SM Goh's speech at the Asia Society's 20th Asian Corporate Conference, 20 March 2010

"Asia's Place in the Emerging World Order"

1. The world economy has turned the corner, at least for the immediate term. A global economic meltdown has been narrowly averted and major economies are studying how and when to wind down their emergency and other stimulus measures. Some major economies are growing again with the bigger Asian economies leading the way. However, it is clear in the aftermath of the global financial crisis that a major adjustment to the global economic architecture is underway.

2. At the Pittsburgh G-20 Summit last September, President Obama announced that the G-20 would replace the G-8. His designation of the G-20 as the premier forum for international cooperation is a significant recognition of a fundamental shift in the global economic order. Notably, in his State of the Union address in January this year, he did not mention the G-8. In effect, President Obama has acknowledged the end of one era and the beginning of another. The formation of the G-20 recognises the reality that key decisions concerning the global economic order can no longer be the preserve of a small elite group of developed economies. The views of key emerging economies such as China, India and Brazil must be taken into account. However, the G-20 is still very much a work in progress. Its final shape is yet undetermined.

Asia Rising
3. This shift in the global economic balance is actually part of a much broader fundamental shift in the global strategic order in the post-Cold War era. The rise of Asia is the moving force behind this shift. In the past two centuries, the West has dominated the international system both politically and economically. But we are witnessing a gradual, steady shift of strategic and economic influence towards the East. According to IMF figures, Asia's share of global GDP in purchasing power parity terms has risen steadily from 18% in 1980 to 27% in 1995 and 34% in 2009[1]. Asia has also been growing in terms of its financial weight. The region's stock markets today account for 34% of global market capitalisation, ahead of both the US (33%) and Europe (27%)[2]. Asian central banks also hold two-thirds of all foreign exchange reserves. Last year, China not only overtook Germany to become the world's biggest exporter, but also the US to become the world's largest automotive market.

4. The recent global financial crisis gave a big push to the shift in economic power from the West to Asia. Asia has rebounded from recession much more quickly than countries in the West. Its banking systems and debt situations are also generally in better shape. Furthermore, the severity of the financial meltdown in the West has raised questions regarding the superiority of its free market economic models and their relevance for the rest of the world. But is there really a viable alternative to a free market economy? In my view, we should not fall into the purist error of assuming that the choice of economic model must be absolute. It has never been so in the real world. All economies, including in the West, have degrees of state intervention; the successful emerging economies in Asia are not command economies. So it could well be a case of adapting the market model to suit the conditions of each country, like what China, India, Indonesia and Vietnam have done. Indeed, there is now growing recognition in the West that some of the pragmatic economic policies long practised in Asia - such as the use of a range of monetary management tools rather than a fixation on the policy rate alone - have their merits. In fact, the shift of economic influence towards Asia can arguably be regarded as a re-assertion of a much earlier global balance. According to a study done by British economist Angus Maddison, Asia accounted for over half of world output for 18 of the last 20 centuries[3].

5. However, I would caution that Asia's current growth trajectory is by no means preordained. It is crucial that countries in Asia guard against any sentiments of triumphalism or sense of hubris that they have arrived. It may be Asia's Century in the sense that Asia will grow faster than other parts of the world but Asia has not irreversibly arrived. Recent history is littered with examples of countries that were once proclaimed rising stars, only to run into trouble later down the road, while some countries appear to be perpetually labelled as "emerging".

Managing the Evolving Architecture
6. History also records that transitions from one kind of international system to another tend to be a traumatic process that is often either the cause or the result of conflict. The challenge today for the international community is how to manage the ongoing transition towards a new global architecture while avoiding conflict. For that to happen, stability in the relations between the major powers, such as between the US and China as well as between China and India, will continue to be key. There will always be inherent tensions in these great power relationships as they compete for influence, markets and resources. But there are also built-in stabilizers in the growing interdependence of countries in a globalised and deeply interconnected world. Hence, these great power relationships will continue to be characterised by both the tension of competition and the synergy of cooperation. Hopefully, they will be like a gyroscope constantly attempting to strike a dynamic equilibrium.

7. Let me turn briefly to the key great power relationships in Asia. China and India are ancient civilisations with deep cultural memories and great ambitions. Although each side continues to view the other through lens coloured by some unhappy experiences, this has not stopped cooperation. In fact, the India-China relationship has gained a certain momentum, with clear signs that both sides are adopting a pragmatic approach in their dealings with each other. Both countries are learning to manage their differences while seeking cooperation in areas where there is mutual benefit. Their bilateral trade, for example, continues to expand rapidly. It rose from US$15 billion in 2005 to US$41 billion in 2009, making China India's largest trading partner[4]. Though we can expect competition between these two growing giants for resources such as energy and raw materials to intensify, there are encouraging signs that both sides want to avoid conflict and focus on economic development.

8. Similarly, the relationship between China and Japan is complicated due to their conflicted history. However, both sides appear to want to look beyond history to the future, accepting a never before situation where both countries could be concurrently strong. Hence, bilateral trade and investment have grown by leaps and bounds over the past two decades.

9. Meanwhile, US-China relations appear to have hit bumpy weather in recent months, with the two sides exchanging barbs over issues ranging from climate change to Taiwan and Tibet. But it is highly unlikely that either side will allow these differences to escalate into a full-blown stand-off. Both countries have too much to lose because they have become inextricably intertwined across the economic, political and security spheres. Today, the US remains as one of the most important markets for China while China has emerged as a significant lender to the US.

10. The on-going experiments to forge a new East Asian architecture or community should be understood in the context of these major power relationships. Competition and cooperation are different facets of a single new reality. Asian countries understand that regional stability is the prerequisite to continued economic growth. Hence, various regional groupings and dialogue mechanisms have been established in recent decades to manage these multi-faceted relationships, facilitate regional integration and defuse potential flashpoints. These include ASEAN, ASEAN+3 (China, Japan and South Korea), the East Asia Summit, the Shanghai Cooperation Organisation (SCO) and the South Asian Association for Regional Cooperation (SAARC), just to name a few. While varied in their composition and specific focuses, all these groupings have as their fundamental raison d'être the objective of managing the increasingly complex interactions among major powers which I have just described.

11. The current Asian regional architecture may appear untidily sprawling to an outsider, but that is because it must accommodate the historical circumstances of Asia's development and the heterogeneous political and social regimes prevailing in the region. The European Union is not the benchmark for the eventual shape of the regional architecture in Asia. Instead, the regional architecture in Asia will be much more fluid with many overlapping layers and mechanisms in order to accommodate the disparate political, cultural and economic interests in the region.

12. The evolving regional architecture will also have to take into account the fact that the US will continue to play a key role in Asia by virtue of its overarching security presence in the region. Even with regional economic integration gaining pace through FTAs, currency swap arrangements and other initiatives, many Asian economies are still dependent on the US as the final market for their goods and this will likely remain so for the foreseeable future.

India's Role
13. So where is India's place in all this? As an emerging power with one-fifth of the world's population, India obviously has a major role to play in the unfolding story of an ascendant Asia, as well as in shaping the contours of the evolving global political and economic order. But it needs to resolve some difficult challenges so as to ensure that its influence on the global stage will be commensurate with its strategic potential.

14. Many of the challenges are domestic in nature. India's recent growth story is well-known but the growth has not been evenly spread out, either across sectors, geographically, or among different parts of its vast population. IT and services sectors have been making the most impressive advances. The gains within the agricultural sector have been less stellar in comparison. The socio-economic challenges that India faces are well-known - infrastructure development, skills training, income distribution, urban development, Naxalite insurgencies, etc. India's vast land and population size as well as its sheer diversity in a pluralistic society have magnified many of these challenges.

15. There are no easy solutions but the Indian Government under Prime Minister Manmohan Singh has drawn up policies to deal with them. In infrastructure development, for example, Minister Kamal Nath is pushing a massive US$500 billion programme to upgrade India's ports, roads and airports. I am told he has set an ambitious target to build 20 km of road each day. By the time I leave India, there should be 60 km of new roads! In skills development, the Prime Minister's Council on National Skill Development has set a target to train 500 million skilled workers by 2022, and resources have been allocated to achieve this. Plans have also been put in place for administrative, legal, financial and tax reforms, etc. The recent talks between the Indian Government and the Naxalite leaders may well open the door to a durable solution for the security challenges faced by the affected districts. As progress is achieved in these areas, India will correspondingly improve its global position. These efforts will, however, take time and require patience and persistence, which are virtues that India's ancient civilisation does not lack.

16. India also requires a stable external environment to pursue its growth targets. These external factors include India's relations with its immediate neighbours as well as with other major powers and key regional groupings. India's neighbourhood is complicated, and India has to devote substantial time, resources and effort to the region. We in Singapore are heartened by PM Manmohan Singh's vision for South and Central Asia. In a speech in 2007, he said: "I dream of a day, while retaining our respective national identities, that one can have breakfast in Amritsar, lunch in Lahore and dinner in Kabul. That is how my forefathers lived. That is how I want our grandchildren to live". No matter how far away this dream is, it is a dream worth striving for.

17. India has been "Looking East" for almost two decades now. Here, I encourage India to define its neighbourhood to the East more broadly to include Southeast Asia. It is a fact that India's relations with the Southeast Asia region have grown substantially. Total trade between India and Southeast Asia quadrupled from US$12bn in 2003 to US$47bn in 2008. But we started from a very low base. If India goes beyond merely "Looking East" to proactively "Engaging East" in a strategic manner, then the region will be more balanced. Other major powers such as the US, China and Japan are already proactively engaging the Southeast Asia region. Indeed, as the axis of the international system shifts towards the Asia-Pacific and economic integration within East Asia accelerates, increasingly India, Japan, China and Southeast Asia will be seen as one big marketplace. How long this takes is contingent on the momentum of reform and liberalisation in each Asian country as well as the cooperation between the countries.

Conclusion
18. To sum up, the world as we know it is currently in a state of transition. A re-ordering of the global power structure is inevitable as Asia continues to grow. The status quo will necessarily change, though gradually. Exactly how the international order will evolve, and how smooth this transition will be, depend on how the major and emerging powers adjust to accommodate each other. Managing this re-ordering peacefully will be, I believe, the defining global strategic challenge of our times. Asia's role and, by extension, India's role in the process will help define how the final outcome will look like for our grandchildren.
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[1] Source: Figures from IMF quoted in "The Balance of Economic Power - East or Famine", The Economist, 25 February 2010
[2] Source: "The Balance of Economic Power - East or Famine", The Economist, 25 February 2010
[3] Source: "The World Economy : A Millennial Perspective" by Angus Maddison published in Jun 2001 by the OECD Development Centre
[4] Source: Press Information Bureau, Government of India