The World Bank's benign look at East Asia
Published by The Straits Times, Singapore on 2004-11-10
THE World Bank's semi-annual report yesterday on East Asia offered too a fulsome an assessment of its economies, which it said grew at least as rapidly as before the 1997 financial crisis that wracked the region and convulsed global markets. The Washington-based body's observation that extreme poverty has been significantly alleviated may startle large cohorts of the dispossessed still living in the shanties of Jakarta, Manila, Bangkok and Kuala Lumpur. For them, life hasn't brought much economic liberation lately through the globalisation that the Bank promotes.
World Bank reports tend to be carefully constructed so as not to be too offensive, or too controversial. After all, committees put these reports together - and it wouldn't be irrelevant or irreverent here to recall that old saw about a camel being a horse created by a committee. In its typically diplomatic style, the Bank floated some concerns for 2005: rising oil prices, slower growth in rich countries - particularly the US, with its US$600 billion deficit - and uncertainties in the high-tech and commodity cycles.
But the Bank didn't deal with the Chinese situation vigorously enough, and that's where the real problem lies for growth in East Asia. While
China remains a big market for East Asian economies, it is increasingly going to be their competitor internationally as tariffs and trade barriers are lowered, starting with the WTO-mandated end to all textile quotas next month.
Few people appreciate the implications of China's frenetic growth, expected to be at least 9.3 percent in 2004. It's not just that the colossus of 1.3 billion people consumes more than 30 percent of world commodities to feed its manufacturing and construction sectors, thereby heftily raising prices in the great global bazaar and making it difficult for Third World states to compete; indeed, these days China also sets the benchmark on the prices of manufactured products. It's not even the fact that the foreign direct investment of US$53 billion that China receives represents more than a third of all FDI each year, money that could also be prudently invested in other nearby countries with less political and systemic rigidity.
And it's not even the fact that China, by refusing to delink its currency to the US dollar and peg it to a wider basket of currencies - as Singapore has done judiciously - is, in effect, importing inflation. The official figure for inflation is around 5.2 percent; most private-sector economists such as Mr Arjuna Mahendran, chief strategist for Asia-Pacific at Credit Suisse in Singapore, put it at twice that.
The inflation is worrying, to be sure, because it contributes to the overheating of the Chinese economy - and, at the same time, is also a reflection of that uncontrolled growth. There have been reliable reports of political agitation in the last few days from various regions of China over rising consumer prices.
Mr Homi Kharas, Chief Economist for the East Asia and Pacific Region at the World Bank, told The Straits Times in a telephone conversation yesterday from Manila that "the real story here is that the Chinese have lifted interest caps." He was referring to last week's tinkering of monetary policy under which China's central bank raised its rate slightly in order to curb inflationary pressures, and also permitted individual banks to distribute credit more evenly at a variety of rates.
The "real story" is that the World Bank has consistently underread China. It didn't even engage with its economy until well after the late Deng Xiaoping began economic liberalisation on his own instincts and not because of
Bank prescriptions. The Bank underestimates labour shortages that are plaguing the manufacturing and technology sectors. It underestimates the political cost of inflation. Whether it anticipates social unrest in China is anyone's guess, because the Bank, naturally, isn't telling.
"By ignoring China's impact on the global economy for long years, the World Bank is, in effect, conceding that its policy formulations of the last five or six decades haven't exactly worked in most developing nations," Mr Mahendran of Credit Suisse said. 'The Bank seems incapable of genuinely dissecting the internal political problems of economies like China. It needs to engage itself more at the ground level. In today's fast moving world, the Bank's typical prescription of one-shoe-size-fits-all simply doesn't work.''
One might add: Especially in nations where sandals, not shoes, are the norm. As in East Asia
Senior Writer and Global-Affairs Columnist