"Can Asia Still Succeed?" Rhee Chang-yong's Answer Has Changed Since a Decade Ago

According to The Financial News, Rhee Chang-yong, governor of the Bank of Korea (BOK), assessed that the manufacturing-led growth model that has driven Asia’s rise so far is no longer operating in the same environment. He argued that global supply chains are being reorganized, advanced economies are trying to rebuild their own manufacturing bases, and rapid technological change, including artificial intelligence (AI), is eroding the pillars that had firmly supported Asia’s development.
Rhee offered this assessment in his keynote address at the International Monetary Fund (IMF)–Bank of Thailand (BOT) "Asia in 2050 Conference" held in Bangkok, Thailand, on the 5th. "The tailwinds that once powered Asia’s rapid growth are weakening, and in some cases could even turn into headwinds," he warned, adding, "It is uncertain whether Asia can continue to serve as the engine of global growth, accounting for 60% of the world’s economic expansion."
Rhee recalled, "When I was serving as director of the IMF’s Asia and Pacific Department more than ten years ago, I had no hesitation in answering ‘yes’ to the question, ‘Can Asia’s success over the past half century continue?’" He continued, "But if I were asked the same question today, I would have to be much more cautious."
He pointed to three major shifts in the global economy. The first is "deglobalization"—the fragmentation of trade and investment, led by the United States of America (U.S.) and its turn toward protectionism. "The assumption that products with price competitiveness can automatically be sold in global markets no longer holds," Rhee stressed, noting that "geopolitical alignment is becoming increasingly important."
In practice, as supply chains are reconfigured, countries such as Vietnam, India, and Indonesia are benefiting, while economies like South Korea and Japan, which have been deeply embedded in the existing supply networks, are instead facing pressure to adjust.
The second shift is the "push for manufacturing self-reliance in advanced economies." High-income countries that have been key export markets for Asia are increasingly building manufacturing bases on their own soil. Rhee noted, "The Organisation for Economic Co-operation and Development (OECD) views industrial policy as essential to address structural challenges such as slowing productivity and the green and digital transitions," adding that "the global debate has moved from whether to pursue industrial policy to how it should be designed."
The third factor is technological progress. Rhee explained that in a 2019 paper he showed that all high-income countries, without exception, once saw manufacturing employment peak at around 18% of total jobs. Today, however, the corresponding figure for emerging economies has stalled at about 13%. In his view, this indicates that "premature deindustrialization" is already under way.
He went on to say, "Some argue that Asia should look to exports of services, rather than manufacturing, as a new growth engine." However, he analyzed that "in high value-added service sectors such as finance, law, and bio research and development (R&D), advanced economies already hold a strong lead, making it uncertain whether Asia can catch up quickly."
As the first step to overcoming these constraints, Rhee proposed a "reset of expectations about the role of government." "The closer a country gets to the technological frontier, the fewer advanced models there are to imitate, and the harder it becomes for governments to guarantee the commercial success of specific industries," he said. "Industrial policy will also need to diversify beyond manufacturing."
Rhee further advised that governments should move away from directly picking which firms receive support and instead adopt indirect tools such as on-lending, in which they share risks with private financial institutions. He warned that firms that have long depended solely on government support can become "zombie" companies that ultimately constrain growth.
"It is more efficient to leave the selection of beneficiary firms to private financial institutions," Rhee argued. He added that when performance is poor, funds can be withdrawn, thereby improving the effectiveness of policy finance.
In closing, Rhee suggested that direct industrial policies targeting specific sectors and structural reforms that reduce frictions across the broader economy should be used in a complementary way. "Nurturing strategic industries such as AI will be a core pillar of future growth," he said, "but it is equally urgent to invest in structural reforms that address labor-market flexibility, pension reform, and greater labor-force participation by women and older workers."

taeil0808@fnnews.com Kim Tae-il Reporter