PACIFIC BASIN ECONOMIC COUNCIL
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Supplements & Quick Reference: · Main Page · Overview · Confirmed Speakers · Available Speeches · Photos · Media Information · Sponsorships   Visit the Official Site: www.pbec2002.com Striving for Growth in a Challenging Environment PBEC 35th International General Meeting Kuala Lumpur, Malaysia May 3-7, 2002 Dr Victor Fung Chairman, Airport Authority Hong Kong Chairman, Li & Fung Group "Bridging the Divides" May 7, 2002 Chairman, Distinguished Guests, Ladies & Gentlemen, The theme of the current PBEC International General Meeting, "Striving for Growth in a Challenging Environment", is particularly relevant at this juncture as the world economy gradually recuperates from the economic downturn, which was aggravated by the September 11 tragedy, and ponders how to respond to the unabated trend of globalization, China's accession to the World Trade Organization (WTO) and the future role of IT in economic development. Personally I tend to think that the economic phenomenon commonly known as globalization has taken on some unique significance today - being enhanced by both the popular use of IT in business and China's WTO membership. Nature & Implications of Globalization Much debate has been going on regarding the pluses and minuses of globalization but few would dispute that it is now a trend that will continue. I believe the positive or pragmatic approach we should take is to understand the nature and implications of globalization, as well as the challenges and opportunities available, to properly equip ourselves to make the most out of it. Economic globalization generally refers to the integration of world economies as a result of advancements in communications and technology. Technological breakthroughs, especially those in telecommunications, have facilitated and expedited transnational trade, financial and other commercial transactions. They also allow for the efficient transfer of knowledge, information and technology while creating a larger potential market for products and services. History tells us that the 20th century was marked by unprecedented growth in the world's per capita income on average. The key words here are "on average" because this growth was far from being evenly distributed. According to statistics published by the International Monetary Fund (IMF) in the year 2000, the richest quarter of the world's population saw a six-fold growth in its per capita GDP during the century whereas that of the poorest increased by less than three times. It is worth noting that for some economies, especially the Asian Newly Industrialized Economies (NIE's), their phenomenal progress in industrial production and trade has only been made in the last quarter of the century. Some have argued that globalization has resulted in greater income inequality but the question goes far beyond the simple arithmetic that everyone can easily grasp. Let's try to examine some of the concerns and define the challenges we face. Concerns and Challenges I mentioned earlier that globalization entails the integration of economies. The real concern with globalization, I believe, lies in the different degrees of success of the integration with, or as some people may call it, connectivity to the global economy. As a result of this difference, there are variations in the degree of participation in the opportunities that arise from globalization. These opportunities include the inflow of foreign investment, access to information and technology, rise in employment, growth in industrial output, increase in external trade, a better developed tertiary sector, and the list goes on. The disparity or inequality between the more integrated or connected, with the less integrated or connected has, to some extent, caused continued underdevelopment or aggravation of poverty in some developing economies of the world, notably in certain parts of Africa, Eastern Europe and also Asia. This is obviously a concern of the global community as a whole. We can therefore define our key challenge today as how to narrow or bridge that gap, meaning how to help developing economies adjust to globalization, integrate with the global economy and partake in the opportunities that arise - in short, how to facilitate the spreading of economic development. Spurring Economic Development and Raising Living Standards Coming from Hong Kong - one of the freest economies of the world - I think there are some conditions, in the form of a policy package, that should be satisfied in order to spur economic development and raise the general living standard. Allow me to first go back to the basics. I think to spur economic development, it is of fundamental importance to have in place economic policies and measures that encourage local and foreign investment as well as private savings. A simple and low tax regime, simple and transparent regulatory procedures and other investment incentives can be considered. All this may sound prosaic but more often than not, it is easier said than done because it requires a fundamental shift in the mindset of governments and politicians. Secondly, a liberalized trade policy is another major consideration for economies that want a share in the global market. A free, open and externally-oriented trade policy brings mutual benefits to the host country and its trading partners. It is a win-win for all. Again, look at the example of Hong Kong and you will see the truth of what I'm saying. The rise of the Asian NIE's, including the Chinese Mainland, since the 1970's also speaks for the effectiveness of free trade and investment policies in spurring economic development. Thirdly, a key ingredient of a free economy is of course free and open competition. Fourthly, I wish to emphasize that corporate governance, which was discussed in a separate session of this conference, has assumed far greater importance in the world economy than ever before, even more so after the Enron debacle. In a nutshell, good corporate governance, which encompasses transparency, fairness, accountability and responsibility, assures investors that their investment is well taken care of. This is highly conducive to investment and should therefore be actively promoted. Fifthly, human capital, other than physical capital, is another key area. In this regard, education and continuous training are crucial. Sixthly, given the importance of IT applications, especially the Internet, in conducting business nowadays, governments may wish to take up a more active role in promoting IT as a wealth-creating tool. The "e-government" is already becoming an increasingly popular concept in developed economies. Last but not least, given their flexibility and resilience, small and medium enterprises (SME's) should be promoted and encouraged to play a bigger role in developing economies. This brings me to the next point, which is "bridging the digital divide". Bridging the Digital Divide Information technology, especially the Internet, has been radically transforming the way we conduct business while also accelerating the pace of globalization. This development has opened a window for developing economies to partake in opportunities in the global economy and create wealth for themselves. Of course, there will be initial barriers to overcome in order to harness IT to one's benefit. Most importantly, one must have the resources for acquiring computer hardware and software as well as the knowledge of using IT in business. The successful experience of the Asian NIE's in overcoming these barriers tells us that the "digital divide" is in fact "bridgeable" and this experience can be borrowed by the poorer economies. I believe the economic boom in the Asia Pacific region in the last two decades was at least partly attributable to this success. By end-2000 there were already more than 70 million Internet users in this region and by end-2004 this number is expected to more than double, growing at a faster rate than that in Europe and the US. I said earlier that SME's could play an important role in building the economy and spur economic development. The rise of the so-called "new economy" is in fact highly conducive to the growth of SME's. The reason is twofold. First, it has become increasingly common for companies to focus on their core activities while outsourcing other activities to achieve higher cost-effectiveness and better utilization of resources. The inherent flexibility of SME's makes them ideal suppliers or even partners for the big market players. Secondly, the Internet also empowers SME's to integrate with, and play a more active role in the global market. Supply Chain Management & Globalization Globalization has allowed supply chain management and logistics services to have an increasingly dominant role in international trade. This role is augmented through synergizing with the Internet. I personally believe that competition between economies will assume the form of competition between supply chains where the one with the higher degree of sophistication and the ability to generate better value for customers will prevail. To partake in global trade, one must understand the power of supply chain management and logistics. The role of government in this regard is extremely important because very often only the government will be resourceful enough to provide the physical infrastructure for facilitating the development of supply chain management and logistics. This infrastructure includes state-of-the-art international airports, container ports and road/rail transport. China's Accession to the WTO and How the Rest of Asia Should React China's accession to the WTO in November last year has been, by all measure, a significant event for the global economy. I think we can safely predict that the pace and scale of globalization will be boosted by this development. I believe this development will have two major effects. Firstly, multinational corporations' interest in the Asia Pacific in general and China in particular will be rekindled as they see brighter investment prospects in this region. And secondly, China's exports will become more competitive in the world market as discriminatory trade practices and barriers against her should disappear almost immediately. Export economies might sooner or later find themselves losing part of their competitive edge. To stay in the game, they might find it necessary to re-position themselves in the global market by identifying and specializing in niche items. In addition, I strongly believe that the ASEAN Free Trade Agreement (AFTA) should be hastened as a counterweight to provide the critical mass in Asia to attract foreign direct investment (FDI). In the longer term, I think serious consideration should be given to the formation of Free Trade Areas (FTA) under the WTO. Currently under discussion is the "ASEAN+China" idea, which has been mooted by the Chinese leadership awhile ago and is definitely worth pursuing by Asia as a whole. By allowing the free flow of goods across the region with low or no tariffs, the FTA proposal should ease the pressure on Southeast Asian economies after China's WTO entry and create a win-win situation for all concerned. Conclusion The widening income gap between developed and developing countries is a matter of concern for the global community. While some people would think that globalization has, to a certain extent, caused this gap, it will be wrong to conclude that there is little or nothing we can do within our power to bridge that gap. Global prosperity is not a given. It is imperative that all of us seek to integrate with, and be a part of the global community before we can share that prosperity. Self-strengthening through implementation of sound macroeconomic policies and measures, as well as regional and global cooperation are equally crucial for bridging the divides, be it digital or otherwise. Thank you.