Fear Recoupling in ’12, Not End of the World: William Pesek
By William Pesek – Dec 27, 2011 10:00 PM GMT+0000
The Mayans were wrong. The world won’t end in 2012, but at times it may feel as if it’s about to. Such is Asia (MXAP)’s lot as Europe’s debt debacle and the U.S.’s political paralysis fuse, presenting challenges for leaders from Beijing to Jakarta.
In a less chaotic time, this might have been Asia’s big moment. News this week that Japan and China will promote direct trading of yen and yuan without using dollars is a case in point. An eastward shift of power and capital would seem to be a given as Brussels and Washington turn inward. Yet a worsening global environment will interrupt Asia’s path to economic dominance.
Here are eight risks that may get in Asia’s way:
No. 1. Recoupling. Asia steered around the U.S. meltdown in 2008 with remarkable agility. Doing that will be harder in the 12 months ahead as all of the world’s major growth engines stall or go into reverse. Default risks in Europe will increase, the U.S.’s funk will persist in an election year, Japan’s malaise will deepen and China will hit a soft patch. With deft fiscal and monetary maneuvering, Asia grew impressively in the three- plus years since Lehman Brothers Holdings Inc. imploded. A repeat performance is unlikely.
No. 2. Pocketbook Worries. Consumers will become more dissatisfied with the toxic mix of inflation and widening income inequality. Leaders aren’t doing enough to make sure the benefits of growth are shared equitably. As the Gini coefficient — a statistical measure of wealth inequality — rises across Asia, increasing tensions will play out in unpredictable ways in markets and politics.
No. 3. Occupy Wukan. It’s getting harder for China to keep its 1.3 billion people from hearing about events in a coastal village in Guangdong province. There, thousands of people fed up with land seizures took to the streets and forced out Communist Party officials. This Occupy Wall Street dynamic is a startling contrast to the usual success China has in quashing any hint of public discord. As the New York Times points out, there are at least 625,000 potential Wukans in China. The 12 months ahead will be busy for China’s thought police.
No. 4. Political Intrigue. China, Hong Kong, South Korea and Taiwan will pick new leaders. State elections in India will help determine if Rahul Gandhi will soon replace his mother, Sonia Gandhi, as president of the ruling Congress Party. Taiwan’s contest could be a standout — a verdict on President Ma Ying-jeou’s economic policies and drive for better relations with China. Territorial disputes in the South China Sea could bubble over. Violence might break out in Thailand if ousted Prime Minister Thaksin Shinawatra is allowed to return. In Myanmar, Aung San Suu Kyi’s move to register her party for elections will test the government’s recent steps toward democracy.
No. 5. The Kim Follies. As the world gets used to Kim Jong Un replacing Kim Jong Il as North Korean leader, there’s no telling how things will unfold in Pyongyang. Will the 20- something Kim feel obliged to show he means business with missile launches into the South and nuclear tests? Might military generals who covet the top job rebel? The questions about the world’s most secretive regime hover over all of Asia.
No. 6. Internet Clampdown. Beijing’s great wall of censorship is raising cyber clampdowns to an art form, the latest on Twitter-like services. Yet the Internet is under attack throughout Asia. India is stepping up efforts to require Facebook Inc., Google Inc. and other portals to remove content that may be deemed offensive. South Korea and Thailand have been suppressing more and more information. Balancing transparency and state control of information will become harder.
No. 7. Japan’s Debt Trap. The conventional take is that Japan is in a liquidity trap, which makes it impossible for zero interest rates to stimulate the economy. The real problem is a debt trap, and the yen is part of it. On the one hand, a strong currency is prompting companies to go shopping overseas to hedge against the country’s aging population, lack of growth and a vulnerability to earthquakes and other disasters. On the other, it is further hollowing out Japanese industry. That will lead Japan to add to its debt, the world’s largest, risking further credit downgrades.
No. 8. China’s Bust. It’s a make-or-break year for China’s efforts to defy the economic laws of gravity. A bad-debt hangover from the huge stimulus of recent years is a distinct possibility. Markedly slower growth would be a nightmare for a Communist Party obsessed with social stability. It also would be a big blow to a country such as Australia, which is more vulnerable to a Chinese slump than officials in Canberra admit.
Should the second-biggest economy join the U.S., Europe and Japan in the slow-growth club, Asia would find itself in treacherous territory. That wouldn’t be the end of the world as the Mayans anticipated for 2012, but it would be different than the one we’ve come to know.
(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)