Asia is ageing. Current projections indicate that the working population in most Asian countries will decline over the coming years, if they haven't started already. In response, calls for greater investment become louder. It is hoped that greater efficiency can compensate for the reduction in raw labour input.
This is certainly an ideal solution. But the magnitude of productivity gains required to sustain high growth rates expected in countries such as China may be out of reach over such a short period of time. Sustained productivity growth is not something that can be achieved overnight, or over a few years, particularly for countries that primarily focus on quantity- orientated growth, rather than on quality.
What is a faster alternative? Asia must attract talent from abroad. By encouraging greater immigration, especially from developed Western economies, Asia benefits in two key ways. First, the immediate boost to its working population will buy time for its economies to transit towards productivity-led growth.
Second, foreign knowledge will be channelled into the regional economy. With greater human capital mobility, this reduces asymmetries between developed economies and emerging Asia. In turn, greater convergence across Asia can be achieved as it continues to play catch-up with advanced Western economies.
There is a more subtle point. Should Asia become more attractive to foreign workers, it is also more likely to encourage native students who studied abroad to return and work in their home country. Indeed, many Asian students who studied overseas decide to stay abroad. This is particularly costly to Asia because it not only accelerates the contraction of its working population, but it shrinks the segment of its workforce with greater language skills.
Asia's relative resilience since the outbreak of the 2008 financial crisis has already given it the upper hand in attracting overseas talent. Graduates from Western universities have become more willing to take opportunities in vibrant Asian economies while multinationals are relocating staff to increase coverage in emerging markets.
But there is no room for complacency. There are three key areas that Asia must focus on to keep talent flowing into the region.
The first is to make stabilising inflation an even greater priority. In emerging Asia, only Indonesia, Korea, the Philippines, Thailand and Vietnam have an explicit inflation target for which their respective central bank is held accountable. A steady inflation rate is paramount to attracting human capital into the region. If potential workers question whether their wages can cover the future cost of living in a new country, such as residential property and high-quality education for their children, it is likely to deter them from migrating.
The second is to improve labour market efficiency. Even if there is a large supply of overseas workers searching for employment in Asia, successful integration is contingent on demand from firms which want to hire them.
However, friction in Asian labour markets may reduce the willingness of companies to increase employment growth. Redundancy costs in the region are among the highest in the world, averaging 96 weeks of salary, once Hong Kong, Japan and Singapore are taken out of the sample. In sharp contrast, the average firm in the US is not required to pay any severance fee.
The third is to reduce red tape faced by entrepreneurs. This partly reflects the relative inefficiency in Asian governments as new entrants still face high barriers to market entry.
For one, anti-monopoly policy in Asia is among the most ineffective when compared to other regions, according to the World Economic Forum, especially in smaller economies such as the Philippines and Vietnam.
For another, entrepreneurs are required to complete around 100 procedures to start a new business. Swift reforms would make markets more accessible to foreign investors and entrepreneurs.
Of course, it's not all about economics and efficiency; there are social factors too. For example, one issue in Hong Kong is the increasing strain on welfare resources. While the city has long prospered as a gateway to China, at the same time, issues such as mainland mothers coming over the border to give birth have caused friction.
Taken together, the benefits of attracting foreign talent into Asia are likely to exceed the potential costs. The reforms required to extend each country's appeal to overseas workers will also boost the economy's efficiency and, in turn, global competitiveness. This, however, will require a strong political will. Given the numerous elections taking place in the region this year, there's no time like the present to make the necessary changes.
Ronald Man is Asia-Pacific economist at HSBC Global Research