Seminar on Middle Income Asia: Policy Challenges Ahead

Opening remarks by Ursula Schaefer-Preuss, ADB Vice President, at the Seminar on Middle Income Asia: Policy Challenges Ahead at the 44th Annual Meeting, Ha Noi, Viet Nam

Excellencies; ladies and gentlemen:

Let me start by welcoming everybody to this important seminar, I am particularly grateful for the panelists who travelled a long way to Hanoi to share their views with us on the issue of the challenges for Middle Income countries in Asia.

As we all know, Asia has been the powerhouse of global growth in recent decades, with per capita GDP that almost tripled between 1990 and 2008. This has helped lift hundreds of millions of people out of poverty. The fast recovery of the region from short-term shocks such as the recent food, fuel and financial crises has demonstrated the resilience of Asian economies.

Undoubtedly, Asia's success owes a great deal to globalization and relatively low-cost labor in the region, which have enabled Asia to compete with other economies in the international market.

However, Asia's competitiveness is under serious threat as production factors become increasingly expensive, particularly labor. This is becoming very evident in the People's Republic of China as shortage of labor appeared repeatedly in the coastal areas, pushing up wages. The gradual loss of cost advantage in Asian economies may lead to the middle income trap: where these countries cannot compete with low-cost producers on the lower-end of the market; meanwhile, they are not able to compete with advanced nations on the high end of the market. In fact, Malaysia, Thailand and the Philippines reached middle income status in the early 1960s and have been trapped there since then.

Our host Viet Nam, along with Indonesia, the People's Republic of China, and India, among others, recently joined the group of middle income countries. Whether these countries can escape from the middle income trap is of great concern to the stakeholders in the region, including the Asian Development Bank. And, as the region is the engine of global growth, the issue of the middle income trap in Asia is clearly of global significance.

The policy challenges ahead include maintaining a stable macro environment, development of human capital, improving governance and tackling growing inequality. Needless to say, one size does not fit all. Different countries face different constraints and each may need different policy responses or different sequences of policies.

A good news is that Asia has witnessed a number of successful transitions from middle income into high income status. The earliest example and perhaps most notable is Japan in the late 1960s and the most recent is the Republic of Korea around the mid-1990s. Lessons and experiences from these success stories are invaluable for those trying to escape or avoid the middle income trap.

An even better news is that today we have a group of first class experts here to share their insights on how to avoid the middle income trap in Asia.

I am looking forward to exciting deliberations and lively discussions.

Thank you and enjoy this very important seminar.