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Oliver Camponovo: The following Century will belong to Asia

29 November 2021
- Di
Oliver
Disegno di risaie asiatiche
Tempo di lettura: 3 minuti

OLIVER CAMPONOVO - Asian economies are expected to lead the next phase of globalization once the pandemic fades. More than two dozen "unicorn" start-ups have emerged from the Indian subcontinent this year alone. Asia's expanding global prominence has long been dominated by China, and Asia's continued rise in the twenty-first Century is becoming a much bigger phenomenon. The Asian Century is evolving into a fully realized regional narrative. Starting now, we are beginning to witness the complementing features of different Asian countries coming together. This is an exciting time.

Consumerization

That a region that in 2000 only represented a third of world GDP in purchasing power parity terms has changed dramatically. According to a McKinsey study, Asia might control up to half of the global GDP by 2040.

According to a separate estimate, Asian consumers will account for about half of global consumption growth over the next decade. Asia is predicted to have half of all upper-middle-income families and half of all international transactions.

Why is Asia leading the next chapter of globalization? Which industries will be the most dynamic in the future years?

Rapid industrialization analyzed by Oliver Camponovo

One motor is the region's continued industrialization, which has seen China become the world's most giant manufacturing powerhouse.

By 2018, China accounted for 28% of global manufacturing output, ten points ahead of the US. In 2018, manufacturing provided about 30% of the country's total economic output. While that trend is likely to continue, other Asian countries, particularly India, Thailand, Malaysia, and Indonesia, are rapidly industrializing.

As labor prices rise in established manufacturing hubs like China, low-wage countries step in to relieve some pressure.

As China's labor costs rise, supply chains for apparel, shoes, toys and electronic assembly are shifting away from the country to South and Southeast Asia countries. They are not always visually appealing, but they do bring employment and economic progress. The manufacturing sector in India still accounts for less than 15% of the country's GDP.

Urbanization in a hurry

Urbanization is another prospective growth driver in Asia, offering higher income and economic development than rural agriculture jobs. That expands and deepens the middle classes. For example, just 35% of India's 1.4 billion people live in cities, compared to 60% in China. Vietnam and Indonesia, with respective cities of 37% and 57%, have similar growth potential.

The most dynamic industries in the future years would be IT, consumer discretionary, and healthcare. Taiwan and South Korea already dominate the semiconductor business. This will only increase as the global economy becomes more digital, a new generation of digital-native employees emerges, and remote working becomes more popular.

China is already the world's largest producer of solar cells, electric vehicles (EVs), and battery storage for EVs and other electrically driven machines and devices. China's supremacy in the sector will be brutal to challenge given its size and extensive manufacturing platform.

In terms of consumer spending, the post-Covid-19 reopening of trade will spur short-term demand, while China's commitment to pushing through its "common prosperity" agenda will spur long-term demand. It's all about the middle classes, and that will help the consumer-discretionary sectors.

Additionally, Covid-19 has changed people's perceptions of health and wellness. Many people have become more concerned about their health as a result of the pandemic.

Lingering worries by Oliver Camponovo

Still, the future of Asia's growth is uncertain. One focuses on regulation, particularly changes in China's business policies. In this year's technology crackdown, the government restricted many of the country's largest technology enterprises.

Concerns about Asian companies' ability to transition to a low-carbon economy and the credibility of their ESG-related accounting are rising among worldwide investors as ESG investing takes center stage.

Transparency is essential. If we want to reach carbon neutrality, businesses must adopt this rule of thumb. Despite these challenges, the region's growth appears assured. Asia, rather than America, will likely dominate this Century.

To discover the banking and fintech trends of 2020, click here

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