I heard recently on the radio that the "de-coupling" debate had been settled in recent years - that Asian growth was no longer reliant on what happened in the rest of the world. While there is no doubt that Asia has managed to do well, despite the global financial crisis and recession, the question for the future is whether this is due to de-coupling or China's delaying of global economy effects through huge fiscal and monetary stimulus. In other words, the jury is still out. As many would no doubt be aware, the outcome of this debate will have important implications for Australia.
It's not simply a case of coupling bad, de-coupling good, however, because China's delaying of world economy effects has had positive effects on the rest of the world, with Australia particularly benefitting. China's stimulus may work for long enough for the US and Europe to recover momentum and return as substantial contributors to global economic growth. But it's also possible that stagnation in Europe and the US will eventually cause problems for China and Asia generally (and Australia). Another scenario is that China's fiscal and monetary stimulus has led to a growing property bubble in China as well as rising inflation.
It's not simply a case of coupling bad, de-coupling good, however, because China's delaying of world economy effects has had positive effects on the rest of the world, with Australia particularly benefitting. China's stimulus may work for long enough for the US and Europe to recover momentum and return as substantial contributors to global economic growth. But it's also possible that stagnation in Europe and the US will eventually cause problems for China and Asia generally (and Australia). Another scenario is that China's fiscal and monetary stimulus has led to a growing property bubble in China as well as rising inflation.
Those interested in the de-coupling debate would benefit from reading an Asian Development Bank paper by Prema-chandra Athukorala. He concludes:
A highly important recent development in the international fragmentation of production has been the rapid integration of the PRC into regional production networks. This development is an important counterpoint to the popular belief that the PRC‘s global integration would crowd out other countries' opportunities for international specialization. The PRC's imports of components from countries in ASEAN and other developing East Asia countries have grown rapidly, in line with the equally rapid expansion of manufacturing exports from the PRC to extraregional markets, mostly in North America and Europe. The migration of some production processes within vertically integrated high-tech industries to the PRC opens up opportunities for producing original, equipment-manufactured goods and back-to-office service operations in other countries. The PRC's emergence as a major trading power and an investment location has not been a zero-sum proposition from the perspective of the region. Rather, it seems to have added further dynamism to regionwide MNE operations. Global production sharing has certainly played a pivotal role in the continued dynamism of East Asia and its increasing intra-regional economic interdependence. This does not, however, mean that the process has contributed to lessening the region‘s dependence on the global economy. The high intra-regional trade shares reported in recent studies largely reflect rapidly expanding intra-regional trade in components. There is no evidence of rapid intra-regional trade integration in final products. In fact, the region's growth based on vertical specialization depends inexorably on its extra-regional trade in final goods, and this dependence has increased over the years. Extra-regional trade is likely to remain the engine of growth for the region in the foreseeable future. Put simply, growing trade in components has made the East Asian region increasingly reliant on extra-regional trade for its growth. This inference is basically consistent with the behaviour of trade flows following the onset of the global financial crisis. The remarkably synchronized nature of trade contraction across countries in the region is generally consistent with close trade ties among East Asian countries forged within regional production networks. In addition, the PRC failed to provide a cushion against this export contraction as postulated by the decoupling thesis.[1]
[1] Prema-chandra Athukorala (2010) “Production Networks and Trade Patterns in East Asia: Regionalization or Globalization?”, Working Paper Series on Regional Economic Integration, No. 56, August, Asian Development Bank <http://aric.adb.org/pdf/workingpaper/WP56_Trade_Patterns_in_East_Asia.pdf>.
