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There are a lot of supply-side reasons to be bullish on Asia. Local policymaking, on the whole, is improving. The recent downturn in Asia had further soured regional policymakers on past policies: mercantilism, high savings/low consumption, and government-dominated investment (though China persists in this). But now, significant tax cuts are supporting the region's growth prospects, due to the intense competition for external investment flows. More, domestic non-government spending has become increasingly important, as have larger efforts to promote or expand free-trade areas. The stability of the U.S. dollar since the end of 2001 is also helping Asia's upturn. The ever-strengthening dollar of the late 1990s had created a deflationary downdraft, adding to real interest rates (by reducing the inflation rate without an equivalent decline in nominal interest rates) and constraining consumer demand through much of Asia during the global downturn. Going forward, a more stable major-currency backdrop will shift emphasis away from monetary policy and toward other growth considerations such as taxation, regulatory regimes, and financial systems. Given Asia's manufacturing-heavy makeup, higher oil prices have posed a recent risk to the positive outlook. But the rising supply will push oil prices substantially lower in coming months, and while oil remains a threat, it shoudln't detract from the Asian rebound. When thinking about Asia, most eyes of course turn to China. The transition to a more market-based economy remains bumpy in this country, as evidenced by recent large-scale labor uprisings in China's "rust belt" Northeast. Such disturbances are going to continue sporadically, but they'll remain fairly isolated events, given the absence of a broad organized labor movement in China. In an environment of high growth and low inflation, the potential for such grassroots unrest to grow into a genuine threat to stability seems to be relatively low. On the positive side, such disturbances do motivate China's leadership to sustain the market-reform drive and maintain a positive investment environment in order to sustain job creation. China's WTO membership also acts as an external anchor for the reform process. Global-minded investors should expect China's reported GDP growth to reach 7.5% for 2002; Taiwan's to reach at least 2.5%; Korea's to reach 6%; and Singapore's to hit 3%. In Asia, the multi-engine recovery is proceeding. — Mr. Malpass is the Chief International Economist for Bear Stearns.
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sia's
economic rebound is gaining momentum. It's being led by the U.S. recovery,
China's strong growth and trade liberalization, and (in some cases) reviving
demand on the domestic side. East Asia (minus lagging Japan) should log
5.4% real GDP growth in 2002 (vs. 3.9% in 2001). And as was the case in
2001, China and Korea will be the growth leaders. 
