BLOCK 1

What are some of the main ways in which the economies of developing countries in Asia
differ from one another?
https://www.coursehero.com/file/p1dv353/What-are-some-of-the-main-ways-in-which-
the-economies-of-developing-countries/
What are the three major components of economic growth?
Economic growth can be refer as a rising of economic services and goods production, where
by comparing with the previous period. It can be measured in real or nominal terms for
inflation. Traditionally, the aggregate growth of economic can be measure in term gross
domestic product or gross national product. However, some alternative metrics are being
used.
The first major components is the capital accumulation, where the term can be refer as a
rising of assets from the profit or investments, and also one of the building blocks of an
economy capital. The main aim is to raise the initial investment’s value as a return on
investment, whether is by interest, capital gains, rent or even appreciation. The
procurement of money by a firm in order to further objectives and goal of a business can be
refer as capital investment. The investment in capital can be known as the long term assets
acquisition of a firm such as machinery, manufacturing plants and real estate. However, for
physical capital do consists of man-man and tangible objects where a firm invest in or
bought and utilized to produce goods. For example, those items such as manufacturing
equipment which mean not consumed or reusable during process of production also falls
into the fixed capital category. For human capital, consider as a quality not listed in a
balance sheet of a firm or intangible asset, also can be classified as an economic value of
skills and experience of workers. This can be included as skills, health, intelligence, training
and employees’ value such as punctuality and loyalty, as well as education.
The second major components is the growth in population and also labour force. The rise in
labour force also eventually rising the output amount that to be consumed in order to
provide for new workers’ basic subsistence. Thus, new workers need not be net consumers,
along with at least being productive enough to offset this. In order to realize their
productive potential, it is essential to look for a good workers’ type where flowing to the
right job in a suitable place in combination with the right complementary capital of goods.
Technology progress is also one of the major components of economic growth, where it
refers the improvement methods and new discovery of producing goods. The technology
changes may lead to a rising in labor productivity as well as capital. It also could be utilized
to rise the value among range of categories, such as intellectual, physical, financial and
social, etc. The improvement in technology could allow workers to make more output
ascending with capital stock of good, by merging them in another method for boosting
productivity. For example, the utilize of gasoline could become a more productive and
better method for transporting process goods, as well as efficiently distribute the final
goods.
What are the determinants of Middle-Income Traps? Explain how the SEA countries can
avoid, or escape, this trap.
In the Southeast Asia region, Malaysia, China and Vietnam is consider as a middle income
countries. The term ‘middle-income trap’ can be refer as a phenomena where a nation
could get stuck at a level of income after attaining certain income. Those nations are not
able to move on to another level of higher income. The upper level of GDP per capital keep
fluctuating instead of going steadily, which result those nations unable to face competition
with low wages and low income in manufacturing exports.

In Malaysia, the government launched a political, economic and social transformation

programme. For instance, GST (Good and Services Tax), BRIM, the embracement of IR4.0
and also Fiscal and Monetary Policy. The attachment essential on human capital
development, which cultivate the independent innovation ability of enterprise, and also
encourage research and development in technology. In order to input large number of
development capital, the Malaysian government utilized its private investment to gradually
relax restriction on foreign capital. They also reducing the trade barrier so that there is a
rising in opportunities for job.
In China, have a large manufacturing sector and well-developed technology, hence
contribute a high productivity. Moreover, the nation is growing rapidly, where in the over
ten years, the nation will be able to escape the middle income trap problem, and join the
league of other developed nations. China could create a major breakthrough in artificial
intelligence development, which could possibly dominate the world economies. Thus, the
nation is no longer a nation that producing low quality goods, and it became some major
partners with new development technology.
In Vietnam, a declination of 53% in extreme poverty since 1992 to a 3% in today years. The
nation had opened up a space for private initiative such as returning agriculture to the
family farming. The nation also opened an economy to foreign direct investment as well as
foreign trade. For example, by lifting the ban on exports of rice, and manufactured goods’
import. A 10 million jobs have been created in the export sector. The nation also stabilize
the exchange rate and level of price, including the expanding of private sector to decline
inflation, devalued official rate to level of black marker by the central bank.
ASIAN DEVELOPMENT OUTLOOK 2020: WHAT DRIVES INNOVATION IN ASIA?

 What is the impact of Covid-19 on Developing Asia?

The pandemic of COVID-19 had started from the China and moved to the United States as
well as Europe. It is hoped that at the beginning of the pandemic, the warm weather would
shield several developing countries from the coronavirus. However, this hope didn’t been
realized as the virus case in Asia are still growing. Based on the report, the highest reported
case are in developing countries, and it is not only because of the large number of
populations. Even with low rate of infection, those nations in Asia region face large negative
economic shocks which connect to the pandemic effects on price of commodity, world
trade, capital flows, as well as the domestic demand and tourism sector collapsed.
Developing Asia is most of the nations have the strict containment measurement, yet the
nations which contribute the one quarter of the world GDP has loss associated with the
recent pandemic.
In Central Asia and Caucasus, the recent pandemic had lead a large costs of economic. The
region is consider less risky to this approach of economic losses, this is because some of the
areas are less densely populated and relatively poor. The growth of Central Asia is projected
to be fall a total of 2.1% from the percentage of 4.9. In the beginning of March, the low
crude oil and fossils price had caused low growth in some region of oil producing countries.
For economy of Kazakhstan, there is an expectation of drop of 1.8%. The government had
cut down the spending in public investments. However, in Azerbaijan, there is an evidence
increase production of oil and gas, despite the declination 0.5% of growth. At last, a 5.8% fall
of growth could be expected in the 2021, compared to Turkmenistan’s previous year with
percentage of 6. Hence, the president of Tajikistan took interest in reform regulation by
observing the economic transformation in Uzbekistan, where the nation had lift a 5.8%
growth in 2021 after a slow growth last year. Both nation such as Armenia and Kyrgyz has
being edging up along the year, after a slashed down from the previous year.
On the Pacific countries
The countries: Fiji, Papua New Guinea, Solomon Islands, Vanuatu, Central Pacific, North
Pacific and South Pacific economies
1. Combined output is forecasted to decline by 0.3% in 2020
2. Economies that rely on tourism and commodity export will be vulnerable
Eg. Fiji, Palau, Samoa, Vanuatu, Cook Island
1. Restriction on labor movement and capital equipment delay infrastructure project
2. Growth will remain below average in 2021
3. Inflation is expected to be 2.7% in 2020 and rebound to 3.8% in 2021
The Impact of Covid-19 on Travel and Tourism and its sub sectors
The World Travel and Tourism Council (WTTC) estimates more than 100 million jobs and
USD2.7 Trillion in revenue is lost globally due to Covid-19 pandemic. The travel and tourism
had the biggest hit among all other industries.
The international tourism is not expected to recover anytime soon even after widespread
vaccination is possible due to the social distancing behavior that needs to practiced.
Typically in ASEAN, Philippines and Thailand would be hit the most as tourism contributes
the biggest percentage towards their GDP
Southeast Asia will Track the PRC and decelerate to 1.0 growth in 2020

● Southeast Asia GDP of $3.11 trillions VS PRC GDP of $14.86 trillions

● Unique conditions for every country.

● Latest GDP data : SEA -4.0% VS PRC 3.2%

● Expected to rebound strongly in 2021. Vietnam has the most promising recovery
prospect.

● Indonesia and Philippines remain highly vulnerable.

Covid-19 has a major impact on the economies of developing Asian countries

Disadvantage：
Food Industry. The catering industry suffered heavy losses. A large number of restaurant
stocks are sold at low prices, and waiters adjust logistics work. New formats may appear,
but the industry’s losses are still serious, which has a great impact on developing countries.
Financial industry. The financial industry has been affected, and market hedging will have a
huge blow to the financial industry. The financial industry may suffer from the increase in
non-performing rates and the decrease in securities trading volume in the future, which will
cause serious economic losses in developing countries.
Advantage
The ability to prevent and control infectious diseases has been greatly improved, and at the
same time it will have a greater role in promoting the development of the pharmaceutical
industry.
Promote the development of remote office, remote office can also relieve labor pressure
and reduce ineffective consumption.
file:///C:/Users/User/Downloads/Covid-19_in_developing_economies.pdf pg63
https://www.adb.org/sites/default/files/publication/656521/impact-covid-19-developing-
asia-extends-2021.pdf

 What Drives Innovation in Asia?

Innovation is a complex, diverse, and multifaceted process.
It can refer to different products and processes that improve productivity and benefit users.
Innovation appears through a wide range of activities carried out by a variety of actors.
Some innovations are game changers, such as those that create more and better features in
mobile phones. While first-in-the-world frontier innovations like driverless cars.
Asia’s emergence as a middle-income region argues for more innovation.
As the economy matures and is highly dependent on innovation, the latter plays a larger
role in growth. Middle-income countries that successfully graduated from high-income
countries have invested three times as much in research and development (R&D).
Innovation can promote more inclusive and sustainable growth.
Many basic innovations- examples like cost-effective water filters, and payments transacted
through mobile phones. They can improve the quality of life for the most disadvantaged.
Similarly, green innovations in energy, transport, and other areas promote a cleaner
environment.
Borrow. Adapt. Innovate. Repeat
Most of the Asian countries are able to effectively absorb and make use of foreign
innovations from the West (new process and/or new products), and this contributed to their
rapid and sustained growth despite the lack of original innovation.
The innovation gap between Asian countries and the West is unevenly narrow. Some are
leading the game, the rest are catching up with the peers.
Higher Innovation Rate in Asian Developing Countries with Lower Incomes.
On average, 33.9% of firms in Asian developing countries introduced a new product, but
only 19.9% introduced a product that is original to the market.
As technology licensing is also lower in less-developed countries, the share of firms
reporting their use of licensed technology increases with per capita GDP.
Strong innovation in ICT and high-tech manufacturing industries (machinery equipments,
electronics & chemicals) as compared to others.
Innovation Is Fundamentally A Human Endeavor
R&D Investment: Willingness to embrace change and spend more in creating technological
advancement for the country.
Human Capital: The more knowledge we gain, the more likely it is that we could help in
upgrading the country’s innovative capacity.
Access to Infrastructure: Infrastructure such as roads, electrical power, water supply, and
information and communication technology connectivity complement innovation at the
country level.
Fostering innovators and an innovative culture
1. Innovation link to human capital and innovation
- 3 types: workers’ formal educational attainment, managerial experience, and training
provided by firms.
2. Education systems create larger pool of innovators: student centered teaching enhance
creativity and innovative thinking.
3. Strong institutions enable innovative entrepreneurs: Quality of entrepreneurs is
important. Strong property right, rule of law - formalize business to growth.
4. Rapid advances in ICT have revolutionized the entrepreneurial ecosystem - New business
model- Digital entrepreneurship: Grab, Lazada, Shopee
Conducive institutions and environment for innovators.

- State of ipr laws.

Are the Pro access or Pro-innovator.
Example : india after trips.

- State of funding available.

Debt iof share capital.
Fdi in india after strict ipr

- Location.
City? Financial hub ? technology hub
Development in these locations
Toward a more innovative Asia
1. Asian governments can and should become catalysts for innovation.
2. The policy environment for innovators must evolve with the economy.
3. Local policies must complement national policies to foster innovation.
 (i) Explain the economic trends and prospects in developing Asia.

 Growth is at a downtrend for the Asia's economy in 2020 due to the COVID-19
outbreak and is expected to recover in 2021. 
 Most obvious growth decline in East Asia, followed by South Asia, Central Asia,
Southeast Asia & the Pacific.
Economic Performance in developing Asia
Due to the figure below, the GDP Growth Rate in Developing Asia of year 2018 is 5.9% per
year and 2019 is 5.2% per year. Growth in GDP in the Developing Asian region was expected
to slow sharply to 2.2% in 2020 under the effects of the current health emergency (COVID-
19) and then rebound to 6.2% in 2021.

China’s Economic Rise - History, Trends, Challenges, and Implications for the United States
Discuss the implications of China’s Economic Rise for the US and to the Asian economies.
History of China Economic Development

 Prior to reform, under the leadership of then China chairman Mao Ze Dong,
 Majority of the country's industries are all state controlled. 
 To combat this, the central government initiated price and ownership incentives
 For farmers which enabled them to sell on the free market.
 Cause of China Economic Growth: large scale capita investment & rapid productivity
growth
https://www.brookings.edu/testimonies/u-s-china-economic-relations-implications-for-u-s-
policy/
https://www.ids.ac.uk/download.php?file=files/DFIDAgendaPaper1106.pdf The Implications
of China's Growth for other Asian Countries
Measuring The Size Of China Economy
•Measured in U.S. dollars using nominal exchange rates, China’s GDP in 2018 in nominal
U.S. dollars was $13.4 trillion, which was 65.3% of the size of the U.S. economy, according to
estimates made by the IMF.
•China’s 2018 per capita GDP in nominal dollars was $9,608, which was 15.3% of the U.S.
per capita level.
•Economists contend that using nominal exchange rates to convert Chinese data (or those
of other countries) into U.S. dollars fails to reflect the true size of China’s economy and
living standards relative to the United States.
•Economists attempt to develop estimates of exchange rates based on their actual
purchasing power relative to the dollar in order to make more accurate comparisons,
usually referred to as purchasing power parity (PPP).
•Adjusting for this price differential raises the value of China’s 2018 GDP from $13.4 trillion
(nominal dollars) to $25.3 trillion (on a PPP basis) .IMF data indicate that China overtook the
United States as the world’s largest economy in 2014 on a PPP basis
•China’s share of global GDP on a PPP basis rose from 2.3% in 1980 to an estimated 18.3% in
2017, while the U.S. share of global GDP on a PPP basis fell from 24.3% to an estimated
15.3%.
The PPP measurement also raises China’s 2018 nominal per capita GDP (from $9,608) to
$18,110, which was 28.9% of the U.S. level. Even with continued rapid economic growth, it
would likely take many years for Chinese living standards to approach U.S. levels
•China has emerged as the world’s largest manufacturer according to the World Bank.
•In 2016, the value of China’s manufacturing on a gross value added basis was 49.2% higher
than the U.S. level.
•Manufacturing plays a considerably more important role in the Chinese economy than it
does for the United States.
•In 2016, China’s gross valued added manufacturing was equal to 28.7% of its GDP,
compared to 11.6% for the United States. 
•The index found that global executives predicted that the United States would overtake
China by 2020 to become the world’s most competitive economy, largely because of its
heavy investment in talent and technology.
•Slowing economy, a decline in value-added manufacturing and overcapacity in several
industries, rising labor costs, and a rapidly aging population lead China to fall to the second-
most competitive manufacturer by 2020.
•The World Economic Forum (WEF) 2018 Global Competitive Index ranked China as the
world’s 28th -most competitive economy (out of 140 economies), while the United States
ranked first.
•China’s average monthly wages (converted into U.S. dollars) in 1990 were $55, compared
with $32 for Vietnam and $221 for Mexico. 
•However, in 2018, China’s average monthly wages (at $990) were 316% higher than
Vietnam’s wages ($238) and 158.5% higher than Mexico’s ($383). From 2007 to 2018,
China’s average monthly wages rose by 263%. It leads China losing advantages in cheap
labors and increasing of the cost. It might be due to decline in China’s working age
population
Overview of FDI in China
http://english.mofcom.gov.cn/aarticle/topic/bizchina/fdiinchina/200406/20040600233643.
html
• China has become both major recipient of global FDI and major provider of FDI
outflow
• FDI outflows grew rapidly after 2005, peaked in 2016 with $196.1 billion, but
declined in 2017 and 2018, due to:
• tightening by Chinese government on investments deemed wasteful
• scrutiny by foreign governments of China's efforts to obtain advanced
technology firms and other strategic assets
FDI Inflows
FDI inflows in 2018 were $139 billion, making it the world's second largest recipient of FDI
after the US
2010 ~ over 400k foreign-invested enterprises (FIEs) registered in China, employing 55.2
million workers or 15.9% of the urban workforce
FIEs account for a significant share of China's industrial output and foreign trade
• Sharp rise since 1990s due to:
• Go Global initiatives
• China's government strategy to use FDI to gain access to IPR,
technology know-how, famous brands etc, in order to move Chinese
firms up the value-added chain, boost domestic innovation and
development of Chinese brands
• Help Chinese firms (especially SOEs) become major global competitors
• Slowing economy and rising labour costs in China
• Firms diversify risk and expand business opportunities beyond China
market, and to relocate less competitive firms from China to low-cost
countries
• Chinese government diversifying its foreign exchange reserve holdings
• Traditionally invested in relatively safe but low-yielding assets such as
US Treasury Securities
• China Investment Corporation (CIC) established to seek more
profitable returns on its foreign exchange reserve
• Obtain natural resources to sustain China's growth
CHINA’S TRADE PATTERNS TOWARDS ECONOMIES 
TRADE PATTERN 1: EXPORTS

TRADE PATTERN 2: IMPORTS

• Imports are less concentrated than exports and their composition has evolved even
more significantly. 
• The five categories are electronics, energy, industrial machinery, raw ore/metal
scrap, and vehicles—currently account for about 60 percent of total imports.
• Machinery dominated China’s import needs as it initially industrialized. As processing
trade grew, electronics imports started growing rapidly, though recently, energy and
commodity imports have grown even faster, reflecting both the surge in domestic
(investment) demand and the rise of global commodity prices as markets adjusted to
the scale of China’s appetite for raw materials.
• Within electronics, China mostly imports relatively sophisticated intermediate goods
such as circuits, resistors, and semiconductors. 
• Unlike with exports, imports are dominated by intermediate goods, which account
for 70 percent of the total. As with exports, however, this composition has been
 stable since the 1990s—China continues to produce most of its own final goods and
does not yet have substantial imports of sophisticated final goods from abroad.
• There have been major changes in the origin of China’s imports over the past two
decades. 
• Japan has seen the greatest change, with its share falling from almost 25 percent in
the early 1990s to under 10 percent today. By contrast, Korea’s share grew, and by
2013, that country had become the biggest source of imports into China. 
• Commodity exporters, such as Australia (iron ore), South Africa (metals), Iraq (oil),
and Switzerland (gold), also grew in importance, especially since 2008. 
• “China” itself emerged as a major location of imports in the early 2000s, but this
includes the way goods that are exported to Hong Kong for light processing and then
re-imported into China are recorded.
China Economy Major Long-Term Challenges
https://www.everycrsreport.com/reports/RL33534.html
• As China's economy matured, GDP has been slowed down from 14.2% in 2001 to
6.6% in 2018.
• Old growth model not sustainable anymore.
• New and reformed economic growth model should be implemented to prevent
stagnant economic growth
• Government still plays a major role in country’s economic development - eg various
industries and banks
Environmental Pollution 
• Heavy environmental pollution as a result of the government’s constant disregard of
its own environmental laws in pursuit of economic growth.
 • China’s current economic growth model with the emphasis of heavy industry growth
which is energy intensive and high polluting further exarcebating the problem.  
Demographic Challenges 
• China’s one child policy is projected to lose 700 million of the working age
population by 2050. The Chinese working age population will drop by 225 million
individuals.
• The one child policy has caused a rapid aging society in China. As a result, with
increasing elderly population and declining workforce numbers, challenges of
boosting worker productivity, enhancing innovation and high-end technology
development are imminent due to the necessity of allocating more spending on
elderly healthcare services. 
Corruption Due To Relative Lack Of The Rule Of Law
• Government “connections” were the main determinants of successful firms and not
market forces.
• The decentralised government structure is not adequate in regulating economic
activities in China, leading firms to “cut corners” for profit maximisation. Eg : The
massive recall of melamine tainted infant milk formula in 2008 that led to the death
of 4 infants and the sickening of 53 000 other infants .
• As a result of the lack of regulation, transparency and protection of intellectual
property rights, US companies are severely reluctant to conduct businesses in China.
China’s widespread government corruption and deficient enforcing of regulations
and laws limit competition and undermine efficient goods and services in the
country. 
• (A New York Times Article reported : Between 2001 and 2010, China was the world’s
largest source of illicit capital outflows. A survey with Chinese officials indicated
government corruption as the greatest threat to the Chinese communist party and
the state).
“Made In China 2025”
https://www.researchgate.net/publication/326392969_Strategic_Plan_of_Made_in_China_
2025_and_Its_Implementation
What is it? 
An initiative in 2015 to increase competitiveness of China’s industries, boosting innovation,
reducing the dependence on foreign technology with the ultimate goal of making China a
world manufacturing power by 2049.
Concerns
US policy makers are not at ease with the methods the Chinese government plans to utilized
in achieving its goals as it involves large subsidies, protection of domestic industries,
directed policies to purchase technology and IPR from abroad, increased pressure on foreign
firms to transfer technology in order to do business in China, and what appears to be a goal
of deliberately reducing foreign participation in China’s markets. 
According to the USTR, the initiative posed a serious threat to the global trading system, as
it is likely to create or exacerbate market distortions and create severe excess capacity in
many of the targeted industries.
Challenges to U.S. Policy of China’s Economic Rise
-China has a stake in maintaining the international trading system. 
-Further economic and trade reforms
(Lowering trade and investment barriers would boost competition in China.)
-China's efforts to boost the development of indigenous innovation and technology could
result in greater intervention (such as subsidies, trade and investment barriers, and
discriminatory policies), which could negatively affect U.S. IP-intensive firms.
China's increased tariffs in U.S
China as a growing threat to the U.S. economy and the global trading system.
: Advocate a policy of trying to contain China’s economic power  (such as increased tariffs
under Section 301).
- Responding to China’s BRI (Belt and Road Initiative) is viewed by some as a major challenge
to U.S. global economic interests.

Discuss the factors that brought about China’s Economic Miracle. Read the article titled
“Why is China Growing So Fast - IMF Report” that can be found on Times.(cite sources)
Based on the article given:
1) Prior to the 1978 reforms, nearly four in five Chinese worked in agriculture; by 1994, only
one in two did. Reforms expanded property rights in the countryside and touched off a race
to form small non-agricultural businesses in rural areas. Decollectivization and higher prices
for agricultural products also led to more productive (family) farms and more efficient use of
labor. The resulting rapid growth of village enterprises has drawn tens of millions of people
from traditional agriculture into higher-value-added manufacturing. 
2) The post-1978 reforms granted greater autonomy to enterprise managers. They became
more free to set their own production goals, sell some products in the private market at
competitive prices, grant bonuses to good workers and fire bad ones, and retain some
portion of the firm’s earnings for future investment. The reforms also gave greater room for
private ownership of production, and these privately held businesses created jobs,
developed much-wanted consumer products, earned important hard currency through
foreign trade, paid state taxes, and gave the national economy a flexibility and resiliency
that it did not have before.
3) By welcoming foreign investment, China’s open-door policy has added power to the
economic transformation. Cumulative foreign direct investment, negligible before 1978,
reached nearly US$100 billion in 1994; annual inflows increased from less than 1 percent of
total fixed investment in 1979 to 18 percent in 1994. This foreign money has built factories,
created jobs, linked China to international markets, and led to important transfers of
technology. These trends are especially apparent in the more than one dozen open coastal
areas where foreign investors enjoy tax advantages. In addition, economic liberalization has
boosted exports—which rose 19 percent a year during 1981–94. Strong export growth, in
turn, appears to have fueled productivity growth in domestic industries.
4) Price reform, the Chinese have proceeded cautiously, granting a fair amount of autonomy
to producers of consumer goods and agricultural products but much less to other
sectors. Several bouts of inflation have buffeted the Chinese economy in the past two
decades, deterring the government from implementing full-scale price liberalization. High
rates of growth also raise inflationary worries. Inflation may pose the single greatest threat
to Chinese growth, though thus far it has been largely contained

https://www.tutor2u.net/geography/reference/factors-explaining-the-rapid-economic-
growth-of-china-in-recent-decades
https://pseudoerasmus.files.wordpress.com/2015/02/yao-chinese-growth-miracle-
handbook2.pdf
What is the IMPACT OF US-China Trade War?
Will this affect other Asian Economies?
https://www.prnewswire.com/news-releases/impact-of-the-us-china-trade-war-on-
southeast-asian-countries-2019-report---focus-on-vietnam-malaysia-singapore-
300950889.html
https://www.tandfonline.com/doi/pdf/10.1080/10599231.2020.1708227?needAccess=true
US-China Trade War: The Spillover Effect

https://voxeu.org/article/impact-us-china-trade-war-east-asia The impact of the US-China

trade war on East Asia

BLOCK 2
Read the ADB Report “Emerging Asian Regionalism - A Partnership for Shared Prosperity”
and answer the following questions, with the aid of real-world Asian examples.
i. What is regionalism?
Institutional arrangements designed to facilitate the free flow of goods and services and to
coordinate foreign economic policies between countries in the same geographic region.
Eg:  free-trade areas, customs unions, common markets, and economic unions.
A. Types of regionalism (by the level of integration involved) : 
• Free Trade Area 
-Eliminates or greatly reduces customs duties between its members
-Eg: The EFTA (European Free Trade Association)
• Customs Union 
-Creates a greater degree of integration through a common tariff on non-members, and
a common market  adds to these arrangements by allowing the free movement of capital
and labour. 
-An economic and currency union, which requires a high degree of
political consensus between member states, aims at full economic integration through a
common economic policy, a common currency, and the elimination of all tariff and nontariff
barriers.
B. Types of regionalism ( by level of displayed institutional integration displayed)
• Tight 
-Characterized by a high level of institutional integration through shared norms, principles,
rules, and decision-making procedures that limit the autonomy of individual members. 
-The EU is an example of tight regionalism, having evolved from a limited free-trade area to
a customs union, a common market, and finally an economic and currency union. Spillover
effects in political and social arenas are inevitable with tight regionalism.
• Loose
-Characterized by the lack of formal and binding institutional arrangements and a reliance
on informal consultative mechanisms and consensus-building measures.
 -The Asia-Pacific Economic Cooperation (APEC), which was established as a mechanism to
foster the creation of a free-trade area, is a good example of loose regionalism, and NAFTA,
as a full-fledged free-trade area that falls short of being an economic union, exemplifies a
category intermediate between tight and loose regionalism.

ii. Critically analyse the importance of regionalism as far as Asian countries are
concerned.
• link the competitive strengths of its diverse economies in order to boost their productivity
and sustain the region’s exceptional growth;
• connect the region’s capital markets to enhance financial stability, reduce the cost of
capital, and improve opportunities for sharing risks;
• cooperate in setting exchange rate and macroeconomic policies in order to minimize the
effects of global and regional shocks and to facilitate the resolution of global imbalances;
• pool the region’s foreign exchange reserves to make more resources available for
investment and development;
 •exercise leadership in global decision making to sustain the open global trade and financial
systems that have supported a half century of unparalleled economic development;
• build connected infrastructure and collaborate on inclusive development to reduce
inequalities within and across economies and thus to strengthen support for pro-growth
policies; and
• create regional mechanisms to manage cross-border health, safety, and environmental
issues better. 
Can avert disputes between governments  from turning into a war and battle illegal
activities better due to their vested interests. 
Smaller or younger countries can voice their opinions better in the international forums
though diplomatic ties and leverage developed through regionalism.
Regionalism might help bring some real effort towards addressing environmental problems
no matter how minor it seems and how small of an area it affects. For example , dying coral
reef , overfishing .
iii. Does Asian Regionalism benefit the world?
With sustained Asian dynamism, strengthened by regional cooperation,
Asian Regionalism could bolster Asia’s role as a new and stabilizing engine of global
economic growth. 
An integrated Asia will continue to have a powerful stake in the global economy, it would
have both an incentive and the leverage to play a bigger role in keeping global markets open
and vibrant. 
An integrated Asia can:
1) generate productivity gains
2) contribute to the efficiency and stability of global financial markets 
3) diversify sources of global demand, helping to stabilize the world economy and diminish
the risks posed by global imbalances and downturns in other major economies 
4) provide leadership to help sustain open global trade and financial systems; 
5) create regional mechanisms to manage health, safety, and environmental issues better,
and thus contribute to more effective global solutions of these problems. 
https://aric.adb.org/emergingasianregionalism/pdfs/Final_ear_chapters/chapter%201.pdf
Critically analyse the economic consequences of political instability in Asian economies.
Please provide 5 real world cases in the Asian context.
Malaysia
2018 change of BN to PH
• Malaysia PH won an election that overturned a party which had been in power for
more than 60 years.
• Changes of GST to Sales Tax, GDP of Malaysia 5.4% which is lower than prediction of
6.0% and also lower than the era of Najib with 6.7%
2020 PH collapse 
• After one week of Sheraton Move, Malaysia entered to MCO
• As of November 2020, total employees engaged in the manufacturing sector was
2,195,488 persons, a decrease of 2.2% as compared to 2,245,373 persons in
November 2019. In terms of salaries and wages paid, it amounted to RM7,190.3 mil,
dropping by 1.3% or RM91.8 mil in November 2020 compared to the same month of
the preceding year.
• Former Prime Minister Najib Razak also quoted the data released by Bank Negara
Malaysia (BNM) that the average wage of employees in the manufacturing sector
had dropped to RM3,275 a month, a decrease of RM600 or 20% compared to
RM3,863 in December 2018.
2021 Malaysia Emergency State
 • The state of emergency declared this week allows Malaysia’s government to enact
immediate laws to support the virus-battered economy but could undermine
investor confidence although Malaysia Government welcome all the foreign
investor. 
• Based on statement from BIMB Securities Research, the action of government
intervention unchecked by parliament could jeopardize market stability could send
negative signals to investors, leading to the outflow or diversion of foreign
investment

Bangladesh 
Many sorts of violent, meaningless, destructive methods been used by the political parties. 
But the method which most frequently used to oppose the ruling party by the opposition
party is known as ‘hartal’. Typically hartal is associated with a mass protest of a total
shutdown of economic activities and voluntary closing of educational institutes.
With the independence of Bangladesh, the number of hartals decreased.
Adverse effects on economic and business: 
1. Export, inport, pricing level 
2. pay higher transport fees in the hartal days to carry their goods
3. Chittagong port, which plays a large part in the national economy were also harmed
Hong Kong
Hong Kong's protests started in June 2019 against plans to allow extradition to mainland
China.
Until 1997, Hong Kong was ruled by Britain as a colony but then returned to China. Under
the "one country, two systems" arrangement, it has some autonomy, and its people more
rights.
The bill was withdrawn in September but demonstrations continue and now demand full
democracy and an inquiry into police actions.

In the third quarter, Hong Kong fell into a recession for the first time in a decade. The contraction is
expected to worsen in the final quarter of the year, according to Iris Pang, an economist at ING. 

Chinese arrivals usually account for 70 per cent of visitors to Hong Kong, but their numbers
fell by 29 per cent over the same period. The hotel occupancy rate dropped to 63 per cent in
September, a decade low according to data from the Hong Kong tourism board.
Driven by a sharp fall in sales of luxury goods, Hong Kong’s retail sales fell in August at the
fastest pace since records began in 1982. 
Hong Kong’s goods exports — which mostly consist of re-exported goods from China —
have also been hit by US-China trade tensions and the weakening global outlook. In the
three months to October, imports fell 11 per cent compared with the same period last year,
while exports contracted by 8 per cent.
Myanmar
Myanmar military declared a one-year state of emergency and appointed a general as acting
president, after arresting civilian leader Aung San Suu Kyi and other senior officials.
Following the announcement of the state of emergency :
suspension of trading by the Myanmar Yangon Stock Exchange;
widespread disruption of the communications network in Myanmar
shut down of international airport until May 2021
Potential economy impact :
1. International sanctions risk - access to technology and investment
2. Public debt and foreign exchange risks - financial system
3. Project interruption and force majeure - Belt and Road initiative, country development
4. Interrupting global supply chain – footwear
5. Potential changes in investment - FDI assessment
On-going issues
Impact on US Trade
*US & Myammar traded roughly $1.3billion in goods in 2020- up to $1.2 billion in 2020 
*The industry most likely to be impacted is footwear; apparel and footwear accounted for
roughly 41% of U.S. imports from Myanmar.
*According to reports from the World Bank, Foreign Direct Investment in Myanmar rose
dramatically in the 2019-2020 fiscal year, mostly from Singapore and Hong Kong.
*However,future of such investment may be less certain amid the country’s political
instability
China keep an eye on Investment in Myammar (source:https://www.scmp.com/week-
asia/politics/article/3120126/myanmar-coup-protests-and-political-instability-cards-along-
test)
*China has been one of the biggest foreign investors in Myanmar, contributing 26 per cent
of its FDI from 1988 to 2018
*In January 2020, Chinese President Xi Jinping’s visit to the capital, Naypyidaw, saw 33
agreements signed and billions committed to infrastructure projects.
* These included the accelerated development of the China-Myanmar Economic Corridor,
which is part of Beijing’s ambitious trade and connectivity strategy, the Belt and Road
Initiative.
*HOWEVER, China will  continue these belt and road projects as they would need the
Chinese economic assistance, as well as the political and diplomatic support.
Thailand
2013-2014 Thai Political Crisis
• against the government of the prime minister Yingluck Shinawatra  due to the
influence of Shinawatra family in politics
• by street protest and boycott of general election
• Thailand’s first female Prime Minister been removed from the office and Military
Junta was established
• Thai baht currency rate dropped, tourism is badly impacted and GDP growth rate is
weak at 0.984%, the lowest.
2020 Thai Political Crisis
Anti-gov protest started since Jun 2020
• form by student that labelled the government as undemocratic
• against military dominated government
• Prime Minister Prayut Chan-o-cha chosen 250 senators to join a parliamentary vote
for prime minister
• Rejuvenating Thai democracy and making quite radical demands for limits on the
monarchy
• Political instability and Covid-19 pandemic had affected Thai economy badly
“The US-China trade war has been all bark and no bite” above, critically analyse how the
US-China trade war has impacted the economies of China and the United States.
Provide 3 real world examples of trade war between countries and briefly analyse
US-China trade war, impacts on economies
United States
1. U.S. economic growth slowed, business investment froze, and companies didn’t hire as
many people. Farmers across the nation went bankrupt, and the manufacturing and freight
transportation sectors have hit lows not seen since the last recession. The actions of trade
war have also led to one of the largest tax increases in years.
2. An estimation of 0.3% of real GDP has already cost the U.S. economy and loss of nearly
300,000 jobs due to the trade war. Companies in U.S. lost at least $1.7 trillion in the price of
stocks as a result of U.S. tariffs imposed on imports from China.
3. Apart from that, companies in the U.S. primarily paid for U.S. tariffs, with the cost
estimated at nearly $46 billion. This has led those companies to accept lower profit margins,
cut wages and jobs for U.S. workers, defer potential wage hikes or expansions, and raise
prices for American consumers or companies.
China
1. “Farmers have lost the vast majority of what was once a $24 billion market in China”
during the trade war. Besides, China exports more goods to the U.S. than to any other
country in the world, and those exports have dropped by more than 12% this year alone in
2019. That drop has clearly hit the Chinese manufacturing sector. Industrial output growth
in China fell to its lowest level in 17 years this summer.
2. A 10% U.S. tariff on $200 billion worth of Chinese goods will probably erase about 0.1-
0.2% from GDP. A 25% tariff could widen that to 0.3-0.4% of GDP, all else being equal.  China
can counter some of the negative impact by allowing its currency to fall and the RMB is
already down by about 9% since mid-April 2018. 
3. China has high debt levels and slower growth could make it more difficult to deleverage
its economy. Moreover, high levels of leverage could foster a negative spiral where slower
growth leads to business failures and defaults which, in turn, lead to even slower growth
and more failures and defaults. 
1) Australia-China Trade Wars
Relations between Canberra and Beijing soured this year after Australia supported
a growing call for an international enquiry into China’s handling of the coronavirus
pandemic. 
• In March 2020 during the COVID-19 pandemic, Australia brought in new rules to
scrutinize foreign takeovers of Australian companies. 
• In May 2020, China banned import of beef from four Australian beef processing
firms, constituting about 35% of Australia's beef exports to China.
• In December 2020, after months of restrictions, China fully blocked coal imports
from Australia
Australia
• Economic growth in Australia could contract by as much as 2.8% if Beijing continues
to pile tariffs on more Australian imports
• China is by far Australia’s largest trading partner, accounting for 39.4% of goods
exports and 17.6% of services exports between 2019 and 2020
• Australia has received public support mainly from Western nations so far.
China
• China also has an unofficial ban on imports of copper ores and concentrates from
Australia (60%).
• China’s imports of Australian coal have collapsed.
• China imposed an 80.5% tariff on imports of Australian barley in May last, collapsing
the trade between the two nations, but Australia successfully managed to switch to
alternative markets or plant other crops.

The Japan–South Korea trade dispute is an ongoing economic conflict between Japan and

South Korea, the world's third- and tenth- (eleventh- in 2019) largest national economies,
respectively. It has also been referred to as the Japan–South Korea economic war.
There are different cited causes behind the conflict:
·      South Korean and Japanese membership of ‘multilateral export control regime’
·      Comfort women (issues During World War II, Japan conscripted over 670,000 Koreans as
forced labourers to support its military ambitions.)
·      Court decisions regarding compensation
JAPAN
·      Announced tighter export controls on certain chemicals that are crucial to the
production of semiconductors. 
·      imports of Japanese beer are down 49.2 percent in 2019 and have essentially stopped
since August.
SOUTH-KOREA
·      With manufacturers relying on Japan for their supply, the South Korean won has already
dropped 8% against the US dollar. 
·      Tighten its import quota on fishery and agricultural products from Fukushima, which
was introduced due to concerns of radioactive contamination.
·       Launched a boycott of Japanese products and exchange programs.
3) India & China
#BoycottChina incident,
Why a Trade War With China Is a Bad Idea for India?
Can India use bilateral trade and access to its domestic markets as ways to rein in an
increasingly aggressive China?
The US-China trade war depicts the risks faced by the global economy when two
superpowers do not see eye to eye on trade matters. How did China become a super
economic power in a short period of time? Evaluate ten (10) main drivers of China’s rapid
economic rise.
1. Literacy Rate: The rise in literacy rate in the country, fewer unskilled workers in the
market. They are replaced with workers with specialised skills and expertise, avg of 600,000
engineers every year, this still means that China is abundant in both, skilled as well as
unskilled labour.
2. Extensive R&D: China has heavily invested in tech and R&D to diversify
their manufacturing processes. This has allowed them to take advantage of process and
product innovation, making their processes more capital intensive, efficient and supporting
economic growth rapidly. Significant cost reductions are a by product of this procedure. 
3. China as the World's Largest Manufacturer: Manufacturing plays a considerably more
important role in the Chinese economy. One of the reasons companies manufacture their
products in China is because of the lower-wage workers available in the country.
4. Geographical Location: China’s geographical location has geopolitical significance
because of its proximity to consumer markets and trading partners. South Korea, Taiwan,
Japan and Hong Kong are on major trade routes. It is no coincidence that the first SEZs were
concentrated on the east coast facing Taiwan and the Pacific, particularly around Hong
Kong. 
5. China's entry into the World Trade Organization in 2001, together with its massive
network of factories that produces in mass on consumers products to the world. Enabled
China to maintain its status as the world's largest trader, contributing to its economic rise.  
6. Special Economic Zones and FDI: contributed to higher investment and productivity
growth and has created jobs and a dynamic export sector.
7. Low Employment Rate: Even though China has over 1 billion population, they have
lower unemployment compare to US. The wage in China is also low and when the employee
demand higher wages, the company will find another employee instead. Due to the fact
that China is the largest human resource.
8. Energy Supply: China has large and diverse energy sources ranging from  coal, petroleum,
natural gas to nuclear power. Economic developments are highly dependent on
the country’s ability to exploit and use its energy resources. However, due to concern
on environmental impact, China is trying to reduce its dependency on fossil fuel energy and
turn to renewable energy. Now they are the largest renewable energy producer. 
9. A peaceful international environment and strategies for peaceful development. After
the Cold War, Deng Xiaoping proposed the strategy of "biding your time and hiding your
strength", which kept China from antagonizing other countries, especially the United States.
China avoided some ideological issues and forged close trade ties with the world. From the
1990s to the first decade of this century, China's economic development environment was
relatively stable, without too much external conflict. However, this environment is now
being damaged and the current government is becoming more assertive, which is actually
causing some controversy.
10. High Chinese internal domestic consumption and rising of the middle class
In China alone, recorded in the 2020's population side is about 1.4 billion people, and this
number is forecasted to continue to rise although the pacing is getting slower, and together
with that, the middle class of the population, which have higher spending power is growing
significantly every year. In terms of clobal market share, in 2017, Chinese's middle class
population market share already covered 40.8% vs the total global middle class market
share, as per showed in the graph, on growing chinese middle class purchasing power 
https://www.researchgate.net/publication/316900681_Key_Factors_of_China's_Economic_
Emergence
Read the news article “Regional trade blocs will become new engine for economic
growth” and critically discuss the advantages and disadvantages of regional blocs.
Overview of trade blocs
o Trade blocs refer to intergovernmental agreement where regional barriers to
international trade are reduced or eliminated. Hence, allow countries to trade with
each other more easily
o Major regional trade blocs:

o NAFTA, EU, Mercosur, ASEAN

o Free trade losing support in US due to loss of jobs in local manufacturing industries

and China's unfair trade practices (intellectual property concerns, counterfeit goods
etc.)
o Analysts predict slow devolution of globalisation as trade & economic activity will be
more contained within regional blocs
o Difficult to maintain free trade zones between economies as level of
development and social priorities vary greatly
Advantages of trade blocs
Promotes economic growth of members within the bloc
• Lowest prices for consumers due to tariff removal
• Exploits economies of scale
• Greater choice for consumers as tariff removal creates increased competition
• Creates single market –freedom of movement for people and goods (The
Schengen pass among EU Countries)- improves quality-saves costs –healthier
competition 
 • Higher demand for local products, opportunities for better competition, causes
greater efficiency of markets 
• Growth in sales and trade creates greater job opportunities and growth in job,
improving country GDP
Disadvantages of trade blocs
o Increased interdependence on economic performance of other countries in trading
bloc (e.g. if one country in the trading bloc goes into recession, it will affect other
country in the trading bloc)
o Some loss of sovereignty and independence as trading bloc will make decisions for
the whole area
o Higher prices for imported goods (from outside the trading blocs) due to the applied
tariffs
o Trade blocks commonly lead to additional government oversight and regulations.
Can sometimes chase away interest of potential investors and existing investors may
even move out, causing people in that country to lose jobs, may lower the GDP.
o Regionalism effects - countries that establish tariffs and quotas will protect their
intra-regional trade from outside forces
“Global foreign direct investment fell by 42% in 2020, outlook remains weak”
 Provide the key highlights of this article.
Key Highlights

- UNCTAD projected a 5-10% FDI slide in 2021 in last year’s World Investment Report
due to the evolution of COVID-19 pandemic

- Decline in FDI for developed countries was the highest– North America –46%, US –
49%, Australia –46%

- China is the world's largest FDI recipient in term of individual nations rise by 4%

- India, another major emerging economy, recorded positive growth (13%), boosted
by investments in the digital sector.

- For developing countries, greenfield announcements fell by 46% and international

project finance by 7% 

- Buyers from developed and developing countries are attracted to technology and
healthcare
 What measures can countries take to encourage FDI?
1. Open markets and allow for FDI inflows - reduce restrictions on FDI. Provide open
transparent and dependable conditions for all kind of firms. 
 2. Set up an investment promotion Agency and target suitable foreign investors and
could then become the link between them and the domestic economy.
3. Think carefully about sectors/ activities to be targeted. Investment and location
decisions of suppliers maybe dependent of these of prime multinational investors in
the host economy.
4. Put up the infrastructure required for a quality investor such as sufficient close-by
transport facilities, adequate and reliable supply of energy, provision of an
adequately skilled workforce, facilities for vocational training of specialized workers.
5. Strengthen backward linkages from FDI into the indigenous economy. Allow for the
competitive pressure of foreign entrants on their local suppliers to raise
competitiveness of the latter and allow for multiple forms of direct assistance from
foreign to domestic firms.
6. Encourage spill overs from FDI into the indigenous economy. 
7. Encourage first-time foreign direct investors 
8. Encourage foreign direct investors from diaspora members
Malaysia has been considered one of the Asian countries to be in a middle-income trap.
Discuss what needs to be done to propel Malaysia out of the middle-income trap to
achieve a high income nation status. 
Definition
The term Middle Income Trap (MIT) refers to countries that have experienced rapid growth
which has enabled them to reach middle income status in a short term.
However, they have not been able to further improve their status to a high-income nation.
History
MIT is relatively a new phenomenon and was first mentioned in 2007 in the World Bank
Report An East Asian Renaissance: Ideas for Economic Growth by Gill and Kharas. Since
then, many authors and economist has been discussing on these issues extensively.
Countries Concerned
Malaysia, Uruguay, Philippines, South Africa, Sri Lanka, Brazil, Argentina and many others.
1. Malaysia has been overly dependent on FDI and lack of doing research and
development (R&D). For example, Malaysia had spent only 0.6% of GDP in R&D
compared to South Korea which is 3.5%.
2. There are too many migrant workers in Malaysia. Unskilled labour will lead to low
value added in the productivity. Malaysian workers are forced to receive low wages
since competition with the migrant.
 3. Over subsidies commodity item also leads to middle income trap. The subsidy spent
on items like petrol, sugar, gas, rice, salt causes the government to spend a lot of
budget every year so that the people can pay less.
Policymakers should 
• Promote entrepreneurship and innovation to begin reaping the benefits of
information networks and skilled labour before the gains from cheap labour and
knowledge spillovers are exhausted.
• Incentives for foreign firms to locate production in Malaysia
• Promoting venture capital investments for small domestic startup firms seeking to
scale to global markets
• Reduce political changes, stabilize economics and politics, and maintain economic
recovery measures during Covid-19, rather than suspend.
• The application process for foreign investment is open and transparent, reducing
unnecessary waiting time.
Transition from labour intensive and low technology sectors to industries that are based
on frontier technologies
• have sufficient highly trained personnel to lead the country to the frontiers of
technology
• good education system is crucial to make possible the rise to high income status 
• government should solve the issue of talented graduates moving out of the country
and work in foreign countries.
In addition..
- Creating and diffusing technology through local firms are key to improving productivity and
generating innovation and technological upgrade.
- Increasing research and development (R&D) spending, improving education quality and
increasing a share of science and engineering graduates, while pursuing policies that Korea
and Taiwan used to create local firms and clusters in high-tech sectors are needed to break
through the middle-income trap.
- Find new sources of growth as benefits of low-cost labor and productivity gains from
sectoral reallocation from agriculture to manufacturing and easy foreign technology
adoption fade away.
- Moving away from labor-intensive manufacturing to sustain increases in productivity and
per capita income requires innovation—the use of new ideas, methods, processes, and
technologies in production— rather than imitation
https://voxeu.org/article/how-avoid-middle-income-traps-evidence-malaysia
https://www.imf.org/external/pubs/ft/wp/2015/wp15131.pdf
https://www.ehm.my/publications/articles/malaysia-the-challenge-of-avoiding-the-middle-
income-trap
“India may fall into a middle-income trap, from which no country has been able to
bounce back”
(i) Define the concept of middle- income trap.
•World bank definition MIT: US$1000-US$12000
Lower-middle Income level, Per capita income between US$1,000 and $3,800.
Upper-middle Income level, PCI between US$3800-12000
•The concept of "middle-income trap" is first proposed by the World Bank in 2006. It refers
to the fact that after an economy ’s per capita income has reached the world’s middle level
(the per capita GDP is between US$4,000 and US$12,700).
•The economy has been stagnating for a long time; at the same time, the problems that
have accumulated during rapid development have intensively erupted, resulting
1. Increased polarization between the rich and the poor;
2. Difficult industrial upgrading;
3. Hindered urbanization and; 
4. Prominent social conflicts.
(ii). Based on the article, discuss three (3) main reasons why India risks falling into a
middle-income trap.
1. Lack of economic reform - There was no mass shift from farm to factories. India
failed to create a robust manufacturing sector, which today accounts for less than
17% of the economic output.
2.  India's declining investment rates, high levels of capital concentration in the
corporate sector, and lack of good infrastructure access.
3.  Very low levels of human capital growth for an ambitious and fast-growing major
economy. The World Bank ranked India at a lowly 115th out of 157 countries in its
Global Human Capital Index rankings released last year.
Suggestions to escape MIT
1. This flawed model ensured that the economic growth, which took off in the ’90s, was
not sustainable. Policymakers should now focus on easing India’s business climate to
attract more investments and not worry too much whether the investment goes into
agriculture, manufacturing, or services sectors, Gill says. The manufacturing sector,
though, is most important because it is labour-intensive.
 2. Gill also suggests implementing land and labour reforms to bring capital costs down.
These, he says, are the primary fixes that would ensure India does not fall into the
middle-income trap.
3. Introduce new growth drivers/industrials and investments.
Critically analyse the economic consequences of countries that do not follow the Rule of
Law.
What is Rule of Law?
A system of Durable Law, institution, norms, and community commitment to deliver:
ACCOUNTABILITY
The failure of those institutions itself is almost certainly a result of state failure and
the restoration of order thus the primary rule of law task.
Consequences of Not Complying with ROL (Lack of Foreign Investment)
The failure of those institutions itself is almost certainly a result of state failure and the
restoration of order thus the primary rule of law task.
Corruption & Bribing
1. A country without a proper Rule of Law may also lead to a national corruption issue.
The corruption refers to the additional money received by the authorities in addition
to their regular salaries - more commonly known as “outside money”. A lacking
proper Rule of Law could lead to bribery from all authority levels and in turn
affecting the national's reputation.
2. Lacking Rule of law may result in high corruption. With bribing practiced commonly,
no authorities are accountable including the judiciary. 
Rule of law and open market economy
1. ROL is essential in achieving the nation’s open market economy. It guarantees an
equal opportunity that are made available to all individual citizen and preventing
corruption by authorities as well as protecting the businesses from abuse of local
power. 
2. Business opportunities can only be obtained from the authorities.
3. No equal rights for citizen to engage in the economic enterprises
4. Authority has decretive power to keep media voice silent
Hate Towards Educated Class & Low Productivity of Human Talents
1. Hate towards the educated class have driven the regime to systematically destroy
the education system. 
 2. Lowering of standards in education has rendered useless young people's
qualifications, who are unable to make a living if they refuse to join the ranks of
robots of the regime
3. It is important to the regime since education may produce not only far-sighted civil
servants but also intelligent opponents which will oppose regime ideology
Poverty
People may also not able to get medical attention or travel to clinics or hospital
Medical treatment may cost very high, or people may even need to bribe doctors or nurses
to cut the waiting line

BLOCK 3
Newspaper Article “McKinsey sees 'ominous' signs of another Asian debt crisis”, The
Economic Times, 11 February 2020.
(a) What are the possible “ominous’ signs that McKinsey sees as the reasons for another
Asian debt crisis?     

- Increased indebtedness, stresses in repaying borrowing, lender vulnerabilities and

shadow banking practices are some of the concerns cited by McKinsey in an August
report. 
- A slowing global economy puts pressure on earnings at Asian companies, and the US-
China trade war makes debt investors more risk-averse 
- McKinsey examined the balance sheets of more than 23,000 companies across
eleven Asia-Pacific countries and found firms in most of Asia face “significant stress”
in servicing debt obligations. 
- In countries such as China and India, those pressures have risen since 2007, while
falling sharply in the U.S. and U.K. during the same period 
 - The analysis looked at the share of long-term debt at corporations with an interest
coverage ratio of less than 1.5 times. At these levels, corporations are using a
predominant share of their earnings to repay their debt
(b) What are the possible lessons that countries in Asia can learn from a careful study of
the potential crisis that can possibly happen? 

- Improve credit metrics of Asian dollar bond issuers 

- Through monetary and fiscal policy measures - Moody’s Investors Service expects
most Asian economies can offset the domestic impact of the global slowdown . 
- Since 1997, financial regulators have put in place safeguards to prohibit a repeat of
the crisis that engulfed Thailand, Korea, Indonesia and several other Asian nations
and had long-lasting repercussions. 
- Potential triggers of a crisis that need to be monitored include defaults in repayment
of debt, liquidity mismatches, and large fluctuations in exchange rates, according to
McKinsey. 
article titled “Jokowi's courtiers are panicking in dangerous ways”,
(a) Why are the courtiers panicking?
- According to the announcement from Asian Development Bank, the region is going to
experience its first degrowth of GDP since 1960, so Indonesia is going to be expected to do
as bad, or probably worse than the region, which it will severely affect the livelihood of its
population. 
-And with its current political situation, where the military and the religion hardliners
challenging the authority of President Jokovi's legislation, it may cause a severe political
instability which will reverse whatever reforms that the post Suharto Regime had done
(b) If you were President Jokowi’s Economic Advisor, how would you advice President
Jokowi to ease the worry?
Based on Khor, M. (2015). New debt crisis a threat to global stability. Read more at
http://www.thestar.com.my/opinion/columnists/global-trends/2016/10/10/new-debt-
crisis-a-threat-to-global-stability-global-debt-has-jumped-alarmingly-to-rm631tril-and-as-
c/#DIMyfFABYZYRuuBJ.99.  
Why does the author mention that the new debt crisis maybe a threat to global stability?
According to the author, the new debt crisis leads to stagnation in world trade, a decline in
commodity prices and the reversal of capital flows to developing countries.
Against the backdrop of falling commodity prices and weakening growth in developed
countries, borrowing costs have been driven up very quickly, turning what seemed
reasonable debt burdens under favourable conditions into largely unsustainable debt. 
In some countries, there’s a problem in currency devaluation and lower commodity prices.
Lower commodity prices and export earning, net outflow funds, devaluation (which causes
foreign debt to increase), a higher cost of servicing debt thus leading to economic
slowdown.
Critically evaluate and discuss the possible safeguards that developing countries in Asia can
employ against this potential crisis.
 Most of this global debt is concentrated in developed countries by making policies of
easy money and low, zero or even negative interest rates, and especially to
quantitative easing in which Central Banks bought bonds and pumped trillions of
dollars into the banking system. Lower down the interest rate to nominal level to
increase liquidity in the market.
 Banking reform, strongly oriented toward risk management, is a key ingredient of
any long-term strategy to minimize the risks and costs of financial crises. Developed
countries and some developing countries have corporate bankruptcy laws, aimed at
helping companies to recover from a debt crisis through an orderly debt workout.
 Strengthening domestic banks through better regulation and market incentives. An
efficient banking sector with effective supervision and regulation helps reduce the
distortions that increase vulnerability to potential crises.
 Making macroeconomic policies to manage capital flows and reduce financial
risks. Crises are often a result of boom-bust cycles, with significant interaction
between macroeconomic factors and weaknesses in financial and corporate sectors.
For instance, an economic boom may result when weak regulation and government
guarantees of financial liabilities lead financial institutions to engage in excessively
risky lending.
 Monetary authorities frequently intervene to increase foreign reserves when capital
inflows begin to surge, in order to preserve stability of the exchange rate (when the
domestic currency is implicitly or explicitly anchored to an exchange rate peg) and to
reduce market uncertainty.
Critically evaluate and discuss the possible lessons that developing countries in Asia could
possibly learn from this potential crisis.
1.  Choosing the right exchange rate regime. 
2. The importance of policy in safeguarding countries debt level and economic growth. 
3. Dependence to foreign capital inflow will have negative impact to host countries if
there's no proper management.
4. Lack of enforcement - China previously relied on influxes of foreign currency to
provide liquidity in its banking system. However, as the US Fed began raising interest
rates, China began losing its foreign currency reserves. Therefore, there is a need for
strict enforcement of financial regulations.
   Based on Khor, M. (2015). Malaysia’s economic frailty is all too familiar,
   1. What are the areas of concern for Malaysia?
Oil Prices Falling
- Most Asian economies are net importers. They benefit when oil prices fall. Malaysia on the
contrary, is adversely affected by soft commodity prices 
Falling Reserves
- Malaysia is sitting on the wrong side of the commodity downturn and is very reliant on
credit. 2 years ago (2013), reserves were 3.7 times short term external debt. Today, that has
sunk to 1.0 times (2015). 
Currency weakened
-Malaysia currency has dropped to 17
year low of 4.17 to the dollar, not far from the 4.57 it hit in 1997 after the government intro
duced drastic capital controls
Reliance on Credit
- According to HSBC, total debt, including household, corporate and public, is proportionally
higher than in China and has risen faster. Household debt alone is at 80 per cent of GDP 
Others
- Malaysia’s economy shrank more than 6 per cent in 1998. 
- Back in 2008, it was a heady 17 per cent of GDP, coming down fast to 2.7% by Jun 2015 
https://www.ipsos.com/en-my/what-worries-malaysia-2019-are-we-moving-right-direction

2. Critically analyse how the Malaysian Government can improve the situation.

Diversify in Malaysia Economy
- 30% export related on oil , gas , palm oil
- Need to diversify more export items beside the existing item. ( Durian , tongkat ali , bird
nest etc). Estimated of 3.25billion of extra income for malaysia in 2020
- Improve human talents investment for Malaysia to venture in other industries like other
area such as IT field or finance which not dependent in export. By human capital investment
, Malaysia in the direction to higher income country .
- For existing Oil & gas company, they might can venture in the field which is recycle
resource such as solar power . Lower cost with high return. ( 500M income)
- Create more incentive and competitive environment (tax free) for foreign investment to
direct venture in to increase work opportunity for citizen. ( benefit from US and China Trade
War)
Institutions
-Improving transparency of corruption cases eg. 1MDB
- Independence and integrity institutions
- Good institutions will reflect a good state of regulatory in term of the legal framework
practiced and supervisory institutions (Karimi & Daiari, 2018)
- Chinn & Ito (2006). Apart from helping to increase the amount needed for investment; the
cross-border transaction will boost productivity through the mobilization of resources and
transfer of technology, so economic growth can be promoted. 
- North (1991), identify indicators for institutions, government ability to enforce property
right, share of GNP
Based on Plender, 2020. The Seeds of the Next Debt Crisis
(i) Discuss the impacts of the Coronavirus outbreak on global debt.
1) Increased in  ratio of global debt to gross domestic product 
Hit an all-time high of over 322 per cent in the third quarter of 2019, with total debt
reaching close to $253tn. 
2) Decline in bond yields and borrowing costs
Weaker corporate borrowers have difficult access to the bond market due to the financial
condition, as 
3) Central banks difficulties in meeting inflation targets
Tightening labour markets have not led to increased wage inflation, leading many
economists to assume the traditional relationship between falling unemployment and rising
price inflation has broken down. 
4) Deterioration in bond quality
-prolonged low central bank interest rates
-huge accumulation of corporate debt
https://www.jpmorgan.com/insights/research/coronavirus-impact
(ii) What are the Safeguards that a country can implement to reduce the chances of a
debt crisis occurring?
- Stocktaking: Maintaining debt sustainability and improving debt sustainability assessments
with debt relief program, strengthen the demand for commodities 
E.g.: increased use of non-concessional financing, reflecting expanded use by some
countries of domestic financing
- Boost alternatives to borrowing by increasing tax: Low-income countries face major public
financing shortfalls to meet even basic public expenditure needs. 
- Policymaker – financial regulator: Putting right policy in place, provide good financial
framework to regulate local financial institute. ultra-loose monetary policy is intensely
morally hazardous. Huge accumulation of corporate debt of increasingly poor quality is
likely to fuel the next debt crisis
- Balance capital inflows VS Reserve: Increase country reserve in line with the increase of
capital inflow. This will help in prevent currency volatility 
(iii) If a debt crisis were to occur, what policy can a Central Bank implement to overcome
the debt crisis? Please provide 3 tools that the Central Bank can use for this purpose.
Interest rate cuts
Rate adjustments are among the most popular tools available to Central Bank, as lowering
the cost of borrowing for consumers often translates to boosted spending.
Anti-epidemic bonds
China's economy has so far suffered the greatest slowdown as the outbreak drove strict
quarantine orders, factory, shutdowns, and travel bank. The country's state-owned bank are
now popping up domestic firms by buying up swaths of coronavirus bonds.
Relief package
The relief package will offer flexible stimulus to regions that can't act as quickly as a major
economy can

Based on Bird, M. (2015). CHINA’S $28 TRILLION PROBLEM: ‘The dark side of Asia’s debt’.
Read more at http://www.businessinsider.my/asian-debt-and-gdp-stats-2015-
10/#saWrE6H4YT1O9Eb8.99
Provide three key questions that can be asked from this article and provide the answers to
the questions.
1.Why does a china face a potential debt crisis ?
- China’s over-borrowing of the public and corporate sector can basically be traced back to
the huge stimulus package and lax monetary policy that Chinese economic authorities
introduced during the global financial crisis in 2008-2009. In fact, a massive stimulus
package was unveiled to counteract the adverse impact of the crisis on the domestic
economy. 
- Arising from the financial crisis the China government encouraged increased in borrowing
and the impact is visible in the corporate sectors debt. 
- In 2007 China's debt level as a proportion to the gross domestic product was 121%
whereas of today the amount surged to 282%. 
- China’s household sector debt was around 30.9% of GDP at end-2013, comprising loans
issued by banks (22.8% of GDP), microcredit company loans (1.4% of GDP), and private
lending (6.7% of GDP). More than three quarters of household loans by banks consist of
housing mortgages. Our estimate of household debt-to-GDP would place China broadly in
line with the average for other emerging markets (29.7%), and well below that of advanced
economies (80.9%), according to BIS data. 
2. How did China overcome this problem?
- Most investments in China is mainly financed by domestic savings
- Authorities implemented structural reforms like allowing market to play a key role in the
asset allocation and solving the overcapacity problem in certain sectors
- The country has high level of foreign reserves (this helps to cushion external shocks
- Local governments allowed to issue long-term municipal bonds directly
- Governments have sold their controlled SOE (State Owned Enterprise) assets to raise funds
for debt repayment, this will benefit of boosting productivity and facilitate
SOE's privatization in the economy.
3. What are the lessons learned from the debt crisis? 

- Comprehensive and forward-looking strategic plan is needed.

- When banks refuse to extend new credit, credit liquidity makes economy growth slower.

- Enforcement is crucial for debt crisis

Based on the media article (2020). Printing money, the way to tackle India’s financial crisis
Provide the 3 key questions
When helicopter money is used in the process boost the economy, what are the
consequences? 
• A country’s central bank sets its interest rates to reach economic growth targets.
However, a helicopter drop means that a central bank cannot use interest rates to
recover any costs, because the money is not linked to a borrowed asset (loan).
Instead, the money is given directly to the public. This may lead to over-inflation and
cause damage to the central bank’s financials.
• Another primary risks associated with helicopter money is that the policy may lead
to a significant currency devaluation in the international foreign exchange markets.
The currency devaluation would be primarily attributed to the creation of more
money.
 • One of the main risks associated with helicopter money is that it could lead to a
significant devaluation of the currency on the foreign exchange market. As more
money is printed and supply increases, the value of the domestic currency could
significantly decrease. It could also discourage speculators from buying the currency
as it is less likely to perform well.
What are the ways Bank could contribute to stabilise the liquidity in the economy system?
• Printing money (US Federal Reserve )
• Removed the limit on bonds that can be purchase (European Central Bank)
• Lend money to government (Bank of England)
• Buy unlimited amount of government bond (Bank of Japan)
What are the ways to make quantitative easing for economic?
1. To keep interest rates low.
2. To provide banks with the money they needed to lend to business and others to
keep the economy going. 
3. To make sure there was enough money in the economy to prevent deflation
happening
What India Can Do?
1. Economy needs massive fiscal stimulus ET estimates 9-10% of GDP must be spent This
translates into Rs 18-20 lakh crore Budgeted borrowing in FY21 is Rs 8 lakh crore
2. Market cannot support this borrowing
3. Interest rates will rise sharply
4. Pvt sector/other borrowers will be denied credit
5. High interest rates/lack of credit will kill economic activity
6. So, only RBI can provide such funds by printing mo ..
Based on the media article (2019) “China's "Belt and Road" Initiative and its impact on the
global economy”
1. Critically Review the above-mentioned journal article.
One belt One Road is the most ambitious trade and development project to connect China
and the other parts of the world i.e.: Africa, Asia and Europe which started since 2013.

Win-win initiative that will prosper global cooperation by promoting nation’s mutual
benefit, peaceful trading, markets integration and a positive exchange of expertise.
2. Discuss, based on the review of two journal articles, the impact of China’s “Belt and
Road Initiative” on the ASEAN economy.
POSITIVE IMPACT
Better infrastructure for better development
• Impacts on infrastructure and transportation development projects in participating
countries to reach it declared connectivity goals. 
• Short-term development starts with infrastructure projects’ investments that
triggers huge mobilization of resources, expertise, technology and labors. 
• Long-term development will occur as OBOR’s long lasting investments opportunities
will revive economies, sponsor development and solve social issues, example is the
opportunities for solving regular power outages and insufficient transportation
networks for Pakistani manufacturing sectors which will result more jobs, lower
consumers costs, and increased attractiveness for international investments.
Reduced trade time and costs
• OBOR will grant EMNEs and the world a cheaper and faster transports by the
establishment of global trading routes and overcoming customs check points’ issues
and trading barriers that increases trade time and costs through global facilitation
agreements, trade barriers removal and information sharing platforms towards
achieving countries standards’ harmonization and certifications mutual recognition. 
• Accoding to De Soyres (2018), World Bank portal showed that shipping time is
expected to decrease by an average of 1.2% across all countries in the world. In
addition, OBOR can reduce trade times and costs for participating countries by 3.2%
and 2.8% respectively, and 2.5% and 2.2% worldwide.
Increased trade
EMNEs  will now have the chance to expand their activities abroad because OBOR will grant
a huge and cheap global opportunities to exploit by reaching nations with diverse needs. 
Konings’ (2018) report on ING bank forecasted 4-12% increase of world trade due to
removal of trade barriers, reduced trade costs and increase trade speed.
Increased Investments
1) EMNEs may start with exporting, intermediaries exporting and eventually establishment
of Greenfield.
2) Increased of 4.79% FDI flows through OBOR transportation networks
Increased Gross Domestic Product
1) Journal of Asian Economics estimates a 1.3% welfare gain of global GDP by 2030
2) World Bank forecasted direct benefits of around 1.4%of GDP for Central Asia region.
Green and sustainable development
CO2 emissions reduction, environmental-friendly energy sources use, biodiversity
protection, increasing protected and forest areas and substantial negative impacts reduction
on biodiversity and natural resources
Power balance
OBOR is serving China’s huge economic growth and will increase China’s influence at areas
where OBOR will cover. This will reduce world conflicts and encourage peaceful exchange
and mutual benefits with other nations.
NEGATIVE IMPACT
China’s debits traps and sovereignty threats in Asia
(1) OBOR projects requires a huge financing through loans 
(2) High debt to GDP ratio 
(3) High risk of fulfilling financial obligation
China’s Neo-imperial and neo-mercantile expansion in Africa
Access of unlimited cheap natural resources from Africa
OBOR is not socially good nor environmentally green
• Infrastructure projects awarded to Chinese EMNEs - tilts wealth towards China 
• Legitimate rights of local workers, contractors and suppliers not respected in some
circumstances 
• OBOR peace and prosperity claims questionable given China's own treatment 
of Chinese Ughurs Muslim minority
• Energy and transportation contracts not aligned towards low-carbon priorities - still
fossil-fuel based. 
Chinese military expansions
Such actions may trigger global slowbalization, economic shocks, financial crisis, trade wars
and in worst cases armed conflicts.