Cover Story: LINK OR SWIM NZ’s Asian choice

In five packed conference days in Seoul’s summer heat, New Zealand speaker fronts the stage just once. Victoria University’s Dr Stephen Epstein is the sole Kiwi voice among over 150 international presenters. The only other formal mention of New Zealand comes in single table flashed momentarily on screen. It features during talk on clean energy investment in carbon-constrained economy. There at the bottom of the list is New Zealand’s emissions trading scheme. The speaker barely mentions it. Even Australia gets scant attention.
There’s nothing like spending time in Asia to drive home the truth that, in world terms, our economy is the size of pea and frustrated by distance. Private conversations about New Zealand evoke instant-smile responses about our beautiful country, desire to visit, and enquiries about sheep. Yet many of the 500 conference delegates seem genuinely puzzled as to why someone from New Zealand would be interested in Asia.
The recent Harvard Project for Asian and International Relations (HPAIR) in Seoul, Republic of Korea, played out against backdrop of economic disintegration in Europe and financial stress in the US.
Debt-laden Greece was inching closer to detonating the Eurozone. The US had stepped back from the brink of defaulting on its debt. Investment bank Morgan Stanley unleashes scathing report saying the US and Eurozone economies are “dangerously close to recession”. The bank cuts its 2011 global growth estimate from 4.2 percent to 3.9 percent, and its 2012 forecast from 4.5 percent to 3.8 percent.
The combined ructions in both zones trigger new waves of fear of looming global recession.
While the US and Europe will continue to drive global economic agendas for long time to come, heightened levels of direct investment, financial transactions and trade within Asia are leading to the rise of increasingly integrated Asian economies.
At HPAIR, Khee-Hong Song, managing partner at Deloitte Consulting Korea, points to Asia’s intra-regional trade as the world’s new economic powerhouse in the making. Business leaders, he says, must shift their gaze away from Asia’s relations with other regions and pay more attention to the dynamics within Asia itself.
The timing of Song’s message adds extra urgency to what many have been saying for some time. In speech earlier this year, Singapore’s Deputy Prime Minister Tharman Shanmugaratnam said that while there are few straight lines in economic growth, by the end of the decade Asia’s trade is expected to form 60 percent of global trade flows. Importantly, intra-Asian trade will form at least half of all Asian trade.
So, as tiny island nation on the edge of the Pacific, what does this mean for New Zealand? Are we destined to remain on the outside looking in? And how can we best handle integration into the economies of Asia?
For decades, New Zealand business leaders have studied charts showing Asian countries clambering up our list of trading partners while traditional ‘western’ ones slither further down the scale.
Last year our merchandise trade with Asia represented 40 percent of our total exports and just over 44 percent of our imports. Not surprisingly, most of the action took place with northeast Asia which absorbed just over quarter of total exports and, in return, sent us just under 29 percent of our imports.
(Confusingly, definitions of which countries are included in which subregion can vary according to context. The above Statistics New Zealand figures place China firmly in northeast Asia. The Asian Development Bank’s regional classification, on the other hand, places China in East Asia, has no such place as North, or northeast, Asia and no listing at all for Japan.)
Southeast Asia was our next largest trading partner in the region, comprising 10 percent of our exports and 14.5 percent of our imports.
Roll together exports and imports, and last year six Asian countries featured in our list of top 10 trade partners. It’s starting to get easier to remember our few non-Asian top trading partners rather than name the more numerous Asian ones.
For those with practical turn of mind, maybe shipping best exemplifies Asia’s increasing interconnectedness. Earlier this year, Box Trade Intelligence special report predicted capacity carried between Asian ports could hike seven percent to hit around 22 million TEU (twenty-foot equivalent units) by the end of this year. If that happens, trade between Asia’s ports will dwarf the two east-west trunk trades between Asia and North America, and Asia and Europe.
That trade upswing would come on top of 15 percent annual growth the previous year (which was, admittedly, after slow 2009) and could be followed by further five percent upturn in 2012. To nail home the point, such continued growth is likely to bring about need for more, and larger, vessels.
The same report reckons Chinese exports will represent 35 percent of trade within the region in 2012. That’s 12 percent compound average growth rate since 2006.
There’s no little irony in the fact that the current world economic turmoil is devastating the market economies of liberal democracies such as the US, the EU and Japan, while China, communist country (albeit with market economy), is emerging wealthy and confident.
The thought is not lost on Dr Mong Joon Chung, six-term member of the National Assembly of the Republic of Korea. Dr Chung (or MJ, as he likes to be known) can’t resist joking at HPAIR that when the communists took over China in 1949, people said only socialism could save China.
“Thirty years later in 1979, when Deng Xiaoping started his reforms, they said only capitalism could save the country,” he quips. “Ten years later in 1989, when the Soviet Union and the Communist Bloc failed, they said only China could save socialism. And today, everyone says only China can save capitalism.”
Chung describes the crisis that has befallen the leading economies of the world as systemic in nature and therefore requiring fundamental rethinking.
“In the face of this crisis it is crucial for us to search for new engine for continued growth for the global economy.”
Unlike Europe and North America, where political will has driven economic integration, in Asia it is most likely that market forces will compel politicians to foster more formal economic ties. As with so much else in Asia, pragmatism may finally carry the day.
That day remains, however, long way off. So far, the creation of regional trading blocs and confusing network of free trade agreements, which work at the loosest and least restrictive level of economic integration, have been the favoured tools de jour within the Asian region.
While there is talk of closer integration there remains considerable political and economic distance between major players. Like other parts of the world, Asia brings to the global agenda its own set of problems.
Just last year, Domingo Siazon stepped down as Ambassador to Japan from the Philippines having served from 1993 to 1995 and again from 2001 through to 2010.
Among other roles he’s now senior adviser to Metrobank (Philippines) and chair of the advisory board of Metrobank (China).
Siazon says 40 years of experience in ASEAN show that economic interdependence dampens the centrifugal forces of nationalism.
“We are however greatly concerned that Asia is confronted with serious political and security problems,” he adds. “Our situation is made more complex by the heavy historical burden of Asia and the absence of proven mechanisms within the region to deal with such problems.”
Siazon believes the greatest threat to Asia today is the spiralling proliferation of nuclear weapons. While Asia-watchers can point to specific potential flashpoints – nuclear or otherwise – many speakers at HPAIR concede that an upset is just as likely to come from chance occurrence. Japan’s triple-whammy earthquake, tsunami and nuclear-meltdown in March this year is case in point.
At HPAIR, Seki Obatu,