The increasingly affluent consumers, further integration of regional market, as well as China's reform dividends and its spill-over effect are underpinning the economic growth of Asian countries, said Peter Mandelson, chairman of London-based Global Counsel on Friday in an interview with Xinhua.
And Asian economies, including China, need to deepen the integration and open up the market in order to foster longer term development energy, he said.
TWO THINGS TO UNDERPIN
"While Asian economies have been undeniably affected by the headwinds of the financial crisis and the subdued recovery in the west, most of these economies have fared relatively well. Asian economies continued to enjoy a strong flow of foreign direct investment and healthy domestic demand for goods and services throughout and after the crisis. After all, in Asia there are growing populations of increasingly affluent consumers in markets that are becoming increasingly important part of global supply chains," said Mandelson.
But the drivers of longer term growth in Asia will come from further steps to do two things at the same time, said Mandelson.
First, greater integration within the region, harnessing the spill-overs from closer economic cooperation and breaking down barriers that inhibit the flow of goods and services.
At the same time, there should be steps to open up and integrate the regional economies with the global economy.
"Since the economic crisis, we have seen a breakdown in confidence in the idea of globalization, but a significant growth engine for Asian economies will be the way they can build closer ties with advanced economies like Europe which requires ambitious steps to break down barriers and to push ahead with efforts to realize greater integration in trade and services," he said.
Mandelson was a former European Trade Commissioner. He also served as Minister without Portfolio, Secretary of State and Secretary of State for Business, Innovation and Skills in the British goverments.
CHINESE REFORM DIVIDENDS
The massive scale of the Chinese economy and the nature of its development model make it a source of opportunities, as well as risks for other Asian economies, said Mandelson.
"For the past two decades, China's growth rates have been mostly driven by huge amounts of investments at the expense of domestic consumption. There is evidence that this is now changing with an ambitious reform agenda outlined by the Chinese leadership. How well China manages this transition will prove fundamental in determining its contribution to Asia's economic growth in the future," Mandelson told Xinhua.
He stressed that China's export-focused manufacturing model will have to shift, and this will present opportunities for reshaping supply chains in Asia.
Chinese consumers will not just buy in China, but travel more in the region, he said.
As China's financial sector opens up and internationalizes, the opportunity for it to act as a facilitator of trade and investment flows will grow, Mandelson said.
China will be an important market for Asian market goods and services, as well as an investor in Asian economies, he said.
"The Decisions from the 3rd Plenum in China were an important milestone and signal about the extent of the Chinese leadership's reform ambitions. They recognize serious challenges facing China, from rebalancing the economy, to encouraging private sector and foreign company activity in the economy, boosting consumption, and addressing the build-up of risks in China's finance sector," said Mandelson.
"While important steps have been taken -- for example, the launch of a plan for the Shanghai Free Trade Zone, or gradual liberalization of interest rates on lending -- I think the Chinese government themselves recognize there is a long way to go on implementation and there are likely to be several bumps along the way," he added.
The dividends of China's reform should be vast, both in economic and social terms, from more efficient allocation of capital to a wide range of sectors and businesses, to greater openness for foreign companies in China and greater confidence in Chinese companies internationally, noted Mandelson.
He suggested that the key positive spillovers from economic reforms should be in areas such as the environment and in the quality of welfare and urban and rural living.
And it is important to recognize, however, that reforms are easier when the economy is growing at a fast pace. In an era of necessarily slower, more sustainable growth, there will be costs to the reforms, he noted.
"The government and businesses cannot shy away from these costs -- they need to be open about them. The costs of not reforming would be far greater, for China and for the global economy," he said.