After decades of rapid growth, Asia is entering a new phase of moderate growth. Both the World Bank and Asian Development Bank (ADB) have scaled back their forecasts for the region to factor in moderating growth in China and India. ADB has also emphasized that Asia has to adapt to this new growth environment. The region needs a new growth model - one that is less reliant on export, promotes balanced growth and is driven by productivity and efficiency.
The rationale for remodeling is strong but for most, international trade will remain the backbone of Asian economies. With confidence in international trade still fragile, companies will continue to need trade finance to overlay their trade activities for working capital and risk management. Yet, ADB research revealed that in 2011, USD425 billion in trade finance requests were not met in Asia due to factors such as poor payment records by correspondent banks, low country ratings in developing countries and weak banking systems. More importantly, the study signals the need to raise the benchmark for trade finance and trade processes in the region.
This is not to say that little has changed in Asia. According to a report by the United Nations, South-South trade (trade between developing countries) exceeded North-South trade (trade between developed and developing countries) for the first time in 2008. By 2010, 23% of trade flows are conducted between 'South-South economies' compared to 13% 10 years ago.
From a simplistic point of view, it is possible to attribute this growth to the exchange of Asian manufactured goods for commodities from Africa and Latin America. However, the larger implication to this is a more balanced trading relationship, in which developing economies are reducing their dependency on developed nations.
China: Shifting Gear
Year 2012 was a game changer for China when it overtook the U.S. as the biggest trading nation in the world. According to China's Customs Administration, the combined total for imports and exports reached USD3.87 trillion in 2012, 1.3% higher than the USD 3.82 trillion registered by the U.S. Commerce Department.
The ascent contrasts with another set of statistics in China: 7.8% growth in 2012, which is China's lowest in 13 years. Nevertheless, this growth is remarkable by most measures and the Chinese government plans to maintain Gross Domestic Product (GDP) growth at around 7% in the foreseeable future. China - after two decades of unprecedented growth - wants to focus less on speed and more on sustainability.
Another area that the Chinese government wants to focus on is balancing exports with domestic consumption. To that end, it has introduced a slew of fiscal policies to spur domestic demand. In spite of this, trade is by no means taking a back seat in China. This is evident in a move by the Chinese government to drive trade by simplifying foreign currency payment practices for imports and exports. As a start, China's State Administration of Foreign Exchange has already abolished export verification across China as of August 2012, which will drastically simplify export procedures for exporters.
Within Asia, trade between China and new emerging Asian economies – particularly Vietnam, Cambodia and Myanmar - is on the rise, driven partially by the former moving selected production lines to the latter for cost reduction reasons. Outside of Asia, growth is increasingly coming from trade with new and non-conventional markets, such as Africa, Latin America and Russia.
China's multi-pronged growth strategy underscores its emphasis on rebalancing the economy for long-term sustainable growth. However, it looks likely to be a bumpy road ahead as China attempts to change its growth model from investment and export-driven to one that is consumer-led and more knowledge-based. Global ratings agency Fitch's move to downgrade China's long-term local currency credit rating is reflective of this sentiment.
India: Stimulating Growth through Reforms
Similar to China, India has also been hit by the global economic crisis and has posted its lowest growth in a decade in 2012. Faced with myriad challenges including a depreciating currency, core inflation and high fiscal and current account deficits, sentiments took a deeper plunge when credit rating agencies warned India of a possible credit rating downgrade. A downgrade would take India's rating to below investment grade, which could raise the cost of overseas borrowing for India-based corporations.
This sparked a series of reforms, even those previously deemed to be politically unpalatable, to stimulate economic activities. Of the reforms announced, a cut in fuel subsidies and the opening of its retail and aviation sectors to foreign direct investment drew the most attention. The nation is also holding hopes that the Reserve Bank of India will cut its interest rate to provide liquidity and a strong boost to the economy. The push seems to have worked to some extent for credit rating agencies but India has to demonstrate that it remains committed to its current course of economic reform.
Nonetheless, there is still untapped potential in India. The world's second-fastest growing country boasts a young and literate workforce that is also technologically savvy. This is vital to the continued success of India's service industry, particularly its information technology sector, which contributes significantly to India's GDP. Additionally, with urbanization catching up in India's Tier Two cities, there is strong potential for these cities to contribute significantly to India's GDP growth. Simply put, if India is able to resolve the bottlenecks in its manufacturing sector and infrastructure investment, its economy and growth prospects will be substantially brighter and more robust.
Southeast Asia: A Mutually Beneficial Partnership
Asia may be going through a period of adjustment and rebalancing but it is not without its silver lining. Southeast Asia, specifically Indonesia, Malaysia, the Philippines and Thailand, has bucked the trend through a combination of collaborative partnership, investment-driven policies and open trade practices.
The region's collaborative partnership is best epitomized in its Association of Southeast Asian Nations (ASEAN) Free Trade Area agreement, which aims to enhance the region's competitive edge as a production base and attract foreign direct investment. ASEAN has also signed free trade agreements with major regional economies such as Australia, China, India, Japan, Korea and New Zealand. While the success of these free trade agreements is to be determined, it has sparked a network of strategic alliances within Asia and Southeast Asia that will serve to contribute to regional growth and stability.
There is more to this collaborative partnership. ASEAN is also supporting growth within the region, given that 25.4% of ASEAN's collective trade, estimated at USD 2 trillion in 2010, was conducted within ASEAN.
Asia: The Whole is Greater than the Sum of its Parts
Multinational corporations with operations in Asia will increasingly need to consider the region as a whole, rather than individual countries, to maximize their investment and potential of the region. Moreover, this holistic approach will also help mitigate counterparty risks and strengthen their supply chain for unforeseen circumstances.
According to a study commissioned by ADB, entitled Asia 2050, Asia's GDP could grow from USD 17 trillion in 2010 to USD 174 trillion in 2050, or half of global GDP, if the right policies are undertaken. The study predicts that growth will be spearheaded by seven Asian economies, China, India, Indonesia, Japan, Korea, Malaysia and Thailand. Key to this prediction is regional cooperation, which will help cement the region and shield it from external shocks. Traditionally, countries that are hardest hit by any downturn are those most reliant on exports. If Asia is able to address this through stronger intra-regional cooperation, it will truly consolidate its position as an economic powerhouse.
 Source: Asian Development Bank Trade Finance Survey: Major findings; March 2013
 South-South Trade Monitor; United Nations Conference on Trade and Development; June 2012
 ASEAN Trade Statistics Database; October 2011
 Asia 2050: Realizing the Asian Century; http://www.adb.org