BLANK Economies Not Immune To Global Recession
Last year, I came up with a new acronym to describe a group of economies in Asia that exists largely on the margins of the world – BLANKs (Burma, Laos, Afghanistan, and North Korea). Given their disconnectedness from global investment flows and trade, surely they will not be affected by the current recession?
For the common element of these economies – or perhaps the Sun around which they orbit – is China. And with China slowing sharply (GDP growth fell to 6.8% y-o-y in Q4 2008 from 9.0% y-o-y in Q3 2008), all four ‘planets’ will suffer cosmic contagion.
Burma (Myanmar) has in recent years become more dependent on Chinese assistance, with Beijing seeking to develop its neighbour as a transport corridor for its land-locked inner provinces to the Indian Ocean. Reports in the international media in particular identify northern Myanmar as having received considerable Chinese migrants and businesses.
Laos has enjoyed a boom in recent years, thanks to previously high global commodity prices, demand for which has emanated not just from China, but also neigbouring Thailand and Vietnam. All three appear to be competing for influence in Laos, in fact. However, Thailand and Vietnam are also in trouble economically, leading me to believe that investment flows will suffer. Indeed, Thailand could see an outright contraction in GDP this year.
Afghanistan’s war appears to be worsening, and I see little reason to be optimistic. With China having emerged as Afghanistan’s biggest foreign investor, the Chinese slowdown could hurt here too.
North Korea is another country largely dependent on China for economic support and investment. In particular, quasi-official cross-border trade has ‘boomed’ in recent years. Yet late last year, there were reports that Chinese merchants had lowered the amounts they wish to pay for Korean minerals and scrap metal.
The bottom line is that with China tightening rules on outbound investment, the BLANK economies could be the first to get hit.
Of course, the lack of data transparency means that quantifying this impact will be impossible. Another problem is that statist economies like Myanmar, Laos and North Korea will be even less inclined to carry out free market reforms, since these will be blamed for any woes they suffer.
Ultimately, the sad truth is that the BLANK economies are sufficiently dependent on China to suffer from the global slowdown, but are so poorly governed that they may not necessarily recover when the global economy does. The proverb ‘A rising tide lifts all boats’ need not apply.