The Next Asia: Opportunities and Challenges for a New Globalization by Stephen S. Roach;
John Wiley & Sons, US$39.95
It is tempting to say that Stephen Roach’s The Next Asia: Opportunities and Challenges for a New Globalization should come with a health warning attached: Caution – after reading this book you may feel inclined to liquidate your portfolio.
Roach is a notoriously bearish economist, but this tag has never undermined his credibility (although he freely admits that, while his analytics-based approach allows him to identify trends correctly, he has "hardly distinguished [himself] in getting the timing right").
Currently chairman of Morgan Stanley Asia, Roach previously served as the investment bank’s chief economist and his reports on the region have become essential reading. A selection of his writings, from late 2007 and early 2009, form the basis of The Next Asia. And therein lies the problem.
To say Roach’s reports form the basis of the book is not entirely accurate; they are the book, more or less verbatim. In some respects, this makes for fascinating reading.
The Next Asia is broken down into five chapters covering key themes: the global financial crisis and the subsequent recession; globalization and how it influences relations between the developed and developing worlds; China’s need to rebalance its economy; the so-called Asian century; and trade tensions between the US and China. Each chapter features a series of reports in chronological order, creating something akin to an economist’s diary.
These are considered pieces, written for an audience of heavyweight investors, and so we are not treated to stream-of-consciousness entries jotted down in the 10 minutes before bed. Yet we do see patterns – trains of thought coming together, past analysis dug out and threaded into new arguments in need of reinforcement.
The chapter on the financial crisis in particular offers glimpses of a man trying to make sense of the chaos around him. "I have endured five recessions and about a dozen financial crises," he writes in the dark days of autumn 2008. "Yet never has one hit this close to home. That makes the experience personal, which runs the added risk of coloring the judgment of the cold, calculating analyst that I like to think I am."
Repeat and repeat
He is indeed cold and calculating. The problem is repetition. Each report is a stand-alone piece and so the same topics come up time and again. Roach’s thesis on global rebalancing, central to the book as a whole, is a case in point.
First, the American consumer is the weak link in the chain. The consumption share of US GDP hit a record high of 72% in early 2007, supported by asset-price inflation rather than by labor income. Consequently, the "savings-short, bubble-dependent, overly indebted, income-constrained American consumer" was an inevitable and brutal casualty of the property market collapse.
Second, don’t count on global decoupling. Emerging Asia remains export-led and therefore tied to US consumer demand. The export share of GDP in the region rose from 19% in 1980 to 47% in 2007, while the private consumption share fell from 66% to 48%. "Just as the financial crisis of the late 1990s was a wake-up call for the region to put its financial house in order, the global crisis and recession of 2008-2009 is a strong signal for Asia to refocus the basic structure of its economic development model," Roach observes.
Third, the Chinese consumer holds the key. Premier Wen Jiabao summed up China’s challenges in 2007 when he said that behind strong headline growth lurked an "unbalanced, unstable, uncoordinated, and unsustainable" economy. Roach is confident it is a case of when not if Beijing achieves sustainability by replacing its focus on exports and investment with a focus on consumption. However, he admits disappointment at the failure to deliver fully on promises of a social safety net, as set out in the 11th Five-Year Plan.
These points are compelling and well-crafted; Roach is very good at explaining how certain events fit into wider trends. But examples and data points are used repeatedly and this is frustrating – especially if the reader is already reasonably well acquainted with Roach’s basic views.
The Next Asia is not a must-read, at least not cover to cover. However, this doesn’t mean it has no place on the bookshelves of those who follow Asia. Its true value is as a reference material, something to pick through in spare moments or when in need of clear economic explanations.