Thu, Oct 10, 2019 - Page 9 News List

The Asianized world has arrived

The diversity of the region’s nations and their ability to adapt have driven its rise within a generation, and within another, Asia might dominate the world economy

By Jonathan Woetzel and Jeongmin Seong

Illustration: Mountain People

In the 19th century, the world was Europeanized. In the 20th century, it was Americanized. Now, it is being Asianized — and much faster than you might think.

Asia’s rise has been swift. Home to more than half of the world’s population, the region has climbed from low- to middle-income status within a single generation. By 2040, it is likely to generate more than 50 percent of world GDP, and could account for nearly 40 percent of global consumption.

New McKinsey Global Institute research shows the extent to which the global center of gravity is shifting toward Asia. Today, the region has an increasing global share of trade, capital, people, knowledge, transport, culture and resources. Of eight types of global cross-border flows, only waste is flowing in the opposite direction, reflecting the decision by China and other Asian countries to reduce imports of garbage from developed countries.

Asia now accounts for about one-third of global trade in goods, up from about a quarter 10 years ago. Over roughly the same period, its share of global airline travelers has risen from 33 percent to 40 percent, and its share of capital flows has increased from 13 percent to 23 percent.

Those flows have fueled growth in Asia’s cities. The region is home to 21 of the world’s 30 largest cities and four of the 10 most visited. Some of Asia’s lesser-known cities are now also on investors’ radar.

In Yangon, Myanmar’s commercial capital, greenfield foreign direct investment (FDI) in knowledge-intensive sectors totaled US$2.6 billion in 2017, up from virtually zero in 2007.

Similarly, Bekasi, a smaller city near Jakarta, has emerged as the Detroit of Indonesia — the center of the nation’s automotive and motorcycle industry. Over the last decade, FDI in the city’s manufacturing industry has grown at an average rate of 29 percent per year.

Hyderabad — which generated more than 1,400 patents in 2017 — is quickly catching up with India’s Silicon Valley, Bangalore.

It is not only external flows being channeled into Asia. Dynamic intraregional networks are also driving progress. About 60 percent of Asian countries’ total trade in goods occurs within the region, facilitated by increasingly integrated Asian supply chains. Intraregional funding and investment flows are also increasing, with more than 70 percent of Asian startup funding coming from within the region.

Flows of people — 74 percent of travel within Asia is undertaken by Asians — help to integrate the region as well.

What makes these flows work is Asia’s diversity. In fact, there are at least four “Asias,” each at a different stage of economic development, playing a unique role in the region’s global rise.

The first Asia comprises China, the region’s anchor economy, which provides a connectivity and innovation platform to its neighbors. Between 2013 and 2017, the country accounted for 35 percent of Asia’s total outward FDI, with about one-quarter of that investment going to other Asian economies. Reflecting its rapidly growing innovation capacity, China accounted for 44 percent of the world’s patent applications in 2017.

The second grouping — “Advanced Asia” — also provides technology and capital. With total outward FDI of US$1 trillion, these countries accounted for 54 percent of total regional FDI outflows between 2013 and 2017. South Korea alone provided 33 percent of all FDI flows to Vietnam. Japan accounted for 35 percent of Myanmar’s FDI inflows, and 17 percent of the Philippines’.

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