Asia has finally decoupled from the West thanks to booming services industries and surging domestic demand, argues veteran economist Jim Walker.
Taking a positive view of the continent's emerging markets, the founder of independent research house Asianomics said the region "has never looked better".
Speaking at last week's Borrowers and Investors Forum organised by FinanceAsia and AsianInvestor, Walker said the decoupling had taken place over the past three years and acted as an economic cushion against what he saw at Western failures since the global financial crisis.
He also attacked Japanese and European quantitative easing policies, saying they were damaging for global trade.
Decoupling was widely touted, until 2008, as a label for the rising strength and detachment of emerging markets from the West, but financial-market contagion during in the global financial crisis had reduced the concept's popularity.
But Walker suggests emerging Asia has indeed decoupled.
Total Asian exports – excluding China because of questionable trade data – have not grown over the past three years, he noted, yet the region has continued to record strong economic growth. The reason? The growth of service industries has made the economies far more self-sufficient through domestic demand, and less reliant on trade than they once were.
"The interesting thing is that services as a percentage of GDP are growing, and growing quite rapidly. What services are telling you is that domestic demand is looking okay, because services tend to be a lot less tradable than goods."
In countries such as China, India, the Philippines, Thailand and Indonesia, the services sector was holding up growth, Walker said. The reason for the sector's surge is that such countries are now far better connected, mainly because of technology.
While the West developed its physical infrastructure over the past 200 years by building physical infrastructure, such as roads, ports, airports and telephone lines, Asian emerging markets have become connected in different ways.
They may not have had the financial resources to match the West's physical infrastructure, but in recent years Asian emerging markets have built a highly effective virtual infrastructure, principally through mobile technology and the internet. This has helped drive domestic demand, because people are better informed on what to produce.
The rise of mobile phones and the internet were the enabling forces of today's global economy, he added, with countries such as China and India progressing from very low levels of mobile penetration to almost 100%.
Crucially, Walker sees this improved connectivity enabling companies to identify potential profits and act on that, thereby driving countries' and firms' growth. This means developing Asian nations no longer need to rely on the US, Europe or Japan to make the correct economic decisions.
With services and connectivity in place, Walker said Asia needed to put in place one more piece of the jigsaw – the eradication of corruption through good government.
Suggesting the current anti-corruption push in parts of Asia has been partly driven by technology and social media, he highlighted crackdowns in China, India, the Philippines and Thailand. But he reserved judgement on Indonesia, saying the "jury's slightly out" on the country's new president Joko Widodo.
Walker urged governments to continue this anti-corruption drive, as it would lead to lower business costs, higher corporate profits, more employment and increasingly sustainable growth.
When it came to Europe and Japan, however, Walker was scathing, especially over their QE policies in recent years. He said there was a big difference between American QE and that of Japan and Europe, because flooding the world with yen and euros "destroys dollars".
Noting that 70% of world trade is done in dollars, Walker said a weak yen and euro has been hitting trade flows. "What Europe and Japan are doing is shrinking the ability of us to sell to them, and shrinking their own ability to buy exports from the rest of the world."