Whatever Happened to Asia "Decoupling"?

Along with the Efficient Markets proponents, what happened to all the Asia Decoupling proponents? We don't seem to hear much from them anymore. Asia Decoupling is likely to go down as a classic example of bubble-market buy excuses. The concept of countries whose economies are heavily driven by exports to the US and Europe somehow being immune to slow-downs from their biggest customers seemed totally ridiculous even when I first heard it and Asian markets were booming. Now, the latest Chinese trade data has surely put decoupling  to rest.

Chinese exports fell in November for the first time in seven years, Beijing said Wednesday, highlighting weaker global demand and putting additional pressure on authorities to spur growth.
"This signals that China's economic growth is going to slow down noticeably," said Francis Lun, general manager of Fulbright Securities Ltd. in Hong Kong.

The problem is that Asian economies appear to be lead by their export base. What this means is that economic growth starts from the tech/knowledge transfer from the US, Japan, and Europe, into Asian countries, whereby lower local costs are leveraged by both foreign and local companies to create an export platform. This creates jobs, support businesses, etc. And then wealth is created by this tech/knowledge transfer, which then spurs the domestic economy. 

Local innovation surely exists in Asia, and abounds in some areas, but it doesn't appear to yet be the major driver of economic growth. I think a simple way to examine this is to look at wealthy people in various countries and see what kind of business made them rich. In Asia, its usually rather basic trading/property types of business rather than break-through innovators. We can go into a long discussion here regarding the source of business success in different countries. But the point at least for this post is that tech/knowledge innovation is still dominated by the US, Europe, Japan (though Japan I know less of right now), and then developing countries, especially Asia, benefit from the transfer of these innovations. They then grow their economies based on efficiency gains from such transfers, more so than by domestic innovation. Not to discredit the many local innovative individuals and companies that nevertheless exist across Asia. But when the US, Europe, Japan slow down and the demand for exports (which are produced via tech transfer) dwindles, and a leading source of productivity gains and wealth generation for Asia economies is stunted and they can't make up the difference.

Here's a very rough example. Mobile phone technology gets produced abroad and then imported into say Indonesia. Once everyone in Indonesia has a mobile phone, then they have maxed out their productivity gains from the imported tech. There then can be producitivy gains and wealth generation by manufacturing mobile phones, using imported know-how, using the low local cost base. But once that has been completed, or demand for exported phones is exhausted, then there aren't any further productivity gains to be had from this either. Thus any further gains require either increased demand from abroad or new tech to be imported from abroad, barring of course local innovation to produce even better mobile phone technology or lower mobile phone manufacturing costs. 

Given that local innovation is still a relatively smaller generator of GDP growth in Asia, Asian countries are still heavily dependend on the status of the US, European, and Japanese economies. 

In either case, while the reasons may be open to debate, the fact that Asia hasn't decoupled is being made very clear via the latest Chinese trade data.

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