The outlook for the Pacific Rom for 2008 and beyond continues to overshadow the rest of the world and strengthens its role as the main engine of the world economy. China and Japan will lead the economic growth of Asia in 2008, with China continuing extraordinary economic growth and possibly passing Japan within five years as Asia’s second largest economy.

During 2007, the Pacific Rim economies continued their impressive growth with the gross domestic product expanding by 7.5%.  I believe the region will show a 7% growth for the next few years, due to continual strong consumer demand, growing inter-regional trade and the growing appetite for Asian products by the U.S and Europe.  The best performers will be Mainland China, Hong King, Taiwan, India, Malaysia, Singapore and Vietnam.

With respect to the California economy, Pacific Rim trade and investment is responsible for about 25% of our economy, and California companies’ investment in the Pacific Rim creates more than a million jobs.  Furthermore, our communications with the Pacific Rim through our Universities and foreign subsidiaries located here are unique.  I expect that these trade, investment and cultural trends will continue to expand in 2008 and beyond.

               Let’s take a closer look at the trends in some of these countries.

First, Japan.  Up until the mid 90’s, Japan was setting the pace for the rest of the world in terms of economic growth, investment and world trade.  Then, the real estate and financial bubble burst and it was back to economic reality for the Japanese.  To invigorate the economy, the Japanese government has been emphasizing economic reform, deregulation, banking reform and increased consumer spending.  The full impact of these measures is still to be felt and, consequently, Japanese GDP growth has been slow, leveling off at 1-2% annually.  As we look ahead for the next few years, Japan will continue slow growth and be increasingly dependent on the China market.  The major issues for Japan are for increased fiscal reform and increased consumer spending.

China, of course, is the economic growth story of Asia with an economy still growing at 10% or more.  Their role as manufacturing center of the world, the biggest recipient of foreign direct investment, and their increased globalization of the economy, will continue to position China as the economic giant of the Pacific Rim.  The economic reforms, political stability, decentralization, increased privatization and the growing affluence of the Chinese consumer will propel China to even greater heights of economic growth.  However, the continuance of their growth also brings challenges to China which cannot afford to overheat its economy.  Chinese government is very aware of this situation and, I believe, will begin to curtail growth in 2008 and beyond to the 8-9% GDP level.  China must also develop its banking system to meet the needs of globalization.

Closely related to China is Hong Kong, which has emerged from a depression due to the devaluation in property values.  Hong Kong will increasingly provide value added services to China exports, and be a communication and transportation link to the rest of Asia.  Meanwhile, with increased property values, political stability and entrepot trade, Hong Kong will show continual growth through 2008 with a 5-6% GDP.

Finally, the ASEAN nations:  This group of 10 South East Asian nations is showing increased economic viability led by Singapore and Malaysia with Indonesia showing increased vitality.  While once regarded as a political block of nations, ASEAN’s moving toward being an economic entity like an embryonic European Union.  We can look forward to increased industrialization and information technology development and less dependency on agrarian enterprise.  These countries will average a 4% GDP growth for the next few years.

The dynamic growth of the Asia economies is good news for Southern California.   Trade and investment opportunities for California firms from agriculture, engineering, architecture, manufacturing, and high technology will be expanded resulting in more jobs for Southern Californians.