I recently listened to a McKinsey podcast about the future of Asia and it argued that the 19th century belonged to Europe, the 20th century to America, and that the 21st century belongs to Asia. The vastness and depth of Asia manifests itself in the region’s geography, demographics, culture, and economy. The macroeconomic picture of Asia points to both: economic promise and self-sufficiency. To bring home the importance of Asia with just one statistic: “Asia’s middle class is set to carve out a 42% share of the world population by 2030 and its GDP will account for 50% of world’s GDP by 2040“. Imagine the possibilities.
Recognizing and appreciating the importance that Asia holds for the world’s economy and demographics is crucial for politicians, economists, and business leaders across the globe. My trip in eastern Asia in December 2019 right before the COVID pandemic, provided me with an intimate lens for the region’s infrastructure, economy, and culture. What you will read in facts and numbers below, reverberated in the vibes I experienced while walking the streets of the Asian cities I visited. Asia is pulsating with energy and economic might.
By 2040, Asia could account for circa 52% of global GDP (in terms of purchasing power parity), and circa 40% of global consumption. For perspective, Asia’s share of global GDP was 32% in 2000, and both Europe and North America experienced a decline in their share of global GDP since then, naturally. According to McKinsey, despite challenges related to inequality, corruption, deceleration of growth in China, and trade tensions, Asia’s long-term prospects appear robust. Asia accounts for 23% of global capital flows, compared to 13% a decade earlier. The increase in capital flows are a result of growth across several verticals that include energy flows, revenue growth in sectors like hospitality, and shipping traffic. The capital flows have strengthened the continent’s economy and serve as a precursor for structural change. What’s notable is the integration of trade within Asia, which is represented by 60% of goods that are traded by Asian economies within the region. In addition, 59% of FDI in Asia is intra-regional and 74% of Asian travelers travel within the region – these statistics depict the burgeoning self sufficiency of Asia. It is important to understand the cultural and economic diversity within Asia that uproots these statistics. McKinsey research splits the Asian continent into advanced, emerging, and frontier country categories for better perspective of the economic prospects. Read more at McKinsey.
The World Economic Forum estimated the Asian middle class at 2 billion people as at 2020. By 2030, that number could rise to a staggering 3.5 billion. For context, the UN projects the world population to reach 8.5 billion by 2030 – which means: the Asian middle class would account for nearly 42% of the world’s population by 2030. In layman’s terms, everything will change given these demographic shifts since the newly prosperous consumers in Asia will push consumer discretionary spending to new highs. In the Americas, the middle class will reach a mere 689 million people by 2030. Welcome to the Asian century! (World Economic Forum).
Travie McCoy may have a better chance of becoming a billionaire in Asia than anywhere else. Asia-pacific is home to more billionaires than any other region in the world. As at October 2020, there were 2,189 billionaires in the world with $10.2 trillion in wealth, which reached new highs due in part to the sensational, and at times senseless, stock market rallies of 2020. Asian billionaires control $3.3 trillion in capital. China is home to 415 billionaires followed by India at 114 according to UBS. Much of the wealth in this group was generated from tech and healthcare, which accounts for 8% of the billionaire population in Asia (CNBC).
Asia’s e-commerce market revenue reached approximately $1.4 trillion in 2020, which is three times the market revenue for e-commerce in the United States. Mobile e-commerce accounted for a staggering 74% of total e-commerce spending in Asia compared to 31% in North America. The ‘mobile first’ approach to e-commerce in Asia represents the substantial potential and market for tech enabled businesses and applications in the region. To hammer it home: Asia accounted for 41% of all app downloads in 2019. India and China are home to the most number of graduates in computer science, which gives the two Asian giants an edge in becoming specialists in fields of AI and Machine learning. “Between 2010 and 2020, about 50% of Asia’s GDP growth, worth $6 trillion, came from total factor productivity, a measure of the contribution to the economy from technology and innovation, according to the McKinsey Global Growth Model. For Asia to maintain 4% growth over the next decade, technology needs to contribute 43% of expected total growth in GDP in the period to 2030 — approximately $7 trillion” (McKinsey).
Asia’s exposure to climate risk is substantial given the region’s demand for energy. By 2040, Asia is projected to account for 43% of energy demand and 50% growth in energy demand. The region is addressing this formidable challenge by leading investments in the renewable energy sector. Asia has the largest share of the world’s installed renewable capacity at 45% – compared with 25% and 16% for Europe and North America respectively. According to the International Energy Agency, between 2019 – 2040, the region is expected to account for 64% of renewable capacity additions globally with overall share projected at 56% by 2040 (McKinsey).
Manufacturing sector employment tends to peak at 30% of total employment and many Asian countries are in the 15 – 20% range in terms of employment in manufacturing – which points to the significant potential in further industrialization in the continent. Another noteworthy indicator is capital flows which points to the flow of innovation. Asia’s share of “global start-up funding increased from 16% in 2013 to 47% in 2018”. What’s noteworthy is that 70% of VC funding in Asia is intraregional (McKinsey).
McKinsey emphasized Asia’s ability to use its sufficient scale and cultural content to create regional blockbusters in entertainment. For perspective, Asia accounted for 41% of the global box office revenue In 2019. In 2018, India’s Bollywood created the largest number of films in the world = 1,813 (McKinsey). Who needs Hollywood?
Fortune 500’s 2018 ranking included 210 Asian companies (McKinsey). The index ranks the world’s 500 biggest companies by revenue. Nearly half of the world’s top companies by revenue belonging to Asia, will translate into greater influence in every facet of business and leadership over the coming decades.
Asia is home to 11 of the world’s 25 largest airports with outbound international passengers growth from 150 million in 2009 to over 450 million in 2018 – this figure will naturally experience a dip post-pandemic but can experience a solid pick-up once the coronavirus pandemic is in control.
From a mobility standpoint, Asia’s early adoption of the 5G network allowed the continent to harness technologies with better connectivity. The region is expected to account for more than 50% of global automotive software and electrical component markets by 2030, which with the use of 5G, can allow Asia to lead the Electrical Vehicle (EV) revolution (McKinsey).
China’s economy is expected to overtake USA’s economy by 2028. China’s successful management of the coronavirus pandemic will serve to bolster its relative growth compared to US and Europe over the next few years. UK’s Centre of Economics and Business Research (CEBR) expects the Chinese economy to grow by 5.7% annually until 2025 and 4.5% annually from 2026 – 2030. Important to note however that the average Chinese citizen will remain “far poorer in financial terms than the average American” even after China becomes the world’s largest economy – due in part to the country’s colossal population (BBC).
Asia is home to 2 billion of the world’s internet users, which represents 50% of the world’s internet population. The number of internet users in the region grew by 58% from 2014 – 2019. The giant number of digital consumers in Asia represents the enormous opportunity for tech and e-commerce businesses in the region as more and more of the Asian population enters the category of the middle class consumer. India has enrolled 1.2 billion of its citizens into a biometric identity program which will allow access to online banking, education, and government sponsored programs delivered digitally (McKinsey).
McKinsey put it best: “Asia’s growth will shift the world’s center of gravity”. I couldn’t agree more!
Other notable facts:
- China accounted for 45% of the world’s patent applications in the 2016 – 18 period (McKinsey).
- India is expected to become the world’s third largest economy by 2030 (BBC).
- Asia accounts for 51% of global growth in R&D, which increased from 26% in 2006–08 to 34% in 2016–18 (McKinsey).
- 41% of revenue of the world’s top 5,000 companies came from Asia between 2016 and 2018 (McKinsey).
- India’s energy demand will double by 2050. The country generates 2/3 of its power from coal. To address the gargantuan challenge, the Indian government aims to obtain 40% of its total energy capacity from renewables by 2030 – a 24% increase from current levels (McKinsey).
- Japan’s Fukushima Hydrogen Energy Research Field is the world’s largest plant for production of hydrogen from renewable energy (McKinsey).
- China ranks #2 in the world (behind the USA) in start-up investment, and is home to 91 of the world’s 331 unicorns as at April 2019. US in comparison is home to 161, and UK and Germany at a mere 16 and 9, respectively. (McKinsey).
- Trade in services is growing 60 times faster than trade in goods in Asia, and Asia’s services trade is growing 1.7 times faster than the rest of the world’s services trade (McKinsey).
- Internet subscribers in India doubled to 560 million users from 2014 – 2019. Mobile data use in the country is growing at an annual rate of 152% – twice the rate in the USA (McKinsey).
The Asian century in charts and graphics:
Concluding Remarks
I hope you enjoyed the short summary and snippets in this post that highlight the changing world landscape and growing influence of Asia. According to McKinsey, “one of the greatest economic success stories of our history is the emergence of 1.2 billion people into the consuming class over the past two decades“. And a great majority of this progress was made in Asia. The 21st century belongs to Asia!
Photo Credit: The Thaiger.
References: McKinsey, CNBC, BBC, World Economic Forum, UBS, Statista, and Brookings Institute. Please note that this briefing contains paraphrased summaries and attributes the original content to the news and research sources. Readers are encouraged to visit the links to access the full article and research paper(s) in its original form for a thorough and complete view. You may need to subscribe to the news agency and source for access.