IMF's Srinivasan: Inherent dynamism in APAC region

So the region has grown, has been quite dynamic. It remains dynamic. This year we have growth at 4.6%. We had five 4.5%. Last year it was 5% and it’s contributing 60% to global growth. And the upward surprises were across the board in many countries. We had India where there was a big major economy which surprisingly upside. So we have India growing at 6.8% this year. We have some smaller countries like Cambodia which also surprisingly upside. So there is inherent dynamism in the in the in the region and a lot of that has to do with the fact that you have some major economies doing well which are pulling the others along. How much of this has got to do with the China plus one strategy because we know a lot of the different countries across the region are seeing more interest on investment because companies, countries are trying to diversify away from China. So I think the issue of China plus one was the issue of you know diversity and supply chain. It’s not something new. You’ve seen that happening even in the past, in the past the reason was that you know when when labour, when when wages go up in China, should we look for other location where it will be cheaper to produce and then slowly that emerged into if there are trade frictions you want to diversify your production. So so it moved from higher wages in China to potential trade frictions. So that’s been happening. What you’ve seen since the pandemic is that been this relocation of production and sourcing inputs has been has increased. In fact there’s some there’s I think about 15% increase in what we call reallocation of production and of sourcing of input. The flip side to that is I mean that’s that’s bound to happen if you are you going to see a fundamental change in the supply chain that will take four years if it happens. But what you do see is that there is reallocation of production and of sourcing of inputs. But what, on the flip side, what you’re seeing is that supply chains are beginning longer. So instead of going straight from country A to country B, they’re being redoed through country C to avoid the kind of trade tensions and frictions. What that means is that it’s not about efficiency, it’s more about avoiding these tensions, which means at the end of the day you’re going to have higher prices, which affects the consumer. So that’s why the IMF has spoken loud and clear about fragmentation, because that poses significant risk not just to Asia, but the whole world. There’s been a lot of focus around the United States, been such a big growth engine at this stage, but a lot of the heavy lifting also coming from Asia Pacific, sure. So I’ll keep mentioning Asia Pacific. In Asia, 60% of trade is intra regional, right. So they trade between each other. And China is a key player there. And China, I mean this area is going at 4.6%, that’s at 4.6% for for 2024. And this is before the Q1 GDP came out. So there is upside to what we have in terms of you know output from China and you also have India growing at 6.8%. So you have two big countries accounting for a large part of global growth which are also providing impetus to rest of the region and that helps contribution. The whole region contributes about 60% of global growth. So yes, US is very dynamic. It’s going very fast, but Asia is equally dynamic and is also contributing a large amount to global growth. China is growing thanks to investments into new industries. Are you concerned about the growth story for China from here? And some of these over investments, as they’ve been called, actually impacting growth? So to answer that question, I’d look at 2 aspects to it. One is the macro aspect to it. And there, what we find is that what we would say is that there’s an issue of weak domestic demand in China and that emanates both from the property sector being weak. You know, the stresses continue and there are legacies from the pandemic. So we have advocated policies to boost domestic demand. First to fix the property sector. We have been very clear that three things are needed. Central government support for about 5% to finish prepaid housing triage to developers, separate the good ones from the bad ones and make sure the prices adjust. So that’s not property sector for boosting domestic demand. To boost consumption, we have talked about improving social safety Nets, which are important. So that’s on the macro aspect of the question you asked. The 2nd aspect is sectoral. Yes, China has provided subsidies, research funding, subsidized credit to certain sectors, certain firms, and that has two implications. It could lead to a misallocation of resources and it could have impact on trading partners. So for both, what we are emphasized in our Article 4 reports with China is that you really need to ensure that you have reforms of SOS, you have competitive neutrality between SO ES and the private sector, so that you have the same level playing field and that will help build dynamism in the sector and not lead to misallocation resources. And in terms of impact on training partners, yes, you do see that. You do see some countries which have similar production structure like Vietnam and Korea being affected by what’s happening in, in terms of production in China.

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