Middleweight to Heavyweight? The Growing Importance of Asia in the World Economy

Asia's rise has been Australia's economic gain. The rise of Japan, followed by South Korea and Taiwan, Singapore, Malaysia, Thailand and other non-communist countries of Southeast Asia had provided significant export markets for Australian commodities, though not a sustained structural increase in their value. Then along came China, changing everything. Not only did rapid Chinese demand increase the prices Australia received for its exports, but also Chinese manufacturing production helped to decrease the price of Australian imports. Manufactured goods made (or assembled) in China became significantly cheaper. Chinese competitive pressures also helped to keep in check the prices manufacturers throughout the world could charge for their goods.

Currently there are several narratives about Australia’s economic future. The first is an acceptance of Australia’s role as a resource exporter built on the back of long-term Asian demand and a high exchange rate. Alongside this story is one about a growing Asian middle class, which will be increasingly receptive to utilising Australian services. This view means that there will be an alternative market for Australian exports after the Asian giants become less resource intensive economies as they progress up the income ladder.

All of these positive narratives are based on a projection that Asia's remarkable rise over the past half century will continue over the next half. The possibility that Asia may not continue its rapid economic rise is largely dismissed as a narrative, although the likelihood that Asia will become conflict-ridden is common in international relations, foreign policy and security studies.

To understand where Asia might be headed we need to fathom how far it has come since the end of World War II.

This post shows that if current GDP trends were to continue, even at a moderated pace, Asia will become the world's most important economic region and China the world's largest economy. Emerging market and developing economies have overtaken the advanced economies on a purchasing power parity basis. The major component of this GDP convergence has been the rise of developing Asia, particularly China. Asian GDP (both developed and developing) is now approaching the GDP of the European Union and the United States combined.

Economically, a continuation of present trends would provide amazing opportunities for Australia, although politically it might heighten concerns amongst Australians about the implications of Western and American relative decline.

The Great (Re)convergence

The rise of developing Asia has been a major component of the so-called rise of the rest, which has led to the reversal of the great divergence between the advanced and developing economies that began with the industrial revolution. The great convergence is profoundly reshaping the world economy. Given that the world economy on the eve of the industrial revolution was dominated by Asia - particularly China and India we should perhaps consider the current period as the great reconvergence.

Gregory Clark in A Farewell to Alms outlines the Malthusian world (from the Stone Age to 1800), which he argues exhibited “a counterintuitive logic” where:

anything that raised the death rate schedule –war, disorder, disease, poor sanitary practices, or abandoning breast feeding – increased material living standards. Anything that reduced the death rate schedule – advances in medical technology, better personal hygiene, improved public sanitation, public provision for harvest failures, peace and order – reduced material living standards. 

In other words, vice equalled virtue and virtue equalled vice. Even gradual improvements in technology increased population and therefore did not lead to lasting increases in living standards. Hobbes, Clark contends, was wrong; man was better off in his natural state. 

The Industrial Revolution, whose most remarkable feature is the “all-pervading rise in incomes per person”, changed all that and led to a remarkable divergence between rich and poor countries. The gap between the living standards of the rich and poor countries grew from 3-4:1 before 1800 to 40-50:1 in the late twentieth century.

World Economic History

Source: Clark

The commercial revolution from the late fifteenth century shows that global economic weight is not necessarily an indication of global power. Asia's dominance of the world economy until the early nineteenth century could not stop it from being overrun by European colonial powers from the sixteenth century. Economic dominance was overcome by military superiority. 

Gross economic weight is clearly not everything, but there can be no doubt that economic relativities are changing, which provides the possibility that the West's period of dominance is coming to an end. 

Growth in Asia since the 1960s has been nothing short of remarkable. Economic success, however, was far from universal. Until the late 1980s, authoritarian capitalist states and authoritarian communist states divided Asia. Countries under US tutelage embraced an authoritarian form of capitalism with a strong developmental ethos. The success of capitalist economic development provided a stark contrast to the failures of the socialist centrally planned development model. 

China attempted to collectivise and control economic development from the centre, Vietnam struggled with war and its aftermath, and India fostered autarkic import substitution policies that led to stunted growth. Even before the end of the Cold War, the Communist and insular states realised that shifts in economic direction were vital if they were going to replicate the high growth rates of capitalist Asia. China began its long march to capitalist dynamism in 1978 and Vietnam switched economic direction in the mid-1980s. 

By the early 1990s, Japan appeared to be set to overtake the US economy, but unfortunately the 1990s were a decade of stagnation after the excessive property and stock market boom of the late 1980s. In the late 1990s, the region suffered a severe financial crisis which threatened to derail Asia’s rise, but by the early 2000s it was clear that the crisis was only a temporary set back on Asia’s phenomenal economic rise. 

From the mid-1990s, China became the major economic story in the region because of its sustained high growth rates. China's continuing growth during the economic crisis that began in 2007 cemented Asia's place as the centre of world economic dynamism. Growing regional production networks initially developed by Japan in the 1980s, followed by South Korea, Taiwan, Singapore and Hong Kong and now centred on the Chinese economy have reinforced Asian dynamism. Despite assertions about decoupling, final goods demand from outside the region still matters for Asian growth. 

In recent years, many analysts have argued that India will join China as a major Asian success story. Developing Asia has been joined by other emerging economies to transform the world economy since the 1980s. The countries of Eastern Europe, Brazil and South Africa have led to the great reconvergence. 

Emerging market and developing economies now account for over 50 per cent of the world economy on a PPP basis, surpassing the total weight of the developed economies. This is a remarkable change from 1990 when the emerging market and developing countries accounted for a little over 30 per cent. Since 1990 emerging and developing economies have been on an ever-upward trajectory, with the global crisis beginning in 2007 thus far affecting mainly the United States and Europe.

All Graphs

Gross Domestic Product (Purchasing-Power-Parity)
Share of World Total
Percent

Source: IMF World Economic Outlook (see here for definitions of country groups)

The bulk of the increase in the emerging and developing country share has been accounted for by developing Asian economies, particularly China. 

The Asian economies combined - both developed and developing - are approaching the economic weight of the European Union and United States combined. Given projected relative growth rates Asia should overtake the EU and US in the near future. The EU and the US combined has declined from 55.8 per cent of the total in 1980 to 37.4 per cent in 2013.  

The rising economic weight of Asia has mainly been a result of rapid growth in China, although India and the ASEAN 5 have also contributed. China's increased weight has been at the expense of Japan. (Developed Asia includes Japan, South Korea, Singapore, Taiwan and Hong Kong)

Comparing the top 5 plus the EU we can clearly see the significant changes to relative weights since the early 1990s. These trends have been strengthened since the global crisis. The advanced capitalist countries have lost ground to China and India.

The Future

Ideas about an Asian ascendancy are not new. US President, Theodore Roosevelt, writing in 1903 argued that: “The Atlantic era is now at the height of its development and must soon exhaust the resources at its command. The Pacific era, destined to be the greatest of all, is just at its dawn.” (Yahuda) War and the dilemmas of decolonisation made Roosevelt’s prediction premature, but the post-war world has seen Asia rise to the world’s most dynamic economic region. The general assumption today is that the Asian ascendancy will continue, even if the breakneck speed of growth moderates in coming years. 

In 1994, Paul Krugman compared the growth of the newly industrialising countries of Asia to Soviet growth in the 1950s and 1960s, a period when it appeared that the Soviets were on the brink of challenging the United States economically as well as militarily. He argued that ‘perspiration not inspiration’ had been the major factor. He saw Japan, however, as different: 

Japan, unlike the East Asian “tigers”, seems to have grown both through high rates of input growth and through high rates of efficiency growth. Today’s fast-growth economies are nowhere near converging on US efficiency levels, but Japan is staging an unmistakable technological catch-up. 

Krugman argued that while Japan was experiencing an unmistakable ‘growth slowdown’, he underestimated the extent to which Japan would stagnate over the rest of the 1990s and early 2000s. If Japan had continued to grow at the rates achieved over the period, 1963–73, he predicted it would have overtaken ‘the United States in real per capita income by 1985, and total Japanese output would have exceeded that of the United States by 1998!’. Krugman also noted the differences of the Chinese growth story to that of the Asian tigers. Significantly, he pointed out that, ‘its population is so huge that it will become a major economic power if it achieves even a fraction of Western productivity levels’. By the early 1990s, it was clear that China’s shift in direction was leading to rapid and sustained economic growth. 

The Japanese story should at least alert us to the dangers of the belief that the recent past and the present provide clear guides to the future. While the Asian challenge to Western dominance will probably be the issue of the twenty-first century, we should be wary of substituting a possible future for the present. Asia still has a long way to go and many hurdles to negotiate before its global economic influence matches its growing economic weight. 

The contemporary structure of the world 'political' economy has been shaped by the advanced economies, particularly the United States. This liberal economic order has 'allowed' the rise of developing countries, who are now demanding a larger say in global economic institutions such as the World Trade Organisation. 

But domestic political developments could be just as important. Over the next generation, how the advanced countries deal with challenges to their economic supremacy and counter the negative domestic consequences of globalisation will shape the future trajectory of the world political economy. 

Protectionist responses to relative decline and growing inequality in developed economies would be damaging in an integrated and thus interdependent world economy.Global and regional production structures would exacerbate the impact of protectionist responses, although their existence could also make any shifts toward protectionism more costly and therefore less likely. Whatever the case, the ability of the developed world to influence structure remains paramount. An ironic, if unlikely, turn away from globalisation in the advanced economies would negatively affect export-oriented economies disproportionately.  

Asia's ability to avoid conflict.will also be paramount for a continuation of current trends. Asia’s current situation is unprecedented. Three major powers – China, Japan and India, together with the United States – will shape the future of the region. Australia has alliances with two of the powers, is an important contributor to China's economic rise and has much to offer India as well. Australia stands to benefit greatly from continued economic expansion in Asia and to lose enormously if economic crisis, political instability or environmental catastrophe override economic development. 

Australia has a role to play in helping to establish the regional institutions and diplomatic environment for peaceful relationships. Bilateral relationships will also be very important. But much of the action will take place regardless of our wishes. Australia needs to prepare for the possibility of conflict and economic downturn, while working and hoping for the best. If peaceful development continues, Australia will be fortunate to be geographically adjacent to the world’s most dynamic economic region. Australia’s prosperity is now dependent on continuing Asian economic growth. What happens in Europe and North America still matters for Australia, but nothing matters to us more than Asia. 

Notes

IMF definitions 

Advanced economies
Composed of 35 countries: Australia, Austria, Belgium, Canada, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong SAR, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Malta, Netherlands, New Zealand, Norway, Portugal, San Marino, Singapore, Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Taiwan Province of China, United Kingdom, and United States.

Major advanced economies (G7)
Composed of 7 countries: Canada, France, Germany, Italy, Japan, United Kingdom, and United States.

Other advanced economies (Advanced economies excluding G7 and euro area)
Composed of 14 countries: Australia, Czech Republic, Denmark, Hong Kong SAR, Iceland, Israel, Korea, New Zealand, Norway, San Marino, Singapore, Sweden, Switzerland, and Taiwan Province of China.

European Union
Composed of 27 countries: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain, Sweden, Romania, and United Kingdom.

Emerging market and developing economies
Composed of 153 countries: Afghanistan, Albania, Algeria, Angola, Antigua and Barbuda, Argentina, Armenia, Azerbaijan, The Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Belize, Benin, Bhutan, Bolivia, Bosnia and Herzegovina, Botswana, Brazil, Brunei Darussalam, Bulgaria, Burkina Faso, Burundi, Cambodia, Cameroon, Cape Verde, Central African Republic, Chad, Chile, China, Colombia, Comoros, Democratic Republic of the Congo, Republic of Congo, Costa Rica, Côte d'Ivoire, Croatia, Djibouti, Dominica, Dominican Republic, Ecuador, Egypt, El Salvador, Equatorial Guinea, Eritrea, Ethiopia, Fiji, Gabon, The Gambia, Georgia, Ghana, Grenada, Guatemala, Guinea, Guinea-Bissau, Guyana, Haiti, Honduras, Hungary, India, Indonesia, Iran, Iraq, Jamaica, Jordan, Kazakhstan, Kenya, Kiribati, Kosovo, Kuwait, Kyrgyz Republic, Lao P.D.R., Latvia, Lebanon, Lesotho, Liberia, Libya, Lithuania, FYR Macedonia, Madagascar, Malawi, Malaysia, Maldives, Mali, Marshall Islands, Mauritania, Mauritius, Mexico, Micronesia, Moldova, Mongolia, Montenegro, Morocco, Mozambique, Myanmar, Namibia, Nepal, Nicaragua, Niger, Nigeria, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Rwanda, Samoa, São Tomé and Príncipe, Saudi Arabia, Senegal, Serbia, Seychelles, Sierra Leone, Solomon Islands, South Africa, South Sudan, Sri Lanka, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Sudan, Suriname, Swaziland, Syria, Tajikistan, Tanzania, Thailand, Timor-Leste, Togo, Tonga, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Tuvalu, Uganda, Ukraine, United Arab Emirates, Uruguay, Uzbekistan, Vanuatu, Venezuela, Vietnam, Yemen, Zambia, and Zimbabwe.

Developing Asia
Composed of 28 countries: Bangladesh, Bhutan, Brunei Darussalam, Cambodia, China, Fiji, India, Indonesia, Kiribati, Lao P.D.R., Malaysia, Maldives, Marshall Islands, Micronesia, Mongolia, Myanmar, Nepal, Papua New Guinea, Philippines, Samoa, Solomon Islands, Sri Lanka, Thailand, Timor-Leste, Tonga, Tuvalu, Vanuatu, and Vietnam.

ASEAN-5
Composed of 5 countries: Indonesia, Malaysia, Philippines, Thailand, and Vietnam.

My definition of Total Asia includes Developing Asia plus Japan, Korea, Taiwan, Hong Kong and Singapore. 

China's Steel Industry

A Reserve Bank of Australia paper from 2010 by James Holloway, Ivan Roberts and Anthony Rush on China's steel industry makes interesting reading in the light of the problems of the Australian steel industry.

Some of the main points:

Growth has been rapid with the period from the mid-90s to the mid-2000s most significant. Growth fell during the financial crisis and recovered on the back of extensive fiscal stimulus by the Chinese government. My guess is that it will slow over the next few years.

Since the introduction of market-based economic reforms in 1978, the Chinese economy has grown strongly, recording an average annual growth rate of around 10 per cent. Over this period, Chinese steel production has also expanded rapidly, growing at an average annual rate of 7 per cent during the 1980s, 10 per cent during the 1990s and close to 20 per cent in the 2000s (Graph 1).

China's percentage of global production has increased rapidly.

China now accounts for around 45 per cent of global steel production, which is significantly higher than its share of 15 per cent at the start of the decade

The Chinese government has attempted to consolidate the industry increasing the percentage of production by the large state-owned firms.

In 2008, there were more than 660 companies producing crude steel, with thousands of other firms producing finished steel and steel-related products. The top 10 producers accounted for less than 50 per cent of crude steel output, with the next 75 companies accounting for an additional 30 per cent (State Council 2009, CISA 2009). Most of the larger Chinese steel producers are state-owned, while a significant proportion of the smaller producers are private companies. Geographically, the industry is widely dispersed. The coastal provinces account for around 65 per cent of crude steel production, with the concentration of steel production in the north-east of the country partly reflecting proximity to major iron ore mines, particularly in Hebei and Inner Mongolia ... 

In July 2005, the National Development and Reform Commission issued a formal policy on steel that sought to spur consolidation by increasing the concentration of steel production among large producers, and to protect the environment by reducing energy consumption and eliminating obsolete production capacity. Targets for industry consolidation through mergers and acquisitions or closures of small- to medium-sized firms were outlined. In June 2010, the State Council updated these targets, announcing that the production share of the 10 largest steelmakers was to rise from 44 per cent in 2009 to 60 per cent by 2015, with a goal of cultivating three to five very large, internationally competitive iron and steel conglomerates (State Council 2010). 

Steel can produced from iron ore and coking coal or from scrap. In Western countries a good deal - about a half to two-thirds - is produced from scrap. In China it is mostly produced from scratch.

Crude (or unprocessed) steel can be produced either directly from iron ore and coking coal using the blast furnace/basic oxygen converter method, or from scrap steel (and other inputs) using the electric arc furnace method. In the United States and Europe, where the electric arc furnace technology is commonly used, between one-half and two-thirds of steel is produced using scrap. In contrast, in China more than 90 per cent of crude steel is produced by steelworks using blast furnaces and basic oxygen converters (World Steel Association 2010). This reflects difficulties with the supply of electricity in some parts of China and low domestic availability of ferrous scrap, due to relatively low household consumption of steel-intensive manufactures and limited scrap collection and processing systems. The prevalence of the converter method has important implications for resource demand: on average, each tonne of Chinese steel requires around 1.7 tonnes of iron ore and more than half a tonne of coking coal as inputs. This helps explain the significant increase in China's demand for these resources over the past decade.

China has significant iron ore reserves but they have lower iron content than ore from Australia (62 per cent), Brazil and India (both 65 per cent). Not only is Chinese ore more expensive to process, but much of it is located "inland in the north and west of China. While steel mills in the north-east are close to major iron ore mining precincts, it is costly to transport ore to steel mills located elsewhere in the country."

Increased iron ore shipments have benefited Australian iron ore producers enormously

Strong demand for steel has seen the imported share of iron ore supply increase from around 10 per cent in the late 1980s to more than 50 per cent currently, although over the past five years China's iron ore output has generally kept pace with growth in steel production. This reflects a number of factors, including the high price of imported iron ore and the temporary downturn in steel demand associated with the global financial crisis. More recently, iron ore imports have remained at a high level, having picked up sharply as the Chinese economy recovered from the downturn in late 2008 and early 2009 aided by the substantial fiscal stimulus, although domestic production has also been strong.

 

In recent years, more than 80 per cent of China's iron ore imports have come from Australia, Brazil and India. In an effort to diversify supply, Chinese policymakers have encouraged direct investment by Chinese companies in iron ore exploration and iron ore mines abroad. To date, numerous investments have been made in West Africa, South America, Central Asia, Russia, Australia and Canada, many of which are large in scale. While efforts to diversify supply may have implications for the Chinese steel industry's sourcing of raw materials in the future, the likelihood of continued high rates of economic growth suggests that China's imports of raw materials will remain high.

China has also become more dependent on coking coal imports.

[I]n the first half of 2009, coking coal imports surged, with a pronounced effect on Australian coking coal exports to China. This surge reflected a combination of factors, including a strong rise in steel production, a significant decline in international freight rates, and lower Chinese production of coal owing to efforts to consolidate the coal sector and mine closures or renovations for safety reasons. While China has extensive reserves of coking coal, many of its existing deposits are relatively inaccessible and therefore costly to mine. Many of these deposits are also far from major steel-producing areas.

Steel is mainly used in the development of buildings, structures and machinery, with the construction industry accounting for "more than one-half of steel consumption".

Worryingly for steel exporters, China's steel exports have increased since 2006, although they have varied.

Since 2006, China has been a net exporter of steel products. The early 2000s saw a large increase in steelmaking capacity, partly reflecting an increase in the number of small- and medium-sized firms; this growth in capacity translated into higher production, some of which flowed onto the international market. Since China's accession to the World Trade Organization in 2001, the volume of steel exports has increased noticeably; however, steel exports have not recorded sustained growth, and over the past few years have been declining as a share of total domestic production. At times when steel production has risen faster than domestic demand for steel, such as during the 2008 slowdown, China's steel exports have surged, only to decline again when domestic demand for steel has recovered, as was the case during 2009.

Note that these are net exports, China still imports higher quality steel from abroad.

There may be continuing opportunities for developed countries to push their credentials for higher quality steel products.  The Australian government could assist the industry especially for steel use within Australia by insisting on rigorous quality testing for imported steel and for restricting contracts that lock out Australian producers. But protecting the industry by tariffs or insisting that projects must use a quota of Australian steel would be a backward step for the Australian economy.

Zealous economic liberals pronounce any suggestion that governments should assist industries as closet protectionism and ironically put their faith in the Chinese Communist Party to keep  the Chinese economy growing at 10 per cent or so until the 2030s, I have less faith.

The CCP will need to rebalance the Chinese economy away from excessive investment and when the inevitable adjustment occurs the Australian resource sector will be negatively affected.

Australia needs to debate continuing economic vulnerabilities and consider the potential problems of a less diverse, resource dependent economy.

The Asian Century

If globalisation was the buzz concept of the 1990s and terrorism the focus of much of the early 2000s, the rise of China has been the dominant issue since the latter part of the 2000s. The focus of the 2010s has broadened to include the rise of India as well.

But as I've written many times in this blog, the Asian century is unlikely to be smooth, linear process. Expect the unexpected. China and India are large economies with lots of people, but largeness is no guarantee of continuing success as some writers appear to suggest. Michael Wesley, for example, argues in a recent article in The Australian's Literary Review that:

Unlike the Asian tigers, the two giants' success has nothing to do with the quality or singlemindedness of their reforms. It has everything to do with their size. It's a question of multiplication. Even a moderately positive policy measure will have a big effect if it releases the productivity of hundreds of millions. Even a minor gain in productivity will have global effects when multiplied by hundreds of millions. To be bigger than Europe or the US, China and India need to be only one quarter as productive per person and they are closing fast.... Even as the aggregate size of the giants' economies surpass those of developed countries, they will
remain poor societies. This means that even when they are huge, these economies will still contain within them plenty of individual-level energy that will stimulate further strong economic growth.

Wesley argues that size provides a wider margin for error:

The size of the giants means that they can afford to be less concerned about the effects of corruption, crumbling infrastructure and slothful bureaucracies on international investment. India's poor governance, bad infrastructure and high corruption are estimated to wipe nearly 2 per cent off its annual economic growth rate, and still it grows at 8.5 per cent.  The World Bank estimates that governance failures suppress foreign direct investment to China by 30 per cent, yet it remains the world's largest destination for FDI. Their countries' size has also given the giants' governments greater latitude to experiment with reforms through trial and error, without risking the performance of the whole economy.

Taken literally, Wesley's large-ism means that policy doesn't really matter that much although he does mention the importance of key early liberalising reforms. But if size were everything then why were China and India so stagnant for such a long period of time after decolonisation in India and the victory of the communists in China? It was policy that put these countries on the path to development, not size; although once liberalising policies were enacted size has mattered in the way that Wesley argues.But it is also policy that will help to maintain their success. As I've noted before, there is a delicious irony in the fact that economically liberal policy-makers and commentators have so much faith in the wisdom and prowess of the Chinese Communist Party!

The most important question about the future is whether China and India will continue to rise and the general consensus appears to be that they will. While Wesley hedges his bets on this question, the article assumes that rise is more likely than decline.

Whatever happens to them in the decades ahead, the rise of China and India will profoundly reshape the world of the 21st century. If they continue to grow at about their present rates the global economy will re-centre on them. Even if they suddenly stop growing at these rates and lapse back to their preboom momentum, they will continue to be important economies whose consumption still drags the global economy this way and that. If their detractors are right, and they are headed for a serious economic and social meltdown, the fallout from their collapse will define the rest of the century.

All of this holds irrespective of what happens in the rest of the world. The US may be headed for a renewed spurt of innovation-led growth, similar to what happened in the early 90s. Europe may find new sources of dynamism. Japan may too. But none of this will change the fact China and India have arrived as significant shapers of how the world works, and their preferences, enthusiasms and allergies will affect the choices other societies face. The tidal effects of the growth rates of the Asian giants reach further, faster and deeper in an increasingly globalised world. Emerging economies -- particularly very large ones -- are almost always more volatile than established ones, making their fate much more central to the fortunes of the global economy than their absolute economic size would suggest. Their scale and rate of change within an increasingly seamless global economy enables, displaces and reshapes economic activity and its social and political consequences far beyond Asia. For example, at their present rates of growth, China and India are adding more than 40 million workers to the global economy annually, the equivalent of the arrival of a France in the world economy every year.

While Wesley outlines the extensive geo-strategic and geo-economic consequences of Asia's rise, he is pessimistic about Australia's Asian future because he believes Australians are too complacent about the need for change:

Australia did very well out of the rise of Asia even though Australia didn't change, as it was repeatedly advised to. Australians kept their alliance with the US and their marked comfort with Western values and societies over Asian societies. Lowy Institute polling has consistently shown Australians overwhelmingly support the alliance with the US. They consistently feel more warmly towards Western countries -- New Zealand, Canada, France, Britain and the US -- than Asian countries. And those Asian countries they prefer are the most Westernised: Singapore and Japan. ...

He also worries about the lack of popular focus on Asia and about the inexperience of Gillard and Abbott on the diplomatic front. I'm not really sure how one would properly measure societal insularity, but my gut feeling is that we're probably less insular than we were in the past. Still it is not surprising that Australians feel more comfortable with Western values because we are a Western country. Nor is it surprising that they think that keeping the US Alliance is a good thing, having a good relationship with the world's most powerful country is a no-brainer.

Nevertheless, more effort could be made to increase educational opportunities about international developments and Asian studies. But how should this be done.

Those arguing for more funding for Asia literacy often infer that the problem is one of supply, that the government should supply more Asian education. In my experience at Griffith University, the problem has been more a problem of demand. The university has continued to support Asian Studies, but not many students want to do it. The demand is for International Relations, not for Asian Studies. I think that this is an understandable and reasonable position for students to take in a globalising world.

For many students that I come into contact with area studies are seen as too limiting. So simply increasing the number of Asian language programs or increasing the number of Asian social science courses will not make the difference that many assume. The much more difficult question is how to increase student demand for things Asian. Griffith for example has an IR undergraduate program that is intensively Asia focused (as well as an Asian studies degree). It also has an Asia-focused Master of IR and an excellent research institute called the Griffith Asia Institute. Sadly I don't have a solution for weak demand for Asia literacy, but it can't start at the university level.
 
In his post-Budget speech, Wayne Swan also muses about the rise of Asia and its consequences for Australia. While he shares Wesley's contention about the continuing and ineluctable rise of Asia, he is much more optimistic about Australia's future:

The speed and scale of the changes we are witnessing in Asia are unprecedented. Twenty years ago China and India together accounted for less than one tenth of world production. Today that share has doubled, and by the end of this decade it is expected to be over a quarter of world production. China and India will then account for more output than the US and Japan combined. By then it will be apparent that Asia has not only become the world’s biggest production zone, but also its biggest consumption zone.

So, concerned as we were by the overhang of the financial crisis, the floods, cyclones and earthquakes – we knew when we put the Budget together that our prospects were still bright and our economy would not be knocked off its long-term path.

Helped by strong demand from Asia we have seen a truly stunning rise in the prices for our commodity exports. Right now, our terms of trade are their highest sustained level in 140 years.
The huge global demand for our resources is also driving an investment boom the likes of which this country has never seen. ...

We are familiar with Asia’s role in driving our mining boom. Less understood are the opportunities for the broader Australian economy from the expansion of the Asian market for goods and services as income, wealth and living standards rise in the region.

One of the key points we make in Budget Statement Four, and what I want to stress to you today, is that in many ways the mining boom is just the first taste for us of the huge shift in the world’s economic centre of gravity in Australia’s favour.

As well as generating huge demand for our energy and mineral resources, sustained rapid growth in Asia is delivering hundreds of millions of people into a burgeoning Asian middle class. By 2020 there is expected to be more middle class consumers in Asia than in the rest of the world combined.  The implications for high-value knowledge economies like Australia stretch well beyond the mining boom. ...

Australia has always been at its best when embracing the forces of change rather than resisting them. We began 200 years ago with wool for the English market, and we extended over the following century into gold, meat and dairy. By World War I we were extending into manufactures, a trend that became even more pronounced during and after World War II.
Then we had the mining boom of the 1960s, the increasing exports of coal and iron ore and bauxite. At first gradually and then with greater speed we diversified our exports away from the UK to Japan and China and emerging Asia. We began to export more of our manufactures, and our services.

It is a mistake to think of Australia as an agricultural economy last century, although our farming sector made a huge contribution. Today it’s an oversimplification to think we’re just a resources economy, or that the time of our manufacturers has passed. Our manufacturers have innovated and moved with the times – and they will continue to do so, even in the face of the mining boom.
But the story that lies behind our economic development is the gradual rise of service industries in Australia. There are more than four times as many Australians in professional, scientific and technical services than there are in mining. There are four times as many in education and training as there in mining.

I make these points to you today because I want to remind you that while mining has rarely been more important to the Australian economy than it is today, most of us make out living in creating and delivering services. This is why the vast shift of world production, consumption and wealth into the region of which we are a part is so important to our future.

Not only for the opportunity to sell our coal and iron, our ore and gas and our other mining products, as important as these exports are. Not only for the opportunity to sell our wheat and wool and meat, as important as those exports are. Not only for the opportunity to sell our manufactures. But also for the chance to continue to transform our economy into one which increasingly exports services. ...

Now the point I want to make to you about this future for Australia is that our success in the Asian Century, in the mining boom and beyond, will rely more on education and training than anything, and that depends heavily on investment by governments.