The Asian Crisis; China & India

The Asian economic and political crisis due to the implementation of the Washington Consensus in the 1990s swept over many countries, from Thailand to Indonesia. The various assessments of the causes of the crisis agree on that it was primarily a problem of institutions, which failed to comply with the requirements of market economy. Some authors see another cause in the overestimation of the success of economic growth in the countries which were eventually most seriously affected by the crisis. Practically ignorant of local conditions and cultures, foreign companies made joint venture contracts with local enterprises, basing their business plans on relationships with local influential families and politicians. They were blind to the threat of nepotism and corruption. The ultimate cause, nonetheless, is described as the erroneous policy of the IMF, which tried to resolve the worsening economic situation by introducing its neo-liberal requirements in the 1997 (Jones, Stiglitz). It thus provoked social disturbances and suspended economic growth for several years. The governments of the affected countries failed to face the development, among other reasons because they submitted to the advice and recommendations by IMF experts practically without reservation (Stiglitz, 2003).

The successful politics of South Korea, Taiwan and Singapore are examples of the opposite trend. The report on the economic situation in these countries, funded by the World Bank, is aptly titled The East Asian Miracle. In particular, the governments in these countries promoted massive savings while regulating their own investments. Simultaneously, they cultivated the educational systems, thus creating conditions for the admission of technical and technological knowledge and managerial skills in order to fill in the gap separating them from the advanced industrial countries. In opposition to the Washington Consensus concept, the governments in fact acted as co-authors of the market economies. The fact that South Korea ultimately went into a crisis changes little, as it had been forced to take certain ‘non-systemic’ measures under pressure by the US Administration and the US Treasury Department. Korean corporations, nonetheless, rank among the global economic players today, affecting the state and functioning of the world’s economy.

China
The development in China demonstrates how globalisation co-affects the transformation of a totalitarian country, initially secluded from the rest of the world. Even though the initial causes of the opening up of the Chinese economy were of an internal character (the demographic trend was probably of the greatest importance), the need to step out of isolation, operate on global markets, and attract investment already had tangible global connections. China, having had to allow foreign companies to operate on its internal market, has permitted these companies purchase of growing numbers of shares in its originally exclusively state-owned enterprises, enabled joint ventures between Chinese and foreign companies, etc. The development of a market economy, however, requires increasingly relaxed political conditions. It is thus demonstrated that an effective market economy cannot develop without at least some degree of political freedom. In order to become fully present on the global markets, China endeavoured to join the World Trade Organisation (WTO) in 2000. That, however, has brought along many commitments regarding regulation of China’s market conditions. The quotas and non-tariff barriers have to be removed within five years, some of them even within two or three years. Foreign companies need to be given virtually unlimited goods import and export permits without state mediation. Foreigners need to be permitted to participate in wholesale as well as retail businesses. The restriction of property rights needs to be relaxed in many industries, including telecommunications. Subsidies need to be eliminated, primarily in agriculture. In addition, local barriers to trade, set up by provinces and municipalities for protection from neighbours’ commerce, need to be removed. This means that the ruling Communist Party will have surrender nearly all control over the economy (Chang, 2002). On the other hand, China’s economic and human potential within the WTO represents a force to protect the interests of developing countries, however its policies may not always coincide with such interests.

Thanks to the above, China is admittedly becoming an ever more important player in globalisation. It disposes of ever increasing own funds, and its growing consumption of material resources (oil, steel, minerals) affect the prices on global markets.

However, China also poses some global risks. Environmental devastation is probably the hottest topic. China’s political system is less and less in compliance with its inner economic change. The endangerment of the country’s political cohesion as a result of the independent status of Taiwan, the irredentist tendencies in the Western part of the country (Tibetans, Uyghurs, Kyrgyz, etc.), the growing dissatisfaction of the urban populations with their working conditions, and the poverty in the Western regions, is a potential for unpredictable conflicts. China is in fact being pushed further by the economic change it ultimately had to initiate in order to secure the existence of its growing population and to survive in the globalising world (Chang, 2005).

India
Alongside China and Brazil, India is becoming the third new global player. Like China, India has followed its own path in developing its economy. The assessment of its economic development in the 1990s, however, concludes that the introduction of economic liberalisation has not been followed by the expected growth in the GDP, poverty alleviation, job creation, increased investment, and growth in exports. It is noted particularly that India, a founding member of the WTO, took measures regulating imports and exports in accordance with the rules accepted by the Organisation. That has led to increased imports of finalised products, resulting in the collapse of many domestic enterprises. A substantial part of the imports came from China, with negative implications on the survival of small- and medium-scale domestic businesses. The exports of Indian textiles, to the contrary, collide with import quotas particularly in the United States and the European Union. At the same time, India has no significant profits from foreign direct investment (FDI). Whereas the FDI was 4.85 billion USD in 1995/96 to 2000/2001, the investment by the government was 10 billion USD (Datt, 2004).

Nevertheless, according to late 2005 indicators, India is the fourth strongest economy in the world measured by the purchase power parity (PPP), with an annual increase in the GDP of 8.1%. Services, particularly financial services, are the main source of the economic growth. After independence, India followed mainly socialist economic principles, so that the government controlled most of the industry, imports and exports, and foreign direct investment. These connections have relaxed after liberalisation. India is now facing the problems of overpopulation and unemployment. Its infrastructures are under-developed. The stability and food self-reliance are threatened by a worsening water supply balance, especially for agricultural irrigation.