Asia's economic pace has been moderating after a sharp rebound from the global financial crisis, said the World Bank this week.
However, the bank said, "over the medium term, East Asia has the potential to sustain rapid increases in living standards, even as the global economy enters a more challenging phase".
And there's good news for Australia in this: "All commodity prices are on an upswing, some either at all-time highs or at levels exceeding those reached only two years ago."
Inflation has become the key short-run challenge for the region, fuelled by a surge in portfolio capital inflows and rapidly rising food prices that hit low income households especially hard.
The bank warns that many middle-income East Asian countries face difficult policy choices if they are to rein in inflation, with the bulk of the adjustment burden now relying on fiscal policy, which means lowering deficits while also financing infrastructure to drive future growth and increasing social investments to reduce growing inequality.
China's appetite for trade within Asia will meanwhile expand as wages keep rising rapidly, causing manufacturers either to relocate inland from the more costly coast to graduate their products upmarket or even to shift offshore.
But the prospects for deep reforms or change within China are remote over the short to medium term.
ANZ chief executive Mike Smith has expressed optimism, in a new essay for Asialink, that "the RMB has finally started on the long road to becoming a fully convertible currency".
But in Red Capitalism, an important new book, authors and financial market players Carl Walter and Fraser Howie, who have been long-term China residents, say that China remains largely a "Soviet-inspired financial system". It is designed, they say, "so that no one is able to take a position opposite to that of the government".
And that is not likely to change any time soon. China is undergoing a leadership change that has so far followed closely the script of the previous two shifts.
The present leaders, President Hu Jintao and Premier Wen Jiabao, will not risk taking any radical steps during their remaining 18 months in office. Their successors, Xi Jinping and Li Keqiang, will not rush into reforms, being circumscribed by the factional political structure of the ruling Communist Party and by the persistence in high office of many supporters of their predecessors.
So it is unlikely China will make its currency convertible in the next three or four years Or that it will open its financial system much further to foreign bankers than the present 1.7 per cent of the market.
China's leaders, those in power and those in-waiting, will feel stability has stood them in good stead as a default policy.
All the more so as risks continue to emerge.
Richard Martin, the Singapore-based managing director of business consultants IMA Asia, said: "Global investors, from stock pickers to board members, will pay much more attention to political risk in the wake of the events in the Middle East.
"Asia needs to be careful, as the region is littered with geopolitical flashpoints, and has plenty of entrenched corruption at the highest levels of society and government."
But he remains confident the region will successfully negotiate any political risk, with countries such as South Korea, Taiwan, The Philippines and Indonesia making "stunningly successful" transitions to full democracy.
Thailand and Japan continue to harbour the germs of political risk, however, while India is suffering a period of parliamentary stalemate holding back-much needed reforms there.
The joker in the pack, in terms of destabilising the Asia-Pacific region, is a sustained rise in global oil prices, which may yet transpire if worst-case scenarios emerge from the wave of Middle Eastern uprisings.
Martin warns that a rise above $US120-130 a barrel for oil would derail Asia's recovery this year. Japan's disasters, with power outages disrupting the manufacturing sector, will make a dent. On average, exports to Japan account for about 10 per cent of East Asia's total exports, with Japan's hi-tech exports crucial for many products assembled elsewhere, including in China.
About a quarter of developing East Asia's long-term debt is denominated in yen.
This vulnerability underlines the fact that, while remaining globalised, the Asian economies are intricately enmeshed. A key indicator shows that China's imports from elsewhere in East Asia now exceed its exports to the US.
But the region's resilience remains high, whether assessed from its foreign exchange reserves, household savings, low levels of public debt backed by mostly competent fiscal policies, or its stable financial systems.
Source: http://www.theaustralian.com.au
However, the bank said, "over the medium term, East Asia has the potential to sustain rapid increases in living standards, even as the global economy enters a more challenging phase".
And there's good news for Australia in this: "All commodity prices are on an upswing, some either at all-time highs or at levels exceeding those reached only two years ago."
Inflation has become the key short-run challenge for the region, fuelled by a surge in portfolio capital inflows and rapidly rising food prices that hit low income households especially hard.
The bank warns that many middle-income East Asian countries face difficult policy choices if they are to rein in inflation, with the bulk of the adjustment burden now relying on fiscal policy, which means lowering deficits while also financing infrastructure to drive future growth and increasing social investments to reduce growing inequality.
China's appetite for trade within Asia will meanwhile expand as wages keep rising rapidly, causing manufacturers either to relocate inland from the more costly coast to graduate their products upmarket or even to shift offshore.
But the prospects for deep reforms or change within China are remote over the short to medium term.
ANZ chief executive Mike Smith has expressed optimism, in a new essay for Asialink, that "the RMB has finally started on the long road to becoming a fully convertible currency".
But in Red Capitalism, an important new book, authors and financial market players Carl Walter and Fraser Howie, who have been long-term China residents, say that China remains largely a "Soviet-inspired financial system". It is designed, they say, "so that no one is able to take a position opposite to that of the government".
And that is not likely to change any time soon. China is undergoing a leadership change that has so far followed closely the script of the previous two shifts.
The present leaders, President Hu Jintao and Premier Wen Jiabao, will not risk taking any radical steps during their remaining 18 months in office. Their successors, Xi Jinping and Li Keqiang, will not rush into reforms, being circumscribed by the factional political structure of the ruling Communist Party and by the persistence in high office of many supporters of their predecessors.
So it is unlikely China will make its currency convertible in the next three or four years Or that it will open its financial system much further to foreign bankers than the present 1.7 per cent of the market.
China's leaders, those in power and those in-waiting, will feel stability has stood them in good stead as a default policy.
All the more so as risks continue to emerge.
Richard Martin, the Singapore-based managing director of business consultants IMA Asia, said: "Global investors, from stock pickers to board members, will pay much more attention to political risk in the wake of the events in the Middle East.
"Asia needs to be careful, as the region is littered with geopolitical flashpoints, and has plenty of entrenched corruption at the highest levels of society and government."
But he remains confident the region will successfully negotiate any political risk, with countries such as South Korea, Taiwan, The Philippines and Indonesia making "stunningly successful" transitions to full democracy.
Thailand and Japan continue to harbour the germs of political risk, however, while India is suffering a period of parliamentary stalemate holding back-much needed reforms there.
The joker in the pack, in terms of destabilising the Asia-Pacific region, is a sustained rise in global oil prices, which may yet transpire if worst-case scenarios emerge from the wave of Middle Eastern uprisings.
Martin warns that a rise above $US120-130 a barrel for oil would derail Asia's recovery this year. Japan's disasters, with power outages disrupting the manufacturing sector, will make a dent. On average, exports to Japan account for about 10 per cent of East Asia's total exports, with Japan's hi-tech exports crucial for many products assembled elsewhere, including in China.
About a quarter of developing East Asia's long-term debt is denominated in yen.
This vulnerability underlines the fact that, while remaining globalised, the Asian economies are intricately enmeshed. A key indicator shows that China's imports from elsewhere in East Asia now exceed its exports to the US.
But the region's resilience remains high, whether assessed from its foreign exchange reserves, household savings, low levels of public debt backed by mostly competent fiscal policies, or its stable financial systems.
Source: http://www.theaustralian.com.au
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