China is Slowing, And the new, big “Tiger” is …Iran and Central Asia!?

In recent times, one of the strategies for dealing with global financial crises is to enable one region to expand and buttress economic weakness in other regions. For a long time, China has played the dual role of maintaining double digit economic expansion, and maintaining its foreign reserves in dollar and European currencies – thus effectively bank rolling budget deficits in the rest of the world. China, has in effect sustained the world economy.  But this is changing, and it will have huge implications NOT only for China and the West, but I would argue also for Iran.

 Believe it or not, Chinese women are having fewer children, but having a smaller generation follow a boom generation – and longer life expectancies – means that by 2050, it is expected that for every 100 people aged 20-64, there will be 45 people aged over 65, compared with about 15 today.

Over the medium term the country will be faced with a more hostile demographic outlook, as labor force growth turns negative. Alongside weaker western world growth, this will help to explain why Chinese growth will moderate down below double digits to between 7-9% over the next few years.

The legitimacy of Chinese communist party as a ruling group of the country since the Tiananmen Square massacre in 1989 has been based on its maintaining rapid economic growth.  An economic slowdown could prompt challenges to party’s legitimacy.

Existing disadvantaged social groups, such as migrant workers and pensioners, especially those in rural areas, will be most severely affected, and the social unrest sometimes experienced in China will become increasingly common.

These facts are not simply an academic curiosity. Given how uncertain global economic growth trajectory has become, some of these changes in China will be even more impactful going forward on the world’s economy.

Quite simply put, the world will need to identify a new growth engine or region to mitigate a severe shift in China.

And Voila – and here “Central Asia”!

As we look at the rest of the world, one region alone seems to have the capability of lifting the “world” to new economic heights. China after all had very, very cheap labor as a resource. Most Chinese still live off $2 a day and obviously that is or will be changing. But what do other regions have that can ‘finance’ if you will significant economic growth? Africa, Latin America, Middle East, Central Asia, or even Russia?

Russia is in the midst of a demographic collapse, with a literal 50% contraction of its working population in the next 20 years. For sure, now after the Arab Spring, there is hope that Arabia (from Morrocco to Iraq) can provide representative governments that in the end can unite under one banner of the Arab League and work together to generate economic growth. But my fear about Arabia emerging is that Israel will be fundamentally against the emergence of a unified Arab market, and as a result torpedo this process. All it will take is a rogue individual throwing a brick at the bus of the visiting Tunisian soccer team in Egypt and busting the window  – and suddenly, bang – relations between the nations are down. The rogue individual could have been an Israeli. No the Arabs will never unite. Sub-Saharan Africa is probably well poised to provide the world with a coordinated base for growth – but not just yet. Issues like civil wars, ethnic tensions, leadership have to be confronted first.

All this leaves Latin America and Central Asia next. I believe Latin America is well poised for double digit economic growth, if a coordinated, pro-growth system can be established across the board. The issue is of course that there are political pockets in places like Bolivia and Venezuela that can undermine the process for the whole region. Brazil has ‘exploded economically’ because its “socialists” turned out to be very much pro-growth and enterprise. They were progressive in their thinking and sophisticated enough to understand the connections between equal opportunity, free enterprise and prosperity. Others in Latin America are still caught up in Stalin’s play book in 1935. My bet is there will be multiple regions ‘prepped’ for growth anyway. But Central asia is better poised that any of the others for a variety of reasons.

Central Asia is essentially an ‘economic virgin’ with huge access to natural resources. Central Asia too, has witnessed first hand the stupidities of a centrally planned socialist economic system and has rejected it.

In the colonial context of the late 20th century, the West prefered to grab all the natural resources – put a bunch of dictators in charge, and milk the rest of the country by selling expensive arms (to an insecure regime) and high value infrastructure type products (airplanes, power plants etc.). Take a look at Azerbaijan as a classic case of Western political manipulations put in place in 1990.

But thankfully this model has has changed in the 21st Century. With the advent of the information age, it’s much better to sell products with higher levels of intellectual content. It’s better to ‘free up a country’ to establish a vibrant market and then sell critical high value services (not even products) to ‘suck’ money over to the West. Banking, credit cards, software, engineering, and licenses to intellectual property …you name it. Let them build it locally, we can sell them the designs (and make more money) – is the new mantra. And even better for these rising economies to maintain their foreign reserves (as China did) in Western Banks and help float fragile Western governments. It’s cleaner. It’s softer. It’s less intrusive or obvious.

And here-in comes Iran. While the Brits with their warped time mentality are pushing for Dubai to become the regions ‘capital’ and are sucking each Central Asian nation dry of their own resources (by establishing colonial style Dictatorships) – in fact Iran is in a by far better positioned to assist the West as a champion in the region in this new age.

More importantly, without clear connectivity between the countries of the region – the region cannot become a Brazil, or a China, or even a European Union that can ‘move’ in unison and provide coordinated and serious expansion. Dubai after all is across the Gulf; Iran is connected by LAND to all the countries in Central Asia…and to the Sea to help those nations’ import or export goods internationally. And Iran has significant resources of its own, to invest, to leverage, to use to help many of its neighbors make the shifts they need to make to become leaping economic “tigers”. Little land locked Tajikestan, or Turkmenistan or even Afghanistan will never rise to become tigers with their current geographic and economic challenges. They need outside help.

My basic point is that Central Asia can start where China was 20 years ago but rise and become a significant engine of economic activity and help ‘make up’ the deficit left behind as China slows down. And it is only Iran that can weave the region together to make this happen.  Dealing with the region on a nation-by-nation approach will NOT provide the scope and scale of growth NEEDED to keep global economic growth humming.

Call it a Central Asian Union with Iran as a key player (with Turkey and others taking a leading role). Call it whatever you want, a transformed Iran is critical, indeed vital, to the future of the planet. Surely this is a compelling argument for the world to inspire a change in policy vis-à-vis Iran, and put in place a transformed political structure in Iran that can lead the region forward. It is time for a change, because China is definitely changing.

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