World Economic Forum on East Asia
The Leadership Imperative for an Asian Century
Singapore, 24-25 June 2007

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Contents

Page 3
Preface
Page 4
Summary: The Leadership Imperative for an Asian Century
Page 8Asian Leadership
Page 12
Risk Management
Page 16
Sustainable GrowthPage 20
Competitiveness
Page 26
Acknowledgements

2 | World Economic Forum on East Asia

Preface"The Leadership Imperative for an Asian Century,” wasthe theme for the 16th World Economic Forum on East
Asia which was held in Singapore. As such 300 leadersfrom 26 countries examined and discussed thechallenges and priorities that ultimately shape theregion’s future agenda.
Implicit in this year’s theme were two fundamental
assumptions going forward. One is that a global shift in
power and influence is taking place whereby the lead
actors are increasingly from the Asia-Pacific region.
This will not be a seamless transition, as change willneed to be managed between nations as well as withinglobal institutions to adapt to this shift. Therefore, theprogramme of the World Economic Forum on East Asia
was designed to generate insight and guide action to
improve the alignment of the region’s industry, politicaland economic agendas in a period of transition.

The second assumption is that Asia is able and willingto assume the global leadership responsibilities that willflow from this shifting power equation. Its ability toassume a greater role in the near future will be
predicated on fulfilling the political and economic
expectation of an ASEAN community, building stronger
trilateral relations among China, Japan and Korea andintegrating India further into East Asia. Yet, the region
will need to act quickly as Japan, Korea and China face
the task of adapting to rapidly ageing populations,while India and ASEAN nations will need to create jobs
for growing numbers of young workers, mainly fromrural areas.
We hope you find the report of this year’s proceedings
to be an insightful and timely guide to explore how theregion’s stakeholders can work together to address theleadership imperative for an Asian Century.

Lee Howell
Director, Head of Asia

Sushant Palakurthi Rao
Associate Director,
Global Leadership Fellow,
Asia

3 | World Economic Forum on East Asia

Summary – The Leadership Imperative
for an Asian Century“

East Asia’s renewed economic
buoyancy is a unique story of growth
and transformation that will improve
the lives of billions of people in theregion, and also benefit the rest of theworld. But while the overall outlook is
good, there are major risks anduncertainties to watch out for.
Forums like this are valuable
opportunities for us to look over thehorizon, discuss possible scenariosand exchange ideas on how we canminimize the chances of bad
outcomes. For the better informed weare, the less likely we are to be taken
by surprise or make mistakes.

“

Prime Minister Lee Hsien-Loong of Singapore

4 | World Economic Forum on East Asia

Memories of the Asian financial crisis loomed large
over the World Economic Forum on East Asia as it
took place on the eve of its 10 year anniversary. Some
300 leaders from 26 countries representing business,government and civil society gathered in Singapore for
the Forum’s 16th such meeting to discuss whichissues should be at the top of Asia’s agenda. While
Asia’s resurgence in the past decade has muchstronger economic foundations, leaders will need to
pay closer attention to a creeping complacency overhaving accumulated massive foreign currency
reserves, over the growing cost of climate change andover the potentially destabilizing income disparities
growing across the region. “It’s precisely because
everyone’s feeling so good that we know something’s
coming,” observed Tharman Shanmugaratnam,
Singapore’s Minister of Education.
Shaking off such complacency requires action, but
inspiring and taking action when times are indeed
good is the hallmark of true leadership. To reflect this,the theme for the 2007 World Economic Forum on
East Asia meeting was The Leadership Imperative for
an Asian Century. The emergence of China and India
as major international players has thrust Asia to theforefront of global economic growth and politicalchange. No longer can Asia be content to respond to
global trends. It now shapes them. For example, thechallenge of climate change is clearly global in scope
but certain regions, most notably Asia, will have toassume much greater responsibility in implementing
solutions than others. There is indeed an emerging
social consciousness in Asia to do more to address

Nor Mohamed Yakcop, Second Minister of Finance of Malaysia, making the closing remarks, with Carlos Ghosn, President and Chief Executive
Officer, Renault, France; President and Chief Executive Officer, Nissan, Japan; Member of the Foundation Board of the World Economic Forumand Co-Chair of the World Economic Forum on East Asia; Goh Chok Tong, Senior Minister of Singapore and Chairman, Monetary Authority ofSingapore; James T. Riady, Chief Executive Officer, Lippo Group of Companies, Singapore; Co-Chair of the World Economic Forum on East Asia;
Jim Goodnight, Chief Executive Officer, SAS, USA; Co-Chair of the World Economic Forum on East Asia; and Christopher J. Graves, President
and Chief Executive Officer, Ogilvy Public Relations Worldwide, Hong Kong SAR

such pressing global challenges. It comes not only
from those left behind by globalization, but also among
globalization’s greatest beneficiaries in Asia who areresponding with rapidly growing philanthropic activities.
The onus therefore is on governments and companies
to channel this awareness into tangible action in areasthat enjoy broad-based support. “The region’s leaders
are up to the challenge,” said Philippine President
Gloria Macapagal Arroyo. “Our time has come,” shesaid. “Asia will be up to the task of leading our people
and our region into a more dominant role in world
economic and political affairs.” In this context, leaders
at the World Economic Forum on East Asia wereasked in a survey to identify the one action item thatshould be a priority for the region in the areas of Asian
Leadership, Risk Management, Sustainable Growthand Competitiveness.
• In the area of Asian Leadership: “Building a common
agenda shared by China, Japan, India, Korea and
ASEAN on key regional challenges” was considered
the top action item.
• In the area of Risk Management: “Putting energy
and environmental issues at the top of the agendaof regional institutions” was selected as priority
number one.
• On the topic of Sustainable Growth: “Improving
energy security and efficiency in major consuming
countries in Asia” was the top action item.
• On the topic of Competitiveness: “Adapting to thecontinued growth and rising economic influence ofChina and India” was considered the top priority
going forward.

Asian Leadership
Globalization and the continued rise of China andIndia are putting pressure on Asian leaders to speed
up regional integration but it requires balancing
national interests with regional and global
responsibilities. This in turn calls for authentic andpragmatic leadership that is focused on deliveringresults at the national, regional and global levels.
• The times demand that leaders focus less on grandplans and more on implementing commitments.
They need to take action on priorities such as
regional integration and problems that require
regional solutions.
• While East Asia has recorded significant economic
and social progress over the past two decades,
income disparities are growing. As countries attain
middle-income status, the region’s shortcomings
will become more glaring.
• How Asia responds to these widening income gaps
will be a critical test of its leadership. Leadershipmeans not waiting for the next crisis but rather
pursuing critical reforms needed to prevent or
prepare for one. It means taking a long-term view –not governing with the next election or the next
earnings announcement in mind.
• To prepare the next generation of leaders, countries
have to improve education to promote creativity,
innovation and an understanding of globalizationand global issues.

5 | World Economic Forum on East Asia

Goh Chok Tong,
Senior Minister ofSingapore, andChairman, Monetary
Authority of Singapore“

In economies like India, the growing
demand for financial services fromlocal firms and households, the large
opportunities for international investors
and increasing economic integration
provide the basis for the creation of
new regional financial centres.

“

K. V. Kamath, Managing Director and Chief Executive Officer, ICICIBank, India; Co-Chair of the World Economic Forum on East Asia

• East Asia can reduce its vulnerability to dollarrelated volatility and to US political backlash bystimulating domestic consumption and liberalizing
exchange rates. Unlocking domestic savings andpromoting the service sector could also slow the
widening income gap.
• Energy security and environmental damage posethe biggest risk to East Asia’s future. Every nationneeds to become more energy efficient and reduce
emissions. Poverty alleviation may be a priority, but
it will be moot if global warming and climatechange worsen.

Risk Management
Asia has recovered from the financial crisis of 1997
and 1998 and inoculated itself from future contagionsof similar origin. But the world has changed, and so
the fruits of Asia’s present success may hold withinthem the seeds of future crises. Thanks to globalization,
preventing a future crisis will require unprecedented
coordination between governments and businesses.
• The vast accumulation of dollars in East Asia is a
symptom of an over-reliance on exports andinvestment for growth. Low borrowing costs havestimulated the growth of complex derivatives that
could unravel unpredictably in the event of adownturn in the US economy or the dollar.
• Elections across the region pose a risk to policy
stability as new actors, parties and priorities comeinto play. Protectionism is feared to be on the risein the wake of a weakening Doha Round of tradenegotiations. There is uncertainty regarding theoutcome of nuclear non-proliferation negotiations inNorth Korea and Iran.

6 | World Economic Forum on East Asia

Sustainable Growth
The Asian model of growth – channelling high publicsavings and foreign investment into export industries –has combined with the opening of China and India to
produce remarkable growth in the past decade. But
this model is also taking an unsustainable toll on theenvironment and is producing rising income disparities
that threaten the region’s long-term stability.
• While it is counterproductive to blame developing
nations for climate change, it is nonethelessimperative that they improve their energy efficiency,
so that environmental costs do not squander
economic gains.
• Asia’s energy importers stand to gain more fromcooperating than competing to secure energy
supplies. In the long run, Asia needs to reduce its
reliance on fossil fuels and invest in developing
renewable energy.

Jim Goodnight, Chief
Executive Officer, SAS,
USA; Co-Chair of theWorld Economic Forumon East Asia““

I would appeal to members of ASEAN
to become more involved and their
voices to be made more clearly heard
within the Doha Round.
Neville Isdell, Chairman and Chief Executive Officer, The
Coca-Cola Company; Co-Chair of the World Economic Forumon East Asia

• Flush with reserves, national governments need todevise creative fiscal measures to help alleviate
income disparities. Metropolitan governments willplay an increasingly important role as Asia
becomes increasingly urbanized.
• Infrastructure investments stand out as the mosteffective means of spreading the benefits ofgrowth. Governments and companies alike need toinvest in projects that stimulate the poorest sectorsof the economy while reducing inefficiencies that
impede income growth.

makes sense for investors to spread risk, adopt a
global business approach and take advantage ofthe growing attractiveness of different economies.
China and India’s neighbours have to work harderand exploit their competitive advantages.
• Countries need to adjust and be flexible inresponse to changing cost structures at home andin rival economies. Innovation and skills
development could be key success factors.
• The ultimate test of competitive success for an
economy or region may be the quality of its
leadership and governance – how well ambitious
plans are actually implemented.

CompetitivenessAfter the Asian financial crisis, investors shunned theASEAN economies, wary of their vulnerabilities. The
rise of China and India prompted some analysts toconclude that South-East Asia could not compete.
• Reports of ASEAN’s demise have been greatly
exaggerated. The region has held its own andmany of the 10 economies have managed to carve
niches of opportunity.
• Business strategists now talk of a “China Plus One”
strategy – don’t put all your eggs in one basket. It

7 | World Economic Forum on East Asia

Asian Leadership“

Gloria Macapagal Arroyo, President of the Philippines

One of the challenges analysts of Asia have is that thecontinent is a place where it is often difficult to discern
rhetoric from fact – perception from reality. The gap
between what is at the surface and what lies beneath,between what is said in public and what is admitted
behind closed doors, can be significant.
Take South-East Asia and the region’s integration. On
one hand, ASEAN countries have hailed their efforts tocreate a free trade area and to conclude a plethora ofbilateral deals in the face of setbacks at themultilateral level. On the other, ministers tacitly
acknowledge that much of the work so far has been
focused on lowering tariffs, while certain sensitive
sectors remain protected. The heavy lifting required toeliminate non-tariff barriers, facilitate trade and createa single and seamless market remains undone. For
example, there is no harmonization of rules in the
trade of services in the 10 ASEAN economies. This
deficiency means that global services companies have

8 | World Economic Forum on East Asia“

What ASEAN is doing today is building
a community. The other thing we aredoing is maintaining the centrality of
ASEAN.

““The issue isn’t about a leadershipdeficit. The region has any number ofable leaders of strong nations, as wellas institutions like ASEAN, to provide
individual, regional and multilateralleadership. The real issue is the rapid
economic rise of the region at a time
when the global order has undergone
enormous swings.

Ong Keng-Yong, Secretary-General, ASEAN, Jakarta

no ASEAN business strategy; it would make no sense
to have one. “What we need is for ASEAN to have afree trade agreement with itself,” said Steven Okun,
Vice-President, Public Affairs, for global package anddocument distribution company UPS in Singapore.
Behind Okun’s somewhat jocular statement was avery serious plea for authenticity, for leaders to focus
less on grand visions and more on pragmatic policies
that have real impact. “We need less planning andmore doing,” said meeting Co-Chair Carlos Ghosn,
who is President and Chief Executive Officer of both
Japanese automaker Nissan and French car
manufacturer Renault. “ASEAN has more of a facility
for planning and less of a facility for execution. We
may have wonderful plans but execution is 5%.”ASEAN officials usually bristle at charges, particularly
from the business sector, that the organization is all
talk and no action. But today, with the pressures ofglobalization mounting and China and India continuing
their market-shaking rise, the chips are down andSouth-East Asian leaders are speaking more plainly.
“The step-by-step way they are handling the
integration of ASEAN and East Asia is slow by thereckoning of many of us, too slow by the reckoning ofbusiness people,” Singapore Senior Minister Goh

Carlos Ghosn, President and Chief Executive Officer, Renault,
France, and President and Chief Executive Officer, Nissan,
Japan; Member of the Foundation Board of the World
Economic Forum; and Co-Chair of the World Economic Forumon East Asia

Chok Tong conceded. Vowed Ong Keng-Yong,
Secretary-General of ASEAN: “In the coming year or
two you will see the leadership focus on
implementation.”
The collective record of Asian leaders over the past
two decades has been laudable. Asia has performed
extraordinarily well, the financial crisis notwithstanding.
According to the World Bank, the number of East
Asians living on less than a dollar a day was halved
from 300 million to about 150 million between 1990
and 2004, a decline in the incidence of poverty from
29% of the population to just 8%.
In Asia as a whole, however, about 20% of the
population is still poor. As Asia progresses and manyof its countries become middle-income economies,
the shortcomings of the region will stand out more
sharply. Already, a new set of problems has emerged– infrastructure deficits, environmental degradation,energy security, technological development andinnovation, and ageing populations. The most urgent
priority will have to be the growing gap between therich and poor, particularly in countries such as China
and India, where the ranks of the middle class have“

The step-by-step way they arehandling the integration of ASEAN andEast Asia is slow by the reckoning ofmany of us, too slow by the reckoningof business people.

“

“

“

We need less planning and more
doing. We may have wonderful plans
but execution is 5%.

Goh Chok Tong, Senior Minister of Singaporeswelled and some have become rich while hundredsof millions remain in poverty. “Differential responses toglobalization are leading to income inequality that is
becoming a more serious problem in every country,
every city and maybe every family around the world,”
warned George Yeo Yong-Boon, Singaporean Ministerof Foreign Affairs. “Unless we have global leadership,
this problem will become even more acute.”
Therein lies, however, a major challenge. Today, there
are no clear lines of global or regional authority. In aworld of global threats that require regional and global
solutions, there is a lack of regional and global
leadership with any clear mandate. In the absence ofsuch an agenda-setting force in Asia, it is up to eachcountry to balance their national interests with theirregional and global responsibilities. Authentic
leadership means acting to prevent or prepare forcrises, not merely responding to them. It means
staying ahead by pursuing reforms constantly, notreacting to competitive pressures or public criticism. It
means taking a long view, not governing with the next
election or quarterly results in mind.

9 | World Economic Forum on East Asia

CaptionCaptaptionCaptionCaptionCaptionCaptionCaptionCaptiononCaptionCaptionCaptionCaptionCaptionCaptionCaptionCaptionCaptionCaptio
nCaptionCaptionCaptionCaptionCaption

Indeed, how a government responds to widening
disparities in income that are stirring a sense of
insecurity, fear and resentment among citizens could
be a real test. “Governments may be pressured to rollback reforms and liberalizations and revert tonationalistic rules for foreign investments orprotectionist policies for trade,” Singapore Prime
Minister Lee Hsien-Loong told participants. “This will
not only choke off growth in the region but lead totensions and souring of relationships,” he said.
How can East Asian countries ensure that they
develop the necessary leadership? One way is toinvest in education that encourages creativity,
innovation and a global perspective, attributes that
future leaders of the region will need. “The educational
system is not responsive enough to the new worldthat we are facing,” said meeting Co-Chair James T.
Riady, CEO, Lippo Group of Companies, Singapore.
Minister Yeo also stressed the importance of preparing
the next generation for globalization. “We can’t justfeed them rules and regulations or canned
knowledge,” he concluded. “Countries which pay
attention to education and value systems will do well.
Those which neglect this area are not in the game.”

Dealing with the
Asianization Backlash
The growing clout of Asian exporters on world markets
has triggered a disturbing tide of economic nationalism in
the West, panellists in a session on the Asianization of
global markets and institutions agreed. The challenge thispresents to business, which has embraced the new
economic powers in the East and the profits from theiremergence, is to counter a rising clamour for protectionist
measures to save western jobs from cheap Asian exports.
Business needs to better explain the benefits of free trade
to politicians to counter mounting economic nationalism
in the current political debate. “Engagement ininternational commerce is the 21st century’s mostpowerful development tool,” said Coca-Cola Chairman
and CEO E. Neville Isdell. “As we look to ensure thesustainable growth of the world’s economy, it is vital that
we promptly conclude the WTO Doha Round. It will be asignificant step in the process of reducing the gap
between wealthy and poorer nations,” he said.
Detractors of free trade, panellists in the session agreed,found fertile ground for their calls for protection in the faceof superior growth rates in Asian economies, theaccumulation of massive currency reserves by Asian
governments, and the reverse engineering that is seeing
the transfer of corporate culture from Asian-based
subsidiaries back to their western head offices.
It is up to business, universities and think tanks tocounter the fears that this presents and demonstrate thatthe process is not a zero-sum game that will deliver
benefits to the East at the expense of the West.

10 | World Economic Forum on East Asia

Masatoshi Wakabayashi, Minister of the Environment of Japan, and Ralph R. Peterson, Chairman and Chief Executive Officer, CH2M HILL Companies, USA
Left page: Asia Forum on The Innovation Mantra with Lim Siong-Guan, Singapore Economic Development Board Chairman; Kiyoshi Kurokawa, Science
Adviser to the Prime Minister of Japan; K. V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank, India, and Co-Chair of the World
Economic Forum on East Asia; Jim Goodnight, Chief Executive Officer, SAS, USA, and Co-Chair of the World Economic Forum on East Asia; Liu Jiren,
Chairman and Chief Executive Officer, Neusoft, People's Republic of China; Lamon Rutten, Joint Managing Director, Multi Commodity Exchange ofIndia, India; and John K. Defterios, Group Vice-President, Content, and Anchor, United Kingdom, FBC Media, United Kingdom

Climate Change: Is Asia Avoiding “an Inconvenient Truth”?
Climate change has the greatest impact on the poorest people. While the UN Security Council debate on global warming in
April was a historic event that signified the seriousness with which the world considers the issue, concrete results comingfrom this concern will depend on "whether we have a common perception and work together," said Japanese Minister of theEnvironment Masatoshi Wakabayashi.
Existing technology will not be enough, according to Wakabayashi. Developed nations need to commit resources todeveloping new technologies to achieve a low-carbon society. Solar power and nuclear power will be essential, he said in asession on climate change.
Achieving reductions in emissions is possible using existing technologies, responded Jamshyd N. Godrej, Chairman andManaging Director, Godrej & Boyce, India. Referring to Al Gore’s film on the threat of climate change and global warming, hesaid Asia was avoiding “an inconvenient truth" by increasing carbon emissions in the name of economic growth and poverty
reduction, and pointing to their lower per-capita carbon emissions as justification. "The fact is that both China and India andother developing countries in Asia can not go on talking about per capital emissions. This is just a cop-out. We have to get on
with what we have to do for global warming."
Ralph Peterson, Chairman and Chief Executive Officer, CH2M Hill Companies, USA, said it was not right to point fingers in
the climate change debate: many of the goods coming out of Asia’s polluting factories after all are destined for American
consumers. The focus, he said, should be on improving energy efficiency and lowering energy intensity. Multinational
corporations have a special obligation in this regard to invest in more efficient technologies and make sure they are adopting
them wherever they operate in the world, he said. Peterson is optimistic that the world will succeed in lowering emissions in
the face of global warming. "Public opinion is galvanizing in a way that makes me very hopeful," he concluded.

11 | World Economic Forum on East Asia

Risk Management

Tharman Shanmugaratnam, Minister of Education, Second
Minister of Finance of Singapore

Compared with the Asia of 1997 – the Asia of thefinancial crisis, of tumbling currencies and bankbailouts – Asia today appears to be on much more
solid footing. Governments have learned the lessonsof the crisis, precautions have been taken, and eachknows what to do under such circumstances.
But the circumstances have changed dramaticallysince then. Globalization and free trade have generated
unprecedented wealth, while at the same time exposing
widespread inequities and the risk of deadly pandemics.
The Internet has transformed the way we live and work;
so too has radical Islam and terrorism. Uppermost in
the minds of participants was the realization that Asia
is choking on its very growth, producing pollution thatis contributing to global warming and climate change.
The next crisis, therefore, is unlikely to be one thatanyone is prepared for, or one that any single
government can cope with. “The nation state cannot
handle these issues,” said Masaharu Kohno, Japan’s
Deputy Minister for Foreign Affairs. “They areintercontinental, trans-generational.”
A new level of cooperation is needed in Asia, one inwhich not only governments, but also businesses
forge a shared agenda and common mechanisms for

12 | World Economic Forum on East Asia“

We’re in a situation where there’s noreal correction mechanism and we’rehoping one day that the market will
perform the correction. If you let themarket correct the mechanism, it will
snap and bring about a huge amountof economic chaos.

“

“

“

It’s precisely because everyone’s
feeling so good that we know
something’s coming.

Chalongphob Sussangkarn, Minister of Finance of Thailand

meeting it. Businesses have a special responsibility tohelp bridge national interests. “It’s about what we dofor society, about how we build that social license,
how we remember that the value we add back tosociety is what allows us to operate," said meeting
Co-Chair E. Neville Isdell, Chairman and CEO of
Coca-Cola.
Asia is fortunately well-positioned to tackle theseissues. Corporate profits and tax revenues arebooming, interest rates and inflation are low andforeign exchange reserves are at record highs.
Unfortunately, this same accumulation of wealth has
become a source of new risks. Easy credit andundervalued currencies have produced a torrent of
capital across the region. While Asian companies andgovernments have learned the perils of excessive
offshore borrowing, much of the capital pouring into
Asian markets is borrowed from abroad. Many of
Asia’s own reserves are in turn lent to the US, whose
demand for exports is still crucial to Asian growth. The
rise of complex derivatives to hedge thesePanel on Global Risks: Managing Threats to Asia's Prosperity: Tharman Shanmugaratnam, Minister of Education, Second Minister of Finance ofSingapore; James T. Riady, Chief Executive Officer, Lippo Group of Companies, Singapore; Co-Chair of the World Economic Forum on East Asia;
Masaharu Kohno, Deputy Minister for Foreign Affairs of Japan; E. Neville Isdell, Chairman and Chief Executive Officer, The Coca-Cola Company,
USA; Co-Chair of the World Economic Forum on East Asia; Chalongphob Sussangkarn, Minister of Finance of Thailand; and Rajat M. Nag,Managing Director-General, Asian Development Bank, Manila

Total reserves excluding gold (US$ billions)

Asian Total Foreign Currency Reserves Growing Rapidly$3,500
3,109
3,000
2,672
2,423

2,500

suggest the establishment of an Asian reserve bank tocomplement existing currency swap arrangements
and help coordinate monetary policy across the region.
Efforts also need to be made to reduce the growing
disparities between Asia’s haves and have-nots.

1,888

2,000

investments has made the situation even more
complicated. If some shock were to come, these
positions would unwind in ways few can predict.

Perhaps the biggest threat to prosperity, however,stems from the race to secure adequate hydrocarbons
for Asia’s energy needs and the toll that burning themis having on the environment. Competition forresources is raising the price for oil, gas and coal,even as emissions contribute to climate change that
could ravage Asia’s coasts, poison its fresh-watersupply and wilt its crops. Energy security and climatechange are now two sides of the same coin.

North Korea remains a perennial wild card. Polls
around the region could create populist tensions:general elections are scheduled this year in Australia,
South Korea and Thailand, with key parliamentaryelections due in Japan. Taiwan is planning apresidential election as China prepares for the
Olympics in 2008, and any pro-independence movesby the ruling party could provoke Beijing. Farther afield
it is protectionism that wins votes: The US Congressis levelling legislation aimed at China’s trade surplus
that could have repercussions around the region.

With China reckoned by some to have alreadysurpassed the US in carbon emissions – and India
closing fast – questions are rising as to whether
poverty reduction can still be used to justify risingpollution by developing countries. “The fact is thatboth China and India and other developing countries
in Asia cannot go on talking about per-capita
emissions. This is just a cop-out,” said Jamshyd N.
Godrej, Chairman and Managing Director of India’s
Godrej & Boyce. “We have to get on with what wehave to do for global warming.”

Ultimately, Asia needs to defuse trans-Pacific tensions
by further stimulating domestic consumption andreducing its reliance on exports to the US for growth.
Exchange rate regimes need to be gradually madeflexible and financial sectors liberalized. Some also

Many call for dramatic new investments in energysaving technologies and in renewable energy such as
biofuels and solar power. Some even say Asia willneed to pursue nuclear power, with several SouthEast Asian nations already launching nuclear

1,418

1,500
939

1,000
729

788

1997

1998

1,058

1,176

500
1999

2000

2001

2002

2003

2004

2005

2006

Source: IMF

13 | World Economic Forum on East Asia

“

Jamshyd N. Godrej, Chairman and Managing Director,
Godrej & Boyce, India

programmes. Concerns abound, however, about thesafety of this and about the risk that suchprogrammes could lead to further proliferation of
nuclear weapons.
Instead, some say, Asia can make an immediate dent
in its emissions just by improving the way it uses
energy now, from switching to “clean coal” technology
to replacing incandescent bulbs with low energy ones.

“

For Korea and most other Asian
countries, the major challenge will be
education and the continuing build up
of a pool of managers.

““

The fact is that both China and India
and other developing countries in Asia
cannot go on talking about per-capita
emissions. This is just a cop-out. We
have to get on with what we have to
do for global warming.

Chung-Won Kang, President and CEO, Kookmin Bank,
Republic of Korea

The money to finance the switch could come fromcarbon trading under the Clean Development
Mechanism of the Kyoto Protocol, suggested Nic
Frances, Chairman and Chief Executive Officer ofAustralian company Coolnrg International. Not only
can boosting energy efficiency lower emissions, it canincrease company profits and reduce utility costs forthe poor. “We haven’t done enough on energy
efficiency,” said Frances. “We have to think ofsolutions in unusual ways.”

East Asia Faces Mild Energy Security Risks
South Korea at the highest risk

East Asia's Greenhouse Gas Emissions
China (Mainland), Japan, South Korea and Taiwan among the world's top emitters

S. Korea
China (Mainland)

Japan

S. Korea
China (Mainland)

MyanmarLaos

Japan
GHG Emissions Index (GHG)

Myanmar
Laos
Thailand
Vietnam
Cambodia

Philippines

ExtremeHigh
MediumLow
No data

BruneiMalaysia

Thailand
Vietnam
Cambodia

Philippines

Energy Security Index
Extreme risk
High risk
Medium risk
Low risk
No data

BruneiMalaysia
Singapore
Indonesia

Singapore
Indonesia

Source: Maplecroft

14 | World Economic Forum on East Asia

Note: The Energy Security Index combines eight measures of national energy availability,
diversity and intensity.
Source: MaplecroftPanel on Energy Security: Will It Drive or Divide Asian Integration?: Tokio Kanoh, Chief Director, Committee on Economy and Industry, House ofCouncillors, Japan; Idris Jusoh, Chief Minister of Terengganu, Malaysia; John K. Defterios, Group Vice-President, Content, and Anchor, United
Kingdom, FBC Media, United Kingdom; Rajat M. Nag, Managing Director-General, Asian Development Bank, Manila; Hilmi Panigoro, Chief
Executive Officer, Medco Energi Internasional Tbk, Indonesia Ralph A. Cossa, President, Pacific Forum CSIS, USA

Energy Security Gives Power to Asian Integration
Despite abundant natural resources, Asia remains a net energy importer. With the price of oil rising amid increasing scarcity
and mounting concerns about carbon emissions and global warming, it is clear that countries in the region must adopt
measures to achieve greater energy security. Questions on how to secure new sources, build strategic reserves and develop
alternative sources such as nuclear power, however, ensure that no country can consider energy security without doing so inconcert with its neighbours.
The issues surrounding energy security pit Asian nations against each other, said Managing Director-General of the AsianDevelopment Bank Rajat M. Nag. But ultimately, Asian nations will realize that they stand to benefit more from cooperation
than from competition, he said. “Therefore I think energy security in the long run will actually deepen and hasten Asian
integration,” Nag said. Already, China and India have signed agreements to cooperate in their search for new energy sources.
Asian nations need to work to reduce their dependence on fossil fuels by promoting renewable energy, said Idris Jusoh, Chief
Minister of Terengganu, Malaysia. Malaysian palm oil is one alternative, he said, and solar power is a “gift from God.” Tokio
Kanoh, Chief Director, Committee on Economy and Industry, House of Councillors, Japan, stressed the need to use
technology to make existing industry cleaner and reduce carbon emissions. For the sake of both energy security and theenvironment, Asia must develop more energy conservation technologies, he said.
Ultimately, though, Asia’s energy security may depend on its willingness to develop nuclear power as an alternative source,
said Kanoh. Though it remains controversial, many communities have embraced nuclear power and even nuclear waste as anecessary alternative, he said. Weak political support and strong resistance from society may mean that nuclear power as ameans of enhancing security is decades away.

15 | World Economic Forum on East Asia

Sustainable Growth“

Rajat M. Nag, Managing Director-General, Asian Development
Bank, Manila

Asia has achieved unparalleled rates of growth in thelast decade, driven by the continued economic
dynamism of China and India, a revitalized Japan andincreased competitiveness of Korea and ASEAN
countries. But even as the region plays catch-up withthe developed world, it faces new challenges insustaining the momentum of that growth. Asia’s modelof growth – combining high savings rates with heavy
foreign direct investment, export promotion and stateintervention in strategic sectors – are taking an
increasingly costly toll on the environment andproducing rising disparities in income and affluence.

“

East Asia has succeeded in integrating
itself globally, but to succeed it needs
to have equitable growth internally.

““

While one Asia is growing and growing
very well, the other Asia that is fallingbehind has in it the seeds of social andpolitical tensions that can threaten theprosperity that we’re seeing.

Mari Pangestu, Minister of Trade of Indonesia

slow down because we‘ve got plenty of poverty,” theMalaysian minister said. “The growth momentum has
to be kept up, the emphasis in sustainable growthmust be in growth.”
While Ralph Peterson, Chairman and CEO of CH2M
Hill Companies, agreed that the finger-pointing was
unfair, he saw a worrying trend in the disproportionate
consumption of energy relative to output. ASEAN and
China are consuming significantly higher levels ofenergy than their global output warrants – 11% of
global output, but 21% of energy consumption for
ASEAN, while China consumes 15% of global energy
to produce just 5.5% of global output.
Asia’s Share of Global Carbon Emissions Rising

16 | World Economic Forum on East Asia

China and India are a major cause of the increase
20%
China

Share of world emissions

The environment was set to be a thorny topic in thewake of a Dutch government-funded study thatranked China as the number one polluter in the worldin 2006, overtaking the US. Accusations of “green
imperialism” abounded as many participantsquestioned what they called a blame game by theWest. Nor Mohamed Yakcop, Malaysia’s Second
Minister of Finance, pointed out that the factories
responsible for the carbon emissions were owned
largely by European and American corporations
producing goods for western consumers. “We can’t

15

Asia

10

(x-China and India)

5
India

0
1980

1982

1984

1986

1988

1990

Source: Energy Information Administration

1992

1994

1996

1998

2000

2002

2004

Of greater concern, according to a poll of the leadersparticipating in the World Economic Forum on East
Asia, is the question of improving energy security andefficiency in major consuming countries in Asia. Some
56% of respondents put this issue on the top of theagenda for sustainable growth, followed by 45% who
voted for improving environmental protection at thenational and regional level; 41% for managing thesocial, environmental and infrastructural implications ofrapid urbanization; and 28% for directing Asia’s vastsavings to ensure sustainable and equitable
distribution of the region’s wealth.
To achieve greater security, participants said that Asian
countries need to boost energy efficiency, reducereliance on fossil fuels, and invest in the research anddevelopment of renewable energy. Mounting oil prices
add urgency to this economic and political imperative.
The region, despite being gifted with an abundance of
natural resources, is a net importer of energy. The
consensus is that countries are better off cooperatingwith one another than competing as they move tosecure energy supplies. China and India embraced
this approach by signing agreements to cooperate inresearch for new energy sources.
The widening gap between the haves and have-nots
is a longer term but no less complex challenge tosustainable growth. “While one Asia is growing andgrowing very well, the other Asia that is falling behind
has in it the seeds of social and political tensions“

George Yeo Yong-Boon, Minister of Foreign Affairs ofSingaporethat can threaten the prosperity that we’re seeing,”
said Rajat M. Nag, Managing Director-General of the
Asian Development Bank.
With some 1.9 billion Asians living on less than US$ 2 aday, and more than two billion people without adequate
access to sanitation and clean water, the Herculean taskof closing the income gap calls for urban leadership andperhaps more imaginative ways of reinvesting the region’s
more than US$ 3 trillion in foreign exchange reserves.
Asian Economies Building Their Reserves
1,200South Korea

1,000
Index of total reserves, excluding gold
(US$, 1997=100)

Nor Mohamed Yakcop, Second Finance Minister of Malaysia

Differential responses to globalization
are leading to income inequality that is
becoming a more serious problem inevery country, every city and maybe
every family around the world. Unless
we have global leadership, this problem
will become even more acute.

“

“

“

This is green imperialism.

800

China (Mainland)
India

600

Asia
Japan

400

TaiwanASEAN

200
Hong Kong

0
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2006

Source: IMF; Taiwan Department of Investment Services

17 | World Economic Forum on East Asia

Muhammad Lutfi,
Chairman,Investment
Coordinating Board(BKPM), Indonesia“

We want to encourage foreign investors
to come to Vietnam.
We are changing from a command
economy to a market economy whichmeans big local groups are in theprocess of privatization. This will see
the continuation not only of direct
foreign investment, but also financial
investment flows into the corporatizationand privatization of companies.

“

Nguyen Sinh Hung, First Deputy Prime Minister of Vietnam

Some participants said that more of those reserves
could be channelled towards infrastructuredevelopment and towards improving supply chain
logistics that have resulted in high wastage intransporting agricultural produce from the farm to theport. They welcomed an idea advocated by Ong
Keng-Yong, Secretary General of ASEAN, for an
ASEAN infrastructure fund to invest in projects thatwould further spur economic growth in the region.
Arjuna Mahendran, Director at Credit Suisse in
Singapore, expressed a similar sentiment: “The only
way in which you can see the bottom of the pyramid
emerging as a significant consumer class is if
governments do their job. And when I say do their job,in a nutshell, that means building infrastructure.”

18 | World Economic Forum on East Asia

Infrastructure investments necessarily involve hefty
capital expenditure. The private sector, which has
the expertise to undertake such infrastructuredevelopments, will not step forward unless a largepart of the funding risk for this long-term investment isborne by the government. With more countries in abetter financial shape to do so, a private-public sector
partnership seems the most sensible solution, said
Antonino T. Aquino, President of the Manila Water
Company.
Socially responsible investment, where social andenvironmental goals are aligned with corporate
objectives, may just be the way forward as Asia
grapples with runaway growth that threatens its
delicate social fabric and ecosystems.

Thailand Minister of Finance Chalongphob Sussangkarn; Jim Goodnight, Chief Executive Officer, SAS, USA, and Co-Chair of the World Economic
Forum on East Asia; and Yi Gang, Assistant Governor, People's Bank of China, People's Republic of China at the roundtable on WHAT IF Asia Is
Hit by a Second Financial Crisis?

WHAT IF Asia Starts to Seriously Reduce Its Dollar Reserves?
Asia is unlikely to radically reduce its greenback reserves: This was the short answer from panellists at a session on
dollar reserves. First, the close relations between the US and some Asian countries ensure that a US dollar sell-off isvery unlikely. Second, it is not in the interest of export-oriented Asian countries to contribute to the weakening of thedollar vis-à-vis their own currencies as that will affect their ability to sell their products overseas. Third, preference for
US treasury bills is likely to hold because of their safety, liquidity and return. Finally, as economies become more
integrated, countries have become more measured and mindful of their actions because of their impact on the whole
region. The Chiang Mai Initiative on currency swaps, the panellists said, points to that awareness of interdependence.
China received sympathy for the fire it has come under regarding the rapid growth of its foreign reserves. Japan was
criticized for the same reason in the 1980s, one panellist observed. He believed the Chinese government is notdeliberately piling up its foreign reserves, and added that the reserves of China and Japan will come down as their
population ages over the next 10 to 20 years, mirroring the experience of Europe.
How should the reserves be used to ensure that capital wealth benefits the poorest citizens and least developed
communities? Most of the panellists believed that a part of the accumulated reserves should be pumped back into
domestic economies. The reserves, one panellist proposed, can be used to improve infrastructure. "Asian
governments are not doing enough. The past focus has been on exports; reserves should be recycled back into
building domestic economy, creating domestic demand and investing in infrastructure; the impact to Asia will betremendous and positive," he said. Another panellist supported the idea mooted recently by ASEAN Secretary-General
Ong Keng-Yong, who proposed the setting up of an ASEAN infrastructure fund in which member countries pool
together a common fund to invest in infrastructure projects to further spur economic growth in the region.

19 | World Economic Forum on East Asia

Competitiveness“James T. Riady, Chief Executive Officer, Lippo Group ofCompanies, Singapore; Co-Chair of the World Economic Forumon East Asia

When South-East Asian economies were laid low by
the financial crisis, their vulnerability to the swift
movement of short-term capital and the weakness of
their banking and corporate sectors were exposed.
Investors fled. Then came a surge of China fever as
investors discovered the mainland’s second and third
tier cities and the power of China’s low-cost
manufacturing. China would produce everything,some analysts predicted, relegating ASEAN to the roleof purveyor of commodities and agricultural products
to feed the hungry dragon. China would suck away
FDI and South-East Asia’s factories would close.
Recently, India’s rise has grabbed the attention of
investors and raised questions about East Asia’scompetitiveness in the low-cost services sector.

20 | World Economic Forum on East Asia

“

“

“

Asian markets and institutions aremuch more robust and stronger than
10 years ago. The reason being
institutions that survived the crashhave implemented controls andliquidity systems to better manage theflow of money and currency. They
have also communicated more clearlymonetary policy so that the private
sector can invest and plan withgreater confidence.

Everybody is trying to replace red tapewith red carpets.
Ko Kheng-Hwa, Managing Director, Singapore Economic
Development Board

But South-East Asia held its own. ASEAN’s exports
grew along with China’s, though raw material andnatural resources demand from China was in no small
measure responsible. Vietnam has emerged as a lowcost manufacturing platform with a skilled workforce,an attractive alternative for Japanese investors
concerned about their country’s tense relationship with
Beijing. The Philippines, meanwhile, has managed tocarve out a niche in electronics, software programming,
back-office and call-centre operations. Thailand has
continued to be a key automobile assembly hub, while
Malaysia’s electronics and semiconductor industries
have thrived. Singapore has pushed itself further up
the value chain, developing new industries such as
biotechnology and strengthening its position as SouthEast Asia’s premier financial hub. Even in Indonesia,
shunned by investors for years after the crisis, FDI has
started to rebound. “We have seen companies thatleft after the crisis come back,” said Muhammad Lufti,
Chairman of Indonesia’s Investment Coordinating Board.
Indeed, while investment levels in crisis-hit countries
may not yet have recovered to pre-1997 levels, not allof the FDI heading to developing Asia is going to China.
Fears of an overwhelming China juggernaut have notbeen realized. Now business strategists talk of a “China
Plus One” approach – don’t put all your eggs in one
basket. “China Plus One” makes sense for threereasons, said Ko Kheng-Hwa, Managing Director,

K. V. Kamath, Managing Director and Chief Executive Officer, ICICI Bank, India; Co-Chair of the World Economic Forum on East Asia; Jim
Goodnight, Chief Executive Officer, SAS, USA; Co-Chair of the World Economic Forum on East Asia; and Liu Jiren, Chairman and Chief Executive
Officer, Neusoft, People's Republic of China“

K. V. Kamath, Managing Director and Chief Executive Officer,
ICICI Bank, India; Co-Chair of the World Economic Forum on
East Asia

Singapore Economic Development Board, Singapore.
First, there is the logical need to diversify operationalrisk. SARS, the tsunami and earthquakes that have hit
the region underscore how a sudden crisis can disrupt
supply chains. If China is knocked out, manufacturers
will need reliable alternatives for production. This isespecially true in these days of just-in-time production,delivery and inventory management. Second, there isa business optimization motive: many companies,
including Chinese enterprises, know they have to be
global to compete. Third, China and India’s rise isforcing other economies in East Asia and elsewhere tofind ways to be more competitive and more attractive
to investors. “Everybody is trying to replace red tapewith red carpets,” said Ko.

“

Regulatory regimes and global
standards, particularly in thetechnology sector, mean that‘think globally, but act locally’ nolonger applies.

““

An Indian company recently boughta library of some 10,000 Indian movies
and started selling them at less thana dollar each. That has removed
the need for consumers to buy
pirated movies.

Jim Goodnight, Chief Executive Officer, SAS; Co-Chair of theWorld Economic Forum on East Asia

Joseph L. Rice III, Chairman of US direct investmentgroup Clayton, Dubilier & Rice. Reliability and quality
are important considerations since these companies
want to maintain or even increase the quality of theirproducts, not just make them more cheaply.
There are many other factors for success thatcountries have to keep in mind. China, for example,
has already found that it must adjust as labour costs
go up in parts of the country as skilled managers
become scarce and the workforce more affluent.
Affected businesses have moved inland. Others have
moved up the value chain. Indeed, China has
In Purchasing Power Terms, China Dominating Growthin Asian Output
ASEAN share of world economy growing slowly since 1998
18%
China

Marketing an economy to investors has become a
global game. If an economy cannot beat China on
labour costs, then it must try to do so in other ways –its availability of skills, the strength of its intellectual
property regime, or its workforce’s capacity forinnovation. Investors setting up offshore operations do
not necessarily flock to the lowest-cost market, said

Share of world GDP (PPP)

16
14
12
10
8

India
Japan

6

ASEAN

4

Rest of Asia
2
0
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007F

2008F

Source: IMF World Economic Outlook

21 | World Economic Forum on East Asia

Lim Siong-Guan, Chairman, Singapore Economic Development Board, and Kiyoshi Kurokawa, Science Adviser to the Prime Minister of Japan

Crisis Economies Have Returned to Growth Trajectories

Average* annual change in GDP

10%
8
6
4
2
0
-2

Concluded meeting Co-Chair Carlos Ghosn, President
and Chief Executive Officer of both French carmaker
Renault and Japanese automobile manufacturer
Nissan: “Because of the increasing weight of Asia, thenumber of industries and sectors where Asia isleading in innovation has got to increase.”-4-61989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

*Average of Indonesia, South Korea, Thailand, Vietnam, Philippines, Malaysia and Singapore

Source: IMF

surprised competitors with how quickly it has moved
from low-end manufacturing to more sophisticatedmid-range and even high-end products. The Chinese
leadership also understands that as energy costs andenvironmental costs mount, the country’s industries
must become more efficient and innovative.
To be competitive, every economy has to take up theinnovation mantra. Singapore, which regularly performs
well on global competitiveness rankings, has put thecause of innovation at the forefront of government
policy. “If we leave out education and skills training,then we will be stuck with the old ways of growing the
economy,” explained Goh Chok Tong, Senior Ministerof Singapore and Chairman of the Monetary Authorityof Singapore. “For the future, you have to create
wealth. To create wealth, you have to innovate.”

22 | World Economic Forum on East Asia

The winners in the globalization age will be thoseeconomies and regions that put their competitive
advantages together correctly and make the rightpolicy choices. The challenge for a region such as
ASEAN is that the going is only going to get tougher.
South-East Asia will have to make good on its
regionalization commitments and go beyond lowering
tariffs to achieve much deeper integration that truly
makes the area a single, seamless market. In thisrespect, quality leadership and governance could be
the essential ingredient of a globally competitive
economy or region. As Goh said: “If you don’t have agovernment that understands the importance ofmacroeconomic policies, investment in education andhow to manage socioeconomic divisions in a country,
it would be difficult for an economy to thrive.” This
plain truth applies as much to the giants of Asia –China and India – as it does to the smaller neighbours
scrambling to keep up.

Private discussion on Technology and Innovation

Technology and Innovation in Financial Services: Scenarios to 2020

Technology-led innovation and globalization is changing thefinancial services landscape, ushering in new opportunities
for incumbent financial institutions, but also enabling new
entrants to reshape markets and disrupt value chains. The
Forum’s latest scenario report, Technology and Innovationin Financial Services: Scenarios to 2020, explores justhow globalization and innovation will reshape the financial
services sector over the coming years. Commissioned by
the CEOs of the World Economic Forum Industry Partnersof the Financial Services, IT and Telecoms industries, thereport is the result of 12 months of research aimed atdeveloping a tool to challenge business leaders and policymakers with a set of plausible and provocative alternative
futures of the financial services industry by 2020.

“Could banking the unbanked end broadened access tofinancial services become reality? Advances in technology
and innovations will percolate down and make this possible.”
At a session at the World Economic Forum on East Asia in
Singapore, which brought together leading financial services
and IT firms, SAS CEO Jim Goodnight noted: “There isno question that technology is accelerating innovation in
financial services. The Forum’s scenario work is critical toestablishing a clearer picture of the potential oftechnology to create increased value in both industries.”

INCREMENTAL INNOVATIONPRIMARILY DRIVEN BY INCUMBENT,GLOBAL FS PROVIDERS

FUNDAMENTAL INNOVATIONPRIMARILY DRIVEN BY NEW ENTRANTS
AND SPECIALIZED PLAYERS

Innovation Islands

Back tothe past

Business
as usual

Leapfrogging

LOCAL
FS MARKETSICICI Bank was one of the key contributors to thedevelopment of the scenarios. Referring to the impact oftechnology innovations on the developing world, ICICIManaging Director and CEO K. V. Kamath explained:

Next Frontier
TRULY OPEN, GLOBAL
FS MARKETSGlobal Ivy League

The report describes three scenarios, “Global Ivy
League”, “Next Frontier” and “Innovation Islands”, eachdistinguished by the degree to which innovation isincremental vs fundamental, as well as the level ofregionalization vs globalization of financial services
markets. The scenarios examine a range of emerging
technologies and innovations including peer-to-peer
financial services platforms, biometric authentication,
Internet-based identity protection solutions, as well as
low-cost channels and solutions to bank the 4 billion
people currently unbanked.

23 | World Economic Forum on East Asia

25 | World Economic Forum on East Asia

Acknowledgements

The World Economic Forum wishes to recognize the support of the following companies as Partners or
Supporters for the World Economic Forum on East Asia:
Strategic Partners
Audi
Bain & Company
Barclays Capital
The Boston Consulting GroupCA
Clayton, Dubilier & Rice
The Coca-Cola Company
Credit Suisse
Infosys Technologies
Manpower
METRO Group
NASDAQPETRONASSK Group
Unilever
WPP
Zurich Financial Services

Regional Partners
GeoPost Intercontinental
UPS

Meeting Supporters
Financial Technologies
Lippo Group

Official Carrier
Thai Airways International

26 | World Economic Forum on East Asia

Contributors

Peter Torreele is Managing Director of the World Economic Forum. Lee Howell is Director, Head of Asia, at the Forum.
Sushant Palakurthi Rao is Associate Director, Global Leadership Fellow, Asia. The World Economic Forum on East
Asia was under their direct responsibility, with Chantal Adamson, Event Manager and Meeting Coordinator; and Kate
Lau, Community Relations Manager, Asia.

Samantha Tonkin, Senior Media Manager at the World Economic Forum worked with Wayne Arnold, Catherine Ong
and Alejandro Reyes to produce this report.
The World Economic Forum would like to express its appreciation to the summary writers for their work at themeeting. Session summaries are available at www.weforum.org.
Associate Principal, Editing: Nancy Tranchet
Design: Kamal Kimaoui, Associate Principal, Production and Design
Layout: Kristina Golubic, Graphic Designer
Photographs: Munshi Ahmed

28 | World Economic Forum on East Asia

The World Economic Forum is an independentinternational organization committed to improving
the state of the world by engaging leaders inpartnerships to shape global, regional andindustry agendas.
Incorporated as a foundation in 1971, and basedin Geneva, Switzerland, the World Economic
Forum is impartial and not-for-profit; it is tied tono political, partisan or national interests.
(www.weforum.org)