Noodles, FTAs and China’s new high-spending middle class

Economist with Asian Development Bank explains Asia’s new-found spending power

It’s jokingly referred to as “the noodle bowl” - Asia’s tangled mass of bilateral free-trade agreements (FTAs).

The slow pace of global trade talks over the past decade has seen a splurge in bilateral agreements across Asia.

There are currently 109 ratified FTAs involving at least one Asian country and 50 under negotiation, compared to just three in 2000.

Deputy chief economist of the Asian Development Bank (ADB) Juzhong Zhuang acknowledges the overlapping rules are so confusing that they've become a barrier to trade.

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“Obviously, there’s a strong need to consolidate the existing agreements,” perhaps through the existing multilateral agreements, like the Trans-Pacific Partnership (TPP) or the Regional Comprehensive Economic Partnership (RCEP).

Mr Zhuang was in Dublin to mark the launch of the ADP's Asian Development Outlook report, which predicts India will outstrip China in growth terms this year, expanding by 7.8 per cent compared with China's 7.2 per cent.

With the near obsessional focus here on getting into China, it's easy to overlook the rise of Asia's second biggest powerhouse, which experts predict will be the fifth largest consumer market after the US, Japan, China and Britain in less than a decade.

One of the key factors behind the current growth in consumer demand in these countries has been the surge in household income, Mr Zhuang said.

He points to the fact that household income in China is now growing at 10 per cent, way ahead of the country's GDP rate, in direct contrast to Ireland, where many households are feeling little comfort from the State's much-lauded growth rate.

China’s initial growth surge was characterised by mass migration of people into cities, he explained, resulting in a large pool of cheap labour, which in turn drove productivity and underprinned the country’s massive manufacturing boom.

Now the situation is reversed with many areas experiencing labour shortages, prompting a rise in wage rates and a lift in hosuehold income.

Perhaps, this isn’t such a bad thing from Ireland’s perspective given the country is relying on China’s big-spending middle class to buy its high-end food and drink.

And the main risks to Asia's current growth path? In no particular order, a sudden upward shift in oil prices, the Greek debt crisis, a deepening recession in Russia and the impending rise in US interest rates, he said.

Eoin Burke-Kennedy

Eoin Burke-Kennedy

Eoin Burke-Kennedy is Economics Correspondent of The Irish Times