APEC looking to Asia to help keep recovery going

APEC looking to China-driven Asia to help end global doldrums, but pitfalls remain

• By Elaine Kurtenbach, AP Business Writer
• On 12:51 am EST, Wednesday November 11, 2009

SINGAPORE (AP) -- The Great Recession has been painful but quick for most of Asia -- and leaders gathering for a regional summit here this week are seeking to ensure the recovery stays on track.

Lavish stimulus spending -- bolstered by relatively healthy regional finances put in place following the Asian financial crisis a decade ago -- is helping perk up economies around the Pacific Rim, with big-spending China leading the way.

But sustaining the region's economies once stimulus ebbs is the next challenge, and leaders at the Asia-Pacific Economic Cooperation forum say the focus must now shift to freer trade.

On Tuesday, Singapore broached the issue with an ambitious call for an Asia-Pacific free trade area that would comprise about half of global trade.

Any backsliding on trade liberalization would be disastrous for a world economy still emerging from economic crisis, said George Yeo, foreign minister of Singapore, which is host to the 21-member APEC forum. Still, like other leaders, he acknowledged that consensus for a global agreement remains elusive.

"But let's keep pushing in that direction through bilateral and regional free trade agreements, creating a positive, competitive dynamic," Yeo said.

"Unless we keep pushing the positive agenda, the negative naysayers will overwhelm us in time," he said.

Among those attending the Nov. 14-15 leaders' summit are President Barack Obama, Chinese President Hu Jintao and Japanese Prime Minister Yukio Hatoyama, who lead the three biggest economies in the world.

Fellow APEC leaders will be looking to Obama, visiting Asia for the first time since he took office in January, to map out the U.S. strategy on global trade after a year devoted to crisis control and domestic distractions.

"APEC and the trade agenda are really important. If we aren't going to get growth out of consumption, we have to get it out of exports," said Edward Gresser, trade policy director of the Washington-based Democratic Leadership Council think tank.

"That means events like this one have higher economic stakes than in the past," Gresser said. "It's important to be thinking about 'How do we spark growth.'"

With U.S. unemployment at a 26-year high of 10.2 percent, American consumers lack the appetite for the sort of credit-fueled splurges that kept the last boom afloat. The priority now is to find ways to ensure economies do not relapse once massive stimulus spending has run its course.

Late last year, as world trade was collapsing, APEC members extended a commitment to raise no new barriers to trade and investment, aiming to prevent protectionist measures from undermining growth and regional integration.

A key priority now, for Washington and other APEC members, is to find ways to promote freer trade, and perhaps help push forward the long-stalled Doha round of global trade talks, while working toward structural reforms to address the huge imbalances and credit-fueled consumption that helped bring on the current crisis.

Despite percolating frictions over currency policies and other spats, trade has been integral to the recovery.

China's year-old, 4 trillion yuan ($586 billion) stimulus package unleashed a construction boom that economists say has triggered a "virtuous cycle," catalyzing demand throughout the global industrial food chain.

Chinese imports of raw materials, such as coal, copper and iron ore, are buoying resource-driven economies like Australia, Indonesia and Brazil. Its appetite for consumer electronics components is helping manufacturers in Taiwan, Malaysia and South Korea.

And as factories idled last year rev up to meet rekindled demand, machinery purchases from major economies such as Japan and Germany are also rising.

"It's amazing what China's good fortune has done for the world," said William Overholt, an expert at Harvard University's Kennedy School of Government. "In refloating the world economy, there are only two countries that can allocate resources on a scale to get the global economy going again: the U.S. and China."

Exclude China, and this year's growth forecast for developing Asia drops to 1.1 percent from 6.7 percent, the World Bank said in its most recent regional update. It warned, moreover, that a sustained recovery is still far from certain.

To a certain extent, an uptick in orders was expected. After last year's collapse in global demand, retailers and their suppliers have run down inventories and need to restock.

China's surging demand comes mainly from government-backed construction, not the broader private demand that many economists say is vital for a long-term, sustainable recovery.

Excess investments in steel mills, aluminum smelters and other heavy industries underscore the potential risks of channeling the nation's wealth into unproductive, potentially loss-making factories.

As a developing country whose 1.3 billion people still have relatively meager purchasing power and must save assiduously to pay for basic health care and education, China still accounts for only 3 percent of world consumption.

Likewise, the Japanese economy, despite more than two decades of "expanding domestic demand" programs, remains precariously tied to export-led growth.

"Asia cannot boom if the West is not booming," Standard Chartered Bank chief economist Gerard Lyons wrote in a report last week. "The trouble in Asia is still its export dependency."

The roadmap toward less reliance on exports is as yet uncharted.

A highly diverse APEC region ranges from impoverished Papua New Guinea to the United States, its 2.7 billion people accounting for more than half of the world's GDP.

The draft declaration for this year's summit calls for focusing on improving opportunities for all segments of society and strengthening social resilience through well-designed social safety nets to help the most vulnerable members tide over downturns.

Such strategies would also free consumers in China and elsewhere to save less and spend more, presumably helping to redress the excess reliance on American consumption that made the global financial crisis so far reaching and so painful.

Pushing forward with efforts to dismantle trade barriers would also further the sort of economic integration that helped make the APEC region's economies so dynamic and competitive, Overholt said.

"Making sure that is maintained is particularly important to Asia," he said.

Associated Press writers Vijay Joshi, Jim Gomez and Eileen Ng contributed to this report.

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