Growing intra-regional trade and a rich venture capital market propel the region’s rise.
The economies of Asia are projected to be larger than the rest of the world combined by next year, propelled by rising local consumption due to the growing middle class and upswing of Asian corporates, according to a report by the McKinsey Global Institute (MGI).
Currently, 21 of the world’s 30 largest cities and 43% of the world’s 5,000 largest companies are in Asia. In the 2018 Fortune Global 500 ranking, 210 of the world’s 500 biggest companies by revenue were Asian. Overall, Asia now accounts for almost half of global investments.
By 2040, Asia is projected to top 50% of global GDP and drive 40% of the world’s consumption. 50% of global consumption growth is also projected to be in Asia, fuelled by the growing Asian middle class, which is set to hit 3 billion.
The rise in consumption meant that more goods are being consumed domestically than being exported to the West. For example, from 2007 to 2017 China almost tripled its production of labour-intensive goods, from $4.2t (US$3.1t) to $11.94t (US$8.8t). At the same time, the share of gross output China exports has dramatically decreased, from 15.5% to 8.3%.
The decrease in Chinese exports of labour-intensive goods has opened a window of opportunity for other countries in the region. Vietnam, India, and Bangladesh grew their exports of labour-intensive manufactured goods (ie textiles) by annual rates of 15%, 8%, and 7% respectively.
MGI noted that as the region’s emerging economies develop new industrial capabilities, they are becoming less reliant on foreign imports. Today, 52% of Asian trade is reportedly intra-regional.
Jonathan Woetzel, director of MGI, said that intra-regional trade is increasingly important to Asia with supply chains becoming shorter and more localized. “While the previous era of globalization was marked by Western companies building supply chains that stretched halfway around the world as they sought out the lowest possible labour costs, today only 18% of goods trade involves exports from low-wage countries to high-wage countries,” he said.
Meanwhile, Asia’s services trade is said to be growing 1.7 times faster than the rest of the world’s, with India and the Philippines counting among the biggest exporters of back-office business services.
The report also identified Asia as the region that will shape the future of digital innovation globally, what with half of the world’s internet users being Asian. It is reportedly now among the top global sources and destinations for venture capital in fields such as virtual reality, autonomous vehicles, 3-D printing, robotics, drones, and artificial intelligence (AI)
Sectors involved in technology innovation and entrepreneurship are also assured of access to ample venture capital. As of April 2019, Asia was home to more than one-third (119) of the world’s 331 “unicorns” (start-ups valued at more than $1.36b or US$1b). Ninety-one of these companies are in China, followed by India (13) South Korea (6), and Indonesia (4).
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