Asia’s vast growing middle class will boost regional growth and cushion much of the possible damage from the China-US trade conflict, the Chief Economist of a Regional watchdog told media.
Boosted by a massive stimulus programme, China is sucking exports from neighbouring countries, filling much of a gap in demand left behind by the US and Europe after the financial crisis, Hoe Ee Khor said in an interview.
In a new report, the AMRO surveillance body identified the trade war between US president Donald Trump and China as one of the major short-term risk threatening the region. In the longer run however, the conflict would not nearly matter as much, Khor said.
“Our projections have shown that by 2030, Asia is going to comprise about two-thirds of the global middle class … we have a huge consumer market, and there is a lot of wealth being created,” Khor said.
AMRO the Asean+3 Macroeconomic Research Office was one of the regional economy watchdogs from around the world that met in Luxembourg for their annual meeting, this time hosted by the European Stability Mechanism, the euro area bail-out fund.
These groups are not unlike smaller versions of the International Monetary Fund, and one of the topics discussed was how to cooperate with the Fund, a powerful body whose aid to governments in financial trouble has sometimes been controversial.
“The authorities want us to be independent and professional in doing our assessment, and our views don’t always agree with the IMF,” said Khor, who started his career at the IMF. “We don’t disagree with the IMF on everything, but we don’t agree on everything either.”
AMRO is closely related to the Asian sovereign bail-out fund, the Chiang Mai Initiative, which has its origins in the Asian financial crisis of 1997, though – unlike the ESM – it was never used.
The role of the IMF was also a hot political issue during the European debt crisis, particularly with the ESM’s €62 billion third loan package to Greece, which was completed last year.
After the financial crisis, the Asian economy was driven less by exports, and more of exports now also stayed in the region, making it less dependent on demand from the US or Europe, Khor said.
China remained the region’s powerhouse, with poorer countries such as Vietnam, Cambodia, Malaysia, Myanmar and Laos now providing much of the low-cost processing that China was a hub for in the past, and China itself producing higher-value goods.
Khor also spoke highly of China’s so-called Belt and Road Initiative (BRI), a vast global infrastructure plan that many poorer countries are embracing to fill an investment dearth, but which has led to criticism of economic imperialism and causing debt traps in the West.
“Most Asian countries see this as an opportunity… they have a real hunger for investment in infrastructure,” Khor said.
There was a funding gap for infrastructure projects worth 5.7% of Gross Domestic Product in the region, with only 2.5% of that gap being filled by domestic financing, Khor said.
“That’s where the BRI comes in, because the BRI has the potential to fill at least a substantial part of the gap,” he said.
Sri Lanka, one of China’s borrowers had experienced debt problems but those had existed well before the BRI and weren’t China’s fault Khor said. Cambodia was also borrowing a lot, but its debt-go-GDP ratio was low, and it could easily afford its debt servicing costs.
Khor also urged Europe to stay open to trading with other regions, despite growing criticism from nationalist parties that want to protect domestic markets more against pressure from abroad.
“Asia is really an opportunity for Europe … it is the fastest growing region in the world, so for many of your European products, the biggest market is in Asia. So it is kind of silly to cut it off,” Khor said.