Transcript 'THE RIGHT STUFF”

ECONOMIC INTEGRATION; CHALLENGES TO MALAYSIA
26/4/2010 @ NCCIM Forum on “A Strong China: Implications and Challenges”
Crowne Plaza Mutiara, Kuala Lumpur
Steven C.M. Wong
Assistant Director-General
Institute of Strategic and International Studies (ISIS) Malaysia
[email protected]
Stabilisation, recovery & reform: Crisis management (2008) 
demand management (2008-present)  institutional/ regulatory
reform (?)
• Liberalisation  globalisation  financialisation
• Inflated asset & commodity prices (bubbles & speculation)
• Resource misallocation – capital hoarding, risk/reward tradeoffs 
impact on “real activity”
• Shape of recovery remains open question  significant residual
risks (see, IMF, World Economic Outlook, April 2010)
• Significant shifting of liabilities to next generation
-5.0%>
-1.0%~-<5.0%
HUN,
<-3.0%>
Deflation
3.0%~<-1.0%
Output Growth - 2010
-1.0%~+<1.0%
AUT, CHE, ESP, ITA,
NLD, SWE, TWN,
-1.0%~<+1.0%
AUT, CHE, DEU, ESP, JPN,
MYS, NLD, TWN
10.0%>
DEU, ESP, FRA, HUN,
ITA, USA
7.5%~<10%
BRA, CAN, GBR, IDN,
PHL, RUS, SWE
-10%>
GBR, ESP, JPN, USA
-10.0%~<-5%
FRA, HUN, IND, ITA,
NDL, MYS, RUS, THA,
VNM
0%~25%
AUS, [CHN], RUS
25%~50%
CHE, BRA, ESP, IDN,
KOR, MEX, MYS, SWE,
THA, TWN
Unemployment
5.0%~<7.5%
AUS, AUT, CHE, IND, JPN,
MEX, NDL, TWN
Fiscal deficit (% GDP)
-5%~<0%
AUS, AUT, BRA, CAN,
CHE, [CHN], DEU, IDN,
KOR, MEX, PHL, SWE,
TWN
Public debt (% GDP)
50%~75%
AUT, IND, NDL, PHL,
VNM
+1.0%~+<5.0%
+5.0%>
AUS, CAN, , DEU, FRA,
GBR, KOR, MEX, MYS,
BRA,[CHN], IDN, IND,
JPN, PHL, RUS, SGP,
VNM
THA, USA
Inflation
+3.0%>
+1.0%~+<3.0%
AUS,CAN, [CHN], FRA,
BRA, IDN, IND, KOR,
GBR, HUN, ITA, SGP,
MEX, PHL, RUS, VNM
SWE, THA, USA
2.5%~<5.0%
[CHN], KOR, MYS, SGP,
VNM
<2.5%
0%~+<5%
SGP
+5%~+10%
75%~100%
CAN, DEU, FRA, GBR,
HUN, SGP, USA,
100%>
ITA, JPN
Off-shoring, outsourcing & ownership concentration:
Fragmentation of value chain to continue but business concentration
to increase
• Dominance of financial capital (M&A, private equity, etc.)
• Ownership & control of key technologies and IP
• Ownership & control of natural resources
• Trade in goods  flattened/competitive/”normal” profits
• Trade in service industries  contoured/imperfect/ “excess” profits
• New frontiers – knowledge, services, investment rules, etc.
Managing the differential & eastward shift in economic gravity:
Divergence, unease, tensions and low-level conflicts (so far). Key
question is how to avoid missteps and escalation
• Economic growth between East & West: high unemployment +
low/no job recovery  economic stagnation/political consequences
• Bilateral currency (esp. RMB) & trade (e.g. tires, steel, chickens,
etc) pressure
• Decoupling of business cycles/economic growth – more myth than
reality at present  sustainability @ risk
• Conflation of economic, political & security interests  regional
architecture & institutions essential
US
EU
China
Nominal GDP
US$14.25t
$14.25t (PPP)
Nominal GDP
US$16.45t
$14.79t (PPP)
Nominal GDP
US$4.91
$8.76t (PPP)
Share of World GDP (PPP)
20.5%
Share of World GDP (PPP)
21.2%
Share of World GDP (PPP)
12.5%
Nominal GDP/capita
US$46,380
$46,380 (PPP)
Nominal GDP/capita
US$38,457
$29,729 (PPP)
Nominal GDP/capita
US$3,678
$6,567 (PPP)
Impact of final demand on China’s V-A
2000
Domestic demand
Business Cycle Correlations with China
2006
Pre-Crisis
79.4
69.7
Intra-regional
1.8
2.8
US
6.6
7.1
EU
3.8
6.4
Japan
3.6
3.0
Rest of world
6.5
13.2
Impact of final demand on East Asia’s V-A
Domestic demand
Post-Crisis
Asia*
-0.379
0.549
G7
-0.304
0.580
US
0.490
0.517
Japan
-0.633
0.477
Inter-regional Business Cycle Correlations
Asia-G7
0.084
0.611
Asia-US
0.233
0.715
Asia-Japan
-0.618
0.647
68.9
64.3
Intra-regional
5.8
6.8
US
7.3
6.6
Asia*-G7
0.619
0.537
EU
4.7
5.8
Asia*-US
-0.345
0.724
Japan
4.1
3.2
Asia*-Japan
-0.633
0.477
V-A: Value-Added
Source: G.Pula & T. Peltonen (January 2009)
*Excluding China
Source: S.Y. Kim, J.W . Lee & C.Y. Park (June 2009)
“STEADY-STATE??”
“BIDIRECTIONALITY”
RATE OF RELATIVE
EXPANSION
RATE OF RELATIVE
CONTRACTION
“BALANCING FACTOR”
Eg. BRI, etc.
• It is essential for Malaysian policymakers to adopt systems
thinking and not formulate piecemeal policies
Systems thinking recognises that the component parts of a system can best be understood in the context of
relationships with each other and with other systems, rather than in isolation
• There must be clear objectives based on strategic national
interests, realistic priorities and logical decision-making
Malaysia cannot afford to engage in the global politics of alignment, balancing or exclusion. By paying
attention to its economy & development, it can still wield considerable middle power influence
• Economic integration may be a necessary (i.e. non-optional)
condition for economic growth but is not sufficient
Malaysia requires economic integration; non-participation equals peripheralization. But without vibrant
investment and innovation, economic integration merely leads to a hollowing-out
• Formal economic integration must go beyond the superficial and
symbolic if it is to truly encourage economic dynamism
Economic arrangements that have neither depth nor speed are not substantive and will be
of little interest to the private sector
• China is a complex country with extraordinary strengths &
weaknesses and represents both threats and opportunities
It is not very helpful to regard China in mono-dimensional terms. Like all countries it is a
composite of many qualities, some which are to Malaysia’s advantage and others not.
• One of Malaysia’s most important challenges will be to locate itself
in a global/regional economic sweet spot.
China is a growing part of the global economy. For Malaysia to distance itself from it owing
to competitive pressures is negative and ultimately debilitating.
Steven C.M. Wong
Assistant Director-General
Institute of Strategic and International Studies (ISIS) Malaysia
[email protected]