Asia as a whole continues to be in a major downward trend. Upturns should be viewed as bounces within this basic trend. It will take a generation to solve the underlying problems affecting major Asian economies. Some economies, like Singapore s and South Korea s, will fare better than others. But the two most important economies, China s and Japan s, have not confronted their basic weaknesses and cannot recover until they do.
China faces major internal challenges.
The rising expectations engendered by the growth of the past generation have hit a brick wall. Merely holding on to what has been gained is a dubious economic challenge for China. The expectations will turn into disappointment, and the disappointment cannot help but create political tensions. Beijing has already transformed the political atmosphere in China to control unrest. However, it is our view that the situation in China is, over the course of the decade, too explosive to control.