Asia's rise risk to US position

Standing at a podium in New Delhi recently, Microsoft chairman Bill Gates was asked for a sound check. Instead of the usual "1, 2, 3, 4", he counted: "One billion, two billion."

The joke referred to India's billion-plus population and the billions his company and others are investing in that country. It delighted his audience, as did his announcement in December that Microsoft would pump US$1.7 billion into India.

Gates called it a "fairly conservative" amount considering "the evidence of the role we see for India and the growth we see". He said Microsoft's "employment growth in India will be far more rapid than in the US".

Such realities have caught the White House's attention, if President George W. Bush's State of the Union address last week was any guide. So is the gold-rush mentality driving corporate chieftains to move an ever-growing number of United States jobs to China?

"In a dynamic world economy, we are seeing new competitors like China and India," Bush said last Tuesday. "This creates uncertainty, which makes it easier to feed people's fears."

While it's an important admission that the US can't be complacent, the Administration still seems in denial about Asia's rise. Bush suggested as much when he said: "Americans should not fear our economic future because we intend to shape it."

The statement is clearly ridiculous. And so is the Administration's belief that spending US$380 million to improve maths and science education in elementary and high school will boost US competitiveness.

It's not enough to acknowledge China and India are becoming competitors when the future belongs to Asia's two nascent superpowers, at least in the longer term. Rather than making Bush's tax cuts permanent, the Congress should spend that money - and lots more - retooling US education programmes to compete.

Pundits point out that Bush devoted less than three minutes of his speech to energy dependence. It's even more disturbing that he only mentioned the words "China" and "India" once and didn't mention "Asia" at all. This region's seemingly insatiable demand for commodities is part of what's driving the former oilman to end the US "addiction" to oil.

"Based upon the recent focus in Davos, I would have expected him to devote a little more attention to China and India," said David Cohen, Singapore-based economist at consulting firm Action Economics, referring to the recent World Economic Forum.

Bush ignored another US addiction: Asia's money. What makes unsustainable US budget and current-account deficits appear sustainable is Asian central banks' holding more than US$1 trillion of US Treasuries. It keeps bond yields low, the US dollar up and enables American consumers to live beyond their means. At the same time, Asian nations can't afford to sell off US dollar-denominated bonds and risk a surge in interest rates in their most important export market.

It's no mystery why a year ago last week, the UK shook up the Group of Seven's clubby world and invited China and India to a meeting in London. It was a clear admission that demand from economies beyond the G-7's purview now plays a dominant role in global growth and prices. The G-7 also knows that if Asians sold their greenback holdings, the US may be in trouble.

Asians were "dead central" to efforts to retain any semblance of control over the global economy and energy prices, said Kenneth Courtis, vice-chairman for Asia at Goldman, Sachs in Tokyo. "Please tell DC."

While much is made of China versus India, what if these two fast-growth economies strengthen ties to the exclusion of other countries, including the US? Talk about future shock.

Business groups, worried that students will fall further behind in maths and science, are increasingly calling for a US agenda akin to one that followed the Soviet Sputnik launch in 1957. Without those skills, US innovation will suffer. Reviving images of the Cold War space race, it's hoped, will shake the US out of its complacency.

Otherwise, the US may be more of an outside observer than a participant in the Asian century.

- BLOOMBERG