Asia And The Financial Crisis Economy
A people in Asia are increasingly worried about what is happening in the West. A number of nations urged the US to provide meaningful assurances and bailout packages for the US economy, as that would have a knock-on effect of reassuring foreign investors and helping ease concerns in other parts of the world.
Many believed Asia was sufficiently decoupled from the Western financial systems. Asia hasn't had a subprime mortgage crisis like many nations in the West have, e.g.. Many Asian nations have witnessed rapid climb and wealth creation in recent years. This lead to enormous investment in Western countries. Additionally, there was increased foreign investment in Asia, mostly from the West.
However, this crisis has shown that in an increasingly inter-connected world means there are always knock-on effects and as a result, Asia has had more exposure to problems stemming from the West. Many Asian nation* have seen their stock exchange* suffer and currency values advancing a downward trend. Asian products and services are also global, and a slowdown in wealthy countries means increased chances of a slowdown in Asia and the risk of job losses and associated problems such social unrest.
India and China are the among the world’s fastest growing nations and after Japan, are the largest economies in Asia. From 2007 to 2008 India’s economy grew by a whopping 9%. Much of it is fueled by its domestic market. However, even that's not been enough to shield it from the effect of the global financial crisis, and it is expected that in data will show that by March 2009 that India’s growth will have slowed quickly to 7.1%. Although this is a very impressive growth figure even in blasts, the speed at which it has dropped—the sharp slowdown—is what is concerning.
China, similarly has also experienced a sharp slowdown and its growth is expected to loosen up to 8% (still a good growth figure in normal conditions). However, China also has a growing crisis of unrest over job losses. Both have poured billions into recovery packages.
With China concerned about its economy, it's been trying to encourage its companies to invest more oversea, hoping it will reduce the upward pressure on its currency, the Yuan.
China has also raised concerns about the world relying on mostly one foreign currency reserve, and called for the dollar to be replaced by a world reserve currency run by the IMF. Naturally, the US has defended the dollar as a global currency reserve, which is to be expected given it's one of its main sources of global economic dominance. Whether a change like this would actually happen remains to be seen, but it is likely the US and its allies will be very resistant to the idea.
Japan, which has suffered its own crisis in the 1990s also faces trouble now. While their banks seem more secure compared to their Western counterparts, it is very depending on exports. Japan is so exposed that in January alone, Japan’s industrial production fell by 10%, the biggest monthly drop since their records began.
Japan’s output for the first 3 months of 2009 plunged at its quickest pace since records began in 1955, mostly referable falling exports. A rise in industrial output in April was expected, but was positively more initially estimated. However, with high unemployment and general lack of confidence, optimism for recovery has been dampened.
Towards the end of October 2008, a major meeting between the EU and a number of Asian nations resulted in a joint statement pledging a coordinated response to the global financial crisis. However, as Inter Press Service (IPS) reported, this coordinated response is depending on the entry of Asia’s emerging economies into global policy-setting institutions.
This is very important because Asian and other developing countries have often been treated as second-class citizens when it comes to international trade, finance and investment talks. This time, however, Asian nation* are potentially trying to flex their muscle, maybe because they see an opportunity in this crisis, which at the moment mostly affects the rich West.
Asian leaders had called for “effective and comprehensive reform of the international monetary and financial systems.” For example, as IPS also noted in the same report, one of the Chinese state-controlled media outlets demanded that “We want the U.S. to abandon its veto power at the IMF and European nation* to give up some more of their voting rights in order to make room for emerging and developing countries.” They also added, “And we want America to lower its protectionist barriers allowing an easier access to its markets for Chinese and other developing countries’ goods.”
Whether this will happen is hard to know. Similar calls by other developing countries and civil society around the world, for years, have come to no avail. This time however, the financial crisis coulded influential than before. A side-story of the emerging Chinese superpower versus the declining US superpower will be interesting to watch.
It would naturally be too early to see China somehow using this opportunity to decimate the US, economically, as it has its own internal issues. While the Western mainstream media has often hyped up a “threat” posed by a growing China, the World Bank’s chief economist (Lin Yifu, a well respected Chinese academic) notes “Relatively speaking, China is a country with scarce capital funds and it is hardly the time for us to export these funds and pour them into a country profuse with capital like the U.S.”
China has, however, used this opportunity to attempt to attract neighboring nations into its orbit by attempting to foster better economic ties. According to an IPS analysis, this back-number a goal for a while, but the recent financial crisis has provided more opportunities for China to step up to this.
An improved investment deal between China and Taiwan maybe one example of this improving engagement in the region. The depression may also be encouraging greater ties in this manner, as it would be important for Taiwan in particular (as it has been in recession since the end of 2008).
Asian nations are mulling over the creation of an alternative Asia foreign exchange fund, but market shocks are making some Asian nation* nervous and it is not clear if all will be able to commit.
What seems to be emerging is that Asian nations may have an opportunity to demand more fairness in the international arena, which would be good for other developing regions, too.
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