“If you know the enemy and know yourself well, you need not fear the results of a hundred battles. If you know yourself well but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”
Sun Tzu, The Art of War
As a past event sponsored by Mutiara Johan Group, the forum with the above-titled was jointly organised by GGI member firm KC Chia & Noor, Chartered Accountants, the National Chamber of Small and Medium Enterprises, Malaysia and Tsinghua University Beijing APAC CEO Alumni association. The forum was held in Kuala Lumpur, the Malaysian capital, with more than 400 attendees.
The keynote speaker was Tan Sri Dato’ Dr Lin See Yan who was the former Chairman and CEO of the Pacific Banking Group and former Deputy Governor of the Central Bank of Malaysia. In addition to being a UK Chartered Scientist and Chartered Statistician, he holds 3 postgraduate degrees including a PhD in Economics from Harvard University, USA, where he was a Mason Fellow and Ford Scholar.
While discussing current problems facing the Asian economy, Dr Lin also exchanged ideas with attendees on the economic development in the region. For example, the progress Asia has made since last financial crisis in 1998, reflecting on 17 years of rapid growth led by China and, to an extent, India, as well as the role they have both played in encouraging economic expansion in most other parts of the world.
However, he stressed that economic activity in Asia has started to slow down in the face of tapering to QE3, the continuing recession in Europe and lacklustre performance of most BRICS economies. Asia now needs a new growth strategy in order to boost and maintain its growth momentum, including finding ways and means to minimise the economic setbacks which have led to calls for immediate structural reforms. Dr Lin sees this as a herculean task which is presenting a significant challenge to the majority of Asian countries,, with Malaysia no exception.
Dr Lin elaborated on the contemporary problems facing Asia’s economy and was asked by the crowd to reflect on the recessions to have hit the West, and how they have seemingly affected what look like over-optimistic predictions for growth in Asia.
As a renowned banker and former deputy bank governor, Dr Lin regaled the audience with personal anecdotes on resolving conflicting interests between the public and private sector. Widely-read, he also entertained attendees with cartoons from The Economist added to his own wry sense of humour. True to his background as a trained scientist and statistician, he displayed multiple data sets before the audience: comparing economic indicators relating to different economic regions, decades, and nationalities.
Below is a summary of his speech:
- Risks and uncertainties
The world economy continues to face significant uncertainty, with risks still tilted to the downside against the backdrop of the worsening eurozone crisis, the United States “falling off” the fiscal cliff, the slowdown of some large developing economies and disadvantageous currency fluctuations.
Dr Lin envisaged that new risks and uncertainties may eventually unfold as a result of the ever-expanding monetary policies adopted by certain developed economies which could have a significant adverse impact on financial stability, leading to a prolonged period of subdued growth in certain economies with high unemployment and inadequate investment. The overall impact of this would be noticeably lower potential output in the future.
Other pertinent factors are geopolitical risks including: increasingly frequent changes of government, rampant political unrest, military tensions, the global arms race, and potential military conflicts in the South China Sea and East Sea (Sea of Japan). Artificial and natural disasters also have the potential to decelerate economic momentum resulting in reduced growth: these may include aeroplane crashes, earthquakes, floods, haze and typhoons, which all pose a risk to economic momentum and growth of the region if they were to hit the continent.
- Challenges and emerging trends
Dr Lin elaborated that, despite Asia being the driver of economic growth, it still faces huge economic inequality hindering economic growth, undermining democratic institutions and triggering conflict in the region. The growing tide of inequality within countries and disparity between economies threatens the long-term growth prospects of the continent. While some inequality can help to promote investment as a select group of entrepreneurs amass capital, too much inequality leads to reduced economic mobility for some. This can lead to misallocation of resources and consequently to social and political unrest. Although Asia’s robust economic growth has caused the middle-income population to swell and therefore increased domestic demand, this population segment also demands better quality of life, civil liberties and democratic rights. Opening up greater economic opportunities to lower income population strata in order to achieve inclusive and balanced growth is yet another challenge.
The imbalance in the region’s supply/demand situation as a result of over production capacity and duplication in production processes which has seen similar products manufactured in various Asian countries has caused operational inefficiency, stiff competition and economic setbacks.
- Vigilance and precautionary measures
Dr Lin mentioned that despite Asia and ASEAN countries remaining in positive growth, this can only be sustained if they implement vigorous structural reforms. They have to adopt an outward looking market focus, shifting their sights beyond small domestic markets to the global arena, as the regional market has gradually become too congested and intensely competitive.
In addition, various precautionary measures, from legal and economic reforms to better administrative efficiency, accountability and transparency, need to be put in place. This is in order to curb political corruption, volatility on the property and securities markets and fluctuating commodities prices which have badly affected the livelihood of the rural population and national export revenues. Risks linked to long tail “unlikely” shocks and calamities continue to abound in the aftermath of economic stagnation, imminent currency war and QE withdrawal syndrome.
- Strategies and manoeuvres
In order to continue to drive growth, it is imperative to become competitive, innovative and efficient in the regional economy. For this reason, both the public and private sectors must make substantial investments in education and training, research and development activities, innovation projects and effective risk governance in order to sustain a dynamic business environment, capture new markets and sharpen risk appetite.
To remain competitive, Asian nations need to adopt an open approach to recruiting and retaining talent from all over the world, regardless of race, nationality, religion and background. Only those economies rich in natural resources and with a strong pool of capable and creative talent will thrive, recover faster and perform better than their competitors.
Despite lacklustre performance of the European, Japanese and U.S. economies, these markets still have a great demand for consumer goods, merger and acquisition (M&A) initiatives, downstream technologies and open software, as well as educated and qualified human resources. A special focus is now required on BRICS countries, which still present promising opportunities for new markets, M&A activities and green initiatives.
To conclude, Dr Lin summarised that China and India are key factors in the success of otherwise of the Asian economy as a whole. As emerging superpowers, both have been exerting increasing influence in the region and are expected to expand on the world stage, although this will take them at least two decades and this number is subject to variation in global demand for their products and services, especially from the volatile European and U.S. economies.
However, the USA has recently started to show signs of recovery, albeit slow and unsteady, from the 2008 recession. Meanwhile, Asia needs to introduce new structural mechanisms in order to stimulate and sustain growth as an economic region and political entity.
Malaysia especially has a number of challenges to tackle. Although they may be both domestic and international in nature, Dr Lin opined that economic reform in the country requires a modern, cohesive education system, political harmony and social stability.
GGI member firm
KC Chia & Noor, Chartered Accountants
Auditing & Accounting, Tax, Advisory, Corporate Finance
Kuala Lumpur, Kluang Johor Darul Takzim, Melaka, Malaysia