Asia’s New ‘Axis of Reform’?

Asia’s New ‘Axis of Reform’?

By William Pesek on 07:17 pm Jun 10, 2014

Asia’s three biggest economies are suddenly experiencing a burst of change that could alter the growth trajectory for the world’s most populous region. Are we seeing the birth of a new “Axis of Reform,” one which could revive the global economy?

China’s Xi Jinping, India’s Narendra Modi and Japan’s Shinzo Abe are simultaneously sketching out vague-but-promising plans to revitalize their rigid economies. It’s not a coordinated process — more of a serendipitous coincidence, driven by a dire need for change in all three nations. Still, the possibilities are enticing: A truly dynamic and innovative Asia would raise living standards for billions and fresh hope for a world wondering where all its big growth engines went.

“With Asia’s giants in the firm grip of reformers, prospects have certainly improved,” says Frederic Neumann, economist at HSBC Holdings in Hong Kong. “Not only are India and China now led by men that have spelled out an ambitious reform agenda, but so is Japan, with Abenomics ticking away in the background, too.”

I recently argued that China and India should join forces to accelerate upgrades to their respective economies.

As Stephen Roach, author of “Unbalanced: The Codependency of America and China,” puts it: “While the challenges and macro structures of China and India are different, if both leaderships deliver on long-awaited reforms, the resurrection of the ‘Chindia’ construct could provide a surprisingly compelling boost to the emerging markets story at just the point when many in the markets have dismissed this opportunity.”

Taking an even broader view, it’s heartening to see Asia’s top economies — and I’m tempted to add South Korea here, too — simultaneously being helmed by leaders who say they’re committed to wholesale turnarounds. “It’ll take at least a couple of years to restore the dynamo,” Neumann continues, “but political developments give hope that Asia will continue to put in a good run.”

It’s dangerous to overstate the commonalities between these or any group of nations. Face it, the BRICs — Brazil, China, Indonesia and China — have been a dud as an economic bloc. (And the “CIJ countries” — China, India, Japan — don’t even have that poetic ring.) Each of these countries, as Neumann says, “pretty much tick to their own rhythm.” What they share is a growing realization that the old growth models that have gotten them this far are running out of steam. The need for change seems to be broadly accepted across their populaces, barring certain key interest groups.

If leaders can deliver, their combined efforts could “offer a tremendous boost to the world economy at large and not least commodity markets,” says Neumann. They would also offer a striking counterpoint to the US and Europe, where reform fatigue rules debates from Washington to Brussels. It’s too simplistic to say the West should learn from Asia. The nature, magnitude and breadth of the challenges differ hugely, as do demographic trends and political realities. Along with trying to deregulate economies, for example, Xi and Abe are trying to stave off armed conflict over old rivalries (or at least pretending they are).

Also, as I’ve pointed out before, revival efforts in Tokyo and Beijing are still more myth than reality. Abe has yet to implement any major structural tweaks; Xi is too busy keeping the economy in the 7.5 percent growth range to tackle the most difficult reforms. For Modi, taking on New Delhi’s corrupt and change-resistant system will require as much courage as policy innovation. But Asia’s Axis of Reform is worth watching. It could be the growth driver the world’s been hoping to find.

William Pesek is a Bloomberg View columnist based in Tokyo.