The characterisation of the 21st century as Asian has become almost cliché. For much of the past decades the extrapolation of economic, geopolitical, and demographic trends in the region, often using a straight line, has driven predictions of the continuing rise of Asia’s major economies, the rapid development of regional emerging markets, a shift in the world’s economic centre of gravity, and the resulting increase in major Asian countries’ global influence, characterised by economic dominance and increasing cultural impact. And almost one quarter of the way into the Asian century, many of these predictions have proven to be true, at least directionally.
Currently home to over half the world’s population and generating c.40% of global economic output, the region is widely expected to be the major source of global growth and prosperity for potentially decades to come. Based on economic and demographic fundamentals, Asia is projected to account for 78% of global middle consumption by 2050, with over three billion people enjoying the living standards equal to the current European average. As a result of these developments global economic centre of gravity will continue to shift further east. Having moved from the Mid-Atlantic in the late 20th century to currently the region of Helsinki, by 2050 it is projected to lie between India and China.
But how useful is it to think about this shift as Asian in any sense other than a geographic one? Asia is a mega-continent that includes dozens of countries, hundreds of ethnicities, thousands of languages, and many billions of people. Asia is not a political power bloc, and its countries by and large appear to lack both the will and ability to coordinate a system of governance, treaties, regulations, and protocols that could allow it to develop into one over time. And if Asia is limited to a geographic expression, the Asian Century can only be an economic one, an epiphenomenon resulting from the growth of the major actors in the region, who while competing with each other have at various times led the region in term of economic development by innovating growth strategies that were adopted by competitors who eventually superseded them in a series of waves or phases, from Japan to the Asian Tigers, to China and now India potentially.
This month’s Sign of the Times looks more closely at the economic phenomenon of the Asian Century, breaking it down into phases and looking at their implications for India’s emerging role as the driver of regional growth.
Asia’s Multi-Phase Rise in ‘The Asian Century’
In 1988, China’s supreme leader, Deng Xiaoping formulated the idea that the 21st Century would be an Asian one. The concept reflects the belief that key long term demographic, economic and globalization trends playing out across the world will favour Asia and see the region rise in importance. For some people in Asia, it also reflects the hope that the region will re-emerge as the political and economic epicentre of the world, shaping the global order and ending the centuries-long period of global domination by the West (first by Europe and latterly by America).
For most of the past two decades the ‘Asian Century’ has been more or less synonymous with the rise of China, the region’s most powerful and until recently most populous country. Since the turn of the century, China’s GDP has grown fifteen-fold, from US$1.2 trillion to US$18 trillion today, a process that has seen the country emerge as a global economic superpower and increasingly as a geopolitical one too. China is the world’s largest trading country and the second largest economy, it has the world’s second largest capital markets, is the second largest overseas investor globally, and has the world’s largest army.
However, while China has taken centre stage for the last two decades, Asia is too large, too diverse, and too dynamic to be dominated by any one country for any prolonged period, much less a whole century. While the 19th Century is often considered to be a ‘European’ one, no one country within it was able to maintain“Based on economic and demographic fundamentals, Asia is projected to account for 78% of global middle consumption by 2050. What is less well known is that by then over three billion people will enjoy living standards equal to today’s European average.”pre-eminence in the hundred years between the Napoleonic and the First World Wars (c.1803-1914), with France, the United Kingdom and arguably Germany exercising the greatest economic and military clout at various points.
The ‘Asian Century’ describes a phenomenon that is both regional and multi-polar. Indeed it is important to remember that when Deng coined the phrase, the region’s largest and most dynamic economy was Japan, whose meteoric rise from the 1960s onward had created the worlds’ most affluent country that was perceived by many to be a threat to US economic dominance. And just as China emerged to surpass.
The ‘Asian Century’ describes a phenomenon that is both regional and multi-polar. Indeed it is important to remember that when Deng coined the phrase, the region’s largest and most dynamic economy was Japan, whose meteoric rise from the 1960s onward had created the worlds’ most affluent country that was perceived by many to be a threat to US economic dominance. And just as China emerged to surpass Japan when the latter’s growth rate faltered, India today is poised to become the largest driver of regional growth, as China faces a series of increasing economic and demographic challenges.
The resulting cumulative economic growth in the region makes ups what we call the 'Asian Century’. Asia’s size and diversity effectively precludes the Asian Century from evolving into anything more than and economic phenomenon, be it to include a coordinated geopolitical rebalancing towards Asia, or the global spread of ‘Asian’ cultures, values, and ideas.
Comparing 21st Century Asia to 19th Century Europe again, “While the 19th Century is often considered to have been ‘European’, no one country within it was able to maintain pre-eminence during its course with three powers vying for overall leadership.” European global power was underpinned by the Concert of Europe, a series of congresses and conferences that helped maintain the balance of power in the region, carve up the world into spheres of influence and deal with international crises. While the Concert eventually disintegrated and Europe imploded into the First World War, the European Century created the world that we know today, with the economic and political primacy of the ‘West’(consisting largely of Europe and its offshoots), the use of English as the universal language of diplomacy and commerce and with international institutions, treaties and rules grounded in Western values.
The prospect of Asia coming together into a similar concert to shape the 21st Century is a highly remote one, and so the Asian Century will likely remain an economic (epi-)phenomenon, resulting from the successive growth waves of major countries in the region, beginning with Japan and the Asian Tigers, more recently China and now a newly emerging India.
Phase I: Japan and the Asian Tigers (1980s-2000)
During the late 20th Century, the dominant economic power in Asia was Japan. Having modernised, industrialised, and globalised its economy in the ‘Japanese Miracle’ in the decades after the Second World War, Japan in the 1980s was the world’s second richest country and had the highest GDP/Capita, with average growth of 4% throughout the decade. During this period, Japan’s growth model shifted from an “Decades after Japan’s economy grew exponentially following World War II most American’s no longer consider Japan an economic threat. Only 24% of Americans now consider Japan an economic threat, down from 77% in 1991.” Gallup, 2016 export focus to one focused on domestic consumption, and imports outgrew exports amid heightened domestic demand for high-technology products and for higher living, housing, and environmental standards.
However, the bursting of the country’s asset price bubble in 1991 saw Japan’s debt-fuelled boom falter and its economy decline in real terms during the 1990s (and beyond), providing an opportunity for regional competitors to take global market share from Japan’s manufacturing and technology giants. Many of these competitors hailed from the four Asian Tiger economies (Singapore, Taiwan, Korea and Hong Kong), which had adopted similar export-oriented and development policies to the ones previously pioneered by Japan, alongside the establishment of industrial hubs and financial centres, as well as focus on tech manufacturing, allowing them to achieve average GDP growth rates of 6% through the [1990s] and achieve high middle-income status by the end of the decade. China’s growth trajectory begins during this period too from a very low base. In 1990, China’s nominal GDP was one-tenth the size of Japan’s and two-thirds the size of the Asian Tigers, despite having nearly 10x and 15x their population, respectively.
Phase 2: China Dominance (2001-2022)
Following the initial market-oriented reforms of the 1980s, China followed in the footsteps of Japan, which it had much started, and embraced an export driven growth model to become the ‘factory of the world’, leveraging its comparative advantage in labour-intensive manufacturing, its scale, and cheap labour advantage. Having doubled its GDP between 1980-1990 and more than tripled it in the decade to 2000, as a result of continuing economic reforms, China’s WTO assession in 2001 heralded the country’s arrival on the global economic stage.
Following this strategy in the early 21st Century China increasingly reset scale across a number of manufacturing industries (of increasingly higher levels of economic value add over time) and created a series of global champions. In the two decades that followed China has subsequently become the world’s second largest economy and its largest exporter, being the largest trading partner of 120 countries globally.
The country’s growth during this period was fuelled by both high levels of foreign direct and domestic investment, with high savings rates funding large-scale investments in infrastructure and industrial “Unquestionably, China’s (and Russia’s) growing power and assertiveness are hurting democracy’s global fortune. They are aggressively working to shared understandings of norms and using or threatening force to undermine democratically elected governments.” Carnegie Endowment for International Peace, 2022 expansion. The resulting value creation led to a rapid increase in prosperity and the growth of increasingly deep capital markets, which have supported not only China’s rise as an economic and financial superpower but increasingly as a political one as well. Enshrining power in a supreme leader with a perpetual term, China effectively swallowed Hong Kong, quashing protest, placed a highly ambitious global bet in the US$4 trillion Belt and Road infrastructure strategy, created global development banks to compete with the ‘Western’ post-War Bretton-Woods institutions like the World Bank, and established a string of ports and trading bases across the world encircling India, across Asia, the coastline of Africa and deep into America’s backyard in Latin America.
Today however, China faces a series of challenges that look to inhibit long-term growth rates, including an aging and declining population, a domestic asset bubble focused on real estate, the country’s politically driven economy decoupling from the West, the lack of a level playing field whereby there are only a few sectors in which foreign enterprises rank among the ten largest companies in China, the weakening of the rule of law inhibiting free enterprise , a series of unofficial ‘sanctions’ on its major corporations particularly tech and telecoms one from winning and doing business abroad, and the need to drive significant domestic consumption to meet the government’s annual GDP growth targets of c.5% as a middle-income country. If it can achieve this growth rate it is likely to become the world’s largest economy by as early as 2035. However, even at 3% annual growth it will overtake America before 2060.
Phase 3: India Rising (2023-2050)
As last month’s Sign of the Times explored in detail, the coming decades will likely see India taking the position of economic growth driver for the region, if not the world. Having crossed US$3 trillion of GDP, India is projected to become a US$5 trillion economy by 2027, and to pass Germany and Japan to become the 3rd largest economy in the world by 2028.
Over this period, growth is expected to largely decouple from much of the rest of the world and average 6% p.a. as a result of mass consumerism of a financially included population, increasing infrastructure investment, further fiscal consolidation, and a monetary policy focused on managing inflation. Fundamentally, India’s long-term competitive advantage remains a demographic one. India’s working-age population will grow by 10% to c.1.1 billion by 2050, during a period when the developed worlds and China’s working age populations will decline providing it with a working age population bigger than China and America put together by the end of the century.i
In this regard India’s opportunity is similar to that of previous leaders of Asian growth, leveraging large populations and a low-cost base to drive export driven growth.ii However, unlike the manufacturing driven India’s digitally enabled ‘India stack’ of financial inclusion technologies has driven the creation of bank accounts for half a billion people, the largest wave of financial inclusion in history. models of its predecessors, India’s development model is significantly more service focused, reflecting the ever-increasing importance of services in the global economy, and digital technology enabled. India’s services exports are greater than China’s, and services contribute a greater share of its GDP, despite China being significantly more developed and wealthier than India. Also, India’s digitally enabled financial inclusion ‘India stack’ of technologies has opened bank accounts for half a billion Indians.iii These factors position India well to benefit from rising domestic incomes, with the consumption of a projected c.1-billion-person middle class by 2030 adding an additional engine to long-term economic growth.
Based on current projections, India will be a US$30-50 trillion upper-middle income economy by 2050, one whose continuing demographic dividend positions it well to catch up rapidly with the US and China and in the second half of the 21st Century.
The Asian Century to 2050…and Beyond?
The Rise of 2050
The middle of the century will see the entire region transformed. Alongside India and China, the ASEAN countries are projected to emerge as a third scaled regional economic power, also reaching middle income level, with Bangladesh trailing slightly behind due to continued high population growth. Japan and Korea on the other hand are projected to reach prosperity levels up to 50% higher than those enjoyed by Europeans today.
Equally importantly, 2050 will see not just the region but the region’s relationship to the world transformed. While it will likely be impossible to reclaim the nearly 70% share of global economic output Asia enjoyed in 1800, the geopolitical and economic rebalancing towards Asia will be significant, with the region home to the world’s largest markets, and among the largest pools of capital and capital markets. As a mark of this rebalancing, Asian countries will double their representation among the world’s ten largest economies between 2000 and 2050, occupying three of the top five spots (See below).
The Challenge beyond 2050
It is questionable whether the 21st Century is the Asian Century. Predicting Asia’s trajectory beyond 2050 through the end of the century however is a more challenging exercise. Asia’s success and the shape of its trajectory through the first half of the 21st century will give rise to a number of challenges that if left unaddressed with derail the region’s growth projects in the decades after 2050. These challenges include the following:
The Spectre of The Middle-Income Trap. China’s growth has slowed sharply as it reached middle income status and rebalanced its economic model to greater domestic consumption. Despite this slowdown, China has thus far been deemed to have fared well in this transition, and many Asian countries are unlikely to be able to make the necessary investments in infrastructure, education and government policies that would help them avoid the ‘Middle Income Trap’.
Demographic Dividends Come with Long-Term Costs. While the region has to date benefitted from a “As a mark of the rebalancing underway, Asian countries will double their representation among the world’s ten largest economies between 2000 and 2050, occupying three of the top five spots.” significant demographic dividend, any such dividend is finite, with the prosperity it creates over the long-term reducing birth rates and increasing life expectancies, leading to a declining labour force, changes in consumption patterns, and a strain on public finances and economic growth as Japan and China now too is experiencing.
High Growth Risks Increasing Inequality. In many countries, the benefits of rapid economic development have not been evenly distributed, leading to rising income inequality. China and increasingly India too are seeing rising levels of inequality, which risk undermining social cohesion and stability when absolute income growth falls below a certain threshold, putting further economic development at risk and increasing the possibility of social unrest.
Explosion of Affluence Driving Resource Competition and Scarcity. Mass affluence, first in China, now in India and increasingly in places like Pakistan and Bangladesh too, is intensifying competition for finite natural resources, including land, food, commodities, water, and fuel. This scarcity risk undermining regional trade and collaboration, as countries seek to hoard and stockpile resources for their own consumption in a zero-sum game that stifles further growth.
The extent to which Asia’s diverse economies are impacted by each of the above factors will of course vary, but their potential impact on the region as a whole is undeniable. And so these challenges must be addressed if the Asian Century is to go beyond 2050. Ultimately however, the winners (and losers) of the second half of 21st Century will be determined by their responses to the ongoing energy, technological and environmental challenges facing the world today.
Determining Role of Energy and Technology
Two major forces stand out in history as determinants of great power, energy (or resource) and technology, sometimes intertwined. These confer advantages of functionality and cost to rising powers, while existing leading powers seem to take to them less well given the basis of their power is an older generation of energy (or resource) and technology.
The world today is in the middle of the Fourth Industrial Revolution, which is seeing digital technology transforming and becoming embedded in every industry sector, and increasingly blurring the boundaries between the physical, digital, and biological spheres by integrating technologies like robotics, autonomous vehicles, 3-D printing, nanotechnology, biotechnology, materials science, and energy storage. Digital technology is transforming lives at an unprecedented scale, with over five billion people digitally connected today.
This connectivity is transforming global economic activity, led by finance (with 64% of the online population using digital financial services) commerce (with 43% using the internet to buy and sell goods) and increasingly healthcare and education as well. Based on current trajectories the global economy and most industry sectors by 2050 will be all but unrecognisable, with nearly two-third of the jobs that will then be done by people currently in elementary school not yet existing.
At the same time the global challenge of climate change represents one of the most pressing and complex issues facing humanity in the 21st century, affecting not only the environment but also economies, public health, and social stability. Rising temperatures, extreme weather events, and the deterioration of ecosystems are clear indicators of the profound impact of human activities on the Earth’s climate system that require urgent action to mitigate greenhouse gas emissions, transition to renewable energy sources, enhance resilience to climate-related risks, and promote sustainable development practices.
However, with the world still highly dependent on fossil fuels and current global decarbonisation commitments far below the levels needed to avoid catastrophic consequences, solving for climate change will require innovation breakthroughs in energy that help deliver zero-emissions, cost-effective, abundant, universal and highly functional energy for virtually all economic uses, with the countries quickest to adopt these innovations likely to be best positioned for growth during the remainder of the century.
Asia is of course directly impacted by both these trends. In terms of climate challenges, by 2050, up to US$1 trillion of capital stock in the region will face flooding risk, one billion people could be living in areas with potentially lethal heatwaves and up to 5% of regional GDP will be at risk due to extreme weather events, whereas the Fourth Industrial Revolution risks significantly eroding the labour cost advantage at the core of the export driven growth model that nearly all countries in the region used to drive initial economic development.
Together the Fourth Industrial Revolution and breakthroughs in energy have the potential to deliver an infection point in global economic growth. The winners of the future will be those countries which can best embrace digital technology, to create economic systems in which innovation and creativity are the primary creators of economic value thanks to embedded technologies, and adopt at scale new energy breakthroughs to power their economies in a manner that is sustainable and superior to the status quo. These countries will be the shapers of the second half of the 21st Century. Asian countries will not be the only countries in the running for this. Although the US and EU do a good job of appearing to have given up on global leaderships in favour of domestic strife in the case of the former and preparing the EU for climate change in the case of the latter, both have well-established strengths in innovation, trade, and rule of law as well as large and vibrant consumerism. These can be the basis to remain powerful and to rise again. And similar to Asia’s rise, Africa is a continent whose time may well come in the transfer of technology as part of achieving the UN SDGs.
The good news for Asia is that by 2050 the playing field for Asian economies will likely be a more level one. Internet connectivity will be more or less universal and nearly every country in the region will have large middle class and educated populations that can reap the full benefits of digital economies. If Asia’s major countries can achieve these transitions at scale, the entire 21st Century may well end up being ‘Asian’ after all.
The Leader: Endnotes
See the February 2016 Sign of the Times: Realising India’s Demographic Dividend
See the November 2015 Sign of the Times: India: Where China was 10 Years Ago, Not all Emerging Markets are the Same?
See the September 2022 Sign of the Times: Technology as the Enabler of Systemic Financial Revolution and the April 2021 Sign of the Times: Creating Prosperity for a Billion People: Re-architecting the System of Wealth Creation