Transcript #5
Let us move on to the last speaker, Mr. Zhu Xian, the Principal Director of the Asian Development Bank, working on the co-financing operations. Mr. Zhu had been working as a senior official of China's Ministry of Finance for a long time, and then he was appointed as Executive-Director for China in the World Bank Group.
I know him as a supervisor, but also as a very great friend to discuss the development of China and other East-Asian countries. Now he has moved on to the Asian Development Bank (ADB) and is working on multilateral lending institutions. I am very much looking forward to his remarks, both from the perspective of the ADB but also from a very successful developing nation, China. Mr. Zhu, you have the floor.
Mr. Xian Zhu: Thank you very much, Mr. Chairman. I really appreciate this opportunity to be a panelist for this very important discussion. I think the theme on "the East Asia development approach," is really significant and timely because after the Asian financial crisis, a lot of people naturally had a lot of doubts about the viability of the East Asia development models. I pretty much agree with Mr. Sumi that over the past 50 years, starting from Japan and then to others, the East Asian model may not just present itself with success. We also have failures and lessons. On the other hand, I think now it is really high time for us to revisit the viability and implications of this model, to see whether at least in part some of the useful lessons can be applied to other regions. But, particularly after listening to Professor Jeffrey Sachs' very compelling and convincing arguments, I really wonder whether I really have anything to add, but let me try.
I think that basically Professor Ohno provided a very useful overview of the East Asian development approach. Let me just try to make a comment on three things I think are of relevance and importance: first, the definition of the East Asian development model; second, relations between poverty reduction and growth; and third, regional integration.
Let me briefly touch upon the first one. When China decided to open up and reform toward a market economy about 20 years ago, China was really inspired by the success stories in Japan, Korea, Taiwan, Singapore, and Hong Kong. That was defined, maybe loosely, as the East Asian development model. At that time too, some people challenged whether China could successfully follow the model because China was a huge country with a long history of central planning, and whether it was too late or still relevant for China to follow along the model-I should say that after 20 years of success in China's transformation the answer is that it is never too late. Even for the non-regional developing countries, we do not say one has to follow exactly one model but the essence of the East-Asian model can still be relevant to all these countries, particularly if it is tailored to the circumstances of specific countries.
Particularly, I would say that, as Professor Ohno suggested, many factors in this model have worked, but particularly the importance of the government's role versus the market's role. This should be looked at not as a fixed but dynamic relation. Along with the changing situation, this role has to evolve. And Professor Jeffrey Sachs just spoke about industrial policy. In recent years, if not longer, industrial policy was being criticized for many reasons. But I should argue that, based on China's experience or maybe rather with others, industrial policy is not equal to central planning. It must be very flexible with strong growth dynamism based on a national consensus. On the other hand, the government has to be very visionary with a specific stage of development in mind.
In that sense, I think that the Asian model has a lot of relevance to other developing countries. Particularly, as Professor Jeffrey Sachs argued, if African countries want to get rid of the cycle, regarding, the primary commodity dependence. You have to start from somewhere. Then, there must be careful consideration on the national growth or development strategy based on the comparative advantage in the global economy. Otherwise, probably, in the process of globalization the warning sign is that the primary commodity-based economies will be further marginalized.
When China started the process, it could not even compete in the world market by manufacturing things like shoes and garments. But these days, these labor-intensive products are no longer the primary part of China's exports. China is going up to higher levels of sophistication. So this is a very dynamic process by attracting foreign direct investment and by technology advances, as the other speakers have just talked about. The lesson for other countries is that one should not just follow blindly, but on the other hand, it is never too late to try to do things differently.
Secondly, Asian development approach needs to be made more articulate to the rest of the world. We need to let the outside world know what are the features of our success stories and also our failures. Probably, if it is beneficial, I would suggest that some more research should be organized by the Japanese government and other East Asian governments and done by scholars on the Asian models so that we can develop sort of a tool kit for other countries that want to try to apply-but, of course, flexibly.
Let me now move on to poverty reduction. I think that the international development community these days has focused on poverty reduction-as the overarching objective. Nothing wrong with that. I think this is a very noble and correct objective. But as Professor Ohno has implied, rather in Asian countries, is poverty reduction the only overarching objective of government strategy? My answer is no, at least not in the case of China. Over the past ten years, probably China has been the most successful one in reducing poverty, particularly in the rural areas. But on the other hand, while China tried direct targeting and intervention on poverty reduction it never thought that this was the only top priority of its agenda. Rather, China tried to incorporate poverty reduction into the strong growth. So we should have a better and broader understanding of poverty reduction. Poverty reduction can only be achieved through strong and sustainable economic development. We should not narrowly define poverty reduction as a welfare function or as a charity effort. As Professor Jeffrey Sachs has just argued, human resource development is also so important, without which we do not think that poverty reduction will go very far.
Thirdly, let me just say a few words about regional integration. I think that in the process of globalization, in the context of other regions, Europe and North America particularly we in East Asia have to anchor our economies more closely to regional integration. While there are a lot of initiatives these days, at the firm or at the private sector level, as Professor Ohno just presented, now probably is the time when we need to intensify our efforts to institutionalize the framework.
I would argue that in the foreseeable future, we need to envision at least the three pillars of strategic importance. One is the free-trade agreement between ASEAN+3. The initiative has already started. We cannot expect that that be achieved overnight, but we have to overcome a lot of domestically-led difficulties in order to reach the goals. Second, we probably need a new financial architecture for the region. Along the lines of Chiang Mai Initiative, with a swap agreement initially done, we need to move forward toward a monetary union based on the experience of the Euro and others. Third and last, East Asia, regionally, has accumulated a lot of savings. How we recycle the savings into the sectors and the countries in need and further into regional public goods, this is a challenge facing us. Probably we need to consider restructuring the financial institutions along the lines of EIB or EBRD, particularly with the institution I am serving now, that is, the ADB.
All in all, I think that this is really a good time to discuss the Asian development strategy and approach, both for its relevance and implications for the countries in the region as well as for the countries outside of the region. As far as China is concerned, I believe that it needs to further collaborate with Japan, Korea, and ASEAN countries. All these countries may also need to make joint efforts in better disseminating useful experiences for other countries so that we can see that other developing countries, particularly in the African continent, can develop better. Thank you very much.
Mr. Sumi: Thank you very much, Mr. Zhu, for your excellent remarks on the three critical issues to be addressed by the region. First, on the definition and also the communications of the East Asian model to other parts of the world; second, the definition of poverty reduction or the implication of poverty reduction in East Asia; and third, the more institutionalized regional integration in East Asia-that is the new agenda. And although there is a political challenge faced by many industrialized and also developing countries, we need to move on to the next stage of institutionalized regional integration rather than just a private sector-led integration.
