Product Description

As Morgan Stanley's chief Asia specialist, getting Asia right is Stephen Roach's personal obsession, and this in-depth compilation represents more than 70 of Roach's key research efforts not just on Asia, but also on how the region fits into the broad context of increasingly globalized financial markets. The book argues that the "Asia factor" is not a static concept, but rather one that is constantly changing and evolving. Broken down into five parts–Asia's critical role in globalization; the coming rebalancing of the Chinese economy; a new pan-regional framework for integration and competition; and a frank discussion of the biggest risk to this remarkable transformation–this book will help readers understand and profit from the world's most dynamic region.

Stephen S. Roach on New Imperatives for The Next Asia

In a growth-starved, post-crisis world, many have presumed that the baton of global economic leadership has already been handed off from the West to the East. The onset of the Asian Century is taken as a given. While such an outcome is entirely possible, I argue in The Next Asia that it hasn’t happened yet. A silver lining of the Great Recession of 2008-09 is that this transition may actually occur sooner rather than later – yet more by necessity than by design.

The enthusiasm over Asia is certainly understandable on one key level: On the surface, there can be no mistaking the sheer power of the Asian growth miracle. The broad collection of economies that comprise Developing Asia expanded at an 8.3% average annual growth rate over the 2001-08 period – basically three times the 2.8% average growth pace of the rest of the global economy. Putting it another way, the extraordinary dynamism of Developing Asia added about 1.2 percentage points extra to annualized global growth over the past eight years.

But here’s the critical catch: Over this same period, Asia has continued to direct an increasing portion of its production to others. The export share of Developing Asia’s GDP rose from 35% to 45% over the past decade, whereas the share going to internal private consumption fell to a record low of 45% of pan-regional GDP in 2008. As such, the region does not satisfy the most basic pre-condition of autonomous economic leadership – an economy where production support is dependent increasingly on home markets rather than on external demand.

In short, these are not the footprints of a new autonomous engine of global growth. As the shifting mix of Developing Asia’s GDP indicates, the region’s growth premium has been driven more by exports – and by the ancillary support of export-led fixed investment in infrastructure and export-producing capacity – than by internal private consumption. For now, the dreams of Asian-led global leadership are wishful thinking. Developing Asia is still more of a follower than a leader.

Validation of this critical deduction comes from the unmistakable repercussions of the current global crisis. In the aftermath of a U.S.-led synchronous downturn in the developed world, every Asian economy either went immediately into recession or experienced a sharp slowdown. Asia’s ever-rising external connectivity made such an outcome inevitable. The Asia consumer – despite all the hype – wasn’t nearly strong enough to forestall this outcome.

The starting point for The Next Asia is that the region’s hyper growth currently is still much more a function of external than internal demand. This is a simple, but very powerful observation. It not only offers a window into the region’s vulnerability to the massive external shock that has just hit but it also provides a diagnosis of the staying power of any recovery. But most important of all, it lays bare the recipe for an Asia that can finally stand on its own – an autonomy that can only be realized by drawing support from its own vast population of 3.5 billion people.

This is the essence of The Next Asia – the daunting transition from an externally-dependent growth model to one that derives increasing support from internal private consumption. I remain optimistic that Asia is very much headed in this exciting direction. It’s just a question of when – not if. But, most assuredly, in my opinion, the “when” is not now.

As is the case for almost all the opportunities of The Next Asia, the key to this transition undoubtedly lies in China. There has, of course, been considerable debate over what it will take to spur a consumer-led growth impetus in China – ultimately the key driver of The Next Asia. There is no silver bullet. Rural income support is undoubtedly critical – especially for a nation that continues to have close to 60% of its vast population residing in the countryside. So, too, is the need to develop a consumer-products industry, together with a wholesale and retail distribution and service and infrastructure.

But, in my view, the main impediment to Chinese consumption remains excessive levels of precautionary saving. Recent estimates by Cornell University economist, Eswar Prasad put China’s household saving rate at 37.5% in 2008 – up a stunning ten percentage points from the 27.5% reading recorded as recently as 2000. Chinese consumers remain very much predisposed toward saving. Until that changes – a transition that can only be enabled by the funding of a modern social safety net (social security, private pensions, medical and unemployment insurance) – China’s macro imbalances can only worsen. That would make it all the harder to stay the course of sustainable growth and development.

Consequently, the time is ripe for China to move aggressively in building a modern social safety set as a key pillar of a pro-consumption macro rebalancing strategy. The benefits would be enormous. Not only would China better insulate itself from future external demand shocks, but also a reduction of excess personal saving would go a long way in cutting China’s current account and trade surpluses – thereby soothing potential trade frictions and tempering protectionist risks. Moreover, the resulting shift in the mix of the economy away from industrial production-led export and investment to more of a services-based consumption dynamic would go a long way in lowering the energy and natural resources content of Chinese GDP. That, in turn, would lead to a lighter, cleaner strain of Chinese output – extremely helpful for the nation’s daunting pollution abatement and environmental remediation objectives.

Yes, Asia’s economies now appear to be rebounding. But there are serious questions over the quality of the recovery – raising concerns that the upturn that could very well be heralding a false dawn. That’s because it is being driven largely by an unprecedentedly vigorous bank-funded investment boom in China. On the heels of RMB 7 trillion in new bank lending in the first half of 2009 – by far, the sharpest six month burst of Chinese loan growth on record – surging fixed asset investment accounted for fully 88% of China’s total GDP growth in the first two quarters of the year. That’s more than double the 43% average growth contribution made by this sector over the previous decade and enough to take the investment share of Chinese GDP to over 45% – an unheard of investment ratio for any major economy in the modern era.

To the extent that Asia has now become a China-centric growth machine – a transformation that can be validated by a sharply increased China focus to intra-regional trade flows – the sustainability of the Chinese recovery holds the key to recovery prospects for the region as a whole. This is where the imperatives of The Next Asia come into play. Given the unbalanced character of the Chinese economy – together with the lopsided nature of it post-crisis rebound in the first half of 2009 – serious questions remain regarding the staying power of the region’s newfound recovery.

Two and a half years ago, Chinese Premier Wen Jiabao unwittingly wrote the script for The Next Asia. He warned that while China’s economy looked strong on the surface, beneath the surface it was increasingly “unstable, unbalanced, uncoordinated and ultimately unsustainable.” These “four uns,” as they were eventually to become known, can be effectively addressed only if China – and the rest of Asia – embraces a new mantra of consumer-led growth. The Great Recession of 2008-09 underscores a new urgency to this challenge. It is Asia’s wake-up call that the old ways of export-led growth have just about outlived their useful existence.

Asia has long been the world’s most exciting growth story. But if its 3.5 billion consumers now play an increasingly greater role in shaping the region’s economic development, the excitement will take on an entirely new dimension. The Old Asia was always limited in its capacity as an engine of global growth. Not so with The Next Asia and its potential to culminate in the long awaited flourishing of the Asian Century.

-Stephen S. Roach

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Product Details

• Amazon Sales Rank: #8926 in Books
• Published on: 2009-09-22
• Original language: English
• Number of items: 1
• Binding: Hardcover
• 414 pages

Features

• ISBN13: 9780470446997
• Condition: NEW
• Notes: Brand New from Publisher. No Remainder Mark.
• Click here to view our Condition Guide and Shipping Prices

Review
"As Chairman of Morgan Stanley Asia and a renowned economist, Stephen Roach has a solid macroeconomics background, in-depth understanding of the region, rich knowledge of various industries, and an open mind. In this book, Steve vividly describes the changes of Asia -- and the driving forces behind those changes。Furthermore, he brilliantly points out the challenges Asia is facing, as well as its impacts on the global economy. Asia is reshaping the global economy in this post-crisis world, and I believe this book provides us with unique insights as to how this reshaping is playing out."
—Dr. Zhu Min, Group Executive Vice President, Bank of China

"Stephen Roach has for many years been a uniquely independent voice among international economic commentators. He was one of the few who warned that the debt-fuelled 'casino' economy was unsustainable. His prophetic warnings came to pass in 2008. In his latest book he issues another warning. Asia's explosive growth has been based on a 'bet' upon deep integration with the global economy. Stephen Roach argues that this growth is unsustainable in the face of the global recession. The region needs comprehensively to re-balance its economic model if it is to maintain its remarkable growth. He warns that this will not be easy. Stephen Roach's book is essential reading for those who hold the comfortable belief that Asia has 'de-coupled' from the world economy."
—Prof Peter Nolan, CBE, Sinyi Professor, Judge Business School, and Chair, Development Studies, University of Cambridge, UK

Review
"Stephen Roach’s prescient collection of insights and analyses, from his many years in Asia as one of the most experienced decoders of China’s political and economic trends, are cogent, valuable, and immensely helpful."
—Henry A. Kissinger

From the Inside Flap

As the most dynamic and rapidly growing region in the world over the past decade, Asia has attained a new level of prosperity. Yet Developing Asia's newfound economic ascendancy remains precarious. As 2008 came to an end, every economy in the region had either slowed sharply or tumbled into outright recession. Far from having the autonomous capacity to "decouple" from weakness elsewhere in the world, export-led Developing Asia had become even more tightly tied to foreign markets than was the case a decade earlier. The once-bright future is now uncertain. Investors, business managers, policymakers, and political leaders all need to dig more deeply to uncover the challenges, opportunities, and risks that lurk in this critical region.

In Stephen Roach on the Next Asia, Morgan Stanley's Asia Chairman offers his views on where the Asian economy has been and where it is going. This collection of essays, written by Roach over the past three years—three of the most tumultuous years in modern economic history—tells how the Asia story has played out to this point and what that saga portends for the future. Roach looks at the global economic crisis and the debate over globalization. He details China's challenges in rebalancing its economy and examines U.S.-China tensions over trade policy. And he analyzes the additional challenges facing Japan, India, and Korea. Drawing insight from what went right and wrong, the author attempts, in a concluding chapter, to paint a picture of what it may take to realize the hopes and dreams of the Asia Century. Macro risk assessment, he reveals, is critical to understanding the forces that will shape the Next Asia.

And the Next Asia is already coming into focus. Consistent with the region's penchant for change, it looks to be very different from the Asia of the past thirty years. The transition from old to new will need to be driven by a major rebalancing of its economy—with export- and investment-led growth giving way to a more balanced macro structure, increasingly supported by internal private consumption. For all those who want to deepen their understanding and capitalize on these changes, Stephen Roach on the Next Asia provides an invaluable guide.

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Customer Reviews

Good Insights and Data -
The book is a collection of essays written by Roach over the past three years reporting how the Asia story has played out to date, and how it looks for the future. Most of the book focuses on China, providing a wealth of background for understanding Roach's recommendations for the U.S. and China, and the direction of China's leadership.

Nearly 80% of China's GDP goes to exports (30%) and fixed investment (50%). Since the early 1990s its per-capita income has increased 5X+. America accounts for about 4.5% of the world's population and about $10 trillion of spending in 2008; China and India together account for 40% of population and only $2.5 trillion on spending. America's economy has grown nearly 4%/year in real consumer demand over the past 15 years - 3X the growth in Japan and Europe. Seventy-two percent of the U.S. GDP in 2007 was consumer spending (a record), falling only to 71% currently.

China's leadership recognizes the need to reduce reliance on exports - partly because of the sagging U.S. and world economies, and partly to reduce the likelihood and severity of any anti-China trade actions by the U.S. Congress (45 such bills were introduced in the U.S. Congress between 2005-07). Other challenges include improving resource consumption efficiencies (eg. cutting oil consumption per unit of GDP by 4%/year - now 2X that of the world average), as well as reducing pollution and environmental degradation. (China's carbon emissions per person are less than 10% that of the U.S.)

China's high savings rate (50% in 2005, with 65% believing that their savings are too low) is traceable two factors - the first is massive layoffs via 15 years of reforming state-owned enterprises (SOEs - now 30-40% of the economy) that involved 60 million layoffs from 1997, and continuing reductions of 2 million/year. The second is the lack of an institutionalized safety net. (India's savings rate is in the high 30 percent range.)

American writers sometimes allege that Chinese labor costs will soon begin a rapid climb, damping increased exports. Roach, however, points out that even after six years of double-digit increases, average hourly compensation for Chinese manufacturing workers was only 3% that of the U.S. average in 2004. Meanwhile, productivity in its industrial sector surged nearly 20%/year from 2000-2004. Finally, its 745 million rural population is by far the largest pool of surplus labor in the world; there also have been 20 million layoffs in Guaydong Province resulting from the export slowdown. Obviously the Chinese leadership is not concerned about a possible shortage of labor, else its latest Five-Year Plan would not have emphasized expansion of labor-intensive services.

Private consumption in China accounts for only about 35% of its GDP, trending downwards from 65% in 1952. China's National Social Security Fund totals $80 billion - less than $100/worker. Roach suggests it be increased, thereby reducing self-imposed pressures for consumer savings and allowing increased consumer spending.

Roach strongly opposes anti-China trade measures for several reasons. 1)U.S. purchases of foreign-made products vs. consumption of domestic goods has risen from 22% in the early 1990s to about 38% in 2007. Roach contends this provides a strong anti-inflation influence. 2)Only about 20% of the value of Chinese exports to the U.S. reflect domestic Chinese content - the rest comes from China's partners, mostly other Asian nations. Ergo, China is more of an assembler than manufacturer. Banning Chinese exports will simply shift this assembly etc. work to other nearby nations. 3)The U.S. trade problem is not China, but almost all nations. We have trade deficits with one hundred other nations. 4)The 'answer' is not revaluing the Chinese currency - that has increased 20% since 2005, and is only about 10% undervalued now. 5)The 'real' problem is that U.S. profits are at a fifty-year high - 12.4%, vs. labor at 56.3% - the same as in the late 1960s. 6)Antagonizing China could lead to that government shedding its U.S. investments, driving the dollar down and interest rates up, causing a major U.S. recession.

Bottom Line: Roach believes Chinese consumers should spend more and save less, while U.S. consumers save more and spend less. The 'bad news" is that he believes there's a 25-33% chance of anti-China protectionist legislation passing in the U.S. during the next 15 months.

insightful collection of Stephen Roach's consistent views
This collection of essays has been collected over the years and aggregated into 5 chapters, each containing a subset of the essays associated with the themes. The heart of the book focuses on the global imbalances, the causes, effects and the risks, both political as well as economic that have evolved and need to be dealt with in a coordinated systematic manner.

Much of the literature focuses on several major themes, 1- people cant globalize and decouple, they must be either or. 2 - the trading relationships that have emerged are inherintly unstable. 3 - the instability can be fixed but requires us to look from above at the problem in much greater degree than politicians tend to when they voice local constituencies. The major focus on the imbalance is on the American consumption side and their gross overconsumption to an unheard of degree.

To be precise Stephen Roach talks in depth about the change in economic landscape such that the previous arena of non-tradeable goods have morphed into tradeable, in particular services, due to the internet etc (similar in spirit to freedman's world is flat ideas). The result of this is that there has been wage pressure on developed nations that have created a downward drift barely less than productivity growth such that real wage growth has lagged substantially the growth it would have recieved in a theoretical closed economy. The repurcussions are both backlash at owners of capital who have increased their share of business revenues due to increased bargaining power within the firm due to the more open global labor market. This is both backlash to the distribution of wealth as well as global trade perspectives and the search for a scapegoat (ie providers of the replacement labor in places like china and india).

The most of the book focuses on the themes of global imbalances and speaks about China's savings glut (it has had the lowest consumption proportion of GDP and GDP growth in history) and its export dominated model to fuel growth. This is articulated as unsustainable and more importantly unstable due to unstable demand (as its abroad). The currency issue of RMB is discussed as a problem that should not be focused on, as the trade deficit is multi-lateral and is quite "obvious" scapegoating from Stephen's perspective. The US economy is on the recieving end of an even more critical analysis. It has become an asset dependent country who is growing by importing savings, and pretty much only growing by consumption. Its savings went to negative and it needs to start investing in its future as equitizing capital gains for consumption is not a source of growth.

Clearly looking at the time stamps of the essay, stephen called the bubbles forming correctly, among most of the skeptics, no one saw the magnitude coming, but those were also a product of financial feedbacks and bank run dynamics which are not the subject of his analysis. Given that, one should pay attention to him as he saw through the rationalizing of a new paradigm that wasnt necessarily there.

I am a four vs five star because, its quite repetitive (which is inevitable because the essays were written separately and not meant to be packaged together so the book was never gonna follow one thought to the next) and the other side of his arguments should have been presented and argued against better. Its easy to say multilateral trade problems in the US means that its not a china problem its a US problem, but when people act locally and governments cant control yield curves because of sovereign wealth pinning the curve, policy doesnt work like people assume they do and so implicitly oil states and china subsidized the housing market. The retort would have been, the fed etc needs to do better using other policy then, but the point is, he dismisses real arguments by falling back on the US not saving enough period, ignoring the feedback effects that distort cause and effect in the first place and make policy difficult in the specific variables to target. Many policy makers have problems with things like the rmb because they also had a large impact on the yield curve due to elasticities of supply and demand, thus reducing the maneoverability and effectiveness of some of the central bank policy. Stephen I'm sure does have responses to these sorts of criticism but they arent explored and i think his points should have gone deeper into the other side vs just trivializing them. But all in all, good book, i believe his analysis to be on target, clearly he was quite predictive and its worth reading this.

Kindle version sample - charts look wrong
Let me begin by saying that I have huge respect for Stephen, and his research is thorough, clear and detailed.

I read the sample from amazon - the pagination is weird - characters sometimes overlap one another in the same line, and the embedded charts are next to impossible to read on the Kindle. I would recommend buying the real copy instead, based on my experience with the Kindle sample.