Asia Faces Five Challenges to Its Economic Future

F&D magazine examines the five hurdles to Asia’s sustained growth

China rebalancing offers economic opportunity for rest of developing Asia

Region’s diversity and adaptability key to continued growth

If current trends continue, Asia’s economy will surpass those of the United States and Europe combined in less than two decades—a prospect that has prompted some to dub the 21st century the Asian century. But, “while Asia’s future appears bright,” writes the IMF’s Asia director Changyong Rhee, “its success is not guaranteed. It depends crucially on choosing the right policy mix to contain risks and secure growth.”

Poverty, middle-class trap, or new growth model

The June 2014 issue of F&D magazine, just released, says that all parts of the diverse region face challenges. Asia still has close to 700 million poor people—65 percent of the world’s poor, defined as living on less than $1.25 a day—and income inequality is growing. The region’s emerging markets face the task of moving beyond middle-income status and joining the ranks of advanced economies. And several of Asia’s industrial economies have embarked on the difficult process of transforming their growth model.

If things slow down more in China than expected, other countries in the region will pay the price. In Japan, there is a risk that Abenomics-related measures—based on Prime Minster Shinzo Abe’s “three arrows” economic plan—could be less effective in boosting growth than envisaged, particularly if structural reforms in labor and product markets fall short of expectations and fail to raise consumer and investor confidence. And domestic and global political tensions could hamper trade or weaken investment and growth across the region.

If any of these risks come to pass, they would likely moderate, rather than halt, positive momentum in the region. But deeper structural problems could create more difficult hurdles for countries across the region as they pursue sustained growth. The latest issue of F&D looks at Asia’s prospects from a variety of angles, seeking to provide insight into the region’s economic present—and future.

David Dollar of the Brookings Institution looks at the rebalancing of China’s economy—from investment toward consumption—and assesses the implications of that shift for developing economies in the region. Gradual appreciation of the renminbi, increased flexibility in rural-urban migration, and other adjustments by the regional powerhouse are opening...