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Maturing and end of East Asian growth model

By Huang Xiaoming (China Daily)
Updated: 2009-05-13 07:47

Different or even contrasting "modes" of exit from the East Asian growth model have been seen among East Asian economies. I use the term "modes" to suggest that the end of the rapid growth in East Asian economies was neither intended as part of a strategic plan, nor did it happen at random.

Unlike many East Asian model advocates, I do see the end of the East Asian growth pattern as the logical consequence of its maturing. The difference is the form and timing of the end of the East Asian growth model in the economies. Its end in Japan came in the early 1970s and was largely because of the influence of global economic dynamics: the oil crisis of the 1970s, changes in global trade and financial regimes in response to the rise of the Japanese economy, as well as US pressures for structural changes. Moreover, Japan's pre-war level of industrial development was much higher than that of other East Asian economies. That made Japan to go through the rapid growth period at a relatively faster pace. But overall, the end of model in Japan was smooth and spread over a longer period.

Taiwan, Singapore and South Korea experienced a standard ending of the 30-year East Asian model, standard in the sense that their rapid growth spanned about 30 years and ended as the logical maturing of the East Asian growth model. But the ways the model came to an end in these economies was different because of the extent to which emergent global dynamics had an effect on their systems and the unique conditions inherent in them. The end of the model in Taiwan and Singapore was smooth. Though rapid growth had ceased in the two economies by the mid 1990s, their growth systems were less exposed to global swings.

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In South Korea, however, neo-liberal reforms were introduced much earlier and its corporate operations and financing systems were much more internationalized. The South Korean economy collapsed under the impact of the Asian financial crisis of the late 1990s, which resulted in a "hard landing" of the East Asian growth model there.

The Chinese mainland has been inching out of the East Asian model over the years and maintaining rapid growth at same time. The ongoing global economic crisis has had similar effects on the East Asian economies. In this sense, the mainland has similarities with Taiwan and Singapore of a decade ago. The mainland has seen the East Asian growth model's maturity point, and the global economic crisis could finally force it out of it. But two unique conditions on the mainland make it difficult to forecast whether the growth rate of more than 8 percent would end this year or next, and what would its economy look like five years from now.

First, as mentioned earlier, the mainland has been reforming not only its socialist system for the past 30 years. More subtly, it has also been reforming its East Asian growth model over the past decade or so. If a substantive part of the mainland's East Asian growth system has been transformed and rapid growth maintained over the past decade under an emerging system, it is possible that it will have an 8 percent-plus growth rate.

Second, efforts to boost the domestic market can provide new sources of growth to offset the falling rate of manufactured goods' exports. While the domestic market campaign looks more like a fiscal policy solution, over time it can cause structural changes and movements that can sustain rapid growth for a considerable period of time.

In conclusion, the East Asian economies followed a similar growth model to experience a rapid growth period of roughly 30 years. This model was characterized by separation of domestic and international markets, organization of national economic growth by governments in partnership with corporations and other drivers of growth, with focus on manufacturing exports, competitiveness of its strategic products and efficient reorganization of national production, as well as political and social support for the working of such a growth system.

The mainland's rapid growth in the past 30 years can be largely attributed to a similar growth model, though it was created and flourished under some very different historical and institutional conditions. The mode and timing of the end of its East Asian growth model will, therefore, be determined not only by its internal logic, but also by the organizational and operational conditions of the mainland's economy.

Hence, the campaign to ensure an 8 percent growth this year is slightly misplaced. It is not only unnecessary, but also could prove counterproductive - particularly if it is achieved mainly through a deficit-based fiscal policy. We should allow the growth rate to be determined by economic fundamentals, instead of the other way round. This is the key lesson that the East Asian growth model has taught us.

The author is a professor in Victoria University of Wellington, New Zealand. The article is an edited extract from "The Global Economic Crisis and the China Phenomenon: The Asian Development Model Revisited", presented at the Shanghai Forum.