented across the region, who will emerge from the ashes first?
As managing director of Singapore's Economic Development Board, Koh Kheng Hwa made a spirited case for his home country. First, however, he addressed the current status of the region as a whole and gave a quick lesson on its size and diversity. "Asia is not just China, you know!" he exclaimed. With a population of one billion, India has the second-fastest-growing economy in the world; Japan's economy, despite its difficulties, is second largest. There are good prospects for recovery across the board, he continued: The U.S. recession is bottoming out and the debt load in Asia is lower now than it was at the time of the 1997 Asian financial crisis. China and India, he continued, are currently leading the recovery race, with 7 percent and 5 percent annual growth respectively.
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| Asia is no longer just a cheap production base or big market to enter. It's now an integral part of any company's global strategy. |
| — Koh Kheng Hwa, Singapore Economic Development Board |
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Richard Smith, president of Eli Lilly's division in Asia, said statistics show that China is winning all bets when it comes to foreign direct investment and economic growth. "I wonder, however, if its place at head of the class is too good to be to be true," he continued, noting the potential for social unrest as the disparity between poor, rural populations and the wealthy, urban classes continues to widen. "I question whether China as we know it today is really governable."
Patience for reformWith Communist Party privilege and patronage the root causes of corruption, Smith said, "The pace of reform is a race against time. If the government continues to reform, however, people will react with patience and understanding."
Smith "remains bullish" on China. "At least they understand the issues and admit them, unlike the Japanese," who, he said, "continue to create anxiety—how long can the country continue to survive without fundamental change?"
Wanda S. Tseng, deputy director in the IMF's Asia Pacific department, noted that recovery in Asia was interrupted by the collapse of the IT bubble and the September 11 terrorist attacks.
"Global conditions have led the IMF to mark down expectations for Asia to their lowest levels since the 1981-82 recession," she said, adding that Hong Kong, Taiwan, and Singapore have been hit hardest due to their reliance on the IT industry and the U.S. economy.
Strategies for economic recovery and reform in the Asian banking system have focused on consolidation and operational restructuring, Tseng said. "New owners have entered, capital adequacy ratios have been rebuilt, and the percentage of non-performing loans has been falling," she continued. "However, bank profitability remains low. Lending rates are subdued, and stock prices are low. Investors are still concerned."
To stay on the path of recovery and reform, Tseng stressed the need for stronger regulations, bank reprivatization, and a faster pace for corporate restructuring in Asia. Streamlining the judicial process, enforcing banking regulations, and strengthening corporate governance and accounting standards will also be of key importance to that process, she said.
"There are no quick fixes. The consistent pursuit of policies that liberalize markets will have the most positive long-term effects," Tseng stated. "As the global economic recovery spreads in the year ahead, there's reason to be cautiously optimistic—but we need to continue opening Asian markets to trade and investment."