Victor K. Fung address to ICC Asia Pacific CEO Forum

Theme: Asia Pacific: a key to rebalance global economy

New Delhi, 8 March 2013

Mr. Singhania, Excellencies, Ladies and Gentlemen

I am delighted to be here and to see so many familiar faces, as well as new faces. I always feel at home in New Delhi, one of my favourite cities, where I have many good friends.

We are addressing today the critical theme of global rebalance and the role of Asia Pacific. This is very timely. Dramatic changes taking place in parallel many arenas – economically, geopolitically, financially and socially – are transforming the global economy. And Asia Pacific is right in the midst of this profound transformation

Our history

To help us understand the global economy today, let’s take a few minutes to look at what has happened in the past centuries.

In 1750, Asia corresponded to about 60% of the world’s population and a bit over 60% of global GDP, with China and India as the main contributors. By 1950, a mere two-hundred years later, Asia’s share of global population was still about 60%, but its share of global GDP had plummeted to less than 20%. For much of the ensuing decades Asia, with the exception of Japan, was seen as poor, crowded and turbulent.

Why Asia collapsed from wealth to misery has been the subject of numerous learned volumes. Whatever the cause, suffice to say that as the West embarked on the industrial revolution in the 19th century, Asia failed to do so, again with the sole exception of Japan. By failing to adapt to new challenges and new realities, Asia became poor and was perceived as backward and rigidly conservative in its ways.

While the Asian narrative of the 19th and first-half of the 20th centuries was one of decline, the story of the second half of the 20th century and onto the 21st is very different. Today, Asia still accounts for about 60% of the world’s population but its share of global GDP has risen to 27%. The Asian Development Bank forecasts that Asia’s share of the global economy could rise to 52% by 2050 if the current growth rates could be maintained. In short, Asia is being thrust into a global leadership position, reversing the pattern of the past 500 years.

This remarkable transformation came about following several decades of rapid economic growth in many Asian economies, including of course India. While there are differences in demographics, religion, natural resource endowment, political system, and development model, we could make a general point, drawing contrast with the previous one-hundred-and-fifty years, that the fast-growing Asian economies did adapt to challenges and opportunities by undertaking the necessary reforms to embark on successful policies of industrialization.

Being myself an Asian who has lived through and observed this period of high growth, I have no doubt whatsoever that one of the critical factors behind our success was our willingness and ability to learn. This was reflected not only in the reforms of educational curricula in Asian societies, but also in the vast number of young Asian engineers and other professionals who flocked abroad to study. For example, the top four countries with students earning doctorates in the US are all Asian: China, India, South Korea and Taiwan.

The fact that much of Asia has been a success is irrefutable. The figures speak for themselves. When I look back in my own lifetime as an Asian, I can only marvel at the distance we have travelled. We have much to be proud of and much to celebrate. In principle, Asian past growth should lay solid foundations for the future.

Future challenges

However, while justifiably celebrating, we must recognise that for all our achievements notwithstanding, past formulae of success may not guarantee prospects for the future. New challenges require different approaches and especially the vision and determination of leaders, such as you.

The list of challenges I shall propose to you will not be unfamiliar. What I would stress, however, is that you should see each one of them not in isolation but inter-connected to the others. To cite an example: if we do not persist with ambitious and aggressive policies of poverty reduction, we will have little chance to tackle successfully the challenges of governance and sustainability. Similarly, if we do not improve governance, the prospects of reducing poverty and inequality will be jeopardised, as will the prospects for ensuring sustainability.

In seeing where we are now and projecting to the future, I would stress two different sets of circumstances that provide the context for the challenges we are facing. The first set refers to internal dynamics, namely what is happening within Asian societies, and the second refers to the changing global environment, namely what is happening in the external world but which has, or will have, a strong impact on Asia.

Asian growth from 1950 to 2010 has occurred in conditions of quite abundant human and natural resources. Asian economies in their high growth periods have had the advantage of relatively cheap and abundant labour. As labour became scarcer and more expensive in certain economies they were able to shift investments to cheaper and more abundant labour countries. While there are still some countries with cheap and abundant labour supplies, the reality is that costs are rising, much of Asia is aging, and aging quite rapidly.

Furthermore, while there have been natural resource constraints for past decades, they are certain to become more acute in future decades.

Water, energy, minerals and food supplies are becoming increasingly stressed. This is the case not only as the global population continues to increase from the current seven billion to a projected nine billion by 2050, but also because there has been exponential growth in middle-income earners throughout the planet. This is especially true in Asia, where poverty reduction programmes have been quite remarkably successful. The dramatic increase in middle-income earners is in itself an excellent thing. It allows hundreds of millions more to aspire to the “good life”. But it also means that consumption rises and with that, additional demand on limited resources.

And this increase in demand also occurs at a time when the world is becoming increasingly concerned with climate change. Asian production and consumption result in significant increases in CO2 emissions. While we should aim for sustainable growth, this is proving to be a serious challenge.

As Asian societies become more urbanised, more middle-income, more educated and sophisticated, they also become more complex. While Asian societies for the most part have become richer, there has also been a significant rise in inequality. Moreover, when people’s standards of living rise so do their expectations of a better life for them and especially for their children. This applies not only to material objects but also to such intangibles as cleaner air and enhanced public goods. These complexities and social tensions require more effective and legitimate forms of domestic governance.

The past Asian success story has been due to a combination of brain and brawn. As I stressed, education was very much part of the equation. However, in the future the balance between brawn and brain will have to very much tilt towards the latter. For many of the more advanced developing Asian nations the challenge will not be to learn more, but to learn better and smarter. Knowledge creation, innovation, learning to do more with less, to create higher value: these are the challenges for tomorrow.

This leads me to comment briefly on the second set of changing circumstances: those arising from the external world.

The year 2008 was a crucial turning point in many profound respects. I would mention just two examples. The global financial crisis that year showed us that we were in the midst of major global transformations, among which was the trend of a shift of economic power to the emerging economies, especially those in Asia. That year was also the first time in human history that more people lived in urban than in rural areas, with all the attendant social, economic and political implications. In essence, it heralded the end of the world as my generation knew it.

The 20th century was dubbed the American century as American economic, military and political power soared. The US has been the global superpower. For the last six decades or so there has prevailed in the world what has been termed in Latin pax Americana – or the American peace. American power has been on balance benign and especially so to the fast growing Asian economies that depended on an open market economy.

While I do not believe that the US is headed for decline, there are clear signs that we are moving towards a multi-polar world, in which the US will continue to be the leading power, but increasingly as first among rising equals, China and India being perhaps the most prominent of the latter. A multi-polar world may or may not be a good thing; what is indisputable is that it is more difficult to manage.

One of the consequences of the transformation we are going through is that none of our multilateral institutions is functioning correctly. The WTO Doha Agenda has been stalled for some time. We are making little progress on the climate change agenda as frictions between nations rise. On the geopolitical security front, we live in a perilous world.

Conclusion

Therefore, for Asian societies to sustain their success into the 21st century they must get their own internal houses in order – and refurbished – in order to face new challenges. They must also pay attention to the global house. Asian nations can no longer just be passengers of globalisation. They need to be active drivers.

Ladies and Gentlemen, what does all this mean? It means we need leadership. We need globally minded, smart highly committed leaders. Leadership has to come from all sectors, not least from the private sector. We from business have much to lose if things go wrong, much to gain if they go right, and definitely much to offer to make the latter a reality. The International Chamber of Commerce as the world business organization and each of you as a senior business executive, have a leadership role to play. We will also need new thinking and innovative approaches to global issues that take into account Asian perspectives.

In this connection I would like to show you a short video produced by the Fung Global Institute, a Hong Kong-based think tank, of which I am founding chairman. The video reflects part of the Asian narrative that I have been sharing with you. [Video]

Thank you.