- Money Morning Australia

Is the Asian Century Already Kaput?


Written on 01 November 2012 by Kris Sayce

Is the Asian Century Already Kaput?

It’s getting tasty in China.

Yesterday, the Financial Times noted:

‘Chinese listed companies have reported a sharp rise in unpaid bills during the third quarter, in one of the clearest signs yet of the toll that China’s economic slowdown is taking on corporate balance sheets.’

We wonder how that will fit in with the government’s plans for the so-called ‘Asian Century‘. Not very well we’ll wager…

Last weekend, Australian Prime Minister Julia Gillard released the long-awaited Australia in the Asian Century white paper.

The paper notes:

‘The Asian century is an Australian opportunity. As the global centre of gravity shifts to our region, the tyranny of distance is being replaced by the prospects of proximity. Australia is located in the right place at the right time – in the Asian region in the Asian century.

‘For several decades, Australian businesses, exporters and the community have grown their footprint across the region. Today, for Australia, the minerals and energy boom is the most visible, but not the only, aspect of Asia’s rise. As the century unfolds, the growth in our region will impact on almost all of our economy and society.’

It sounds impressive, right?

The argument is that Asia will become the global economic powerhouse. Therefore, because Australia is on Asia’s doorstep the Australian economy will benefit.

As impressive as it sounds, it’s also completely misguided, and we’re sorry to say, woefully wrong.

But we look at it like this: it’s like a fat man thinking he’ll lose weight if he stands next to a skinny man!

But we’re not the only one to criticise the white paper. Michael Pascoe wrote in the Age that ‘the PM has offered a statement of the obvious.’

While Clinton Dines, formerly of BHP China, told the Age, ‘With a slowdown and budget deficit looming, one suspects that Ken Henry’s efforts are doomed to go the way of his tax reforms.’

We’re happy when the mainstream criticizes government policy. Only this time, the mainstream is wrong too…

The Asian Century is Already History

The reality is when we look back at today from the future, the Asian century (in the way the government envisions it) will prove to be nothing more than an Asian decade…or two decades at the most.

If the government, businesses and investors have pinned their hopes on the Chinese Dragon and Asian Tiger, they’ll be sorely disappointed.

By attaching their hopes to Asia, they’re in danger of missing out on the real story of the next 100 years. It’s what we call the ‘Wired Century’.

This is a theme we wrote about in the latest issue of Australian Small-Cap Investigator.

The fact is, in some ways the era of backing one geographic location over another are over. So are the days of benefiting from being close to a booming nation.

Let’s be honest, Australia’s closeness to China hasn’t been as important to the Australian economy as most think. What’s more important is that Australia has the natural resources that China needs – copper, iron ore, and coal.

But Brazil has a bunch of this stuff too. So does Canada, Chile and Africa. And the last time we checked, Brazil is three times as far from China as Western Australia is from China…and that’s as the crow flies. In nautical miles the distance is even greater.

And if we’re not mistaken, the US has relied on Middle Eastern oil for years. You could hardly call them neighbours.

Distance doesn’t matter compared to having a resource in demand. The fact that Australia has a bunch of resources and is close to China is just a bonus.

In short, anyone hoping that Australia will cash in on the supposed ‘Asian Century’ is kidding themselves.

Australia Needs to Exploit the Wired Century

Yes, there are benefits of being close, but there’s something much more import. And that’s technological innovation and global trade.

This is the real benefit for Australia.

So if you’re after a clue about the future, we suggest you take in the two following excerpts. First this from the Age:

‘The rise of the internet has killed the newspaper business model, but demand for television remains enormous.

‘According to The Cross Platform Report by researcher Nielsen, United States viewers still spend around four hours a day watching TV, barely down from record highs.

‘Does this make the battered shares of Seven, Nine and Ten cheap buying for potentially-rich stocks? No.

‘Australian television broadcasters are at the very same tipping point newspapers reached a few years ago, just before their problems became near-terminal.’

And this from the London Times:

‘The world is “drowning in data” and computing companies are running out of space to store it, one of the technology sector’s best-known – and most controversial – figures has warned.

‘Mark Hurd, the president of Oracle, said that the amount of data being produced by the nine billion devices connected to the internet had grown eightfold over the past seven years, putting incredible strain on the companies that need to process and store it all.’

New technology, new business practices, and new consumer behaviour is having a big impact on the local and world economy. And that impact will only grow.

As we wrote in the latest issue of Australian Small-Cap Investigator, 16 years ago the Sayce household only had one device connected to the internet (a desktop computer).

Today, between your editor, the missus and two kids, we have 12 internet-enabled devices. And as far as we’re concerned, the world is barely 5% of the way through the technological revolution.

The Most Important Skills You Can Learn

Bottom line: forget the Asian century. Forget the nonsense about forcing kids to learn Mandarin, Japanese, Hindi and Indonesian.

Sure, those skills will be handy. But on the importance scale, they are far, far behind the most important skills any kid (or adult) could learn today. We’re talking about encouraging kids to learn more technological and web skills.

If Australia has any chance of building a successful economy over the next hundred years it won’t be through foreign languages or as the mainstream economists seem to think, by building more houses, it will be by embracing and exploiting the Wired Century.

That’s the future for Australia. But only if the government stops butting in and lets schools and businesses get on with building those skills.

Cheers,
Kris

From the Port Phillip Publishing Library

Special Investment Report: After the Bust

Daily Reckoning:
The Hidden Riches Accumulated by China’s Leadership

Money Morning:
Has the Australian Dollar’s Luck Just Run Out?

Pursuit of Happiness:
Tax = Theft

Australian Small-Cap Investigator:
The Power of Small Cap Stocks



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Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the investment director for Australian Small-Cap Investigator, Diggers and Drillers and Revolutionary Tech Investor. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays. Read more about Publisher and Investment Director Kris Sayce.

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