November 10, 2012
The global economy faces an extended multi-year period of low growth, with the policy gridlock and mistakes in Europe, the US, and elsewhere in dealing with deleveraging the bad debt that was due to the destructive exuberance of the culture of the deregulated finance industry since the 1980s.
Economists reckoned that government's could do more damage taking control of the boom than they would by having a crash and picking up the pieces. They were dead wrong.
Post crash Australia looks towards Asia to ease it through a period of low global growth in the north Atlantic region. China, in particular, will jumpstart the stagnating global economy. However, as Changyong Rhee in Asia’s Stifled Services, observes:
Asia’s boom was driven largely by intraregional manufacturing linkages: intermediate goods and parts were sourced from within Asia for assembly into final goods exported to advanced economies. But, with budget-tightening around the world, demand for Asia’s exports is expected to continue to falter. Where, then, should Asia look for another source of growth?
Upgrading the service sector – for example, business processing, tourism, and health care – could play a critical role in the region’s future growth.
A good example is China, which has huge net foreign assets due to its current-account and capital-account surpluses over the last for two decades. However, its economic growth is highly sensitive to global conditions and Europe’s malaise has hit China’s exports badly. China’s 12th Five-Year Plan calls for a shift in the country’s economic model from export-led growth toward greater reliance on domestic demand, particularly household consumption. That means slower economic growth and less demand for Australia's iron ore.
Yu Yongding in How Should China Respond to the Slowdown?
While huge amounts of money have been poured into physical infrastructure, public expenditure on human capital and social security is below the world average. More resources should be reallocated from physical capital formation to human capital formation.
In Australia there is too much focus on a single economic power, namely China, and its impact on Australia's economic growth; too great an emphasis in Canberra on bilateral relationships are all that are necessary to secure Australia's future; and too much scepticism in Canberra about the feasibility of a new regional economic architecture in Asia, such as the northeast Asian region around China, South Korea and Japan.