Thursday, April 21, 2011

Asia's where the action is, so wake up, Australia

excerpt: Surprisingly little is published about Indonesia and the Philippines which, some forecasts say, may both rank among the world's biggest 10 economies by mid-century.

Remember the days when America sneezed and Australia caught cold? During the 1990s economists would often treat us to charts highlighting the correlation between gross domestic product growth in the United States and Australia. That much-vaunted correlation last peaked in 1993 but fell away sharply after the Wall Street tech wreck in 2000 sent the American economy into a funk but left ''old economy'' Australia relatively unscathed. Meanwhile, the correlation between quarterly movements in Australian and Chinese GDP has steadily increased. It's an illustration of the tectonic shift taking place in the world economy and how Australia is now more dependent than ever on what happens in China.

But if Asia's economic re-emergence is so important to Australia why do financial events in the north Atlantic still get so much attention here?

Having recently returned after three years working in Asia as a correspondent for the Herald, I find the lingering obsession with the US and Europe hard to fathom. The amount of Asian financial news and analysis published in Australia has improved in recent years, especially with regard to China. But the proportion and quality still do not reflect the importance of the Asian region to us. The balance needs to shift further. America and Britain accounted for only about 10 per cent of Australia's exports last year, down from 18 per cent in 2003. By comparison four Asian countries - China, Japan, India and South Korea - received nearly 55 per cent of Australia's exports. The value of Australia's merchandise exports to India alone outstripped those to the entire European Union in 2009-10.

And yet, each morning financial institutions churn out reports with excruciating detail about economic developments in America and Europe. The financial press also has a disproportionate focus on the north Atlantic, even though economies in that region are less important to the Australian economy with each passing year. Our economic guardians at the Reserve Bank seem to think its time Asia got more attention. An assistant governor at the bank, Philip Lowe, said in a recent speech that, ''at a general level, the importance of Asia to Australia is now well understood. Despite this, it remains the case that the financial news from the United States and Europe dominates our newspapers and our airwaves. With this constant flow of information about the north Atlantic, it is sometimes easy to forget just how profound - and important to Australia - are the structural changes taking place in Asia.''

The decline in America's share of our export sales has been especially rapid. A decade ago the US was Australia's second-biggest export market behind Japan, accounting for almost 12 per cent of exports. Notwithstanding the US-Australia free trade deal, signed with great fanfare in 2004, the proportion of exports to America fell to less than 6 per cent last year. Since the signing, the US has slipped from third to fifth among Australian export markets. Export growth to the US has been anaemic compared with demand from Asian trading partners. The US and Europe remain big sources of foreign investment in Australia but, Austrade's chief economist, Tim Harcourt, says China, India and the Association of South-East Asian Nations are catching up in that department as well. Direct foreign investment into Australia from ASEAN has trebled in the past five years and now surpasses that from Switzerland and Germany.

Several Asian economies that now receive passing attention in Australia will become major economic players. By 2050, some forecasts say, the six biggest members of ASEAN - Indonesia, the Philippines, Malaysia, Singapore, Thailand and Vietnam - will have a similar share of the global output to Europe's big four - Germany, France Italy and Britain.

Surprisingly little is published about Indonesia and the Philippines which, some forecasts say, may both rank among the world's biggest 10 economies by mid-century. Other countries, like Vietnam, Thailand and Bangladesh - a nation of 150 million people growing by about 6 per cent a year, the International Monetary Fund says - are also destined to rise significantly in the economic league table. Given the importance of Asian economies to Australia you would expect analysis of data from that region to be of top quality. But scrutiny of Asian economic data is often superficial, especially compared with analysis of economic events in the US and Europe.

It is easier to stick with the crowd and report on America and Europe. The data is very frequent (giving analysts something to do) and relatively easy to interpret because of the long and sophisticated history of data analysis. By contrast, data coming out of China and other parts of Asia has typically been more difficult and time-consuming to interpret.

There are notable exceptions but, on the whole, Australian financial institutions have not made a major investment in analysing most Asian economies.

Those in the know have told me the analysis of Chinese data published by Australian financial institutions is often quite rudimentary. Often major political developments in our Asian trading partners receive little or no attention in the financial press, while events of arguably much less economic significance to Australia taking place in US and Europe are comprehensively covered.

The lingering obsession with financial news from the north Atlantic is partially explained by the significant amount Australian investors hold in US shares and other assets. Of course, events on Wall Street can have a disproportionate impact on smaller sharemarkets like Australia's. Our long-standing historical and cultural links with the US and the Europe also play a role. Most Australians can name obscure American states and dank British towns. We know cars are made in Detroit, London's financial district is called ''The City'', movies are made in Hollywood and San Francisco's Silicon Valley is home to some of the world's biggest information technology firms.

But it is time we heard more about what is produced in China's 32 administrative divisions and the 28 states of India. The Age, Melbourne by Matt Wade

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