Managed funds: Zach Riaz
Powered by China, emerging markets are flexing their economic muscles
This year marks the turning point for global economic order and it has nothing to do with Covid-19. I am referring to the fact that Asian economies, as defined by the United Nations, will collectively have a larger economy this year than the rest of the world.
It’s not a blip of a single data point, but rather it’s part of a well-entrenched growth trend that most of us have heard about anecdotally. Asia has grown from a 35% share of world GDP to 50% over the past 20 years, largely on the back of the Chinese growth engine.
The region is expected to continue growing over the next 20 years for a range of reasons. If anything, the trend might get stronger over the next two decades as China integrates the economic activities of other Asian countries, in a concerted way, with its own economy. For investors this is important in terms of asset allocation.
The Asian economic growth of the past 20 years was predominantly reliant upon an increasingly significant but single-engine economy of China with other regional economies playing a support act. This is all set to change as Asia is stepping up the way it will co-ordinate itself as a single economic bloc with state-of-the-art, panAsian infrastructure (famously named the One Belt, One Road project) to transport goods and people seamlessly throughout the region.
China is playing the central role in making this vision a reality by, firstly, leading efforts to lay the facilitative political landscape by engaging, unilaterally and multilaterally, with other countries in Asia. The project has been well received by most Asian countries with some scepticism from India, but we think it too will participate eventually.
Over the past 20 years, China has accumulated a large reserve of financial capital and know-how to achieve sustainable economic growth. It’s now going to put its knowledge and resources to use for the greater Asian region. China is not doing this for virtuous reasons alone; it has an ageing demographic (median age of 39 years versus 32 years for Asia) and slowing economic growth. It can no longer rely on low-value manufacturing for the future prosperity of its increasingly middle-class demographic; it needs to move to high-value manufacturing and service sector jobs that embrace productivity and automation. As part of the One Belt, One Road vision, China plans to move its low-value manufacturing installations to surrounding Asian countries, which will become upstream producers and suppliers into China’s advanced manufacturing and production system in fields ranging from superconductors and biotechnology to high-speed rail, power generation, machinery and telecommunications.
China will fund and develop the infrastructure in host countries through joint ventures and special loans programs. The economic benefit for other Asian countries is obvious through a boost in trade, tourism, employment and income for their citizens.