Australia: The Future Of The Asia Pacific Economy

CEO & Partner John W.H. Denton took part in a discussion on "The Future of the Asia Pacific Economy" at an Alliance 21 event held in Sydney.

The conference, held in conjunction with The United States Studies Centre, focussed on "The Dynamics of 21st Century Trade and Investment in the Asia-Pacific – An Australia-US Perspective".

John, together with The Hon Warwick Smith AM, were interviewed by Professor Geoffrey Garrett from the University of Sydney Business School.

Geoff asked me to speak for a couple of minutes on 'the Future of the Asia Pacific Economy'. Thanks Geoff. It's nice to get the easy questions straight up.

The future of the Asia Pacific Economy is strong. It's a dynamic region. It's a populous region. It's a growing region. And it's a region that actually has some good existing and emerging regional institutions – and, perhaps more importantly, the region is the biggest winner of the current global economic order.

There are areas of great future growth in the Asia-Pacific. We all trade prodigiously with each other – but we don't invest anywhere near as much. There are a couple of reasons for that – less mature capital markets, a lack of regional frameworks to aid investment, and a lack of confidence all spring to mind – but each of these reasons will ease over time. Australia should position itself to be ahead of the pack on this one.

This doesn't mean that there aren't difficult questions to solve in the region. There are a number of security hotspots like the South China Sea, and a worrying trend towards greater military spending across the region. But there are also a wide array of economic incentives that may help us all to get this right.

Part of getting it right is building even stronger regional bodies, and I think the US 'pivot'/'re-balancing' is good for the region in this way. We all remember the days when we were very keen to have the US pay more attention to regional meetings and institutions. So now, when they are, we should embrace this enhanced engagement – and we should make the most of it.

Finally, the future of the Asia-Pacific Economy rests on reform, and particularly economic reform. There are many political reform questions to be sorted out, obviously. But the big push now has to be for greater economic freedoms and reforms. We need more 'behind the border' trade and investment reforms. We need more Asia-Pacific economies setting their private sectors free. And we need to match these two things together so that we have a more integrated region economically.

If we get the economics right, I think the other questions become less central. We need to first give all the actors in our region as many incentives as we can to work together. We need to have as many carrots on the table as possible before we start talking about sticks. Obviously, this doesn't mean ignoring security concerns. But it does mean that we focus on the many positives in our region – and the bright future of the Asia-Pacific economy is definitely a big positive.

QUESTIONS FOR DISCUSSION

Are economic issues the glue holding together China-US relations or potentially inflammatory/conflict generating?

• I'm not sure that economic issues are the only glue – China and the US have many adhesive factors, not least the fact that their respective societies hold each other in very high regard.
• But on the whole, yes, economic issues remain more a tie that binds. The two economies are mutually highly compatible, and, despite regular murmurings from Congress, it seems that both Beijing and Washington understand this compatibility deeply.
• I say this not to discount the odd flareup – I mentioned Congress already, and there remains a tendency in parts of the Chinese system to blame the US for any mishap, economic or otherwise.
• Yet both of them like the current global order, and right now, they both benefit from it. That's a pretty powerful glue.

Is Australia part of an invidious geopolitical triangle with China and US or a win-win economic one?

• We should be part of a win-win economic one, although we have a challenge finding a way to be a useful intermediary in that relationship – our economy is not that dissimilar to the US economy structurally, and our resource exports are bilateral rather than trilateral.
• The US remains our enduring security ally and partner, and will continue to do so but this doesn't mean we automatically have bad relations with China.
• The only way we will be forced to 'choose' is if we set everything up to be a choice.

Australia in Asia Century White Paper and Alliance with US – compatible or competing?

• Completely compatible. The White Paper is about what we as a country can do to build more capabilities, make ourselves stronger and more productive, be more economically successful and become a more integrated part of a vibrant Asia.
• All of these things will be, I imagine, very attractive to the US.

Duelling economic architectures/institutions – APEC, TPP, ASEAN+6 CEPEA. Which, if any, has legs and why?

• All of them have some legs, although they come in different shapes and sizes.
• APEC has been very successful at reducing trade barriers through voluntary commitments. It'll need a new wave of reform based on 'behind the border' reforms, but I'm confident that it can manage this.
• The TPP obviously will benefit from the strong US endorsement, and it has the advantage of making participation dependent on member countries undertaking reform measures that will be effective in the long-term. If it can make membership attractive enough that everyone wants to sign up, the TPP could also be a useful complement to APEC. Though it can't be the only show in town. There are problems with it.
• CEPEA has perhaps had less momentum in the past couple of years, and it's hard to see a regional trade agreement occurring with some US involvement.

Chinese/Asian and American investment in Australia – needed? Leverage for access to foreign markets for Australia?

• Definitely needed. We must welcome economic investment. Economic investment is good for us. It creates jobs. It boosts our tax base. And it often lets us engage and interact with other countries as partners, with a wide array of unanticipated benefits.
• At present, investment from China/Asia in general is much lower than it should be given the relative size of the economies – this is something we should work to remedy.
• It would be difficult for us to 'leverage' this into more access for Australian products in foreign markets – we're better off working for more access into all markets.

Economic prospects for short (2013) and medium (2020) term for China, US, rest of Asia and Australia

• China: Steady around 7.5% for 2013, largely because the state has already said that is what its goal is. Around 2020 I think it will be lower, slightly, but still strong – most likely around 5%.
• US: Not great for 2013. 2020 should see better times return to the US though – their human capital alone will ensure that they bounce back relatively strongly.
• Rest of Asia: As I said at the start, on the whole, very positive.
• Australia: well, if I knew that I'd probably be down putting some money on things! Less flippantly, I think our macro-economic fundamentals are very good, and we are in the right place at the right time at the moment. I think we'll do well.

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