Asian dominance will grow

In addition to the giants China, Japan and India, Asia is home to many rapid growth markets – as well as huge differences and different challenges. A recent outlook from the International Monetary Fund (IMF) predicts 4.3 percent growth in Asia in 2024, followed by 5 percent in 2025, which equals roughly 70 percent of the world’s combined growth.

“It’s full speed ahead on all cylinders in most markets, even if the potential varies greatly across the region,” says Frédéric Cho, independent advisor and Vice Chairman of the Sweden-China Trade Council.

At the Asian Infrastructure Development Bank (AIIB) in Beijing, Chief Economist Erik Berglöf agrees that “Asia is key to global growth,” while adding that “the climate challenges are particularly pressing and require large investments in infrastructure and energy production, particularly since many Asian countries have traditionally been heavily dependent on fossil fuels.”

Regionalization drives Asia's growth

One of the key drivers behind Asian growth is the increasing regionalization following the growing cooperation and trade between Asian countries, as bilateral trade agreements are being replaced with regional free trade treaties, and China moves further up the value chain.

“This leads to growing trade between Asian nations and their integration into global value chains where countries can participate according to their respective strengths and stage of economic development,” says Berglöf.

He points out that global value chains have allowed developing countries in Asia to become part of global production patterns, while attracting foreign investment to leverage growth and achieve a reduction in poverty, “much like what has happened in Central and Eastern Europe since the fall of the Berlin Wall.”

Innovation in China's New Economy

Cho believes that China is at an exciting crossroads. “The country is moving away from the old economy based on quantity, to a focus on quality. High-quality production growth is a recurring phrase in all speeches held by President Xi,” he says.

The “new” Chinese economy is more anchored in services and innovation in sectors like tech and AI, and areas related to the green transition, such as solar and electric vehicles. Cho points out that three of the biggest apps in the US are of Chinese origin: TikTok, Shein and Temu. “China has rapidly become leading in many sectors.”

The challenges facing China include geopolitical tensions and the looming threat of higher trade tariffs. The country’s relations with the surrounding world are a challenge for foreign companies to navigate as the government focuses on domestic sourcing of strategic components, and possible export restrictions, says Cho. “‘In China for China’ is an unwritten policy aimed at reducing China’s dependence on international supply chains, which makes sourcing from inside China a key priority.”

China’s improved business climate

That aside, foreign companies generally find it smoother to work in China today than, say, ten years ago, according to Cho.

China wants to manifest that it is back in business after the pandemic and that it wishes to retain foreign expertise in the country.

"The degree of professionalism has also increased, corporate governance matters more than it used to, and commercial law increasingly works as it should.”

China scrapped its decades-old onechild policy in 2016, replacing it with a two-child limit that has failed to lead to a sustained upsurge in births. “The cost of raising children in cities has deterred many couples and young women tend to choose careers over having children,” Berglöf explains.

India, on the other hand, does not face any shortage of people any time soon. “India has more favorable demographics as more and more young people are entering the labor force,” says Berglöf.

India’s challenges are different, he adds.

“It needs to include the poorest in the economy and bridge the gaps between states and different groups. Climate change is hitting India hard, and the energy transition will be costly as the power grid needs upgrading. So does the road network. Research shows that Indian companies based more than four hours away from a port cannot compete for exports.”
Cho agrees that infrastructure remains a major challenge, and he does not think India will catch up with China in the near future. “India today is where China was in the early 1990s.”

Japan’s economic history and future challenges

Long before China and the Asian tiger economies rose to economic prominence, Japan embarked on a journey of record economic growth between World War II and the early 1990s. During the economic boom, Japan rapidly became the world’s second largest economy after the United States.

Since then, however, declining birth rates and other issues have ushered in a prolonged period of relative stagnation. To accelerate growth and stay ahead of the competition, the Japanese government is currently incentivizing the digital transformation with a code of practice and support for small and medium-sized enterprises. Japan’s Ministry of Economy, Trade and Industry (METI) predicts that if companies in Japan do not promote digital transformation and their competitiveness declines, they can incur annual economic losses of approximately JPY 12 trillion (USD 83.1 billion) starting in 2025, describing it as the “2025 cliff.”

Pakistan and Bangladesh need to do a lot more in terms of modernizing, but the latter has already established itself as a global hub for textile production. In Southeast Asia, Indonesia is the world’s fourth largest country in terms of population, with 280 million people, and an abundance of natural resources. Malaysia, Thailand and the Philippines continue to advance in carrying forward the legacy of the so-called Tiger Economies.