Asia in 2010

As the curtains rise on 2010, all indicators are pointing to a gradual emergence this year from the global financial crisis. But this is far from being a dead cert, and many are keeping a particularly close eye on Asia.

The most sensitive issue is the relationship between the US and China, the two most important countries in the world in terms of political influence. Indeed, 2010 is likely to see China overtake Japan as the world's second-largest economy, and Goldman Sachs is predicting that China's GDP will surpass that of the US by 2027.

The main issue of contention is the weakness of the yuan. Washington views Beijing's refusal to allow the yuan to appreciate as a protectionist policy that is damaging the US recovery. China, on the other hand, knows that allowing the yuan to rise too quickly will make its exports more expensive and threaten its own economic recovery and is refusing to buckle to pressure from the US.

Secondly, an issue which the West may feel threatened by – on 1 January, China and six other south-east Asian countries brought in the biggest free trade area in the world, when the Association of South East Asian Nations, or Asean-6, finally came into existence. With a total of nearly two billion people in Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand, along with China, Asean-6's stated aim is to eliminate tariffs between its members on most traded goods.

Elsewhere in Asia, there are a number of possible events that could cause a sudden depreciation in the region's risk profile. These include uncertainties relating to political succession in Thailand and North Korea. In Thailand, which has bitterly polarised political divisions, King Bhumibol Adulyadej has been in hospital since September. Any worsening of his condition is likely to see a negative reaction in the markets. Many analysts expect instability to get even worse after his reign ends - giving Thai markets another rough ride.

Similarly, in North Korea, where the economy is in dire straits, leader, Kim Jong-il is ill. Having recovered from a stroke and kidney disease, he is now suffering from chronic laryngitis and has to rest every second day. If he does not recover, this could cause serious regional instability, with tremors that will be felt in South Korea, Japan and beyond, especially if his death were to lead to regime change or other unexpected events, which might cause markets to panic.

Asia is the continent to watch in 2010 for a variety of reasons.

Comments

[Sunil Karki]

I agree with the author that Asia is the continent to watch in 2010 for a variety of reasons.

It's very likely that all the Asian countries who are suffering from economic crisis will be fully recovered by 2011 and, moreover, it's very much possible that among the top five largest countries in terms of economy, four will be Asian by 2020.