Your SlideShare is downloading. ×
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
UHERO Asia Pacific
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

UHERO Asia Pacific

585

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
585
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. UHERO FOREcast PROjEct sPEcial REPORtAsia-Pacific Forecast:Press Version: Embargoed Until 2:00 Am, 12/2/2011Hawaii in theAsia-Pacific CenturydEcEmbER 2, 2011
  • 2. AsiA-PAcific forecAst ©2011 University of Hawai‘i Economic Research Organization. All rights reserved. caRl s. bOnHam, PH.d. Executive Director byROn GanGnEs, PH.d. Director UHERO Forecast Project KimbERly bURnEtt, PH.d. Director UHERO Project Environment PEtER FUlEKy, PH.d. Economist inna cintina, PH.d. Economist REsEaRcH assistancE by: Ben Trevino Jonathan Fung James Jones Natalie Schack Ying Yao Qianxue Zhao cHRistOPHER GRandy sanG HyOP lEEAssociate Professor, Public Administration Program Associate Professor, Department of Economics University of Hawaii at Manoa and UHERO Research Fellow University of Hawaii at Manoa andREw KatO cRaiG PaRsOns Economist, U.S. Bureau of Labor Statistics Associate Professor, Faculty of Economics U.S. Department of Labor Yokohama National University sUmnER la cROix aRi Van asscHE Professor, Department of Economics Associate Professor, Department of and UHERO Research Fellow International Business University of Hawaii at Manoa HEC Montréal calla wiEmER Visiting Scholar, US-China Institute University of Southern California 2424 Mai le Way, RooM 5 40 • H o n o lu lu, HaWai ‘ i 9 6 82 2 (8 0 8) 95 6 -232 5 • u H eRo @ HaWaii . edu
  • 3. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast i dEcEmbER 2, 2011executive summAry This report represents the first UHERO Asia-Pacific Forecast, a regionally focused report that replaces the broader Global Forecast we have prepared in past years. The Asia-Pacific Forecast reviews conditions and prospects for key countries within the region. For this maiden edition, we have also enlisted the help of an international team of scholars to provide expert analysis of key issues that will influence regional economies and Hawaii over the coming decade. In the near term, nearly all economies of the Asia-Pacific region will see further incremental slowing, due to headwinds from struggling European and other Western economies. • North America will be a relatively weak performer in 2012. Despite some strengthening in the US economy in the third quarter, the European debt crisis, soft consumer spending and fiscal retrenchment will weigh on growth. Canada has fared better, but weaker export demand and a strong currency will cause some slowing. Japan has made strides in recovery from the March 2011 earthquake, and rebuilding will help in 2012. • A recession in the West could undercut what has been fairly strong growth for emerging Asian economies. The region has seen a marked slowdown in exports this year. Part of this resulted from Japan’s supply chain disruptions, but weaker demand abroad was a larger problem. In 2012, countries with robust domestic demand, such as China, will perform better than heavily trade-dependent countries, such as many of the Southeast Asian emerging economies. Other regional concerns include recovery from natural disasters in Thailand, Australia and New Zealand, inflationary pressures, and more costly credit conditions. While emerging Asia will see slower growth in 2012 than 2011, it will continue to be among the world’s best performing regions. Longer term, several key trends will shape the pattern of growth in the Asia-Pacific region, with implications for Hawaii. Each of these issues is analyzed in the report by an expert in their respective field. • Key challenges for the region include the lingering aftereffects of the Japanese quake, population aging in Korea and many other Asian economies, and the continuing exposure of emerging countries to Western economic shocks, transmitted through the web of global production networks. While China holds great promise as an engine of growth, there is much uncertainty about how rapidly it will transform into a consumer society. • For Hawaii, evolving patterns of growth have implications for tourism and the broader economy. For tourism, it is clear that the countries from which our visitors come and the nature of those visitors— they will be older and richer—will evolve in coming years. This will bring both welcome diversification © 2011UHERO.Hawaii.EdU
  • 4. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast ii dEcEmbER 2, 2011 and the challenge of adjusting flexibly to new tastes. For success in the broader economy, the public sector should avoid calls for the government to “pick winners” through costly targeted subsides. Instead, the focus should be on improving the basic infrastructure—physical, human, and policy—that will position our citizens and businesses for success, wherever new opportunities present themselves. Growth Rates of Real Gross Domestic Product 2008 2009 2010 2011 2012 2013 North America United States -0.3 -3.5 3.0 1.6 1.6 2.4 Canada 0.7 -2.8 3.2 2.2 1.9 2.6 Asia and Oceania Developed Japan -1.2 -6.3 4.0 -0.4 2.2 2.0 Australia 2.4 1.4 2.5 0.5 2.8 2.6 East and Southeast Asia 6.4 5.1 9.2 7.3 6.8 6.9 China 9.6 9.2 10.3 9.3 8.7 8.5 Republic of Korea 2.3 0.3 6.2 3.9 3.6 4.0 Gross World Product 1.5 -2.3 4.0 2.8 2.6 3.3 Source: UHERO. Forecasts other than for U.S. and Japan taken from United Nations LINK Global Economic Outlook, October 2011. Figures for 2011 - 2013 are forecasts. Gross World Product is calculated at 2005 prices and exchange rates. © 2011UHERO.Hawaii.EdU
  • 5. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 1 dEcEmbER 2, 2011 uHero sPeciAl rePort This year marks the launch of our Asia-Pacific forecast report, presenting projections and analysis of the key regional economies, stretching from North America to the countries of East and Southeast Asia. This report replaces the Global Forecast reports of past years with a more focused look at countries of the region in which Hawaii lives. With the recent APEC meetings in Honolulu focusing local attention on the region, we have decided this year to go beyond an evaluation of current conditions and near-term prospects. Yes, you’ll find that here, but also a more in-depth analysis of major issues that will shape developments in core countries of the region over the coming decade: Japan’s post-quake recovery, China’s shift toward a consumer society, the challenges of Korea’s rapidly aging population, and the way in which global production networks expose East Asian emerging economies to Western demand shocks. And we take a look at what Asia-Pacific developments will mean for Hawaii tourism, as well as some thoughts on policy- making in an Asia-Pacific Century. These issue essays are contributed by an international panel of experts, all with some tie to the University of Hawaii. We hope you will find this special report informative and rewarding. Read on! We have talked quite a bit in recent reports about conditions and risks for the global economy and for theNear Term Asian Outlook Softer, But United States (See the UHERO Annual Hawaii Forecast,Still Much Better than in West September 2, 2011), so I will be brief here and also touchByron Gangnes, UHERO on Canada. US growth slowed sharply in the year’s first The economies of the Asia-Pacific region have all been half, partly because of the European crisis but also becauseaffected to varying degrees by the slowing that has dominated of domestic issues, including softening of consumptionthe world economy in 2011. Developed North America has * and investment, and the continuing fiscal retrenchment atdecelerated sharply, affected by links to Europe and domestic all levels of government. Some strengthening occurred inchallenges. Japan has had to deal with the March 11 the third quarter, but prospects are limited going forward.earthquake and the beginnings of reconstruction. Australia We expect 1.6% growth in 2012, on par with this year’sand New Zealand, and more recently Thailand, have also performance (see Figure 1). Canada has fared somewhatsuffered from natural disasters. Meanwhile, emerging better, in part because residential investment retains some lifeAsian economies have fared better. To be sure, trade- and equipment investment has been strong. Nevertheless,dependent economies have suffered from weaker exports exports are feeling the effects of the US slowdown and anto the developed world, but domestic demand and stronger appreciated currency. Growth will drop below 2% in 2012markets have maintained fairly healthy growth. With global after slightly stronger annual performance this year. Overall,conditions expected to remain weak, 2012 should see further North America will be a relatively weak performer amongincremental slowing in East Asia. Pacific Rim countries in 2012.* For our purposes, the Asia-Pacific region under discussion will include those Japan’s economy was hit hard by the Great Tohokueconomies of the Pacific Rim and Oceania that are of most direct interest to and im-portance for Hawaii, including the US and Canada, Japan and East Asia, Australia and Earthquake in March. Direct destruction in the affectedNew Zealand, and the countries of South East Asia. We will omit from our discussionsmaller regional economies and developing countries of the Americas. region was nearly unimaginable. Supply chain disruptions © 2011UHERO.Hawaii.EdU
  • 6. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011 asia-PaciFic FOREcast 2 dEcEmbER 2, 20116% is a larger problem. Emerging market equity markets have4% dropped sharply and bond spreads have widened somewhat,2% as the European debt crisis has heightened risk concerns around the world. Uncertain global economic prospects0% could also undermine business and consumer confidence-2% within the region, contributing to a sharper slowdown than-4% currently expected.-6% China has slowed in 2011, but as always this is a relative statement. For the year as a whole, China’s GDP is expected-8% 2009 2010 2011 2012 2013 to expand by 9.3%, down just one percentage point from last United States Canada Japan year’s 10.3% gain. The recent moderating of growth comes Fi g . 1 - R e al g d P g RoW tH R ate s ( y e aR-y e aR %) from weaker exports especially to the developed world, while and electricity shortages from shuttered nuclear plants caused domestic demand continues to be strong. As in much of a sharp drop in industrial production across the country, Asia, consumer price inflation has been a concern, driven by and indeed globally. Recovery is now well underway, and strong demand and high prices of imported food and energy. government reconstruction spending is expected to boost Lower food and commodity prices have brought some relief output growth over the coming year. After a projected 0.4% recently. We continue to be concerned about the high level drop in real GDP this year, growth should come in at about of activity and ever-higher property prices in China. While 2.2% in 2012, before dropping back toward trend. In the it is difficult to determine whether this represents a bubble next section of this report, Craig Parsons reviews recovery (see UHERO Brief: China’s Real Estate Bubble), prices have progress and practical issues going forward. turned down in some areas and there are reportedly financing There is considerable concern in developing Asia about problems emerging for some developers. A hard landing for the potential for a recession in the West to undercut what the property market remains a key concern for China. In has continued to be fairly strong growth. There has already any event further moderating of China’s growth is expected been significant slowing of regional exports after a strong over the next few years, as global demand for Chinese exports rebound over the past two years. Part of this resulted from remains relatively weak (see Figure 2). Japan’s supply chain disruptions, but weaker demand abroad The South Korean economy saw strong export growth in Project liNK UHERO forecasts for countries other than the US and Japan are drawn from the Global Economic Outlook of Project LINK, the United Nations project for global forecasting and macroeconomic analysis. Established through the leadership of Nobel Laureate Lawrence Klein, the project brings together researchers from institutions around the globe to study current economic policy challenges in a coherent model framework that articulates the international linkages among countries. UHERO’s Byron Gangnes has been affiliated with Project LINK for more than twenty years and is a regular presenter and participant in LINK meetings. For more information on Project LINK, browse to the Development Policy and Analysis Division of the UN Department of Economic and Social Affairs. © 2011 UHERO.Hawaii.EdU
  • 7. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011 asia-PaciFic FOREcast 3 dEcEmbER 2, 201112% the rich world because of their role in global production10% networks. Indonesia has fared better, driven by strong8% demand for its commodity exports, an inflow of foreign6% investment into these sectors, and resilient domestic demand.4% Hong Kong has faced a similar falloff in exports this2% year, although its trade with China and its diversification to0% service exports has helped to soften the blow. Despite some-2% slowing, the unemployment rate in Hong Kong has been-4% running at the lowest levels since the late 1990s, reflecting-6% positive overall economic conditions. Strong labor markets 2009 2010 2011 2012 2013 throughout Asia mark a sharp contrast to the employment Developed Economies East Asia China Fi g . 2 - R e al g d P g RoW tH R ate s ( y e aR-y e aR %) crisis that is gripping much of the developed world. This is the Year of the Natural Disaster in Asia and the the first half of the year. The country’s exporters benefited Pacific, and Australia and New Zealand shared in the misery. from strong demand for autos and information technology Australia had historically severe flooding in the eastern states, products and some trade diversion after the Japanese quake. and of course New Zealand experienced the devastating Globally lower demand and a strong exchange rate are Christchurch quake in February. In Australia, the flooding now leading to sharply lower trade growth. Relatively high disrupted some mining activity, which has benefitted from inflation and budget concerns (despite a healthy fiscal position strong Chinese demand in recent years. Growth will slow to by global standards) will prevent increased policy support as 0.5% this year, before rebounding to 2.8% growth in 2012. external demand falls off, although like many other countries For New Zealand, the direct impact of the quake was large, in the region, the Bank of Korea has halted further rate hikes and the destruction has also undercut private consumption. for now to provide support for the economy. Some additional Reconstruction spending will help firm growth to 2.5% next slowing of Korean GDP growth is expected, to 3.6% next year. year. There are clear poles of growth and weakness across The most rapid slowing is taking place in East and the Asia-Pacific region. Most of developing Asia remains Southeast Asian countries that depend most heavily on relatively healthy, with export-dependent countries suffering trade with the U.S. and Europe. Philippine exports, for the most from global concerns and those driven more heavily example, have slowed to only a few percentage points by domestic demand faring better. Developed North America year-on-year growth, owing to the country’s high export is struggling with the aftermath of a homegrown financial specialization in electronic components. We have also seen crisis and the uncertainty and drag from the European crisis. sharply lower growth in Malaysia, Singapore, Taiwan and Japan, Australia and New Zealand are among a number of Thailand. Natural disasters, both the Japanese earthquake the region’s economies that face reconstruction challenges and the recent historically severe flooding in Thailand have after natural disasters. How the overall region fares in 2012 also disrupted production and trade within the region. In will depend importantly on how the situation in Europe plays his piece, below, Ari Van Assche explores the extent of out in coming months. dependence of these countries on adverse developments in © 2011 UHERO.Hawaii.EdU
  • 8. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 4 dEcEmbER 2, 2011 110Japan Shows Resilience But Faces 105Challenges 100Craig Parsons, Yokohama National University 95 The Great Tohoku earthquake of March 11 caused 90extensive damage and nearly incomprehensible human 85 80tragedy for Japan. Perhaps surprisingly, much of the country 75is now largely back to business-as-usual. Firms have made 70adjustments in their supply chains, and many consumers 65have adjusted their habits, whether it be using bottled water, 60 2007 2008 2009 2010 2011or buying fruits and vegetables from regions far from still- Fi g . 3 - JaPan e s e i n d us tR ial P Ro d u c ti o nradioactive Fukushima. Private firms and the government (Jan 20 07 =1 0 0)are making progress in alleviating suffering and rebuilding overall are less pessimistic about future conditions than theyNortheastern Japan. Temporary housing units are being were in the June survey. Consumer confidence continues toclosed, as some are now able to return to their homes; but rise, but is still below historical norms.many still cannot. One estimate suggests that 70,000 people An appreciated yen and slow global demand continue tomay have lost their jobs in the affected region. The number squeeze exporting firms (see Figure 4). The strong currencyof welfare recipients is at its highest level since 1951, and still and supply-chain disruption from the Japanese disaster—andrising. now flooding in Thailand—are forcing Japanese firms to The economic aftershocks continue. There have re-think production strategies, although not in a uniformbeen upticks in household construction and government manner. Honda and Nissan are planning to shift moreexpenditure, but all other domestic expenditure components production overseas, while Toyota is not. As the waterpersist in negative growth. Export growth generally remains continues to rise in Thailand, so do production woes. Aboutnegative, while import growth was up 3% on an annual basis 50 of 100 types of auto parts destined for Japan have beenin the second quarter , due in large part to the decrease in ** disrupted by the flooding. Re-sourcing is a not always easy,domestic energy supplies and the stronger yen. Sustained and as 30% or so of Japan-to-US merchandise exports areGDP growth has remained elusive. After contracting at a cars, there will no doubt be some inconveniences for US1% annual rate in the second quarter, preliminary estimates consumers.put third quarter growth at 6% on an annualized basis. This In November, a third supplementary budget of 12temporary summer boost is not expected to last, however. trillion yen was passed in the lower house to help financeThough industrial production bounced back a bit during the reconstruction, relocation of residents and firms, andsummer, it is still four percent lower than pre-quake levels (see radioactive cleanup, mostly financed by new bond issuances.Figure 3). The new stimulus is far larger than previous packages and Unemployment fell to 4.4% in August, a tiny puts total government expenditure at 106 trillion yen thisimprovement from the last report and the post-quake high of year, the largest outlay ever. A fourth extraordinary budget4.9%. According to the September Tankan survey, businesses is now being discussed. New Prime Minister Noda made** Post-quake GDP, unemployment and other data exclude the three most devastatedprefectures, Iwate, Fukushima and Miyagi. However, as they only account for 4% of a surprise announcement at the G20 summit that Japannational GDP, the official underestimate is likely small. © 2011UHERO.Hawaii.EdU
  • 9. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 5 dEcEmbER 2, 2011 APec iN retrosPect Sumner La Croix, UH Economics and UHERO In almost all respects, the APEC Leaders’ Meeting in Honolulu went incredibly well. After more than a week of rainy, overcast skies, the sun came out on Friday the 11th, when most of the 21 APEC heads of state arrived in Honolulu. With the exception of the cancelled summit meeting between the leaders of Mexico, Canada, and the United States, the scheduled events appeared to go off without a hitch, and no large protests developed. There was extremely tight security in Waikiki and major traffic disruptions. But most residents, repeatedly forewarned about a potential “APECgeddon,” just stayed away from major arteries near Waikiki and off freeways when leaders were tipped to be traveling. There were assertions that the APEC meetings would provide a significant boost for Hawaii’s economy during a non-peak travel period. The actual results were a mixed bag. Waikiki hoteliers were able to raise room rates substantially, and the Neighbor Islands saw higher occupancy as some visitors turned away from busy Oahu. At the same time, there were also many reports of lost business in the Waikiki and Ala Moana areas, and total passenger arrival data for November 5-15 were little changed from 2010 levels. Nonetheless, the city and state clearly demonstrated that they have the capacity to successfully host a major international political conference with intricate security requirements. This clearly increases Hawaii’s chances of hosting future sensitive international conferences. The trade agreements coming out of the APEC meetings were incremental in nature. First, APEC members agreed to cut tariffs on clean energy technology to 5 percent by 2015. It is difficult, however, to get too excited, as average tariff rates on these technologies are already low—just 7 percent in China. Second, Japan agreed to join talks on the Trans Pacific Partnership (TPP), a regional trade agreement that aims to eliminate tariffs on virtually all goods and services over the next decade. TPP negotiating countries announced the broad outlines of a deal that they hope to finalize within a year. While an interesting and positive development, it is hard for anyone to evaluate the TPP deal, as the negotiating countries are keeping all draft agreements secret. There were also extensive “sidelines” consultations between APEC leaders on a number of issues including Iran’s nuclear program, the China-US trade surplus and exchange rate, and response to disasters in the Asia-Pacific region. Perhaps the most substantive discussions were among the region’s finance ministers, who discussed how they might coordinate their policy responses if Europe’s simmering debt crisis begins to affect banks and other financial firms in APEC countries. While APEC is in many ways just a talk shop it is important for political and business leaders in the region to have an annual forum to discuss issues directly and to build trust. The region is undergoing enormous change and faces difficult challenges as populations age, China integrates into the world economy, and South and Southeast countries struggle with reconciling populist political parties with middle class demands for competent government. In such times of economic, social, and political stress, it is critical for governments to meet regularly to talk over differences, and APEC provides just such a forum. © 2011UHERO.Hawaii.EdU
  • 10. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011 asia-PaciFic FOREcast 6 dEcEmbER 2, 2011130 Moreover, often with crisis comes opportunity. There is talk of a new energy strategy for Japan, with perhaps less120 nuclear and more biomass and solar. Rebuilding the Tohoku110 region opens up possibilities for “smart” cities, as well as infrastructure innovations that are difficult to adopt when100 switching costs are high and firms, government, and other90 stakeholders are firmly invested in the status quo. But if the80 1995 Kobe quake yields any lessons, it is that Japan does not change radically in response to such devastation, at least70 on this scale. Furthermore, with sharp divisions within the60 ruling DPJ party and opposition from the LDP and others, 2007 2008 2009 2010 2011 a clear and dramatic change in either energy policy or fiscal Fi g . 4 - y en - do ll a R e xc Han g e R ate policy seems unlikely in the near future. As such, one can would raise its consumption tax from 5% to 10%. However, expect flat growth in Japan in the short and medium-term as political support for such a move at home is unclear. In any Japan continues to grapple with its domestic challenges. event, the bill would only be introduced in March 2012 and, Having said that, this is not 1995, and the new political if passed, would be very slowly phased in. landscape has not yet reached equilibrium. The current In August, Moody’s downgraded Japan’s debt rating to Prime Minister and many in his cabinet are from a new mold Aa3, due to persistent budget deficits. It is worthwhile to of technocrat-politicians, graduates from the Matsushita note, however, that while Japan’s gross debt-to-GDP ratio is Institute. These politicians are said to be less beholden to nearly 200%, because much of this government debt is held narrow special interests and well-trained in policymaking. by other Japanese public institutions, the net debt-to-GDP So, perhaps there is reason to be cautiously optimistic for ratio may be closer to 60%. meaningful change. While firms and households have managed to avoid energy shortages throughout peak summer months, energy uncertainty will be a concern again this winter. TEPCO China’s Consumption Catch-Up has announced their confidence that they will achieve cold Calla Wiemer, University of Southern California shutdown of all three troubled reactors by the end of this China will overtake the US to become the world’s largest year. A small, and apparently contained, criticality incident economy mid-way through the next decade according to in early November is a reminder that the troubles are far from most forecasts. The obvious qualifier is that with more than over. With many reactors still offline and no clear energy four times the population of the US, China will by that time policy yet from PM Noda, increased imports of fossil fuels still have less than a quarter of US per capita income. The will be necessary for some time. US will remain more affluent by a long shot for a long time to come. But another milestone is also telling. Even before A Time for Change? China becomes the world’s largest economy, its per capita The government could do more to boost growth by income will surpass the world average. By the standards restoring energy capacity and providing more fiscal stimulus. of most of the world then, China will no longer be a poor © 2011 UHERO.Hawaii.EdU
  • 11. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 7 dEcEmbER 2, 2011country. The average Chinese will live comfortably, owning 55%major appliances and enjoying vacation travel. 50% Thus far China’s economic might has been expressedmainly through dominance in the production of low-wage 45%goods. As the world’s largest exporter, China has floodedthe shelves of American discount stores with clothes, toys, 40%and household goods. Its relatively weak showing on theconsumption side has left it with a gaping trade surplus – 35%which is a source of much political tension with the US. Aworld growth model based on US consumption sustained 30% 1980 1985 1990 1995 2000 2005 2010by Chinese credit clearly has its limits. To keep the global Fi g . 5 - c H i n e s e savi n g R ate a s a % o F g d Peconomic engine stoked, China will need to contribute moreto consumption demand as it climbs the income ladder. transition, although the issue of restructuring demand toward China’s consumption and saving patterns have followed consumption has received much lip service for a number ofa course typical of rapid developers. Though rising by leaps years already with no discernible results.and bounds, consumption has lagged growth in income Just how fast the transition to a more consumption drivenso that the share of consumption in income has decreased economy will proceed is subject to considerable uncertainty.while the share of saving has risen. It takes time for living Demographic processes form a predictable, albeit gradual,standards to catch up with surging growth in means. Indeed, backdrop. Trend GDP growth can be expected to slow aswhen China last saw its GDP growth rate flag in the late the efficiency gains that derive from reform and opening1990s, its saving rate fell off too (see Figure 5). Through the moderate. Speed of movement on the policy front will2000s, growth was phenomenal and with that the national depend on the vision and resolve of the Chinese leadership.saving rate shot from 38 percent to over 50 percent of The real wild card lies with the business cycle. China isGDP. Demographics were also a factor in the saving rate not immune despite its economic levitation through theincrease of the 2000s. A generation on, the one-child policy Great Recession that has hammered the rest of the world.has pushed the mass of population into prime working Growth in China has been sustained on the back of massiveages cohorts. Those at the young and old ends of the age accumulation of debt in support of property developmentspectrum, who consume without generating income, have and local government investment. This has led to financialseen their ranks diminish. fragility of the sort that can spell the end of an expansionary These trends are poised to reverse, with China’s saving period. And with a sudden drop in the growth rate the savingrate consequently turning downward from its lofty heights. rate could fall as it did in the late 1990s.The share of the population in retirement years is headed However, while a sharp slowdown in China’s economicfor an inexorable rise. At the same time GDP growth is growth could lower the saving rate, this would present nolikely to decline on both structural and cyclical grounds. boon for the rest of the world. Granted, it would aid in theThe double-digit pace of growth of the last decade is desired global rebalancing. But a larger share for Chineseunsustainable. These shifting forces will induce a decline in consumption in a smaller economic pie does not necessarilythe national saving rate. Policy measures may augment the translate into a larger Chinese market for the world’s © 2011UHERO.Hawaii.EdU
  • 12. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 8 dEcEmbER 2, 2011exporters. is changing at a rate unprecedented in human history. In The best scenario for those who wish to sell to the 1970, Korean women gave birth to 4.3 children on average.China market is for continued solid growth and a measured By 2010, total fertility had dropped to 1.29, one of the lowesttransition to higher consumption and lower saving rates. rates in the world. As a result, the proportion of children inGDP growth of 8 percent a year in real terms combined the population has decreased dramatically.with an increase in the household consumption share of 2 As fertility began to decline in the 1970s, the working-percentage points a year and real exchange rate appreciation age population grew faster than other age groups, creating anof 8 percent a year (nominal appreciation of 6 percent age structure that was highly favorable for economic growthplus inflation at 2 percentage points above the US rate) (see Figure 6). But beginning in 2015, the relative size ofwould mobilize about $600 billion a year in new consumer Korea’s working-age population will begin to decline as thespending by Chinese households. Some of this would be elderly population expands. Increasingly, Korea’s populationdirected toward imports of goods and services or spending on will consist of very few children, not many workers, andforeign travel. That would represent a great opportunity for many old people. South Korea is also entering a stage ofbusinesses worldwide, including Hawaii’s tourism industry. slower economic growth. As the country passes through this transition of rapid population aging and slower economic growth, how resources are allocated across generations willWill Population Aging Sap Korean become increasingly important.Growth? An analysis shows that consumption in South KoreaSang Hyop Lee, UH Economics and UHERO exceeds labor income for two long periods of life (see Figure Nearly every economy in the world has experienced or 7), bracketing a surprisingly short period—from age 24 tois starting to experience population aging. Populations are 55—during which more is being earned than consumed.growing older primarily because people are having fewer Although other economies show a similar pattern, thechildren and, to a lesser extent, because they are living longer. situation in South Korea presents some unique features. ForThe challenges resulting from rapid aging are of particular one thing, although many Koreans continue to work throughconcern to South Korea where the population age structure their 50s and early 60s, labor income begins to fall as people reach their late 40s. Older workers may be working fewer100%90% hours than younger workers or earning less, perhaps because80% they have less education and lower technological competence.70% In addition, consumption by the elderly appears to be60% much lower in Korea than in other countries at a similar50% level of economic development. This is partly due to low40% consumption of healthcare.30%20% Population aging provides both opportunities and10% challenges. As the number of children declines, policymakers 0% and families can increase their investment in the health and 1950 1970 1990 2010 2030 2050 15-19 20-64 65+ education of each child, improving child welfare and boosting Fi g . 6 - ko R e an ag e d is tR i b uti o n © 2011UHERO.Hawaii.EdU
  • 13. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 9 dEcEmbER 2, 2011120% Rapid population aging and slower economic growth of South Korea will affect economies abroad, including100% Hawaii’s. As discussed further below, population aging and80% slower growth will affect the tourism industry. Koreans60% will continue to travel abroad in increasing numbers, but slower economic growth will slow the growth rate of arrivals40% from Korea significantly. Research by UHERO Research20% Fellow James Mak and co-authors shows that the number 0% of overseas trips taken by retirees increases sharply, but trips 0 10 20 30 40 50 60 70 80 90 Age taken by young adults in the 20s and early 30s age groups Consumption Labor Income may also decrease dramatically due to rising burdens of Fi g . 7 - e vo luti o n o F i n co M e an d co n s u M Pti o n a s a PeRc entag e o F aveR ag e an n ual l abo R i n co M e Fo R supporting an aging population. a PR i M e ag e (30 - 49 y e a Rs) ad u lt Like South Korea, other Asian countries will experiencethe productivity of the future workforce. With fewer children rapid population aging and slower growth over the comingto support, the society also has additional resources to save decades. The rapid growth of elderly populations may bringand invest. There is evidence that Koreans have seized this important national and global goals into conflict. One is toopportunity. Measured relative to labor income, spending develop socioeconomic systems that will provide economicon the health and education of children is higher in South security to the growing number of old people; the other is toKorea than in the United States or much of Europe. More sustain a strong global economy. Achievement of these twothan one-half of this spending on young people comes from goals will require new policies, most importantly policies thatfamilies rather than the public sector. encourage saving, investments in health and education to In the coming decades, the challenge will be to improve productivity, and well-functioning financial and laborsupport South Korea’s growing elderly population without markets. These will be key to determining whether Asia canoverburdening other age groups or slowing economic growth. continue to play a leading role in global economic progress.In the past, elderly Koreans received considerable supportas private transfers from their children. Although this typeof support was still common in 2000, the elderly today are Emerging East Asia “Chained” to theincreasingly supporting themselves from their own assets, Westbuilt up over a lifetime. And public sector programs are also Ari Van Assche, HEC Montréalplaying a larger role. In 2000, public transfers provided a The European debt crisis and struggling U.S. economicrelatively small part of support for the elderly. More recently, recovery present important downside risks to Emerginghowever, government-supported pension and healthcare East Asian economies. In the past three decades, the Eastsystems have been expanding very rapidly. This sharp Asian region has become a key player in the value chainsincrease in social welfare for the elderly could create a serious of products that are consumed in Western markets. Manyburden for Korean taxpayers in the future as the elderly income-sensitive, high-technology products that we findpopulation expands and economic growth slows. As a result, on the shelves of Best Buy in the United States or Mediaincreased reliance on asset accumulation is critical. World in Italy incorporate components produced in the © 2011UHERO.Hawaii.EdU
  • 14. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 10 dEcEmbER 2, 201140% combined exports to the United States and European Union30% constituting more than 25 percent of their GDP in 2007 (see20% Figure 9).10% These indicators, however, understate the true 0% vulnerability of some Emerging East Asian countries’ exports-10% to Western downturns. As the the iPad and Kindle examples illustrate, many components that are made in Emerging East-20% Asia for Western consumer goods are not directly exported-30% to the West, but rather are indirectly shipped through China. es e an am sia sia ea nd or in or w la ay ne tN ap pp i K ai Ta al do ng Th These indirect exports are therefore largely dependent on e ili of M Vi In Si Ph p. Re 2007-2008 2008-2009 demand conditions in the U.S. and E.U., rather than on Fi g . 8 - e xP o Rt g RoW tH i n e a s t a s ia those in China. We can gauge the size of such indirect exports to theAsian Tigers (Rep. of Korea, Singapore and Taiwan) and West with data from China’s processing trade regime. Underin the five largest ASEAN countries (Indonesia, Malaysia, this customs regime, firms located in China receive dutyPhilippines, Thailand and Vietnam). Economic downturns exemptions on imported inputs, but only if the processedin the West can therefore reverberate globally through supply goods are subsequently exported. Emerging East Asianchains, leading to significant export reductions in East Asia. countries have been important component suppliers to This contagion effect through the trade channel was China’s processing regime. With the exception of Vietnam,recently displayed during the Global Recession of 2008- more than 30% of Emerging East Asian countries’ exports2009. Except for Vietnam, the exports of all Emerging to China in 2007 were processing inputs. For the PhilippinesEast Asian economies contracted between 13% and 22% in and Taiwan it even amounted to more than half of their2009 compared to a year earlier, with especially large export exports to China.collapses registered in the Philippines, Malaysia, Singapore Almost 60% of China’s processing exports are destinedand Taiwan (see Figure 8). The cases of the Apple iPad and the Amazon Kindle 35%illustrate how important Emerging East Asia has become in 30%the global value chains of blockbuster electronics products. 25%In both instances, the vast majority of components (e.g. 20%displays, wireless cards and memory chips) are manufactured 15%in Japan, Taiwan and South Korea, before assembly is done 10%in China and the final products are exported to the West. 5% To measure the dependence of Emerging East Asian 0% es e an am sia ia ea nd orcountries on Western markets, economists generally use the es in or iw la ay tN ap n pp K ai Ta al do ng Th e ili of M Vi In Si Ph p.countries’ export-to-GDP ratio. According to this measure, Re Indirect exports Direct exportsSingapore, Malaysia and Vietnam indeed have a significanteconomic exposure to Western demand shocks, with Fi g . 9 - d i R ec t an d i n d i R ec t e xP o Rts to tH e us an d eu a s a s HaR e o F g d P, 20 07 © 2011UHERO.Hawaii.EdU
  • 15. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 11 dEcEmbER 2, 2011for the U.S. and E.U. As a result, accounting for indirect All other expensesexports significantly increases the export-to-GDP ratio for Lodgingsome Emerging East Asian countries. For example, Taiwan’scombined exports to the U.S. and E.U. as a share of GDP Total Shoppingrise by a full 9 percentage points (see Figure 9). Most other Total Transportationcountries see their ratio increase by a more moderate 1-2%, Entertainment & Recreationwhile renowned final assembly hubs such as Indonesia andViet Nam are relatively unaffected. Total Food and beverage Unless reforms in East Asia can rebalance growth GRAND TOTALtowards domestic demand, Emerging East Asia remains $0 $50 $100 $150 $200 $250chained to business cycle movements in the West. This United States Korea Australiarisk may even increase as more firms adopt Just-In-Time Fi g . 1 0 - vis ito R PeRso nal dai ly s Pen d i n g by MaR k e t (us $)production techniques to reduce their costs. As the Japanese spending levels. These visitors are much more likely, forearthquake/tsunami in March 2011 illustrated, lean example, to stay in hotels rather than time shares. They alsosupply chains and the absence of redundancy imply that a spend a lot more money shopping—upwards of two-and-a-breakdown in one part of the chain more quickly reverberate half times what visitors from North America spend each daythroughout the entire chain, thus potentially speeding up (see Figure 10). For this reason, visitors from Asia and thecontagion through global supply chains. Pacific are coveted by the visitor industry. Other parts of Asia that are gradually opening up to international travel are a potential boon to the state. ChineseAsia-Pacific Tourism Outlook Upbeat,With Caveats visitor arrivals in Hawaii grew almost 50% from 2009 to 2010Andrew Kato, US Bureau of Labor Statistics *** while Korean arrivals expanded by nearly 60% (see Figure 11). High growth rates like these have been celebrated as Asia-Pacific tourism has been an important part of cause for excitement, but there are many reasons to be carefulHawaii tourism for many years. And with strong projected in setting expectations for growth over the long term. Let’sgrowth and increasing outward orientation, there is clearly take a look at the major market areas:the potential for further gains. There are also challengesthat are sometimes overlooked in the rush of optimism about Japanthese markets. Although economic conditions and the recent March The Asia-Pacific region is broadly divided into three earthquake and tsunami combined to dampen JapaneseMajor Market Area segments by the Hawaii Tourism tourism earlier this year, Japan remains the keystone ofAuthority (HTA): Japan, Other Asia, and Oceania. Asia-Pacific tourism in Hawaii. Younger Japanese appearHistorically, 80 to 90 percent of Asia-Pacific visitors to to be travelling less and the overall population is beginningHawaii hail from Japan. Visitors from the Asia-Pacific are to shrink, but tourism authorities around the globe arevaluable for the Hawaii visitor industry because of their high pinning hopes for the wave of retirements coming among*** Andrew Kato wrote this article in his personal capacity. Any opinions, findings,conclusions, or recommendations expressed in this article are those of the author and the Japanese Baby Boom generation. This presents ando not necessarily represent the views of the Bureau of Labor Statistics or the U.S.government. © 2011UHERO.Hawaii.EdU
  • 16. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011 asia-PaciFic FOREcast 12 dEcEmbER 2, 2011 booked tickets failed to receive visa approvals in time, is 180 emblematic of this longstanding problem. There does not 160 appear to be any solution on the horizon, and in any case this 140 is outside the control of the State to remedy. 120Thousands Even when the visa issue is addressed, it is not clear 100 Hawaii will be a major beneficiary of Chinese travel. Data 80 60 from the China National Tourism Administration shows 40 that 91% of all “outbound” Chinese trips stay in Asia. And 20 Hawaii faces stiff competition from closer in locations with a 0 similar product mix, such as Hainan Island (The “Hawaii of 2000 2002 2004 2006 2008 2010 Oceania Korea China and Satellites China”) or the Maldives. Finally, there is uncertainty about Fi g . 1 1 - vi s ito R aR R ival s FRo M Ma J o R the extent to which Chinese travelers will favor Hawaii as a s ia- Paci Fi c MaR k e ts opposed to mainland US destinations, particularly relatively opportunity as these recent retirees are likely to remain active high-spending meeting and convention travelers. Despite and possess both the time and the financial resources needed these questions, as outbound Chinese travel increases, Hawaii to benefit Hawaii tourism. tourism stands to benefit. Other factors encouraging Japanese tourism recovery are lower oil prices and the resolution of the March crisis. Oil South Korea prices began falling, ironically, shortly after the earthquake The main challenge for the Korean market is one of and have led to reduced fuel surcharges in recent months. As scale. In 2010, there were 82,000 arrivals from South Korea noted above, TEPCO has announced the Fukushima Daiichi compared with Japan’s 1.24 million. With a population less plant might be shut down safely ahead of schedule, lifting than 40% that of Japan, in the near term it is not possible to another worry from the minds of potential Japanese travelers. ramp up inbound Korean tourism to replace the Japanese. Hawaii has already seen a recovery of Japanese travel to Direct airlift is rising, but it will take time to approach roughly the same level as a year ago. anything like the traffic built in the Japanese market over several decades. And, as Sang Hyop Lee has noted above, China the burden of an aging population will bear on Korean If China can make the move from saving to consumption growth and ability to travel in coming years. Therefore, the discussed above, its growing middle class presents clear appropriate way to view South Korea is as a high-growth opportunities for Hawaii. At the same time, barriers to supplemental market. Chinese travel to the US make China a tough nut to crack Nevertheless, there are reasons to think Hawaii has for Hawaii. The well-known difficulties in securing a visa to strong potential for further Korean growth. Koreans with enter the United States remained even in late 2011, and there children prefer closer destinations such as Australia or Pacific are few flights that directly connect Hawaii with Mainland islands, rather than longer haul trips to Europe or North China. China East Airlines’ recent postponement of direct America. This suggests an emphasis on family friendly tours flights from Shanghai, because nearly half the travelers who and attractions may be effective for growing Korean tourism. © 2011 UHERO.Hawaii.EdU
  • 17. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 13 dEcEmbER 2, 2011Experience dealing with Americans in their home country, is good reason for Hawaii to keep its eye on the Asia-Pacificrelatively good English skills, and Hawaii’s perceived safety region in coming years.are also in our favor. So too is the interest of many Koreanvisitors in new experiences that enhance important notions of“well being” in health and happiness. Exposure to uniquely Thoughts on Policy Orientation For AnHawaiian attractions and activities, such as those featured Asia-Pacific Centuryon KBS’ Challenger contest television series this year, are Christopher Grandy, UH Public Administrationexcellent ways to showcase the state. The rapidly growing It is hard to imagine a region more likely to lead globalyoung golfing population in Korea is also a good match for economic growth for the remainder of this century than Asia.the wide array of golf resources in Hawaii. Hawai‘i seems naturally poised to benefit disproportionately from this development. Important to the degree to which Australia we benefit will be the decisions of Hawai‘i’s public policy A market sometimes overlooked when analyzing makers. One concern lies in misinterpreting the success ofopportunities for Hawaii in the Asia-Pacific region comes Asian countries transitioning from developing to developedfrom the “Pacific” side in Oceania. Since 9/11, annual economies; a misinterpretation that could lead to wastingvisitor arrivals from Australia have grown fairly steadily, public resources. Hawai‘i’s Asia-Pacific public policymore than doubling from 66,829 in 2001 to 143,742 in 2010 orientation should be highly engaged, conservative of public(see Figure 11). In many respects Australians are similar to resources, and facilitative of private business arrangementsKoreans, with nearly identical average party sizes, propensity without trying to pick winners.to stay in hotels, and even daily spending patterns. It is a cliché, though no less true, that Hawai‘i’s history Australians provide additional diversification as they and culture have evolved with an Asia-Pacific focus thatare much more likely to be repeat visitors who have been positions us well. Most of our population traces ancestry andto Hawaii before, and they are much more likely to be culture to migrants from the region, and our leaders haveindependent travelers not taking tours or packages. Roughly long sought to promote Hawai‘i as a bridge between Asia20% of Korean visitors in 2009 and 2010 were repeat and the West. While Hawai‘i has not dominated the bridgingvisitors, but a little more than 40% of Australians were repeat function, that role has certainly shaped the state, makingvisitor in those years. Australia represents a reliable market us a relatively comfortable partner with expanding Asianwith strong tastes for the natural and outdoor appeal of economies.Hawaii. At the same time Hawai‘i has some sad history in terms The major markets of the Asia-Pacific region show of developing economy-leading public projects. In ourpromise for the next decade as well as some clear challenges, eagerness to create job opportunities and to raise standardsincluding population aging, local tourism competition, and, of living, we have spent resources on spaceports, establishingin the case of China, visa restrictions. Asia’s ace in the hole Honolulu as the “Geneva of the Pacific,” high-technologyis rapid economic growth: this year the East Asian region is tax credits, and so on. While well intentioned, this desire toexpanding at a greater-than-7% rate, compared with less than identify, and partner early with, the next “winner” has wasted2% growth in North American. And the region will account effort and resources.for significant share of global growth in coming years. There Of course not all public economic development efforts © 2011UHERO.Hawaii.EdU
  • 18. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 14 dEcEmbER 2, 2011fail, but those that succeed are more likely to involve a modest Thus, in Hawai‘i, calls for an Asian-like, state-ledrole for the public sector rather than leading the charge. economic strategy should be resisted to the extent theyPublic sector expenditures to protect our natural resources, involve using resources primarily for the benefit of one, or ato manage conflict among alternative uses of resources, and handful, of organizations. Hawai‘i citizens would be betterto construct and maintain public infrastructure, are more served by a public policy orientation that looks for ways tolikely to help Hawaii’s economy than plunking a large sum of facilitate private business without unduly favoring particularmoney on the next “big idea.” interests. Our governance arrangements should be as widely As (not “if ”) business activity picks up in the next few accommodating as possible, consistent with equitably sharingyears, perhaps with heavy influence from Asian investment, the expenses of the public sector (i.e. no special tax breaks)we will see familiar pressure for government to be a and protecting our natural and built assets.“partner,” or “leader.” The Legislature will hear references We should orient ourselves with tax policies and ato “planting seeds,” moving the state to “critical mass,” regulatory framework that are generally neutral toward typesbeing “proactive,” or some other clever-sounding term that of economic activity. We thereby position ourselves to takeamounts to the public sector bearing financial risk for specific advantage of economic opportunity from whatever directioninvestors. it emerges. And we avoid the trap of having spent millions Such signals may come especially from Hawai‘i’s of dollars in one direction, only to find out one or two yearspotential Asian partners. Economic development models later that the future lies elsewhere.from China, Japan, and Korea give a greater role to the Hawai‘i leaders should neither pander to new,state than is typical of the West. As a recent example, “promising” business ventures nor be blithely uninterested.China has garnered attention for its public subsidy of solar A middle ground of engagement and sober assessment isenergy capacity. Japan’s historic post-war, export-led growth likely to be the best approach. This will call for self-restraintmodel was strongly planned and directed. And Korea’s from enthusiasts of either the “public official” or “privategovernment-backed promotion of electronic media has entrepreneur” variety. Enthusiasm is wonderful; but it shouldgarnered global attention. be viewed with skepticism when it precedes a request for Yet the viability of state-led economic growth strategies significant public monies.may vary over the development life cycle. Developing Public policy should stick to the basics: Attending toeconomies may grow rapidly via state-directed investments our infrastructure needs, making sure that our tax systemin particular industries or clusters. As they join the ranks adequately funds important public expenditures withoutof developed economies, the pace of economic growth skewing economic incentives, and maintaining our regulatoryusually slows and the previous success of state-directed environment to be appropriate to the challenges of emergingactivity wanes. Ultimately, the global frontiers of knowledge, economic directions.technology, and management innovation bind, and progress If we somehow manage to achieve this balance in publiccomes more slowly. At this point, the risk of poor resource policy orientation, Hawai‘i will be well placed to benefitdecisions from state actors rises because the sources of future from an impending wave from Asia and the Pacific, or fromgrowth are much less obvious. whatever quarter opportunity comes. © 2011UHERO.Hawaii.EdU
  • 19. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 15 dEcEmbER 2, 2011Asia-Pacific Prospects: The Short and the Long View It is a common, but no less accurate, observation that we are living in exceptional times. We are pressed by exceptionalchallenges, of population pressure, environmental distress and political upheaval. But we are also living in a period ofexceptional accomplishment: the richest period the world has ever seen, where economic progress is lifting millions out of abjectpoverty. Growth poles have shifted away from the West to dynamic countries of the East. But this can sometimes be overstated.Much of the world’s wealth and technological innovation remains centered in Europe and North America, and high-growthemerging regions may soon include Eastern Europe, Latin America, and even Africa. Assessing prospects for the futurerequires a broad view. It is therefore possible to overestimate the importance of the Asia-Pacific region. But not for Hawaii. As these essaysmake clear, Hawaii today is tied up with Asia and the Pacific. If one folds into this definition (as we have) the Pacific Americas,then our prospects are absolutely dominated by what happens in this region in the future. In the near term, Asia and Oceaniaare providing important support as North America falters. They will be key engines of future growth. Our contributors havehighlighted this potential as well as some of the key challenges they face, and some of the ways that they will affect Hawaiiand Hawaii policymaking in years to come. Overall, this is a positive message, but one that does not shy away from someuncomfortable truths. A natural question is this: What does Hawaii need to do to take advantage of the Asia-Pacific Century? While thereis uncertainty about what is coming, some implications seem clear. One is that the countries from which our visitors come andthe nature of those visitors—they will be older and probably richer—is likely to evolve considerably in coming decades. Therewill likely be more heterogeneity in the visitor mix, which should be welcome after a period of excessive reliance on the US andJapanese markets. Visitor related companies will need to think about how to market appropriately and to shape the servicesthey offer, and how to be flexible as markets change. From the public policy perspective, the question is what does government need to do to provide an environment inwhich tourism, but also other industries, can thrive as Asia and the Pacific grow. Besides tourism, what other industries have themost potential? Will it be energy technology? Health care? Education? The answer is that it is impossible to know. As ChrisGrandy has pointed out above, governments are bad at picking winners. So rather than potentially squandering public moneyon targeted incentives, governments should focus on those things that are necessary for all businesses to be successful. Oneclear priority is to invest in basic infrastructure needed for private sector success. Hawaii has woefully underinvested in physicalinfrastructure for the past two decades, and most would agree we have underinvested in human capital as well. Addressingthese problems will be expensive, and so we need to look carefully at state and local budgets to make sure we are using revenuesefficiently and in a way that does not overly burden businesses and taxpayers. If we get that right, we will be well positioned totake advantage of whatever opportunities present themselves. We are thankful for the contributions of a panel of outstanding scholars. We think their expertise provides a rich andinformative view of issues coming down the pike. And, that they reflect the richness of expertise that we have at the Universityof Hawaii, at UHERO, and among our far-flung alumni, colleagues, and friends. Mahalo. © 2011UHERO.Hawaii.EdU
  • 20. PREss VERsiOn - EmbaRGOEd Until 2:00am On dEcEmbER 2, 2011asia-PaciFic FOREcast 16 dEcEmbER 2, 2011 Growth Rates of Real Gross Domestic Product 2008 2009 2010 2011 2012 2013 North America United States -0.3 -3.5 3.0 1.6 1.6 2.4 Canada 0.7 -2.8 3.2 2.2 1.9 2.6 Asia and Oceania Developed Japan -1.2 -6.3 4.0 -0.4 2.2 2.0 Australia 2.4 1.4 2.5 0.5 2.8 2.6 New Zealand -0.7 0.0 2.5 1.4 2.5 3.0 East and Southeast Asia 6.4 5.1 9.2 7.3 6.8 6.9 China 9.6 9.2 10.3 9.3 8.7 8.5 Hong Kong 2.3 -2.7 7.0 5.0 4.1 4.5 Indonesia 5.0 4.6 6.1 6.4 6.0 6.3 Republic of Korea 2.3 0.3 6.2 3.9 3.6 4.0 Malaysia 4.7 -1.7 7.2 4.6 4.4 5.0 Philippines 4.2 1.2 7.6 4.3 4.4 4.9 Singapore 1.5 -0.8 14.5 5.0 4.0 4.5 Taiwan 0.7 -1.9 10.8 4.6 3.9 4.3 Thailand 2.5 -2.3 7.8 3.5 3.9 4.2 Vietnam 6.3 5.3 6.8 5.8 6.0 6.3 Gross World Product 1.5 -2.3 4.0 2.8 2.6 3.3 Source: UHERO. Forecasts other than for U.S. and Japan taken from United Nations LINK Global Economic Outlook, October 2011. Figures for 2011 - 2013 are forecasts. Gross World Product is calculated at 2005 prices and exchange rates. © 2011UHERO.Hawaii.EdU
  • 21. uHero tHANKs tHe followiNg sPoNsors: KawEKi‘U - tHE tOPmOst sUmmit The Bank of Hawaii KilOHana - a lOOKOUt, HiGH POint Hawaii Electric Light Company. Inc. Hawaiian Electric Company, Inc. Maui Electric Company, Ltd. County of Kaua‘i Office of Economic Development Kamehameha Schools Matson Navigation Company KUaHiwi - a HiGH Hill, mOUntain American Savings Bank Central Pacific Bank Hau‘oli Mau Loa Hawaii Foreign-Trade Zone Kaiser Permanente Hawaii The Nature Conservancy, Hawaii Program Natural Energy Laboratory of Hawaii Authority The Pacific Resource Partnership Servco Pacific Inc. Kulia I Ka Nu‘u (literally “Strive for the summit”) is the value of achievement, those who pursue personalexcellence. This was the motto of Hawai‘i’s Queen Kapi‘olani. Sponsors help UHERO to continually reachfor excellence as the premier organization dedicated to economic research relevant to Hawai‘i and the Asia-Pacific region. The UHERO Forecast Project is a community-sponsored research program of the University of Hawai‘i atMānoa. The Forecast Project provides the Hawai‘i community with analysis on economic, demographic, andbusiness trends in the State and the Asia-Pacific region. All sponsors receive the full schedule of UHERO reports, as well as other benefits that vary with the levelof financial commitment. For sponsorship information, browse to http://www.uhero.hawaii.edu.

×