The Asia Society Experts Forecast: What to Expect in 2017

Morgan Stanley Head of Emerging Markets and Global Strategist Ruchir Sharma explains why he thinks China is susceptible to an economic downturn.

In what has become an annual tradition, Asia Society brought together a group of experts on Wednesday evening and gave them a daunting task: predict what will happen in Asia in the year to come.

Fortunately for the assembled audience and live webcast viewers, the participants — Eurasia Group Managing Director of Asia Evan Medeiros, Asia Society President and CEO Josette Sheeran, and Morgan Stanley Head of Emerging Markets and Global Strategist Ruchir Sharma — rose to the challenge. Here were their predictions for 2017:

China

The Chinese Communist Party plans to convene its 19th Party Congress this summer, an exercise that provides a rare glimpse into the country's normally opaque political machinations. According to Medeiros, Politburo of the Standing Committee, China's leading government body, will experience a turnover of up to 70 percent, and the planned successors to President Xi Jinping and Prime Minister Li Keqiang may be revealed. Despite the outward appearance of unity, Medeiros argued that 2017 "will be a year of profound uncertainty in China."

"Politics will move to the forefront of the country's foreign and economic policy," he said, "and of course it'll have an effect on the U.S.-China relationship."

Fast economic growth — the hallmark of China's successful reform period — is expected to continue in the coming year, with most analysts projecting that GDP growth will exceed 6 percent. But Sharma argued that China's enormous debt burden — exacerbated by pressure on the country's currency — could turn into a full-blown crisis.

"There have been 30 instances in the postwar period when a country's debt increased by 40 percent over a 5-year horizon," he said, referring to China. "And in 100 percent of these instances, the country got into a deep economic trouble within the next five years."

“If you look at the last 100 years, every single global recession was caused by the United States going into a slump," Sharma added. "The next time there’s a global recession — in the next year and two — it’ll start when China’s growth rate slows to 3 or 4 percent. And that's a shock we’re not prepared for."

In terms of foreign policy, the panelists agreed that the country was unlikely to escalate tensions in the South China Sea, where Beijing's push to build in disputed maritime areas has encountered resistance from countries around the region as well as the United States.

"Next year isn't going to be a year of territorial disruptions — China will play that down," Sheehan said. "Instead they're focused on high-tech and building out their innovation capacity."

The Koreas

China isn't the only Asian country gearing up for a challenging year. On the Korean peninsula, the impeachment of South Korean President Park Geun-hye this month may soon destabilize a key U.S. ally.

"I think South Korea's constitutional court is going to uphold Park's impeachment," predicted Medeiros. "There's going to be an election in either the first or second quarter of 2016 and we're probably going to get a center-left government. How that government aligns with the Trump Administration is going to be complicated."

Meanwhile, Medeiros predicted that North Korean leader Kim Jong-un is likely to test the incoming U.S. president and that, in any case, significant progress in dealing with North Korea's nuclear crisis is unlikely.

"North Koreans aren't interested in negotiating away their nuclear program," he said. "And China is simply unwilling to consider a humanitarian crisis on its northeastern border."

India

Despite its enormous size, cultural footprint, and crucial role in international affairs, "India remains largely insulated from what's happening in the rest of the world," said Sharma. "and I don't think that's going to change." 

For that reason, Sharma predicted, sluggish growth during the first two fiscal quarters of 2017 is unlikely to have a contagion effect and, in any case, is likely to surge to 6 percent or so growth in the second half of the year.

"India's economy is one with a lot of interest and drama," he said. "But its trend lines are relatively stable because its per capita income is so low. For that reason, it can make a lot of mistakes and still move along."

Sheeran predicted that Narendra Modi, India's nationalist prime minister, will find a friend in Donald Trump.

"I think they'll really get along," she said. "They're two infrastructure guys. They like building things."

Globalization, Trade, and Markets

During his campaign for president, Trump attacked trade agreements such as the Trans-Pacific Partnership (TPP) as being disadvantageous to the United States and, more broadly, promised a return to an "America first" policy that would disentangle the country from its global commitments. His victory in November, combined with the rise of populist leaders worldwide, struck Sharma as a significant shift.

"These technocratic arguments that trade is good, globalization is good, and TPP is good are all falling flat," said Sharma. "We’re moving into an era of de-globalization that has only begun.”

Sheeran disagreed, predicting that global trade would continue apace in spite of protectionist rhetoric.

"I don't think we've seen a referendum on connectivity," she said. "And I don't think any governments will conclude that they'll be more competitive by putting up fences."

How will the markets do? None of the panelists were willing to predict a boom or bust for global equity markets, and Sharma guessed that the price of a barrel of oil would remain between 30 and 60 dollars. 

Other Predictions

What else will happen in Asia next year? Medeiros predicted that 2017 will see the rise of Southeast Asia, where economies in Myanmar, Vietnam, and the Philippines are expected to experience brisk economic growth. However, he warned, other countries in the region like Indonesia and Malaysia may be susceptible to a terrorist attack from the Islamic State.

Would Rodrigo Duterte, the famously combative Philippine president, moderate his behavior in 2017? Sheeran does not believe he will, though Medeiros and Sharma disagreed. 

When prodded by moderator Tom Nagorski, Asia Society's executive vice president, to make a prediction on this year's upcoming Iranian election, the three panelists declined.

But on one issue all three panelists came to an immediate agreement: China would not be accepting Facebook anytime soon.

Watch the complete video below: