Asia's Developing Future

The bulk of Asia’s exports runs through, rather than to, the People’s Republic of China, leaving the region more exposed to downturns and anti-trade sentiments in developed countries than to a domestic slowdown in China. Governments should promote domestic growth and trade within Asia to lessen that exposure, economists argue in a new book by the Asian Development Bank Institute, Slowdown in the People’s Republic of China, Structural Factors and the Implications for Asia. Peter Morgan, co-chair of the research department at ADBI and one of the editors of the book, explains the conclusions of a paper by Willem Thorbecke of Japan’s Research Institute of Economy, Trade and Industry. Read the transcript https://bit.ly/2KO2jD0 Read the book https://www.adb.org/publications/slowdown-prc-structural-factors-and-implications-asia About the author Willem Thorbecke is a senior fellow at Japan’s Research Institute of Economy, Trade and Industry. About the book editors Peter Morgan is co-chair of the Research Department at the Asian Development Bank Institute Justin Yi-fu Lin is director of the Center for New Structural Economics, Peking University, China. Guanghua Wan is director of the Institute of World Economy, Fudan University, China. Know more about ADBI’s work on PRC https://bit.ly/2vVC0Yi https://bit.ly/2vQ3fDf

The nature of the People’s Republic of China’s growth slowdown is a key question for the global economy. If it’s a bump in the road, growth in China should soon return to a high rate that can help support global growth. If it reflects deeper problems, the world may have to live without the contribution that has come to be expected from China’s hard-charging economy. Economists must first determine the factors behind China’s growth, which poses statistical problems. Read the transcript https://bit.ly/2rurpP7 Read the book https://www.adb.org/publications/slowdown-prc-structural-factors-and-implications-asia About the author Harry X. Wu, professor at the Institute of Economic Research at Japan’s Hitotsubashi University. About the book editors Peter Morgan is co-chair of the Research Department at the Asian Development Bank Institute. Justin Yi-fu Lin is director of the Center for New Structural Economics, Peking University, China. Guanghua Wan is director of the Institute of World Economy, Fudan University, China. Know more about ADBI’s work on PRC https://bit.ly/2vVC0Yi https://bit.ly/2vQ3fDf

The People’s Republic of China needs to refocus its economy to avoid slipping into an economic downturn that could be worse than the one Japan has suffered for more than the past 2 decades. Comparing the experience of the two countries shows that China faces many of the same issues that prompted the beginning of Japan’s long economic slide in the early 1990s. While some differences could help China avoid Japan’s pitfalls, others could make it even worse. Some economic fixes are needed, and quickly. Read the transcripts https://bit.ly/2GhogH0 About the authors Yang Yao is a professor at China’s Peking University. Kyoji Fukao is a professor at Japan’s Hitotsubashi University. Tangjun Yuan is a researcher at China’s Fudan University. Read the book https://www.adb.org/publications/slowdown-prc-structural-factors-and-implications-asia Know more about ADBI’s work on PRC https://bit.ly/2vVC0Yi https://bit.ly/2vQ3fDf

Hundreds of thousands of children in Indonesia are growing taller and heavier thanks to the government’s rice subsidy program, which ensures better nutrition despite flaws in the scheme. The government started RASKIN—rice for the poor—in 1998 to help poor and near-poor families cope with high food prices in the wake of the Asian financial crisis. Under the program, currently the largest in-kind subsidy scheme in Indonesia, eligible households across the country receive subsidized rice. Rice is a staple food, and accounts for nearly a quarter of the average monthly expenditure of poor households in Indonesia. The program is expected to fulfill 39.5% of poor households’ rice needs. Read the transcript https://bit.ly/2K2zrq7 Read the report https://www.adb.org/publications/kind-transfer-and-child-development-evidence-indonesia About the authors Bihong Huang is an ADBI research fellow Prachi Gupta was an ADBI research associate when the work was published. Know more about ADBI’s work on Indonesia https://bit.ly/2qNSfjY https://bit.ly/2vvX1IA

Green bonds, which first appeared in 2007, finance projects that deliver environmental or climate benefits such as climate change mitigation and adaptation investments. The global green bond market is rapidly growing, from $3 billion in 2012 to more than $100 billion in 2017. The Nordic region, particularly Sweden, Norway, and Finland, has pioneered the issuance of green bonds and used specific mechanisms to access debt markets to issue green bonds. These bonds could be used by developing countries in Asia. The increase in recent years of the use of green bonds is a consequence of a wider awareness among investors of sustainability and climate change following the Paris Agreement on climate change in 2015 and the United Nations’ adoption of the Sustainable Developments Goals. Read the transcript https://bit.ly/2v8q1G8 Read the working paper https://www.adb.org/publications/green-bond-experience-nordic-countries About the author Darius Nassiry is a senior research associate at the Climate and Energy Programme, Overseas Development Institute, London, United Kingdom. Know more about ADBI’s work on bonds https://bit.ly/2HvzHgI https://bit.ly/2ILj53H

Negative interest rates in Japan are leading banks, pension funds, and other investors to look overseas for better returns, but they are mostly ignoring developing Asia, and with rates rising in the US and Europe, that is unlikely to change. Alicia Garcia-Herrero, a prominent economist who has worked at the International Monetary Fund and is now chief economist for Asia-Pacific at the French investment bank Natixis, told the annual conference of the Asian Development Bank Institute that investors were being driven from Japanese markets by the low rates used by the Bank of Japan to boost economic activity and end decades of deflation. Read the transcript https://bit.ly/2EitXU4 Read the book https://www.adb.org/publications/implications-ultra-low-and-negative-interest-rates-asia Know more about ADBI’s work on interest rates https://bit.ly/2GxboBs https://bit.ly/2uL2KKq

Ultra-low or negative interest rates in Japan, the United States, and Europe placed a difficult burden on other central banks and may threaten their independence in the future. Veerathai Santiprabhob, governor of the Bank of Thailand, told the annual conference of the Asia Development Bank Institute that, with interest rates low, central banks have taken to using macroprudential tools. They are tinkering with regulations to affect the actions of markets, investors and consumers, and adjusting rules to control the flow of capital through their borders. Read the transcript https://bit.ly/2I5Z3kb About the speaker Veerathai Santiprabhob is governor of the Bank of Thailand. Watch the whole presentation https://youtu.be/1xE2LEPE8Qw?t=142 Read the book https://www.adb.org/publications/implications-ultra-low-and-negative-interest-rates-asia Know more about ADBI’s work on finance https://bit.ly/2DYo5zi https://bit.ly/2GykwFb

Central banks are running out of wiggle room, having lowered interest rates, in some cases to zero or negative, and are losing influence over markets becoming accustomed to a low-rate regime. “Forward guidance” is losing traction. Narayana Kocherlakota, former president of the Minneapolis Federal Reserve Bank, says central banks can try to guide public perception by hinting at their intentions, a practice known as forward guidance in banking circles, and he used to think that once interest rates were at the lowest they could go—a position called the lower bound—forward guidance was a good tool to use. But Kocherlakota, now professor of economics at the University of Rochester, told the annual conference of the Asian Development Bank Institute he has changed his mind. Read the transcript https://bit.ly/2pKGfQI About the speaker Narayana Kocherlakota is a now professor of economics at the University of Rochester. Watch the whole presentation https://youtu.be/BKnJS37KbGE?t=2420 Read the book https://www.adb.org/publications/implications-ultra-low-and-negative-interest-rates-asia Know more about ADBI’s work on finance https://bit.ly/2DYo5zi https://bit.ly/2GykwFb

Global governance has undergone significant change since the late 1990s, with the number of global players in health, trade, and development finance rapidly increasing, mobilizing more funds for health and development in developing countries, and spurring global trade. This trend has challenged the three most prominent intergovernmental bodies in these areas—the World Health Organization, the World Trade Organization, and the World Bank. They now need to adapt to a new world order where they play a less central role. After World War II, governments around the world forged international agreements and treaties, forming global bodies to promote international good in almost every social sphere. In 1944, the World Bank’s predecessor, the International Bank for Reconstruction and Development, was established to help rebuild economies devastated by the war. Three years later, the General Agreement on Tariffs and Trade, which over time evolved into the WTO, was formed. The WHO was set up soon after in 1948 as the United Nations’ specialized agency for health. But in the 1990s, new actors—nonstate and nongovernment organizations—emerged, challenging the authority of the WHO, the WTO, and the World Bank, says Matthias Helble, senior economist and co-chair of the research department at the Asian Development Bank Institute. Read the transcript https://bit.ly/2ue7k3l Read the working paper https://www.adb.org/publications/comparison-global-governance-across-sectors-health-trade-development-finance About the authors Matthias Helble is senior economist and co-chair of the Research Department at the Asian Development Bank Institute. Jera Lego is an ADBI associate. Zulfiqar Ali was an ADBI associate at the time the research was published. Know more about ADBI’s work on Trade https://bit.ly/2oTzgng https://bit.ly/2D3NTJH Health https://bit.ly/2pxdEyb https://bit.ly/2HVr2CZ

Big swings in global commodity prices unnerve governments in developing countries reliant on such export revenue, and curb credit growth as banks tighten lending during price volatility. A look at 1,600 banks from 78 developing countries between 2004 and 2015, a period of large swings in commodity prices, found lenders become more cautious when prices fluctuate because clients may not be able to service loans, eroding the quality of bank assets and capital. Banks with relatively lower deposits and poor asset quality are particularly vulnerable to commodity shocks and tend to be more aggressive in responding to price movements. Similarly, banks that are more sensitive to fluctuations in commodity prices, and see a decline in deposit funding and an increase in bad loans in response to a fall in commodity prices, reduce credit supply when asset quality falls. The data shows that a bank with high exposure to commodities and low deposits curbs lending by as much as 4.1 percentage points when commodity prices fall below expected trends, more if the fall deepens. Read the transcript https://bit.ly/2G4VR7O Read the working paper https://www.adb.org/publications/international-commodity-prices-and-domestic-bank-lending-developing-countries About the authors Isha Agarwal is a PhD student at Cornell University, United States. Rupa Duttagupta is chief of the Emerging Markets Division, International Monetary Fund. Andrea F. Presbitero is an economist at the IMF and assistant professor in economics at the Università Politecnica delle Marche, Ancona, Italy. Know more about ADBI’s work on Commodities https://bit.ly/2pBo7Yu Credit https://bit.ly/2FW1n0n

Water may be saved through trade provided it moves from countries that use water wisely to those lacking water, as a coming water crisis—driven by climate change, neglect of infrastructure, and misguided policies—threatens global economic growth in countries struggling to develop, and in developed countries. Savings don’t refer to the volume of virtual water of the imported product, but to the volume of water the importers would have required to produce the same quantity of product. Globally, savings represent on average 10% of the 352 cubic kilometers of global freshwater used each year. Most virtual water goes into agricultural exports rather than industry, and is heavily subsidized to make them competitive. There is no recognized way to price water, so it reflects demand and supply, and water, both surface and groundwater, is underpriced. The reality is that water resources are becoming more expensive to exploit, and this is not reflected in the price of a final product. Read the transcript http://bit.ly/2IqaFzt Read the book https://www.adb.org/publications/win-win-how-international-trade-can-help-meet-sdgs About the speaker Alexandre le Vernoy is a consultant at Groupe d’Economie Mondiale. Know more about ADBI’s work on trade http://bit.ly/2oTzgng http://bit.ly/2D3NTJH

Laws in developing countries generally reflect their unique cultures, which may restrict innovation and risk-taking, throwing obstacles in the path to development. Strong legal mechanisms, including intellectual property rights and patent protection, allow innovation to thrive. More than elsewhere in Asia, Southeast Asian countries emphasize the economic value of intellectual property rights on patents, but enforcement varies and so does their attraction for investors. Beyond legal mechanisms, innovation centers stimulate growth and innovation. Government-protected technology parks link universities and state companies, and investors know they have a degree of security and won’t have problems down the line. Innovation comes from a meeting of minds, and while there is a risk that specific research may lead nowhere, it’s outweighed by the potential profit from unanticipated spin-off results. The more freedom a country gives its enterprises, the more innovation it could produce. The People’s Republic of China and India offer a curious comparison. Read the transcript http://bit.ly/2ImPGxn Read the working paper https://www.adb.org/publications/law-culture-and-innovation Read the blog post http://bit.ly/2FAwIpe About the authors Douglas Cumming is a professor and Ontario research chair of the Schulich School of Business, York University, Canada Sofia Johan is an extramural research fellow of the Tilburg Law and Economics Centre, University of Tilburg, The Netherlands Know more about ADBI’s work on innovation http://bit.ly/2FL75Ov http://bit.ly/2FLuyPW

China’s 2009 economic stimulus program after the global financial crisis led to the growth of shadow banking as local governments scrambled to pay off their obligations under the program. Regulators loosened borrowing rules to avoid a debt crunch, posing risks to the financial system, but in doing so accelerated China’s financial liberalization. Asian Development Bank Institute research details the unintended effects of the four-trillion-yuan stimulus plan launched to insulate China’s economic growth from the global financial crisis. Much of the responsibility for funding the stimulus fell on local governments. They mostly took on bank loans to pay for the infrastructure projects that formed the bulk of the stimulus plans. It could take decades for those projects to start paying returns, but the loans came due after about four years on average, leaving local governments searching for ways to service their debts while keeping the stimulus going. Read the transcript: http://bit.ly/2FZnwrr Read the working paper https://www.adb.org/publications/financing-local-government-prc-stimulus-loan-wanes-shadow-banking-waxes About the authors Zhuo Chen is an assistant professor at the PBC School of Finance, Tsinghua University Beijing, People’s Republic of China (PRC). Zhiguo He is professor of finance at the Booth School of Business, University of Chicago, and NBER, Chicago, US. Chun Liu is associate professor of finance at the School of Economics and Management, Tsinghua University, Beijing, PRC. Know more about ADBI’s work on banking in the People’s Republic of China http://bit.ly/2Fj4XBu

A coming water crisis, driven by climate change, neglect of infrastructure, and misguided policies, is threatening global economic growth in countries struggling to develop, and in developed countries, too. The water crisis is partly due to climate change and the increasing unpredictability of weather, but a lot has to do with the behavior of global trade, trade policies, and institutions that believe water is inexhaustible. It is not. By 2050, global demand for water will have risen by 55% from current levels, and wastewater discharges of growing urban populations will increase nitrogen effluents into rivers and seas by 180%—almost triple—compared with today’s rates, creating severe water stress that will affect the livelihoods of 4 billion people. Alexandre le Vernoy, a consultant at Groupe d’Economie Mondiale, identifies four major concerns about water: scarcity aggravated by climate patterns, declining water quality, weak management and regulations, and infrastructure gaps that make it hard to get water to where it is most needed. Read the transcript http://bit.ly/2Fxu1nu Read the chapter http://bit.ly/2EmIRg0 About the speaker Alexandre le Vernoy is a consultant at Groupe d’Economie Mondiale. Know more about ADBI’s work on trade http://bit.ly/2oTzgng http://bit.ly/2D3NTJH

Developing countries can benefit from globalization if they fix potential problems at home before opening their economies. Failing to do so can multiply local problems as money streams across borders, suggests ADBI research. For a number of reasons, developing countries might end up worse off if they allow their currencies to float freely and remove controls on money flowing in and out of their country before putting in place strong financial foundations. Economists generally agree that imposing controls on capital flows acts as a tax on an economy. Those controls can make it harder for companies to find investors and for local investors to seek better returns for their money. What’s more, greater integration into the global financial system means a developing economy is less exposed to any volatile growth swings at home. Read the transcript http://bit.ly/2ozkJha Read the working paper https://www.adb.org/publications/managing-financial-globalization-guide-developing-countries Read the blog post http://bit.ly/2GtrUiC About the author Shang-Jin Wei is a professor at Columbia University’s School of International and Public Affairs and Graduate School of Business. Know more about ADBI’s work on global finance http://bit.ly/2FGnWmH http://bit.ly/2owtvww