Global economic power is shifting to Asia – how can the UK cash in?
March 07, 2018
As documented in our World in 2050 report, global economic power has been shifting to Asia for some time and this process is set to continue over the next few decades. In the short term, China is likely to continue to grow at around 6.5% and India at over 7%. In the longer term, both economies will slow down – particularly China with its ageing population – but are still likely to grow significantly faster than advanced economies like the US and the EU.
As a consequence, we project that the share of global GDP (valued here at market exchange rates) of these Asian giants will tend to rise over time – particularly for India given its lower starting point and younger population – while that of the US and the EU27 (excluding the UK after Brexit) will tend to decline as the chart below shows.
Other Asian emerging economies are also projected to grow relatively strongly in the coming decades, particularly those in the ASEAN free trading bloc, which has a total population of around 600 million. Indonesia has the potential to be the fourth largest economy in the world by 2050, while Vietnam could be one of the fastest growing large economies over the coming decades.
The success of the Asian economies is not inevitable, however, but depends on continued investment and reform in a number of key areas, including infrastructure, education and innovation.
In all of these three areas, however, there are grounds for optimism. As regards infrastructure, China’s Belt and Road initiative promises to bring trillions of dollars of new investment to the region (and adjoining trading partners in Central Asia, Africa and the Middle east) over the next 10-20 years, providing a major boost to growth and trade.
As regards education, students many Asian economies lead the world in PISA scores in areas like mathematics and science, which will be key skills to have in an increasingly automated world. As discussed in our recent report on the impact of AI and robotics on jobs, this makes workers in Asian economies like Singapore, Japan and South Korea relatively less vulnerable to automation and also more able to work with machines to boost their productivity.
China and India also well placed to lead the way in key areas of innovation linked to the new digital technologies. In the case of China, we estimate that these could contribute anything up to 26% of GDP by 2030, as compared to a global average of 14% of GDP. This reflects China’s existing strong position in areas like mobile technology and e-commerce, its large domestic market (which is a key source of the data needed for AI techniques like machine learning) and its increasingly highly educated workforce. India also has a long tradition of producing world class computer programmers and technologists that it can build on.
How can the UK cash in?
The UK has long-standing trade and investment links with China, India and other Asian economies, but this still makes up a relatively small part of total UK trade despite recent increases. We still export more to Ireland than to either China or India, for example, and trade with Asia is dwarfed by trade with the rest of the EU. Distance still matters for trade as our recent research confirms.
This will not change overnight and maintaining a close trading relationship with the EU27 after Brexit remains critical to the UK’s future economic success. But even before Brexit it was clear that there would need to be a gradual shift in UK trade flows from mature markets like the US and the EU to faster growing markets in Asia and other emerging economies. Brexit has only reinforced this imperative.
At the moment, the UK is not free to negotiate trade deals with third parties, but there is no barrier to broader trade promotion initiatives, such as the Prime Minister’s visit to China earlier this year and the upcoming GREAT Festival of Innovation in Hong Kong. Establishing relationships between more UK and Asian businesses now is an important step towards increasing trade and investment links in the future, which is why PwC is sponsoring the festival and helping to showcase the best of British business.
It will also be important to preserve for the UK the advantages of existing EU trade deals with Asian economies like South Korea.
It is also not just about trade, however, since in some cases foreign direct investment (FDI) might be a better way into a market for UK companies. This has, for example, been true in the case of India, where UK exports remain relatively low but FDI flows to India have been higher than from any other G20 country according to research we undertook with the CBI last year.
In summary, while growth has been relatively modest over the past decade in the US and Europe, the Asian growth train has kept on running. The UK needs to be onboard.
To find out more about how PwC is helping to promote UK businesses in Asia and what we’ll be showcasing at the GREAT Festival of Innovation in Hong Kong, please visit: https://www.pwc.co.uk/who-we-are/great/what-is-great-about-your-business-.html