Long-Term Outlook for North-East Asia: Alternative Scenarios
Regarding the long-range forecast of the world economy, as indicated in the NIRA's forecasts in the context of Japan's national power, dramatic damages are likely to take place during the first half of the 21st Century in the wide area of East Asia including China and Southeast Asian countries and South Asian countries such as India and others. Particularly noteworthy will be the dramatic growth of China and Northeast countries with a great economic impact on the world economy.
Focusing on Northeast Asia, the present study explores various growth alternatives during the period between 2000 and 2020. A multi-regional model is used to generate alternative scenarios in this region.
The areas to be covered in the present study are China, Hong Kong, Taiwan, South Korea, North Korea, Mongolia and Russia with two sub-regions: North East China and the Russian Far East. As a supplementary study model to the above model, a multi-regional multi-sectoral model with the Leontief framework is also used, but its forecasting period is narrowed to the period between 1995 and 2010 due to data availability.
An original version of this system was developed by the Economic Research Institute of Northeast Asia (ERINA) in 1999, and the present system is an enlarged version covering two additional countries, Hong Kong and Taiwan, thus enabling a wider and more comprehensive regional analysis. Regarding modeling, demographic variables are endogenized, such as those related to fertility, mortality, age structure, mobility, etc., while in the economic block both sides for supply and demand are explicitly covered including market adjustment variables such as prices, wage rates, employment rates, etc. In addition to the above improvements, a different approach is adopted in foreign trade sectors by using a foreign trade matrix in stead of the bilateral approach of the previous version. In view of the recent dynamic growth in export shares in China, the new approach has the advantage of capturing more realistic trends in long-term projection.
Regarding recent growing inter-dependence between Japan and the Northeast region, the above enlarged version of NAMIOS need to be linked more closely to a similar type of Japanese model (DEMIOS) which has recently been developed with a special reference to multi-sectoral analysis on an 80-sectoral basis. The results of the scenario study using this model are incorporated in the present long range forecasts made by NAMIOS, enabling detailed analysis of energy resources, environmental burdens, major industrial materials, etc.
In Table-1 and Table-2 four alternative growth scenarios are presented. The first scenario relates to the result of forecasts based on the simple extrapolation of exogenous variables. The results of this base line scenario are indicated in terms of population, real GDP growth, foreign trade, price levels, etc. during the 20 years between 2000 and 2020. Indicating relatively faster growth of GDP and foreign trade, China continues to be ahead in terms of its annual rate of increase, while Japan still remains in a mild deflationary trend. The disparity ratios remain almost unchanged in terms of the growth rate of GDP among China, Japan, South Korea, and other countries in the region. China tends to gradually overtake Japan in terms of exports though in around 2015.
The second scenario is related to the case of the Chinese accelerated rate of growth with more active fiscal policy and foreign direct investment. The actual performance over recent years seems to be nearer to this scenario, since the growth rate of real GDP has further accelerated by nearly 1% and a similar trend is observed in foreign trade, overtaking Japan significantly. The expansionary impact on South Korea, Taiwan, Russia and other neighboring countries is also noticeable. Regarding the trend of prices in China, its inflationary impact still remains modest without an indication of further acceleration. Similarly, no indication of excessiveness is observed in terms of the GDP gap and foreign trade balance despite the acceleration of growth. The impact on Japan is also noticeable in terms of its exports, rising by 3.1% from 2.9% in the base line scenario.
The third scenario indicates a case where the Japanese economy accelerates in growth to about 4%, recovering from the chronic deflationary trend which has continued for more than ten years. Real imports are also assumed to rise by 5.5%. The impact is significant, though not as high as in the second case, having a strong effect on every region of Northeast Asia. Particularly noteworthy is the impact on two regions: Northeast China and the Russian Far East, the effects being greater than in the second scenario, as shown in Table 2. It is also noteworthy that China tends to accelerate in growth due to the financial and technical collaboration from Japan which is assumed in this scenario.
The last scenario is less optimistic, assuming a reduction of world trade caused by chronic stagnation in the United States, Japan, and the rest of the world. A deceleration in terms of growth in the United States is assumed to continue due to twin-deficits in fiscal and trade balances. Negative economic impacts are widely observed in this scenario in almost all of the regions in the Northeast. Population also tends to decrease in many regions which further accelerates a downward trend in aggregate demand. It is noted, however, that the Chinese decline remains modest, despite strong downward trends in other regions. This is mostly accounted for by the fact that Chinese dependence on foreign trade is relatively modest.
Turning to the more sectoral aspects from macro economic side shown above, various findings are observed from the multi-sectoral input-output model for the Northeast region as shown in Table 3. After tentatively updating the multi-regional input-output table for 1995 prepared by ERINA, a Leontief type model based on the table is used for forecasting for 2010. The model has 34 sectors for each of 7 regions which cover 5 countries, excluding Hong Kong and Taiwan, and the 2 sub-regions mentioned above. The model enables structural analysis of the Northeast region during the 15 years between 1995 and 2010 as shown in the table. It is generally observed that the share of agriculture, forestry and fishery and light manufacturing tends to decline and there is a marked shift to heavy industry, particularly machinery industries with higher value-added ratios. Also noteworthy is a rising tendency, marking more than four times, for steel, non ferrous metals, electric machinery and transport equipment. Even among light manufacturing industries a significant rising trend is observed for textiles, apparels, household utensils, sundry goods, etc. What is especially noted is the role of foreign direct investment, which contributes to the promotion of productivity, thus accelerating exports. This rapid increase in terms of the share of Chinese exports is already mentioned above in the context of the trade matrix.
Northeast China is no exception, showing a similar trend, particularly for steel, electric machinery and transport equipment. A rising trend is also noticeable for crude oil and natural gas, which tend to grow faster than in other Chinese districts. A long-term dynamic growth in industrial structure is also noteworthy in South Korea, though its pace is slightly below that of China. Particularly noted is the high pace of growth in IT industries with rapid technological progress. Rising shares are noted in transport equipment and precision industries. Russia is relatively behind in economic growth though showing relative advantages in forestry, coal, crude oil and natural gas, metal mining, steel and non-ferrous metals, etc. This trend is particularly noted in the Russian Far East where there are signs of remarkable progress especially in agriculture, forestry, crude oil and natural gas, food, lumber, household utensils, paper and pulp, non-ferrous metals, and construction, etc.
Although the above trend is commonly observed in each scenario, there are delicate, interesting differences that deserved attention. In the second scenario of Chinese growth acceleration, sectors related to investment such as construction steel and non-ferrous metals, tend to propagate all kinds of growth in machinery, impacting related countries such as Japan, Southeast countries, the United States and the EU, etc. in terms of demand for steel, construction machinery, etc.
In the third scenario of Japan's growth acceleration, particularly noted are consumption goods in the rest of China such as textiles, apparels, sundry goods, household utensils, etc. Also showing remarkable increases are pulp and paper, printing and publishing in Northeast China in addition to the general expansion observed in the rest of China. For other districts where there is a similar impact such as in China, particularly noteworthy are increases in crude oil, natural gas, petroleum products, steel, etc. in the Russian Far East.
The fourth scenario of world trade decline due to chronic recession indicate a general falling tendency in particular export related industries such as textiles and apparels in South Korea and China. These construction industries are generally the least affected due to dependence on domestic demand.
As suggested in the above scenarios, the growing interdependence in Northeast Asia indicate relative advantages of mutual collaboration in terms of the promotion of infra-structure, environmental protection, energy saving technology by foreign direct investment, FTA agreement and trade liberalization, etc., and while these suggested areas for collaboration seem to be rapidly expanding, it should also be emphasized that the Northeast Asian contribution to the world economy is steadily growing as one of the engines for global development. This fact should not be under-emphasized, as well as the growing need for international collaboration within and outside of Northeast Asia.
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