Asia's suffering

ECONOMIST:CHINA’s lunar new year sees the world’s largest migration, as tens of millions of workers flock home. Deserting for a few days the factories that make the goods that fill the world’s shops, they surge back to their native villages. This week, however, as they feasted to the deafening rattle of the firecrackers lit to greet the Year of the Ox, their celebrations had an anxious tinge (see article). Many will not have jobs to go back to.
Some Asians are blaming the West. The Western consensus in favour of globalisation lured them, they say, into opening their economies and pursuing export-led growth to satisfy the bottomless pit of Western consumer demand. They have been betrayed. Western financial incompetence has trashed the value of their investments and consumer demand has dried up. This explanation, which absolves Asian governments of responsibility for economic suffering, has an obvious appeal across the region.

Awkwardly, however, it tells only one part of the story. Most of the slowdown in regional economic growth so far stems not from a fall in net exports but from weaker domestic demand. Even in China, the region’s top exporter, imports are falling faster than exports.

Yet infrastructure spending alone is not a long-term solution. This sort of stimulus will sooner or later become unaffordable, and growth based on it will run out of steam. To get onto a sustainable long-term growth path—and to help pull the rest of the world out of recession—Asia’s economies need to become less dependent on exports in other ways.

Asian governments must introduce structural reforms that encourage people to spend and reduce the need for them to save. In China, farmers must be given reliable title to their land so that they can borrow money against it or sell it. In many countries, including China, governments need to establish safety-nets that ease worries about the cost of children’s education and of health care. And across Asia, economies need to shift away from increasingly capital-intensive manufacturing towards labour-intensive services, so that a bigger share of national income goes to households.