Asia’s Rebalancing Act

For more than three decades, Chinese demand has supported other Asian economies’ export-led growth. Now, with China facing a growth slowdown and significant downside risks, Asian countries must abandon their export-oriented development strategies in favor of more balanced growth models, underpinned by domestic demand.

SEOUL – Rapid economic growth in China undoubtedly benefits the rest of Asia. Indeed, strong Chinese demand has supported its trading partners’ export-led growth for much of the past three decades. But now, faced with a slowdown in China and significant downside risks there, the rest of Asia must abandon over-reliance on export-oriented development strategies and strive to ensure stable and sustainable growth domestically and regionally.

China’s vulnerabilities and risks – stemming from property bubbles, shadow banking, and local-government debt – have triggered concerns about a crisis not only there, but also in neighboring Asian countries. Some, indeed, now predict a Chinese banking or fiscal disaster; others predict long-term stagnation equivalent to Japan’s lost decades.

These “hard landing” scenarios are extreme. But the road ahead is bumpy and uncertain. No one can guarantee that Prime Minister Li Keqiang’s attempts to achieve deleveraging and structural reform will succeed. Moreover, external shocks, policy mistakes, and political instability could disrupt even the best-laid plans.

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