Yes, Asia has changed dramatically in the past decade. It helps to frame that transition in the context of two crises -- its own pan-regional conflagration of 1997-1998 and the global crisis of 2008-2009. Over this time span, the region has moved aggressively to insulate itself from global financial shocks -- specifically, taking its reservoir of foreign-exchange reserves from less than $1 trillion in the late 1990s to some $5 trillion in 2008. Tactically, the strategy was brilliant. It provided Asia with a new backstop financing facility -- in essence, a self-insurance fund that came in very handy in successfully cushioning the blows of an unprecedented global shock.
But developing Asia hasn't done enough. Most importantly, it has failed to wean itself from the export-led growth model that has long defined its economic character. It actually increased its dependence on external demand, boosting the export share of pan-regional GDP from 35 percent in 1997 to 45 percent by early 2007. That leaves the region in a very uncomfortable place in this post-crisis era -- more dependent on external demand than ever before. And, unfortunately, this dependence comes at precisely the time when the crisis-battered economies of the developed world are least equipped to deliver the external demand that export-led Asia needs as fuel for its growth machine.
As tempting as it is to herald the demise of the West and the ascendancy of the East in this post-crisis era, that verdict -- like my global rebalancing call of a decade ago -- is probably premature. Until, or unless, developing Asia is able to shift its reliance from exports and external demand to private consumption and internal demand, it is not in a position to take the baton of global leadership from the developed world.
In fact, Asia needs to guard against a new and worrisome complacency. It should not presume that its resilience during and after the Great Crisis has unlocked the key to a uniquely successful strain of economic growth. Post-crisis aftershocks -- coming first in the United States and now Europe -- are a wake-up call that any externally dependent economy needs to take very seriously. Asia cannot afford to bask in the warm glow of today's buoyancy -- a rebound that was due more to temporary policy stimulus than internal dynamics and that was funded largely from saving rather than being sparked by innovation.
Nowhere is this challenge more evident than in China. As the dominant economy in the East, China will make or break Asia's rebalancing gambit. With private consumption at only 36 percent of its GDP (literally half the 71 percent share consumption represents in the United States), China has the most to gain from a consumer-led transformation. If, however, it fails to make the necessary changes, it also has much to lose from a post-crisis stagnation in external demand from the developed world.
As I leave Asia, I am quite confident that China is about to embark on just such a powerful shift -- framing its upcoming 12th Five-Year Plan (2011-2016) around the pro-consumption policy initiatives of a well-funded social safety net, rural income support, and a services-led impetus to new sources of job creation. As such, I wouldn't be surprised to see the consumption share of the Chinese economy rise toward 45 percent over the next five years.
But that is a forecast of the future, always a problematic exercise. Meanwhile, as things stand today, the long-awaited global rebalancing is still nothing more than a dream. The West is down -- and most likely to be so for years to come. But until Asia draws greater support from its 3.5 billion consumers, there are no guarantees that the region will provide a new source of global growth to fill the void.
All this underscores a potential time warp for global rebalancing -- a painful and protracted pause in the global growth dynamic. At the same time, it points to risky and worrisome trade tensions between the West and the East, as the former takes actions to protect hard-pressed workers while the latter stays fixated on export-led growth as the antidote to poverty and a massive overhang of surplus labor.
The failure of the world to face up to its rebalancing imperatives of a decade ago only makes the challenges all the more urgent today. The Great Crisis shows what happens when imbalances are ignored and compounded. The biggest worry of all is that an unbalanced world may not get another chance.