Sunday, 17 March 2019

The 3rd Asian Economic Wave Is Upon Us.

The 3rd Asian wave is upon us. First came Japan, Korea, Taiwan, 2nd came Hong Kong, Singapore and China, 3rd is South East Asia. What makes the 3rd so special is it will run longer, as I explain below.  It is through the success of the first and the 2nd wave that the third will be more substantive.

1. The first and the second have, like the west an ageing population with the median age above 40. Conversely, the South East Asian countries the median age is below thirty. Therefore, India, Thailand, Vietnam and Indonesia have greater access to efficient cost effective labour.

2. Asia 1st and 2nd have not gone away nor have they declined quite the reverse, the older generation have shifted from being wealth generators to consumers. Therefore, need products and services but in a cost effective way.  It is due to this that these countries are investing in the South East Asian nations.  As I said in a previous note; the average China daily rate in manufacturing is $30 in Indonesia it is $10.

Whilst South East Asia will have a wave of its own it will be fuelled in addition by the newly formed demands driven by a wealthy Asian population to their North. Consider this during Japan and South Korea’s rise in the 1970s their combined population extended to 150M.  China during their years around 1Billion.  The 3rd wave has a combined population of 2.5Billion.

If you add the West Asia region Turkey, Saudi and Iran then you add another 300 Million.  Asia in total has some 5 Billion people. This wave will be longer, larger than any wave preceding.  More to the point since Japan and Korea kicked this off, for five decades they have invested throughout this region in total, they invested in China and the tiger economies. Indeed, as China and the tiger economies came on stream they too reciprocated, established networks, investment and diplomacy that will ensure the continuation of Asia's Factory for the world status, it will and is just shifting to the south.

Indonesia already have established economic zones, trading estates, science parks, free ports, Infrastructure, airports, ports, rail, roads and a thriving digital economy. Indonesia has been listed as one of the world’s top 10 manufacturers by the United Nations Industrial Development Organization (UNIDO).

According to UNIDO’s 2016 International Yearbook of Industrial Statistics, Indonesia’s manufacturing industry accounts for almost a quarter of the country’s GDP. The country has a solid footing with a stable government. We are in an election year and Jokowi has prioritised stabilty which, for this year he is right to do so.

  • "The UNIDO report shows that Indonesia has climbed into the top ten list," Shadia Hajarabi, UNIDO’s representative in Indonesia.
  • "Indonesia is at the bottom of the list, but it surpasses England and Canada," Shyam Upadhyaya, a statistician at UNIDO, said. He added that the list was based on total volume of production. China is at the top of the list, followed by the US, Germany, Korea and India. "Indonesia has become an important industrial country," he added.

To compare; China and India have had higher economic growth compared to Indonesia. But, in recent years, economic conditions in those countries have fluctuated, resulting in economic slowdowns. Indonesia's economy has been relatively stable compared to other countries in the region.

The Indonesian government had succeeded in maintaining the inflation rate at 4.5 percent and had lifted 25 million people out of poverty. In 2010, there were 50 million people living in poverty, now almost half.  Not only does Indonesia benefit from other Asian countries, from their greater spending power, they can rely on the domestic market to boost economic growth, which means exports are not so critical.

If they can maintain these indicators, it could produce even higher growth.

What you are now seeing is that each generation becomes wealthier than the last just as we saw in the west.

According to the HSBC’s former chairman Stuart Gulliver, “The American dream of the 20th century is becoming the Asian dream of the 21st: A house, a car, a smartphone, travel, banking services, health care the prospect of unfettered upward social mobility for many more families.”

With greater domestic production of goods and services, weaker currencies, low commodity prices, controlled inflation, and rising intraregional trade, Asians increasingly buy things in their own currencies at much lower prices than Westerners pay in US dollars or euros. Asians can have a good life without being rich in American terms. Indeed, most Asians are not going to catch up to Western per capita incomes. China’s per capita income is comparable to that of Russia or Brazil, not the United States or Britain. But that’s not the point. Asian societies are focused on maintaining high employment, keeping the cost of living manageable, and promoting access to basic services.

Western critics convinced themselves that slower growth would bring down the Chinese regime, but Xi has rightly pivoted the national narrative toward quality growth.

Indonesia through its vast archipelago, substantial resources and sizeable population is poised for even greater economic fortunes.

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