The Asian myth: the notion that the Asian economies have somehow insulated themselves from the United States is nonsense.

AuthorWu, Friedrich

With increasing evidence of an imminent bursting of the housing market bubble in the United States, aggravated by unfolding woes in the subprime mortgage sector and a consequent deceleration in consumer demand, a growing number of commentators have nevertheless advanced the sanguine argument that, this time around, the rest of the world would be able to avoid a "cold" even should the U.S. economy "sneeze." "Global economic growth has become less dependent on American spending," The Economist magazine has recently editorialized, while the International Herald Tribune has similarly opined that "economies around the world are weaning themselves from dependence on the American consumer."

In Asia, strong growth of 8-10 percent by the Chinese and Indian economies in the past few years has added much confidence and exuberance to this view. However, a more sober examination of the evidence at hand, especially in the Asian context, demonstrates that the argument is fundamentally fallacious, as the United States will remain an irreplaceable economic locomotive for Asia in the foreseeable future.

Despite the recent hype about "Indian triumphalism," it will be decades before the country can emerge to serve as a growth engine for its Asian neighbors. Aside from a few pockets that have been penetrated by globalization, such as information technology and services outsourcing, an overwhelming majority of the Indian economy remains insular and over-regulated. In a recent World Bank report entitled Doing Business in South Asia 2007, India ranks a lowly 134th out of 175 countries on a business environment improvement index. Furthermore, as Edward Luce has somberly highlighted in his recent book In Spite of the Gods: The Strange Rise of Modern India, it would be sheer hubris for a country to proclaim itself to be the next great economic power when presently it still has more than 300 million of its people living in absolute poverty, only 10 percent of its workers employed in the formal economy, 35 percent of its population remaining illiterate, and the largest cohort of HIV-infected patients in the world, while corruption is so endemic and deep-rooted that the author laments that "it is the system."

In the case of China, its average 9-10 percent economic expansion in the past five years and its rising investment and trade ties with economies in the region have indeed helped lift the growth of its neighbors. Nevertheless, the Chinese economy itself is prone to...

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