Chris Bradley: We believe that the world is on the cusp of a new era with very different underlying forces than those that shaped our world over the past 30 years. Asia will be at the nexus of these forces and will experience heightened versions of the trends affecting the rest of the world.
Asia is the world’s trade crossroads. It’s home to 18 of the 20 fastest-growing trade corridors and 13 of the 20 largest. But now, it could find itself in the crosshairs of trade tensions. Asia’s integration has come about through commercial pragmatism rather than political alignment. Can that continue if trade tensions rise?
Asia excels in manufacturing new technology in four areas in particular: consumer electronics, industrial electronics, electric vehicles, and semiconductors. In these places, Asia has more than 40 percent of the revenues, R&D, and patents. But the value created by tech is moving away from hardware and into new transversal technologies. So, the question is whether Asia can reinvent itself as a tech creator as well as a tech manufacturer.
Asia has largely been in a demographic sweet spot with large pools of young workers and surging productivity in some economies. But now, aging is fiercest in the high-productivity economies of the Pacific Rim. Asia has the people to fuel growth, but 90 percent of the expected increase in Asia’s non-farm workforces by 2050 will be where productivity is relatively low. Can Asia shift value chains to where the workers are and raise productivity everywhere?
Asia is the world’s largest energy consumer but still needs much more to fuel future growth. It’s also the largest energy importer, which could be even trickier amid trade tensions. Asia’s under-energized. Its per-capita consumption is only one third of the OECD average.
At the same time, it’s the world’s biggest user of industrial energy, 60 percent of the global total. And industry is tough to decarbonize. So, can the region simultaneously secure the energy it needs and reduce emissions? Asia has deployed the most capital of any region in the world, and it still needs more. Over the next decade, Asia’s fixed investment could be close to $140 trillion, more than the United States and the EU together. But Asia’s return on capital is lower than that of the United States and the EU, and it’s facing rising balance sheet stress.
Can Asia take transformative actions to improve its capital efficiency and the resilience of its balance sheet? In all five domains, life might get more complicated. But what we know for sure is that many Asian firms will be fundamentally resetting their strategies so that they fit the next era rather than the past one.