Eastern and Southern Asian economies are humming away nicely. Waist-deep in surpluses. Lucky them. Most of the countries export a lot to China, and then of course China exports a lot to us.
The one big fly in the Asian ointment is of course... us. The precarious blob at the top of the food chain.
Freeing or re-pegging of the regions' currencies, as increasingly loudly demanded by the US, may help the US to reduce its imports and increase its exports. But re-pegging of the currencies will also slow Asian growth and thus global growth as their export prices in effect rise. A risk as much as it is a gain.
And Guy de Jonquières writes Monday in The Financial Times (subscription area) that there are two greater risks:
[F]irst, that simmering protectionist pressures will boil over in the US and Europe; and second, that east Asia will exhaust its capacity to fund the twin US deficits by acquiring US assets, so triggering a dollar collapse, soaring US interest rates and recession.
De Jonquières observes that Asia, especially East Asia, is awash with capital - this in countries where saving seems to be one of the great national pastimes
So, can and will Asian countries adopt a risk-reduction strategy? Who knows? But the Asian countries are lucky (okay, make that smart - yes, some countries are actually smart) to have a good pain-free option available: stimulate more domestic Asian demand.
That may not get the US more than a few inches out of the mess it is in. But more US exports to Asia would indeed be helpful. And of course the less the rest of the world is dragged along with the US on any downward slide, the easier said slide will be to get a handle on.
Bigger investment in infrastructure is a priority. The World Bank estimates that east Asia needs to spend $1,000bn on physical infrastructure. Many poorer countries are crying out for better schools and healthcare. Meanwhile, falling birth rates and rapidly ageing populations are creating a looming pensions problem. The crunch may be 20 years away but, to avert it, proper pensions schemes need to be set up and funds poured into them fast.
So. To the Asian domestic shopping list.
Infrastructure investment in much of Asia is notoriously inefficient, often politicised and a source of corruption. These abuses need to be stopped, and the opaque procurement procedures that encourage them cleaned up.
But micro-reforms should go further. There is potentially huge untapped domestic demand in Asia for more diverse and efficient services, particularly financial services. But in many countries, their development is thwarted by rigid market barriers, primitive and anti-competitive regulation and poor corporate governance. As long as those problems persist, hopes that Asia's embryonic pensions industry will boost productive private investment will be frustrated.
Finally, Asia needs to liberalise trade further. Much intra-regional trade today consists of capital goods and products being shunted through cross-border supply networks on their way to China. The region needs to deepen integration by creating bigger local markets for finished products and for services.
All that, and Europe stimulating its share of growth, and the US will even more starkly stand out as the big fly in its own ointment, if it does not get its house in order.
[Main economics poster at LiberalStreetfighter]