'Asian century' won’t come until global governance becomes more inclusive

10 May 2021

By Dawei Wang, Economist, UNCTAD

Indian woman sifts grain
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Indian woman sifts grain. / Photo: World Bank (Ray Witlin)

Claims that the “Asian century” has arrived or is set to begin frequently appear in the media and public fora.

For example, Indian Prime Minister Narendra Modi stated during the 2018 Asian Infrastructure Investment Bank conference: “Now the continent finds itself at the centre of global economic activity…It has become the main growth engine of the world. In fact, we are now living through what many have termed the Asian century.”

Such proclamations are founded on the increasing economic significance of the region.

Stunning catch-up

The growth performance of Asian economies has been indeed remarkable in the past half century. In 1970, the total GDP of developing economies in Asia (excluding Japan and Israel) was $1.42 trillion, or 10.9% of that of Europe and Northern America (the two regions where most developed economies are located). In 2019, it had risen to 63.7%.

Asia’s catch-up is more stunning in the manufacturing sector. In 1970, the manufacturing added value of developing Asia accounted for only a tiny fraction of that of Europe and Northern America (6.7%). It has surpassed the latter since 2015 (Figure 1).

Dynamic manufacturing is a meaningful factor in sustained economic development, as it can create employment, boost income, drive technological progress and generate multiple virtuous linkages in the economy, according to UNCTAD’s 2016 Trade and Development Report. Yes, we have good reasons to expect robust growth to continue in this region.  

Figure 1: Catch-up of Asian developing economies - manufacturing (in millions 2015 $)

Catch-up of Asian developing economies
Source: UNCTADStat

Inclusive global governance missing

However, economic expansion alone doesn’t justify the claim of an “Asian century.” Despite their shrinking share in world output, advanced economies have managed to entrench their position in global governance.

A well-known story is the US dollar’s dominance. A study found that its share as an invoicing currency in international merchandise trade transactions is around 3.1 to 4.7 times the US share of global trade volume.

A Bank for International Settlements survey (Figure 2) also found that the “US dollar remains the world’s dominant vehicle currency.”

The US dollar (88.3%), the euro (32.3%) and other developed economies’ currencies account for 175% of the foreign exchange market turnover (the total is 200%). Despite being the second-largest economy, the share of China’s RMB is only 4.3%.

Besides currency dominance, advanced economies are more influential in driving global agenda across the board, from finance to trade, investment to development.

Among the International Monetary Fund’s 20 biggest shareholding member states, 13 are developed economies with a total voting share of 51.36%, while 7 developing economies have just a bit over one third (17.42%).

In the World Trade Organization, developing members are defending their established rights under special and differentiated treatment provisions, while development deficits in trading rules have been ignored.

All in all, Asia’s growth success has not been adequately translated into more inclusive global governance. Then on what grounds can we believe that the “Asian century” is coming? 

In addition, such imbalance between governance architecture and the changing economic landscape has proved to be detrimental to multilateral cooperation in recent years.  

Figure 2: Share of FX markets turnover by currency (April 2019)

Share of FX markets turnover by currency
Source: Author’s calculation based on data from BIS 

Time to make a difference

Fortunately, the world keeps evolving. Asian economies now may find that it’s time to make a difference. In 2021 and 2022, India and China will host the BRICS summit. In 2022 and 2023, Indonesia and India will take over the G20 presidency. In 2022, Thailand will be the APEC host.

With this “happy coincidence” that will see those important events hosted in the region, Asian countries may have an opportunity to advance their shared agenda.

The to-do list could be long: ending the COVID-19 pandemic, easing debt distress, boosting economic recovery, promoting industrialization, advancing green and digital transformations, encouraging technology transfer and knowledge sharing, promoting trade and foreign direct investment for development, among others.

But if Asian leaders have a bolder vision, they need to go beyond those topics to push forward more fundamental initiatives as well. Here are three overarching suggestions:

  1. Strengthening coordination: Host countries are normally more privileged in shaping summit agenda. ASEAN, China and India may consider holding a trilateral summit as soon as they can to explore common ground that concerns them and the whole developing world. Then they can coordinate respective agenda proposals to create some synergy effects within the three future “Asian” years.
  2. Scaling up South-South cooperation: This is not just providing aid resources but also integrated economic cooperation in finance, trade, investment and industrialization, among others. As home to the world’s biggest developing economies in the region, Asia is in a unique position to develop a shared agenda to scale up South-South cooperation. This would provide a pivot for southern countries to make global governance more development friendly. For example, BRICS could be further expanded to play a more active role in fostering cooperation.
  3. Stabilizing globalization: Globalization is in trouble. Hyper-globalization has exacerbated inequality and caused a strong backlash, while de-globalization would undermine global prosperity due to the disruption of trade, finance and human-to-human exchange. The world needs a stable form of globalization that can balance integration and differences.

Asia is the world’s most diverse region. The philosophy of “harmony without uniformity” has been widely recognized by the people in Asia. Hence, Asian countries should initiate innovative plans to advance an inclusive, stable and balanced globalization and its governance.

Only once this happens may we rightly claim the arrival of an “Asian century”, which is also the future we want: sustainable development and prosperity for all.   

This article was first published by China Daily.