Residents of rural China shop for household items at the Shijihualiangouwu Market in Chenggong, Yunnan province.

Asian nations must implement more policies to boost domestic consumption and shift away from export-led growth as advanced nations are unlikely to absorb the region’s excess production, the Asian Development Bank said.

Global trade may contract for the first time since World War II this year, the World Trade Organization predicts, as US and European demand slumps. Asia’s expansion in the next two years would be “well below” recent growth rates, hindering efforts to reduce poverty in a region where more than half the population live on less than US$2 a day, the ADB said.

“There has been, in the past, too much focus on export-dependency on the US consumer,” said Bob Parker, who helps oversee $600 billion as London-based vice chairman of Credit Suisse Asset Management. “For the next three to five years, we are going to see a weak US consumer and therefore, exports, I think, are going to become much more regional.”

China’s stimulus package has begun to work. The 4 trillion yuan ($585 billion) spending plan is helping spur domestic consumption and supporting the region’s exports.

‘Damage is huge’

China is “concentrating these fiscal expenditures on rural areas, on inland areas – that’s the right thing to do,” said Eisuke Sakakibara, Japan’s former top currency official, who is attending the ADB meeting in Bali. “The damage that has been done to China in terms of plummeting exports is huge.”

The global recession has slashed demand for the export-dependent region’s computer chips, cars and commodities. Overseas shipments account for about 32 percent of Asia’s gross domestic product, according to the World Bank.

To focus on boosting local demand, governments around the region need to spend more on health and education and boost social safety nets to encourage consumer spending and reduce precautionary savings, Kuroda said.

“To get to a balanced global economy we need to see the West spending less and saving more and, very importantly we need to see Asia spending more and saving less,” said Gerard Lyons, chief economist at Standard Chartered Plc in London. “This financial crisis was made in the West. It wasn’t made in Asia, but Asia is part of the solution.”

But transforming household savings into consumer spending and investments has been a difficult task for Asian policymakers.

In the 10 Southeast Asian or ASEAN nations – Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam – savings exceed investments by at least 10 percent, ratings agency Standard and Poor’s says.

Diversify

Exports by developing Asian economies may shrink 10.3 percent this year, after growing 14.7 percent in 2008, the ADB predicts. Imports will probably contract 11.9 percent.

Japan’s Finance Minister Kaoru Yosano said the ADB should help regional nations devise strategies to switch their focus to local demand.

“The ADB should assist regional member countries rebalance their economic structures,” he said. “For some countries it will be assisting the strengthening of social safety nets to enhance consumption,” an idea that China embraced last month when it said it would spend 850 billion yuan to overhaul the nation’s healthcare.

On Sunday, finance ministers from China, Japan, South Korea and ASEAN attending the ADB meeting set up a $120 billion emergency fund aimed at countering the sort of capital flight seen during the 1997/98 Asian financial crisis.

It is Asia’s first independently managed multilateral liquidity facility and will be launched by the end of the year.

Japan, the region’s biggest economy, also announced a plan to supply up to 6 trillion yen ($61.54 billion) to support its neighbors in an economic downturn.

To counter the global crisis, the ADB plans to ramp up lending to its developing members to about $33 billion in 2009 and 2010, almost a 50 percent increase over 2007-2008.

If approved, the bank will also create a $3 billion fast-disbursing facility to meet “urgent needs,” Kuroda said.

Asia threatens to become a major source of global carbon emission unless it invests more in clean energy, Kuroda said.

Unless such steps are taken, he said, the region will “quickly become the main driver of climate change.”

Source: Bloomberg