Asia 2025
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Mark Hansen, Head of Asia Governance and Strategic Initiatives, Standard Chartered Bank, talked at London Business School's Asia Business Forum about Asia in 2025 and answered the crucial question: "Will Asia still be relevant in the coming decades?" The Asia Business Forum is organised by London Business School's Asia club.
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Asia 2025
- 1. 1 Asia in 2025 January 2015
- 2. 2 Asia: A Continent of Contrasts Standard Chartered’s Asia Northeast Asia • Japan • South Korea • Mongolia Greater China • China • Taiwan • Hong Kong / Macau ASEAN • Singapore • Malaysia • Thailand • Indonesia • Philippines • Vietnam • Cambodia • Laos • Myanmar • Brunei • Australia / NZ South Asia • India • Bangladesh • Sri Lanka • Nepal • Bhutan Notes: Pakistan is grouped with MENAP and is not a part of Asia There is no SCB business presence in North Korea or Timor Leste Asia is a core market for Standard Chartered. We subdivide the continent into four regions based primarily on economic, business, and cultural links
- 3. 3 Asia: A Continent of Contrasts Enormous Demographic Shifts Underway Median Age in Countries with Fertility Rate > 2.1 • Laos: 19.5 • Pakistan: 21.2 • Nepal: 21.2 • Cambodia: 22.5 • Philippines: 22.7 • Bangladesh: 23.5 • Bhutan: 24.3 • Mongolia: 25.8 • India: 25.9 • Indonesia: 27.9 • Japan: 44.6 • Hong Kong: 42.8 • Singapore: 39.6 • South Korea: 37.9 • Taiwan: 37.0 • China: 35.2 • Thailand: 33.7 • Vietnam: 27.4 • Myanmar: 26.5 • Malaysia: 25.1 Source: CIA World Factbook Asia’s demographics are undergoing a major shift, threatening to make many economies “old before they get rich” Median Age in Countries with Fertility Rate < 2.1
- 4. 4 Asia: A Continent of Contrasts Extremes of Economic Development Global Hub City-States Bangladesh Bhutan Brunei Cambodia China Hong Kong India Indonesia Japan Laos Malaysia Mongolia Myanmar Nepal Philippines Singapore Korea Sri Lanka Taiwan Thailand Vietnam -2% 0% 2% 4% 6% 8% 10% 12% (5,000) 5,000 15,000 25,000 35,000 45,000 55,000 2013 GDP growth (%) FASTER GROWING MORE DEVELOPED Mature Industrial Economies Emerging Economies Frontier Markets 2013 GDP per capita (USD) Source: World Bank and IMF, bubble sizes correspond to size of 2013 nominal GDP Asia is not a monolithic and uniform region, but instead contains countries that span the entire range of economic and social development
- 5. 5 Asia: A Continent of Contrasts Credit Quality Has Improved Investment Grade Countries • Singapore: Aaa • Hong Kong: Aa1 • China: Aa3 • Taiwan: Aa3 • South Korea: Aa3 • Japan: A1 Sub-Investment Grade Countries • Malaysia: A3 • Thailand: Baa1 • Philippines: Baa2 • India: Baa3 • Indonesia: Baa3 • Bangladesh: Ba3 • Sri Lanka: B1 • Vietnam: B1 • Mongolia: B1 • Cambodia: B2 • Pakistan: Caa1 The sovereign credit environment in Asia has changed dramatically, with many emerging economies graduating to investment grade in the past five years Source: Moody’s, as of 20 January 2015. Reflects long-term foreign currency ratings
- 6. 6 21.5 19.1 16.2 10.9 7.2 7.2 7.0 6.8 6.7 6.7 6.3 6.3 6.0 5.8 3.6 3.1 2.9 2.1 2.0 0 5 10 15 20 25 Foreign Exchange Reserves as a % of GDP Latest vs. 19961 Strong Fundamentals Macroeconomic Buffers Have Improved Since 1997 Asian policymakers have learned the lessons of 1997, building up macroeconomic defenses to guard against market shocks Months of Import Cover (Reserves / Imports) Latest Data2 Notes: (1) Latest reserve data range from Nov 2014 to Jan 2015, GDP is 2013 full-year data. Source: IMF, World Bank, national statistical websites (2) Latest reserve data range from Nov 2014 to Jan 2015. Source: IMF, World Bank, national statistical websites 0% 20% 40% 60% 80% 100% 120% 1996 Latest
- 7. 7 51% 48% 48% 42% 40% 40% 35% 32% 32% 31% 30% 30% 30% 30% 27% 24% 22% 21% 18% 11% 0% 10% 20% 30% 40% 50% 60% OECD Average 61% 49% 47% 37% 34% 31% 30% 29% 29% 29% 29% 28% 27% 26% 24% 21% 20% 20% 19% 15% 0% 10% 20% 30% 40% 50% 60% 70% OECD Average Strong Fundamentals Savings and Investment Rates Still Very High Asian economies still tend to be skewed toward high rates of savings and investment 2012 Gross Savings as a % of GDP 2013 Gross Investment as a % of GDP Source: World Bank. Gross Investment is gross capital accumulation as defined by the World Bank.
- 8. 8 Strong Fundamentals Current Accounts and Fiscal Balances Twin deficits are still present in some emerging economies, but the recent fall in oil prices presents a momentous opportunity to reform government budgets 2013 Current Account as a % of GDP 2013 Fiscal Surplus / Deficit as a % of GDP 20.2%18.3% 11.6% 5.3% 4.8% 4.3% 3.4% 2.8% 2.2% 2.0% 1.9% 1.2% -0.8%-1.0%-3.3%-3.7%-3.7%-4.8%-8.1% -31.6%-40% -30% -20% -10% 0% 10% 20% 30% 1.8% 1.3% 0.7% -1.6%-1.8%-2.1%-2.4%-2.5%-2.7%-3.1%-3.3% -4.0%-4.2%-4.4%-4.9% -5.7% -6.4% -7.7%-8.1%-8.2%-10% -8% -6% -4% -2% 0% 2% 4% Source: CIA World Factbook
- 9. 9 239 156145138134131124122115111105 95 89 72 71 71 70 67 66 0 50 100 150 200 250 HongKong Singapore Malaysia Thailand Cambodia Vietnam Mongolia Indonesia Japan SouthKorea Philippines SriLanka China Bhutan Nepal India Pakistan Bangladesh Laos OECD Averag e Strong Fundamentals First-Class Digital Infrastructure 23.6 14.6 13.3 8.9 8.4 5.2 3.2 2.4 2.1 2.0 1.7 0 5 10 15 20 25 USA: 10.5UK: 9.9 Many Asian countries are quick to adopt new technologies, with many featuring world-class technology infrastructure necessary for an innovation-based economy -10 10 30 50 70 90 110 130 150 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Bangladesh China Indonesia India Cambodia Lao PDR Sri Lanka Mongolia Malaysia Pakistan Philippines Thailand Vietnam OECD 2013 Mobile Subscriptions per 100 People Average Internet Speed (mbit/second) Mobile Subscription Growth Rates1 (1) Mobile subscription growth rates are for 2000-2013 for Asia countries and 1995-2008 for OECD Source: World Bank and Akamai
- 10. 10 Strong Fundamentals Hope Springs Eternal 0% 20% 40% 60% 80% 100% Russia US UK Japan South Korea Thailand Malaysia Philippines Indonesia Bangladesh India Vietnam China Improve Remain the Same Worsen 0% 20% 40% 60% 80% 100% US UK Russia Thailand South Korea Japan Indonesia Philippines India Bangladesh Malaysia Vietnam China Good Bad 2014 Economic Optimism Survey 2014 Current Economic Situation Survey Despite the headwinds facing the global economy, Asian countries continue to show unbridled economic optimism Source: Pew Research Global Attitudes Project
- 11. 11 2030Today Key Opportunities Changing Paradigms: Growing South-South Trade 25% 30% 35% 40% 45% 50% 55% 60% 65% 1995 2005 2012 China India Indonesia Malaysia Philippines Thailand South-South trade has become increasingly robust, changing global trade dynamics with knock-on effects on established economic and political paradigms Trade With Developing Countries (%) Potential Changes in Global Trade Patterns Source: UNCTAD and Standard Chartered Research
- 12. 12 Asia’s financial markets have just begun to mature, with capital market development and the diversity of financial products only beginning to flourish 2012 Equity Market Capitalization as a % of GDP 2014 Bond Market Capitalization as a % of GDP 422% 156% 144% 140% 116% 106% 105% 97% 68% 62% 45% 45% 29% 22% 21% 13% 13% 0% 100% 200% 300% 400% 500% 229% 220% 123% 102% 85% 76% 52% 37% 21% 15% 0% 50% 100% 150% 200% 250% Source: World Bank, ADB, and Sifma. Bond market capitalization for Asian countries reflects local currency debt securities US US Key Opportunities Deepening Financial Markets
- 13. 13 Key Opportunities A New World Financial Order? 0 500 1000 1500 2000 2500 [5] Index as of Dec’13: 1,359 [6] Index as of Aug’14: 1,949 Index as of Nov = 2,048 Our measure of internationalization has risen more than nineteen-fold since end-2010 HK HK + SG + LDN [1] Base: Dec’10: 100 [2] Index as of Aug’11: 400 [3] Index as of Dec’11:498 [4] Index as of Jul’13: 1,112 HK+SG+LD+TWN RGI’s persistent upward trend HK+SG+LD+TWN+NY HK+SG+LD+TWN+NY+FR +KR - 500 1,000 1,500 2,000 2,500 1Q99 1Q02 1Q05 1Q08 1Q11 1Q14 Claims in USD Claims in GBP Claims in JPY Claims in CHF Claims in EUR Claims in Other Currencies Indexed Growth of “Other Currencies” in Global Foreign Exchange Reserve Holdings since 1999 Standard Chartered’s RMB Globalization Index (Indexed to December 2010) The internationalization of the RMB can fundamentally alter the paradigm of the global financial system, creating a multi-polar financial world Source: IMF COFER database, Standard Chartered Research
- 14. 14 40 45 50 55 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Singapore Hong Kong 30 31 32 33 34 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Japan Korea 25 30 35 40 45 50 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 China Vietnam Malaysia Philippines Indonesia Thailand India 25 30 35 40 45 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Cambodia Bangladesh Nepal Global Hub City-States Mature Industrial Economies Emerging Economies Frontier Markets Key Challenges Economic Inequality Gini coefficients point to different situations across Asia Source: World Bank and SingStat
- 15. 15 Korean Peninsula Diaoyu / Senkaku Islands Taiwan Straits South China Sea Rakhine India- Pakista n Tibet Xinjiang China’s “Nine-Dash Line” US “First Island Chain” Key Challenges Potential Geopolitical Conflicts 0 50 100 China Japan India South Korea Myanmar Taiwan Singapore Thailand Malaysia Philippines Indonesia Vietnam 2000 2012 Defense Spending 2000 vs. 2012 (USD bn) +172% +268% +29% +91% +68% +27% +1% +331% +57% +77% -2% +325% Source: Defense spending data from the Stockholm International Peace Research Institute
- 16. 16 Will Asia Still Be Relevant in the Coming Decades? 24% 19% 13% 3% 7% 7% 27% 17% 14% 24% 10% 3% 9% 23%US ROW EU China India Japan Asia ex- CIJ USROW EU China India Japan Asia ex- CIJ Shares of Global Nominal GDP 2013 Shares of Global Nominal GDP 2030E Source: Standard Chartered Research, IMF Singapore Tokyo Shanghai