It is good to get out of Europe at a time like this and a brief visit to Singapore for a meeting with Asian bankers is a great antidote to the prevailing worries about the forthcoming Greek default.
Unlike their eurozone cousins, Asian bankers are not up to their necks in European sovereign debt. But there are two less parochial issues concerning the financial community. One is the extent to which the fast-growing Asian economies have decoupled from the US and Europe. The other is whether and on what terms the emerging nations might help bail out Europe if the problems of the eurozone start to have more widespread consequences.
On the first there are undoubtedly concerns that a simultaneous recession in the US and Europe would damage growth. Asian shares have just had their worst quarter since 2008 and the main Chinese index for manufacturing has fallen for three months. But growth in most of the region is so robust at the moment that it is hard to see more than a dent.
I have put on the main chart some projections for next year from the economic team at Goldman Sachs: China 9.2 per cent, India 7.8 per cent, South Korea 4.2 per cent, Taiwan 4.6 per cent and so on. True, these are total growth rates rather than increases of GDP per head, so the rise in living is somewhat smaller. But you could knock a couple of percentage points off this growth and still be doing well.
And if you go beyond growth, as you can see from the right-hand graph, Singapore is managing to combine the growth with a strong fiscal position, reasonable inflation and low unemployment. It is an extraordinary contrast with the sombre prospects for much of the developed world.
There is a further point here. There are some exceptions but taken as a whole the region is relatively short of natural resources. If the general slowdown results in lower commodity and energy prices, as now looks pretty evident, the resource-poor countries will benefit from lower import prices and that will help offset the general loss of momentum.
It would be going too far to suggest that South-East Asia has entirely decoupled from what happens in the US and Europe, but it appears to be less dependent that it was three years ago.
So will the new world help the old? There is an immediate issue and a longer-term one. The immediate issue is Europe. Let’s say that there is an 80 per cent chance that some sort of deal will be done to stop the crisis spreading further. It will involve a new deal for Greece, with a large discount on Greek debt, the recapitalisation of the troubled European banks, agreement on a much larger European stability fund and action by the European Central Bank to pump money into the markets as necessary. If all that happens, there will be no immediate need for the emerging world to join the rescue squad, except insofar as these countries are shareholders of the International Monetary Fund.
Now suppose things go wrong and Europe proves incapable of sorting out its debt problems. At that stage what would be the reaction of the US and the Brics? In the short term it would probably be in their self-interest to pitch in with more than just token support. But would they?
Well, they could. The most indebted of the Brics, China, has relative to GDP, about half the total debt (ie, public debt, consumer debt, company debt and so on) as the least indebted of the large European nations, Germany. So the Brics have the capacity to help but whether they would do so to any material extent is not at all clear. It is only a snapshot but listening to people here I have my doubts.
Obviously, what China thinks matters most and from that perspective, why should it help its economic rivals? It has helped the US by lending it the money to cover its vast deficits. but that was a result of its exchange-rate policy. It was not an aim in itself.
Put this together and what do you get? My feeling is that the only safe assumption the European politicians should make is that Europe is on its own. If the eurozone goes down – some of us would say when it goes down – Europe alone will have to pick up the pieces.
This leads to the wider issue: to what extent does the emerging world really want to take on the responsibilities of the old developed world? Yes, most would like a larger voice at the IMF. The larger nations participate in the G20, the body designed to replace the G7 as the main body coordinating economic policy at a global level. The Chinese authorities seem to be edging towards allowing the yuan to become a fully convertible global currency. But in practical terms the dollar still accounts for 60 per cent of the currency reserves in central banks. It is the unit in which most commodities are priced. And it is still widely used in international trade. Changing all that will take a long time.
Indeed getting the timescale right is always troubling. In the world of finance things usually take longer that you might think to happen; but then when they do, they occur more violently. That has certainly been the case of the European sovereign debt crisis. Little has occurred in the past three months that was not pretty clear two years ago. But the various sequential measures to shore up the weaker members were first denied to be necessary, then put in place only when the borrowers became desperate, and now appear inadequate – certainly in the case of Greece, maybe for Portugal and possibly (though I am more optimistic) for Ireland.
So how long will be before we are truly aware that the post-Second World War structure of a world economy where the developed world makes the rules and umpires the game is truly past? My feeling is that the tipping point will come when China passes the US to become the world’s largest economy. That would seem to be somewhere between 10 and 20 years off. Not long. And looking out across the crowded harbour of what you might call a Chinese offshoot, fiercely independent Singapore, it feels even sooner.
The flotilla of ships docked in the harbour, point the way forward
Looking out at of my hotel window, I can count at least 30 ships at anchor as Singapore vies with Shanghai as the world’s biggest port in terms of tonnage. The only view that comes anywhere near is that of the mouth of Europort at Rotterdam which is right up there in the league tables.
It’s a view of economic success: The political story of an authoritarian state dominated by a single party is well known.
The detail of the economic story is much less known. For example, GDP per head is pretty much level with the UK – somewhat higher now, though we were just ahead before the recession. But government is quite small at about 15 per cent of GDP. It regulates rather than taxing and spending. In one sense there is much less freedom than in a typical European country but in another, much more. It has certainly been very good at holding down unemployment: at just 2.5 per cent it’s at a level that would seem astounding in Europe.
Most remarkably of all, it has very strong inward migration. Population in 1990 was three million; now it is more than five million and there are forecasts that it will reach seven million by 2031. Perhaps associated with this, income inequality is high – ranking with the US rather than Europe – but health outcomes are excellent. Indeed, neonatal mortality, often taken as a proxy for healthcare quality, is the world’s best.
This is not to say that this model should be adopted wholesale, and there does seem to be more concern about its sensitivity to people’s desires now than, say, a decade ago. Rather it is to note there are different ways of running economies and that there are aspects of the model – particularly in jobs – that carry lessons for Europe and the US.
One thing is sure. As the world’s economic weight shifts eastwards, we will come to look to Asia, particularly its most developed parts, for ideas about organising society.