Center of gravity

Sometime in this century, the two largest economies in the world will be China and India. Not coincidentally, they are also the world’s two most populous countries.

The significance of that is amplified by the fact that these two countries continue with hefty population growth rates while the populations of the "old" economies of western Europe, Japan and North America decline.

Chinese President Hu Jintao has committed to the quadrupling of his nation’s economy over the next 15 years. That means that Beijing will likely manage its economy to achieve 10 percent annual growth or better.

Those two prospects have tremendous repercussions for our own economy.

Today, "Greater China" (Hongkong, Taiwan and China) is the Philippines’ largest trading partner, eclipsing both the US and Japan. For many decades, our trade orientation was towards the US and Japan. That, obviously, needs to change dramatically.

The dramatic emergence of China and India, with its profound effects on the rest of the world, is the theme of this year’s conference of the Federation of ASEAN Economic Associations. The Conference on Thursday and Friday will be held at the AIM Conference Center.

That Conference will be preceded tomorrow by the annual meeting of the Philippine Economic Society (PES) in the same venue. The PES meeting will focus on the changes happening in Philippine society. I will brief that meeting on the progress of deliberations in the Consultative Commission on Charter Change, specifically on the provisions relating to the economy.

This is a key meeting.

The dominant thinking here is still oriented towards the "old" economies. Our strategy remains fixed on the goal of attracting investments from the mature industrialized economies and selling them our products.

In the meantime, most of our consumer-oriented manufacturing is threatened by cheaper imports from Asian economies. We have not looked well enough at developing strong market beachheads in the emerging Asian economies as well as establishing stable linkages in the Asian production chain.

Two months ago, at the meeting of the Economic Freedom Network, I listened intently to a senior Beijing economist as he grappled with the criticism that China was deliberately undervaluing its currency in order to cascade its exports on the other economies.

The Chinese economist pointed out what I thought was very significant and often ignored fact: while China enjoyed huge trade surpluses with the rest of the world outside Asia, she absorbed huge trade deficits with the East Asian economies. The "Chinese" export juggernaut, he pointed out, was actually an East Asian export juggernaut.

I sat back and pondered that point rally hard.

China was absorbing the lion’s share of foreign direct investments into the region. The Philippines, discounting Laos, Cambodia and Burma, was getting a really negligible fraction. Dividing total foreign investments on a per capita basis, we are probably the worst performer.

The inhospitable climate here for foreign investments – everything from political and policy uncertainties, poor infrastructure, high logistics and power costs, comparably more expensive labor costs relative to productivity, crazy unions, and uncertain contracts – is leaving us out of the strategically important power chain.

If that continues, we will be dead in the water.

Rep. Joey Salceda estimates that unless something dramatic happens in the near term, Vietnam’s per capita income will surpass ours in four years. Considering where Vietnam is coming from – a destructive war, wasted years fooling around with a "socialist experiment" and a people cut off from the global mainstream for so long – Salceda’s forecast is a disturbing one.

Yet, we seem to remain clueless about the emerging trends.

The ancient economic orthodoxies enshrined in the 1987 Charter ought to be revised immediately before we completely fall off the network for trade and investments in the emerging global economy.

The fact that China and India will be the center of gravity of the global economy probably within this generation creates a dynamic that is already in effect today. We are not taking full account of that dynamic.

Except for a few of our taipans along with some truly enlightened enterprises like Oishi and Bench, we have not established wide-enough production linkages with China. Both Tata and Global, Indian steel giants, have acquired substantial portions of our local steel industry. But our trade and industry planners do not seem to fully comprehend the potential of this linkage.

Our trade initiatives and diplomacy do not seem to be adjusting quickly enough to the emerging importance of China and India. Ask me now who our ambassador to India is and I would not know. Our critical ambassadorial posting to Beijing seems to be treated as a sojourn for retiring and mercurial politicians. Remember that Teofisto Guingona was appointed ambassador to Beijing, a post he subsequently resigned to enable him to lead demonstrations at Mendiola Bridge.

Considering the rapidly changing global economic configuration, I imagine we ought to be sending our best, most dynamic and most visionary diplomats to the posts at New Delhi and Beijing. We should be expanding our trade attaché staffs to these two capitals. The two capitals should be at top priority for the President’s summitry.

But then again, our diplomacy, like our economic policies, seems to be oblivious to the radically changing horizon for our economy.

I hope the two meetings to be held this week will be closely observed by our policymakers. They are looking at a horizon that we have not paid enough attention to.

If we continue ignoring that horizon, we will be left behind.