December 8, 2019
Bank of Japan
A Perspective on the Future of Asia
Remarks at the Asia Pacific Initiative Forum in Yokohama
Haruhiko Kuroda
Governor of the Bank of Japan
Introduction
Good morning Ladies and Gentlemen. It is my great pleasure to join you today at the
inaugural meeting of the Asia Pacific Initiative Forum. I am confident that this forum will
develop into a central platform where Asian business leaders and policy makers can gather to
share insights, forge new partnerships and develop new innovative ideas to tackle global as
well as intraregional challenges.
Today, I would like to touch upon some characteristics and future challenges for Asia from a
macro perspective. My speech will be based on my experience serving as Vice Minister for
International Affairs at the Ministry of Finance in Japan, President of the Asian Development
Bank and Governor of the Bank of Japan.
I. An Asian Century
I would like to begin by first trying to put the word "Asia" into context. Looking into the
etymology of "Asia," one explanation is that it comes from the Akkadian word asu, which
means "to go out, to rise," in reference to the sun, thus "the land of the sunrise."1 So a couple
of thousand years back, all people or cultures originating from the east were collectively
classified into a single category of "Asians" or "Asia." However, the actual diversity of
ethnicity, religion and culture across Asia is immense compared with other regions of the
world. For example, the number of Asian sovereign states that are members of the United
Nations is 48, and there are more than 10 different official languages used in multiple
sovereign states. There are also vast differences in the stage of development of Asian states,
as the largest country in terms of per capita GDP on a purchasing power parity basis is more
than 7 times as large as the smallest one in the region.2
While it is difficult to generalize about Asia, the expression "the Asian Century" is used quite
frequently. The phrase expresses Asia's growing global presence, and is used similarly to
terms such as the "Pacific" or the "Chinese" century, and also to terms such as the "East Asian
miracle" or "Asia's rise."
At the same time, the term "Asian Century" evokes a historical narrative of shifting centers
of world power such as from Great Britain in the 19th century to the United States in the 20th
century. Back in 1904, Halford Mackinder, an English geographer, academic and politician
wrote "The Geographical Pivot of History," in which he forecast that the 20th century was
going to be the Asian Century. His forecast turned out to be incorrect. However, many
envision the 21st century as an Asian century, given the expansion of the Asian economy and
the growth of its population. Kishore Mahbubani, a Singaporean academic and former
diplomat has argued that the last two centuries of Western domination of world history have
actually been an anomaly from history. In the period from A.D. 1 to 1820, the two largest
economies of the world were those of China and India.3 More recent data on the economic
presence of Asia is shown in Chart 1.
II. Current State of Asia
Before I proceed, let me briefly mention some recent facts regarding Asia. Asia has led global
growth for the past several decades, and as of 2018, accounts for more than 40% of global
GDP.4 The region is home to around 60% of the world's total population. The share of
intraregional trade has been increasing and accounts for 58% of the total trade of all the
region's countries. Financial interconnectedness is also deepening. These characteristics are
shown in Chart 2.
Regional policy cooperation is taking place through various platforms. ASEAN is the center
of regional economic integration in South East Asia, and the scope of its cooperation has
widened with the involvement of other countries to form ASEAN+3 and ASEAN+6, and even
beyond Asia through arrangements such as APEC. Many Asian countries are members of G20
and their contribution to global policy making is increasing. In the area of central bank
cooperation, regional forums such as EMEAP and SEACEN are enhancing the active
exchange of views and the sharing of knowledge among members.
The movement of people across borders is becoming much more active as regional integration
deepens. This is also reflected, for example, in the regionalization of the media and popular
culture. There is a long-established network of production, distribution and consumption of
Chinese-language pop music, opera and films within the Chinese community all around Asia.
In the 1990s, Japanese television dramas became a staple of audiences across East Asia. This
success encouraged the Korean television industry to actively export its own dramas
regionally. These developments have resulted in a loosely integrated regional media and
cultural industry in East Asia which has also helped promote intra-Asian tourism and cultural
exchange.
III. Asia as Future
With the increasing interconnectedness of the region and its growing economic presence, it
is not surprising that there are expectations that Asia can and will lead the world. But simply
extrapolating from the strong economic performance of recent decades can be misleading. As
we well know, economic size alone is not enough to be accepted as a global leader. Looking
back at history after World War II and how the major powers have evolved, it clearly shows
that it is not just about brute economic or military power. A combination of vision, moral
values and respect toward others are also essential.
What do we have to do in Asia to truly harness the potential of this vast and complex region,
so that Asia can play an active role at the global stage? Asian countries will need to work
further to deepen intraregional collaboration based on mutual recognition and respect while
acknowledging the diverse nature of this region. Specifically, further deepening of economic
regional interconnectedness will certainly be necessary. Also, a broader perspective to
increase joint engagement in the global community on non-economic issues will be important.
I would like to touch upon them separately.
Enhancing Regional Integration
If Asia is to take on a global leadership role, this would require the promotion and
maintenance of open and flexible economies and markets. The strengthening of Asian supply
chains would also be essential for enhancement of economic interconnectedness. Much has
already been achieved on economic integration. For example, in ASEAN, there has been
progress in eliminating tariffs, advancing services liberalization, liberalizing and facilitating
investment and facilitating skilled labor mobility. However, as shown in Chart 3, compared
to Europe, Asia has a lower participation rate in global supply chains. Promoting trade
liberalization through frameworks such as TPP11 and RCEP would be the way forward,
especially in an environment where global trade tensions are high. It is important to promote
trade not only in goods but also in services. The region is steadily transitioning from being
mainly a production area of the world to the biggest corporate and consumer market in the
world. This naturally increases the demand for services in the region as well.
Equally important is coordination on cross-border regulatory and institutional elements
within the region. Discussions in ASEAN's Economic Community Blueprint 20255 could
provide hints on how to address such cross-border issues. For example, the business
community has in the past raised issues regarding the differing requirements and regulations
among ASEAN countries with incomplete mutual recognition agreements, and the
burdensome processes and inadequate transparency in some member countries. Although
substantial progress has been made, differences among members remain in terms of ease of
doing business and trading across borders. These challenges are noted in other Asian countries
as well. While the EU has been aiming for economic integration through the establishment of
a single market, Asian countries, such as the members of ASEAN, have preferred to preserve
each country's sovereignty. This is certainly appropriate, reflecting the region's diversity.
Having said that, as regional economies become more dependent on each other, more work
is necessary to reduce barriers to free trade of goods and services and for direct investment.
This would boost intraregional demand as a source of growth. It is also essential to work
jointly in developing deep and liquid financial markets to enhance the effective use of
regional savings and to invite long-term capital inflows.
As a basis for further strengthening such economic ties, it is also important to patiently strive
to deepen fundamental mutual understanding among countries and people in the region. As I
mentioned earlier, Asian countries are highly diverse not only in economic aspects such as
income, industrial structure and technological progress, but also in many other fields such as
religion and culture. For this reason, it is important to foster a stronger sense of trust while
respecting each other's unique characteristics.
Engaging with the Global Community
Asia must also actively engage in global discussions beyond pure economic issues. For
example, according to research by a consulting firm comparing the soft power of different
countries, only four countries from Asia are in the top 30,6 as shown in Chart 4. With around
60% of the global population, Asia has a responsibility to play a constructive role in global
issues such as climate change and inequality. Through effective dialogue, ideas and values
originating in Asia could provide a positive impetus to the global debate. From this
perspective, it is important to continue to actively participate in international discussions and
to raise Asian voices through frameworks such as the G20.
As I mentioned, climate change is an area that requires Asia's active contribution. Addressing
climate change risk requires a global effort. But, as a region that would be greatly affected by
increases in natural disasters, rising sea levels, and damage to agricultural and fishery industry,
this is a much more urgent issue for Asia. At the same time, in step with economic growth,
carbon dioxide emissions in Asia have increased rapidly, and counted for more than half of
total global emissions in 2017.7 It is important to collaborate within the region and with the
global community, by for example actively encouraging the introduction and sharing of
environment-friendly technologies.
How to take advantage of digital transformation is another area that Asia could play a leading
role in the global discussion. Many Asian countries including China, India and Japan are key
innovators and manufacturers of digital technology. If countries in the region can coordinate
their digital supply chains, the synergies would be significant. From another perspective, most
Asian countries face intractable demographic dilemmas. In much of East Asia, fertility has
dropped below replacement rates, populations are aging, and workforces declining. Labor-
saving technology can help mitigate this demographic challenge and should improve the
productivity of East Asian countries.
Conclusion
Let me conclude. The globalization that led the development of the global economy after
World War II has slowed recently. Countries have become more inward oriented, and this
change has become a major headwind for cross-border financial and economic activities. On
the other hand, multilateral efforts are indispensable in tackling many issues ranging from
trade to climate change.
Asia is one of the regions that has benefited most from post-war financial and economic
globalization. In this age of uncertainty, the search for a new "global order" continues. This
brings both challenges and opportunities for the Asian region, and expectations for the region
to contribute to the global debate are high. To that end, it is important for Asia to promote
further intraregional collaboration based on mutual understanding and respect. Strengthening
the bond within Asia will enable the region to contribute to solving global issues. Based on
my many years of working with colleagues in Asia, I am confident that the Asian Century
will certainly come.
Thank you for your kind attention.