Despite slowing growth in China, the economic prospects in Asia continue to remain bright, the chief economist at the Asian Development Bank said.
“The economic growth in Asia is still promising,” Yasuyuki Sawada, who has served as the ADB’s chief economist from March, said.
“Asia has, without doubt, become the center of the global economy, and the region’s presence in the world will increase even further in the years ahead,” Sawada said in a recent phone interview with The Japan Times. “In the past, many Asian countries were low-income economies. But today, many of them have become middle and even high-income countries.”
Established in 1966, ADB has financed both the public and private sectors in Asia and the Pacific to foster their development projects such as infrastructure. With Japan and the U.S. being its two main shareholders, the Manila-based international financial institution membership is comprised of 67 countries and regions — 48 within Asia and the Pacific and 19 outside.
A former University of Tokyo professor who studied international economics, Sawada took over the chief economist role from Chinese economist Shang-Jin Wei in March to become the first Japanese to hold the office.
As the chief economist, Sawada’s role in the ADB is to provide research and analysis that help the ADB and member countries reach reasonable decisions, in addition to serving as the official spokesman for the international bank.
Sawada said the recent economic growth in Asia and the Pacific has changed the region from the world’s manufacturing base to key consumer market.
“Although Asia continues to play a significant role as a production hub, it has also emerged as a place that generates a substantial amount of consumption as people’s income levels have increased,” he said. “Most of the world’s middle-income population today lives in Asia. What we need to pay attention to is the fact that economic activity within Asia has become the core of the global economy.”
The statistics certainly support Asia’s growth prospects. According to the ADB’s annual Asian Development Outlook report published in April, gross domestic product (GDP) growth in Asia and the Pacific would remain at 5.7 percent in 2017 and 2018, although the figure drops 0.1 percent from the 5.8 percent registered in 2016. It also forecasts the continued growth in Asia would deliver 60 percent of the global economic growth.
Another ADB report published in February forecast that Asia would need $26 trillion in investment from 2016 to 2030, or $1.7 trillion per year, on infrastructure such as transportation, power, telecommunications, water supply and sanitation if it maintains the current growth momentum.
However, one concern is slower economic growth in China. The ADB report in April forecast the growth of China will slow to 6.5 percent in 2017 and 6.2 percent in 2018, down from 6.7 percent growth in 2016.
Sawada said he believes the slowdown would not signal a weakening Chinese economy nor affect future growth of Asia, as it is largely due to China’s strategy to shift its economic model from a production-driven economy to a consumption-driven economy, likening it to Japan’s economic shift after its rapid growth period in the mid-1970s.
“I think the Chinese economy is at the phase of moving from a production-focused economy to a service-industry-driven economy — the phase that many of today’s developed countries have undergone,” he said.
Meanwhile, China is increasing its presence in Asia as it established the Asian Infrastructure Investment Bank (AIIB), which opened in January 2016.
A year after its launch, the Chinese-led international financial institution has attracted 70 membership countries and regions, already exceeding the ADB’s membership of 67. Japan and the United States are the only G-7 countries that are not members of the AIIB.
Despite China’s growing presence as an investor in Asia, Sawada said the ADB should continue to invest in the country to assist its growth because “China is such a significant player in Asia’s economy.”
“While China is evolving from a low-income economy to a middle-income economy, it still needs to change its industries to be more adaptable to climate change. And I believe ADB still has a role to play in these areas,” he said.
Sawada also said that the AIIB’s role in Asia would not collide with ADB activity. Rather, he said the ADB and the AIIB would become collaborators to boost Asia’s further development together.
“There are $1.7 trillion per year in infrastructure needs in Asia. But I believe support solely by multilateral development banks would not suffice, as currently they have only provided less than 10 percent of needed investment,” he said.
“I believe the AIIB and the ADB would need to collaborate together to fill the abundance infrastructure needs,” he said.
In fact, the two investment banks have already established co-financing relationships on some of Asia’s development projects.
In June, the ADB announced it would partner with the AIIB on a highway development project in Pakistan as the first co-financing project between the two banks. Additionally, in November they agreed to co-finance a project in Bangladesh to boost that country’s natural gas supply.
“As the AIIB is still young, I believe the ADB can help it by providing some know-how while collaborating together,” he said.
Sawada didn’t go into much detail regarding how U.S. President Donald Trump’s protectionist policies would affect the ADB’s investment policy, saying, “It’s still too early to judge,” as the overall picture of his economic policy package has yet to be seen.
In March, Trump signed an executive order to roll back former President Barack Obama’s climate change regulation policies so as “to lift the restrictions on American energy, to reverse government intrusion and to cancel job-killing regulations,” according to the White House.
Trump’s position on climate change conflicts with the environmental policy of the ADB that states “environmental sustainability is a prerequisite for economic growth and poverty reduction in Asia and the Pacific.” In 2016, the organization invested over $4.4 billion for mitigation and adaptation to environmental issues.
“I cannot say how (Trump’s) policies would impact the ADB at this point,” Sawada said, but added that he believes they would not pose significant risks to ADB activities.
With the economies in Asia and the Pacific having shown signs of improvement, the next challenge is how to avoid the “middle-income trap,” where the growth of a developing country slows after reaching a certain level, Sawada said.
The key is to pursue more efficiency in economies by beefing up investment in such areas as innovation, education and vocational training, as well as infrastructures to improve people’s basic standard of living.
“The situation of poverty in Asia and the Pacific is dramatically improving from a quarter century ago, mostly thanks to the improving economy in China. But, despite undeniable economic growth, the regions have more than 300 million people who are living below poverty line — $1.90 or less per day,” he said.
“Although the situation is improving, we need to continue our efforts to eradicate poverty as long as there are people who are suffering,” he said. “As the ADB’s chief economist, I need to provide scientific evidence that help policymakers implement effective measures.”