Asia-Europe economic cooperation

Of the several interesting seminars, I recently attended at Frankfurt the one on Asian European integration was extremely forward looking in its content. It sported prominent panellists, including our own Finance Minister Ishaq Dar. It was well attended and conducted very professionally by Toby Fildes, Editor of 'Emerging Markets'.
Introducing the subject, the moderator invited attention to slower manufactured goods trade; which is only moving in a downward slide. The quantum has declined. Trade is big, but not big enough given the scale and opportunity available. Trade between Asia and Europe has grown five-fold from 2010; rising from US dollars 270 billion to U$1.3 trillion. This figure is likely to exceed US $1.5trillion this year.
Stephen Groff, VP Asian Development Bank, said Eurasia has withstood the following crises, Global financial crises, and retrenchment of investment from Europe, the economic slowdown in China and the continued fall in global demand. These challenges are all surmountable, but for that to happen there is need for structural changes to create demand.
Chinese economy is the big factor coupled with financial management challenges. The easy liquidity era in south and south East Asia is over. A continuous flight of capital is taking place from the emerging markets. This is in spite of newer opportunities. Another panellist challenged the concept of drying up of liquidity. It is a wrong impression of figures and an incorrect deduction of economic data. In his view when you do a fine analysis of figures what is conveniently ignored is Asia's composition. Asia is wide and houses several countries each having a different economic development position and each has characteristics that are unique and different.
The Euro Asian land mass runs from the shores of Atlantic in the West to Pacific Ocean in the East. It is estimated to be an 81,000-km stretch that needs to be connected through infrastructure of modern road, rail links. The conjoined continent of Asia and Europe, like a big island in the global map has population of 4.4 B and a current economic output of U$21 trillion. Euro-Asia has the potential to be the future world economic power, with its present day population of almost the world's 2/3rd and GNP exceeding 50% of the world's GNP it has all the reasons to be one.
Energy and its trade will continue to be the defining factor for the continents economic interdependence and linkages. Euro Asia has 25% of world's oil reserves, 36% of oil production and 55% of world oil consumption. The gas resources comprise 57% in that region, while production and consumption stand at 50% and 57% respectively. Added to this are huge water resources that can help generate cheap hydro power.
For a proper analysis of the potential and challenges of Euro Asia, the continent of Asia must be cut up for a proper regional view: 1) Developing Asia; 2) Developed Asia; and 3) Most importantly China's impact on overall figures of Asia. The interregional trade is increasing in South East Asia. There is the golden triangle of the Mekong Delta, comprising Vietnam. Cambodia and Laos and the Asean countries. If the China factor is excluded then the overall trade between Europe and Asia is very low.
Going forward what will be watched is the actual impact upon Europe of China's economic downturn. Secondly, shifts in capital markets liquidity will usher significant changes, in the overall capital market structure of the combined region. With increasing interest rates of US dollars expected the capital flight from Asian economies will need focus. This is likely to only propel further with every interest rate increase. The availability of cheap liquidity in Europe and Japan who are bracing with negative interest rate environment will find its way to other Asian countries. A panellist did state that the impact of slowdown of China upon Europe's economy is over estimated. Ishaq Dar who emerged as the sole spokesperson for the countries of South Asia mentioned that economies of Asia must move to a higher gear of growth and development. The cyclical and structured challenges are manageable. He said there is a need to do more out of box thinking. In his view, the Doha round has outlived its purpose. The trade vs. tariff will always remain an inconclusive debate. It is 10% in Asia versus 6% in Europe. The easiest path to handle is tax- while it is negotiable its context can be tricky and complex. The WTO is the best tool to handle this. As a positive step further towards fostering greater economic integration, Dar said, there should be more liberalisation, the economies must open up, new banking channels should be explored and established - this is the only way towards integration. He further elaborated that the infrastructure gap be bridged by bringing into active usage the multimodal means of transport, for movement of goods and products as against the traditional maritime services used for this purpose.
Japan, Malaysia, China and Asean countries is a major bloc of economic collaboration - it is the production hub. The intra trade of that region is growing manifolds. The role of AIIB with China's dominance is its functioning, will surely be deploying more liquidity towards that economic bloc of Asia.
There is an absence of comprehensive trade Agreement to further liberalise trade and investment between Asia and Europe. Amongst Asian countries, there are several bilateral trade and investment agreements. The question is do these impede global trade liberalisation and are they disruptive to promotion of global trade? The answer is no. FTA's are not a big issue; it is the snail pace of progress of WTO and Doha Round that impel the use of FTA's. In the context of Euro-Asian trade there are active and inactive partners. The connectivity issue and its maintenance is a reality. To achieve this there is dire need to the strengthening of the central part of Euro-Asia; especially the landlocked countries of the region.
Transport and logistics will remain a crucial factor. With over 2.6B people in Asia Pacific, the non-availability of new ports, lack of quality infrastructure are some elements that are holding back the economic integration and trade promotion. On the Asian side there are several pockets of low income centres, how will these develop? Their foremost requirement is infrastructure investment. This makes the Chinese concept of 'one belt one road' extremely relevant and important. This great opportunity must have inbuilt characteristics for being environment friendly and socially acceptable. As rightfully remarked by Finance Minister Dar, it is all about shared prosperity, it must not remain just China's vision but other countries should come forward and help build upon the concept. There was obvious reference to CPEC being a formidable game changer for Pakistan and the region. The refusal, pronounced and latent to import ideas/machinery is a major impediment and requires of countries to open up. The incoherence of Eurozone too, needs correction. Barring the interruption of Finance Minister Dar to draw our South Asia region into discussion the focus of proceedings centered on China, Japan, Asean, Europe and Central Asia. The continent of Asia in my estimation stood divided with no worthwhile mention being made of Korea, Pakistan and India.
During the Q&A session, I raised my hands several times to ask, 'where does Asia begin in the East and where does it end in the west?' I was ignored by the moderator, due to large crowd presence and lots of comments that were being made by the audience, instead of specific questions to the panellists. Through the on-line pigeon hole concept several questions were posted, that remained unanswered... the President of AIIB, Liqun Jin was asked; should the AIIB and the ADB focus on specific kind of projects, so the overlap is minimised?' and 'we have heard a call from Minister Dar for innovative out of box thinking from the development institutions; have we seen any signs that these entities are capable of that kind of thinking?'
I believe economic integration of Europe and Asia is dependent on two fundamental aspects firstly the disjointedness of Asian countries needs unification like the Eurozone and secondly, it can never happen to the exclusion of Russia- a country that spreads from Baltic seas to Pacific. How can any integration take place if this land mass is ignored?
Eurozone became a union over a fifty year time scale; there is no point to expect Asian unification in any lesser time. In fact there is greater diversity in Asia and hence the challenge of cultural integration will continuously overshadow economic union.