By Oliver Tonby, Jonathan Woetzel, Wonsik Choi, Jeongmin Seong, and Patti Wang
For years, Western observers and media have been talking about the rise of Asia in terms of its massive future potential. But the time has come for the rest of the world to update its thinking—because the future arrived even faster than expected.
One of the most dramatic developments of the past 30 years has been emerging Asia’s soaring consumption and its integration into global flows of trade, capital, talent, and innovation. In the decades ahead, Asia’s economies will go from participating in these flows to determining their shape and direction. Indeed, in many areas—from the internet to trade and luxury goods—they already are. The question is no longer how quickly Asia will rise; it is how Asia will lead.
Of course, it is hard to generalize about such a vast swathe of the world, spanning myriad languages, ethnicities, and religions.1 These nations have widely varying forms of government, economic systems, and human-development indicators. Some have young and growing populations, while others are aging. Annual per capita income ranges from $849 in Nepal to $57,714 in Singapore. The region encompasses ancient ruins and bullet trains, rural farming villages and towering skyscrapers.
The common thread across this diverse region is an upward trajectory across key economic and social indicators. In 2000, Asia accounted for just under one-third of global GDP (in terms of purchasing power parity), and it is on track to top 50 percent by 2040. By that point, it is expected to account for 40 percent of the world’s total consumption. Asia is making not only economic progress but rapid strides in human development, from longer life spans and greater literacy to a dramatic surge in internet use.
The region’s rise has not only lifted hundreds of millions out of extreme poverty; it has also raised living standards more broadly for people of every income level. Urbanization is fueling economic growth and opening doors to education and public health services. But pockets of poverty and real development challenges remain. The breakneck pace of growth has left many cities struggling to provide the housing, infrastructure, and other services that their surging populations need. Countries across the region need to achieve more inclusive and sustainable economic growth to address inequality and environmental stresses.
Recent McKinsey Global Institute (MGI) research examined 71 developing economies and singled out 18 of them for consistently posting robust economic GDP growth. All seven long-term outperformers, and five out of 11 recent outperformers, are located in Asia. In recent decades, several Asian countries have propelled themselves into the ranks of middle-income and even advanced economies. This reflects the region’s ongoing industrialization and urbanization, its rising demand and productivity growth, and its dynamic corporate sector.
These trends represent a real shift in the world’s center of gravity. Scholar Parag Khanna asserts that the “Asian century” has begun and observes that the region’s rise is not cyclical but structural.2 Emerging Asia’s evolution has reached a stage that requires deeper global acknowledgment. It is upending assumptions—long held in the West, in other emerging economies, and even in Asia itself—about the world’s economic balance.
This paper provides an overview of Asia’s role in four areas: trade flows and networks, corporations in Asia, technology, and the Asian consumer. MGI will return to each of these topics with more extensive stand-alone research reports in the months ahead. Yet combining these perspectives, as we do here, provides a wider view of how the region is evolving—and a hint of how it might define the future.
Asia is transforming trade
Recent MGI research examined 23 industry value chains spanning 43 countries and documented major structural shifts in the world’s trade patterns. Asia is at the center of many of these changes, and its companies will continue to respond to them in the years ahead. Over the past decade, global output has continued to rise but the share of goods traded across borders has fallen by 5.6 percentage points. This decline does not reflect trade disputes or hint at an impending slowdown. Instead, it reflects healthy economic development in China, India, and the rest of emerging Asia.
As consumption rises, more of what gets made in these countries is now sold locally instead of being exported to the West. Over the decade from 2007 to 2017, China almost tripled its production of labor-intensive goods, from $3.1 trillion to $8.8 trillion. At the same time, the share of gross output China exports has dramatically decreased, from 15.5 percent to 8.3 percent. India has similarly been exporting a smaller share of its output over time. This implies that more goods are being consumed domestically rather than exported. Furthermore, as the region’s emerging economies develop new industrial capabilities and begin making more sophisticated products, they are becoming less reliant on foreign imports of both intermediate inputs and final goods.
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 labor costs—and often their supply chains ran through Asia. Now labor arbitrage is on the wane. Only 18 percent of today’s goods trade now involves exports from low-wage countries to high-wage countries—a far smaller share than most people assume and one that is declining in many industries.
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