Full Report - Subregional Office for East and North-East Asia - escap

MACROECONOMIC PERFORMANCE AND POLICY CHALLENGES AT THE SUBREGIONAL LEVEL CHAPTER 2
other natural resources. Rising geopolitical tensions
in the subregion and elsewhere in East Asia have
already taken a toll on trade flows between some
economies and made it more difficult to advance
talks and negotiations on regional cooperation
and integration. Domestically, the property market
adjustment that has so far remained gradual and
orderly may get out of control in case there is an
external shock or turmoil in global financial markets.
Rising household and business sector debt is also
a major concern.
Although unemployment rates in the
subregion are generally low, job quality
remains a key concern
Although unemployment rates in the subregion are
generally low, job quality remains a key concern.
Labour markets have proven robust even in the midst
of the weak global environment, and unemployment
remains at low levels. The jobless rate in Japan
stood at 4.3% at the end of 2012, whereas it
was 2.9% in the Republic of Korea, in each case
lower than it had been in 2011. In both countries,
however, there are concerns that the quality of new
jobs being created is declining, especially insofar
as many new contracts are short-term and in the
service sector. The urban unemployment rate in
China was at 4.1% in the second quarter of 2012,
although the quality of labour market statistics is
not fully comparable with those of other major
countries. Employment growth in Hong Kong,
China is starting to slow, with a lag in response
to weaker economic growth and corporate profits.
According to the last labour force surveys for the
fourth quarter of 2011, the unemployment rate in
Mongolia was estimated at 9%, down from 13%
in last quarter of 2010.
In the longer run, the subregion faces economic,
social and environmental challenges to achieve
or consolidate, depending on individual country
circumstances, the evolution from middle- to highincome
levels.
An increasing share of the population in Japan; the
Republic of Korea; Hong Kong, China; and, to a
lesser extent, China is now occupied in economic
activities that are more technologically sophisticated,
human capital-based and intensive in design and
organizational capabilities than ever before. This is
the result of considerable and sustained investments
in education, advanced infrastructure, such as highspeed
communications and broadband technology,
and institutions that reward innovation and facilitate
economic transactions. While the subregion’s
achievements over the past 50 years are nothing short
of extraordinary, there is no room for complacency.
There are still considerable gaps in aligning people’s
investment in acquiring innovative and organizational
skills with the private returns from such efforts.
These gaps appear particularly pronounced in the
service sector, where productivity in the subregion
is much lower than both in domestic manufacturing
and in services internationally. Burdensome regulation
that protects incumbent firms, including State-owned
enterprises, and other vested interests hinders other
efforts to enhance economic resilience and boost
growth momentum.
The development of the service sector and the
gradual transition to an economic model where
domestic demand replaces external demand as the
main source of growth are important to mitigate
the trend of social exclusion that is gaining ground
across the subregion. While economic growth has
generally been accompanied by a reduction in
absolute poverty, relative poverty – the share of the
population living on less than half of the median
income – is still surprisingly common, including in
Japan and the Republic of Korea where relative
poverty is the sixth and seventh highest in the
OECD area. Inequality has also risen, driven by
labour market dualism, high university tuition fees
and growing household debt, as well as rigid norms
for internal migration in the case of China. Gender
inequality remains a concern in the subregion and
Governments are taking measures to close gender
gaps (see box 2.1).
79