Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Rise and Decline of Four Little Dragons - Taiwan, South Korea, Hong Kong, and Singapore

Economics / Asian Economies Mar 01, 2017 - 05:13 AM GMT

By: Dan_Steinbock

Economics

After a stunning growth performance, all four dragons are slowing and aging. In the absence of drastic policy changes, they are facing relative stagnation, says Dan Steinbock.

In The Four Little Dragons (1992), U.S. academic Ezra Vogel argued that the four little dragons—Taiwan, South Korea, Hong Kong, and Singapore—were the newly-industrialized economies, which had followed Japan's export-led growth model to prosperity. Unlike major advanced economies, which established their position in a century or two, the four dragons made their mark in just a few decades.


Today, the dragons' world looks very different. There is a common denominator behind Hong Kong’s economic and political malaise, Taiwan president Tsai Ing-wen’s effort to lean on the Trump White House, South Korea’s mass demonstrations to impeach President Park Geun-hye, and Singapore’s Future Committee's attempt to accelerate economic growth.

Political friction usually follows aging and slowing. That’s the common denominator.

Rise of dragons

Some half a century ago, the four dragons began extraordinary rapid industrialization starting with Hong Kong’s textile industry in the 60s, followed by export-oriented industrialization in Lee Kuan Yew’s Singapore, modernization and export expansion in Kuomintang’s Taiwan, and Park Chung-hee’s South Korea. From the early 1960s to the 90s, the dragons enjoyed high growth rates. In the process, they leapt “From the Third World to the First” within one generation, as Lee later put it.

In 1960, Hong Kong, the first dragon to begin the catch-up, still led in average living standards; it was only 20 percent behind Japan, followed by Singapore, Taiwan and South Korea. But Hong Kong remained more than 30 percent behind U.S. In the weakest dragon, South Korea, living standards were barely 10 percent of those in America.

As the toughest phase of industrialization was achieved by 1980, little dragons were still led by Hong Kong. Although trade-friction between the U.S. and Japan was about to dominate headlines, living standards in Hong Kong were now only 25 percent behind those in Japan, but still 45 percent behind those in U.S.

Usually, most economies’ internal engines decelerate after industrialization associated high growth. However, the four dragons were in the right place in the right time and made the right growth choices. As China – the ultimate dragon – began its economic reforms and opening-up policies, the little dragons' went overdrive that supported their growth another three decades.

Today, living standards in all dragons, except for South Korea, are relatively higher than in Japan, which has been overwhelmed by economic stagnation. Intriguingly, living standards in Singapore are now on average 35 percent higher than those in America; which Hong Kong has caught up with as well.

But easy catch-up growth is behind.

Shaky short-term prospects

In 2017, Singapore hopes growth of 2-3 percent, although analysts expect it to stay below 2 percent. Despite a strong last quarter in 2016, it is coping with economic malaise. Trade outlook is uncertain, due to new protectionism and regional tensions. Like Hong Kong, Singapore must also cope with the Fed’s hikes amid a tight labor market and softening property sector. It is seeking new growth not just in China and emerging Asia but via economic integration with Malaysia and Riau.

Despite improved prospects, Hong Kong ' growth is about 2.0 percent. Its future is overshadowed by political angst. Even more than Singapore, it is exposed to global liquidity swings, US trade protectionism and China’s rebalancing in the region. But unlike Singapore, Hong Kong has missed or continues to shun pro-growth integration opportunities. Failures in leadership are illustrated by the misconduct of former chief executive Donald Tsang and the weakness of his successor CY Leung.

South Korea’s growth rate has been cut to 2.8 percent, but economic momentum has moderated. Neither foreign trade, which is constrained by international environment, nor domestic demand, which suffers from indebted households, has been adequate to support strong growth. While rising inflation may generate a hike by the Bank of Korea, Seoul must cope with Chinese deceleration and U.S. protectionism and Washington could also target it for alleged currency manipulation.

Despite improved forecasts, Taiwanese growth rate for 2017 is estimated at 1.8 percent. Like Hong Kong, it is struggling with economic and political malaise; the former derive from maturation, the latter are largely self-induced. Thanks to growing political uncertainty, investment contraction could follow in due time, especially if friction with China will weigh on trade and investment.

Today, dragons are steadily aging and slowing, as evidenced by steady and occasionally steep deceleration of growth in each.

Slowing growth

The four dragons are aging. With demographic transition, birth and death rates are slowing, as evidenced by rise of median age. Among major advanced economies, it is highest in Japan and Germany (47), which are facing population decline. Among the dragons, it is highest in Hong Kong (43), followed by South Korea (41), Taiwan (40) and Singapore (40).

Worse, average living standards tend to mask broadening income polarization in the four dragons. Among major advanced economies, income inequality, as measured by Gini coefficient, is the highest in the US (45), but significantly lower in Japan (32), France and Germany (less than 30).  Among the dragons, it is highest in the financial hubs of Hong Kong (54) and Singapore (46), as opposed to high-tech giants Taiwan (34) and South Korea (30).

In the long-run, high living standards require solid growth and strong productivity, which usually rely on sustained innovation. Most dragons are driven by technology innovation, as reflected by their R&D per GDP. It is relatively highest in the world in South Korea (4.3%), and in the top league in Singapore (3.2%) and Taiwan (3%), which have bypassed the U.S. and Western Europe. However, Hong Kong (0.7%) is the great laggard.

All four dragons need great structural reforms and inclusive pro-growth policies, including greater productivity, innovation and R&D investments; more dynamic competition and new enterprises; higher retirement ages, accelerated skill-based immigration, drastically reduced policy barriers to female labor participation; and greater efficiency of public spending. A greater stress on human capital also requires more progressive taxation, aggressive measures to reduce income inequality; and adequate job protection legislation.

Finally, as the dragons’ internal growth engines are slowing, they must aggressively seek greater integration opportunities, especially through greater economic integration regionally and international trading arrangements.

In the absence of such changes, all four dragons could face creeping stagnation.

Dr Steinbock is the founder of the Difference Group and has served as the research director at the India, China, and America Institute (USA) and a visiting fellow at the Shanghai Institutes for International Studies (China) and the EU Center (Singapore). For more information, see http://www.differencegroup.net/

The original, slightly shorter version was published by South China Morning Post on February 28, 2017

© 2017 Copyright Dan Steinbock - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in