Globalization for China, Japan, and South Korea
East Asia in modern age
expected growth in asia and the pacific from 3.9 percent in 2022 to 4.6 in 2023
largely explained by the post-reopening recovery in china and stronger-than-expected growth in the first half of the year in japan and india
asia is still set to contribute about two-thirds of all global growth
important — growth is significally lower than what is projected before the pandemic and output has been set back by a series of global shocks
the economic boost that china enjoyed after its re-opening is now losing momentum earlier than previously expected
the rebound will underpin growth quickening to 5 percent in 2023, and would slow to 4.2 this year amid the deepening property-sector slump
drag from china would historically have been offset by forecasts for faster growth in the US and japan
resulting boost will likely be more muted this time
strength of US economy has been focused in the service sector, rather than in goods which doesnt fuel demand for asia
in the near term, sharp adjustments in china’s heavily indept property sector and the resulting slowdown in economic activity will likely spill over to the region
commodity exporters with close trade links to china
aging population and slowing productivity growth will further temper growth over the medium-term in china
rising the risk of geoeconomic fragmentation and bear upon prospects in the rest of asia and beyond
downside — de-risking and re-shoring strategies output could decline by up to 10 percent over five years in the asian economies most closely linked to china’s economy
welcome developement is that disinflation is on track in asia, with inflation now expected to return to central bank target ranges
well ahead most other regions, where inflation remains high and is expected to fall within target only in 2025
post-pandemic inflation surge had divergent effects across asia
countries such as indonesia have already brought overall and core inflation back to target after substantial increases last year
inflation in china is below target and is expected to rise on gradually due to policy stimulus
inflation in japan has risen, where the central bank has twice tweaked its yield curve control policy settings to manage risks to the outlook
policy actions led to spillovers in other bond markets
global environment remains highly uncertain, while risks to the outlook are more balanced than they were six months ago
downside — more protracted real estate crisis and limited policy response in china would deepen the region slowdown and a sudden tightening of global financial conditions could lead to capital outflows and put pressure on asia’s exchange rates that would threaten the disinflation process
countries still with high inflation — australia, new zealand, and the philippines
many region’s emerging market and developing economies include indonesia and thailand
financial conditions have remained relatively accommodative and real policy rates remain close to neutral levels
emerging market and developing economies like sri lanka that are suffering from funding stress on external markets, faster and mroe efficient coordination on debt resolution is needed
raising government revenue ratios from low levels would allow for additional spending on important needs such as education and infrastructure while keeping public debt in check
strengthening multilateral and regional cooperation and mitigating the effects of geoeconomic fragmentation are increasingly vital for asia’s economic outlook in the coming years
reforms that lower nontrariff trade barriers, boost connectivity, and improve business environments are essential to attract more foreign and domestic investment across the region
East Asia’s future economic outlook
chinese economy has grown at an unprecedented pace since the 1980s, gaining importance globally after the country joined the world trade organization in 2001
growth is likely to slow as china’s economy matures because of its demographic structure and increasing proximity to economic and technological frontiers
country’s growth in total factor productivity has steadily declined since 2000
size of the working age population also declined, while youth unemployment rate has sharply increased
massive investment in the real estate sector has recently tailed off and is not expecting to be a major source of future expansion
Decomposing per capita GDP
four terms of product for decomposing GDP per capita:
a TFP factor that increases with technological changes, which raises the productivity of the economy’s capital and labor
a capital-to-output factor, which increases with the ratio of the economy’s capital stock relative to GDP
the hours-to-working-population ratio, which measures total number of hours worked per memeber of the economy’s working-age population
the working-age-population-ratio, which is the share of the overall population that is of working age (ages 15 - 64)
china’s current GDP per capita indicates it is a middle-income country
the world bank classifies 108 countries as middle income — addition, the list includes brazil, mexico, and india
korea and japan each experienced swift growth as they moved from low to middle income
then transitioned from middle to high income — each experienced drops in the working-age share of population and slower productivity growth
Graphic depictions shed light on china’s furture
when countries are early in their development, their productivity growth tends to be high as they are in the “catch up” phase in their development, adopting preexisting blueprints and technologies
2022 — china was relatively capital abundant, so it should not have expected to experience much growth in the capital-to-output factor
when hours per working-age person are low, there is not much room for further reductions
in korea and japan, per working-age person were high early in their development but decreased as workers became more skilled and could prioritize leisure
combined experiences of china, japan, and korea produced the downward-sloping relationship
while much smaller than the growth contribution of TFP, declining growth in hours per working-age person impedes china’s output growth
projects that the working-age population ratio will decrease by 0.13 percent per year over the next decade and by 0.93 percent per year from 2032 - 41, based on united nations estimates
by projecting china’s growth using the experiences of korea and japan, assumption of china will adopt strategies and policies that bring about a seamless transition, such as investing heavily in higher education and building infrastructure
both are necessary conditions for becoming a high-income country
china has maintained restrictions on foreign investment and been slow to transition from a heavy reliance on manufacturing exports
immense investment in real estate and infrastructure has led to a tipping point in the chinese real estate sector
inefficient financial sector presents challenges for securing necessary funding to build a more innovative and consumption and service based economy