Asia’s growing middle and upper-middle class

China, India and other newly industrialized countries have now “reached a tipping point” where more and more people are growing into the middle class and drive consumption. In fact, consumers in those countries now want to have access to an “equal” standard of living to North America/Europe/Japan. Cars, laptops, cell phones, access to education/healthcare are all goods or services that the booming middle class is “hungry” to have. This emergence of a large and dynamic middle class raises Asia’s profile as an attractive market destination.

- The World Bank has estimated the global middle class to grow from 430 million in 2000 to 1.2 billion in 2030 (defining the middle class as earners making US$10-20 a day - a range of average incomes between Brazil and Italy). China and India will account for two-thirds of the expansion;

- Furthermore, and according to the World Bank: the major global drivers of world economic output and the most populous states in the world, China, India as well as Indonesia hold the biggest potential.

This of course generates growing opportunities for companies willing to expand into Asia.

Euromonitor International further details interesting facts in that regard:

- “The average per capita consumer expenditure in emerging economies is expected to reach US$6,490 in constant terms (2009 fixed exchange rates) by 2020 (from an estimated US$4,381 in 2010). These levels are still low compared to advanced economies with per capita consumer expenditure averaging US$28,067 in G7 economies by 2020”.

- “By 2020, the population aged 0-29 will constitute 53.3% and 56.9% of the total population respectively in India and Philippines compared to 34.2% and 33.1% of the total population in Russia and China”;

Finally, it is important to note that “middle class earners in emerging economies are savers by nature despite growing levels of annual disposable income. The savings ratio as a percentage of disposable income is expected to remain high in most emerging economies.”

Next week will talk about “the rapid urbanization” as many, if not all, of the middle class consumers reside in large urban centers.

Number of households with annual disposable income of US$5,000-15,000 in selected economies: 2000-2020

Source: Euromonitor International from national statistics

This week will continue to discuss the “big picture” (before going into more specific aspects) with:

Modern trade is becoming nearly “Tripolar”.

1. Today, Asia holds the fastest growing pole but is still the smallest; with a total population of over 3 billion and a total GDP of about 8 trillion USD.

2. USA, Canada and Mexico (NAFTA) come second. In total, about 430 million people with a GDP of 13 trillion USD.

3. Europe is third with 460 million people and a GDP of 12 trillion USD.

The next 20 years (until 2030) will be a “transition” period in the “global economic order.

While we assist to the emergence of the “ASEAN” and “BRIC” nations, we can all ask ourselves “how much longer will the US lead the global economic order?” – (Well that is a big question isn’t it !)

Though some predict the US economy to decline (and we are not casting doubt on that), the US will remain a global power at least until 2030 (and maybe longer) through its military, its strong technological and financial power (currency status & financial assets).

Some experts estimate that by then, Europe will have risen as a key player (the Euro becoming a powerful currency to compete with the USD) in the global “financial authority” and will share the top spot with the US. Additionally, it is likely that the Chinese Yuan will become the “regional” currency in Asia and the Japanese YEN becoming a “reserve” currency.

Now there are lots of possible outcomes for any scenarios trying to figure out the future of modern trade. Bear in mind these determinant factors, and develop your own thoughts on it: the foundation of modern trade in the 21^st century will depend on, “the future economical orientations of China and India”, “the countries ability to secure natural resources”, “the countries development of science & technology” and “the countries ability to generate financial power” (Source: Jung Ku-Hyun, Samsung Economic Research Institute).

By 2030, a “tripolar world” would be the Americas (North & South together; moving from NAFTA to FTAA), Europe (EU27 - all countries united) and Asia (led by China, ASEAN+3).

For your continued interest:

Important Abbreviations to know (which play a major role in free trade agreements):

ASEAN is: Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand, Vietnam

ASEAN+3 is: ASEAN+ China, South Korea, Japan (with India, Australia and New Zealand)

BRIC: Brazil, Russia, India, China

NAFTA: North American Free Trade Agreement

FTAA: Free Trade Area of the Americas

EU27 is: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxemburg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom.

Over the next several weeks, we will be outlining several “Facts” for the “newbie investor/entrepreneur” which you should be aware of when deciding to invest in Asia.

What are the advanced, newly industrialized and developing economies in Asia/Pacific and their future challenges?

1. Countries that can be classified today as “developed/advanced economies”:

Australia, HongKong, Japan, Singapore, South Korea, Taiwan, New Zealand.

2. Countries that can be classified as “newly industrialized countries”:

China, India, Malaysia, Philippines, Thailand.

3. Countries that can be classified as “developing economies”:

Cambodia, Sri Lanka, Indonesia, Laos, Vietnam.

One of the key drivers to the Asian growth (mostly led by China and India) are the capital inflows which have increased to historic highs (at the end of 2009 financial crisis) as well as their “home-grown” export-led economies.

Now, while Asia (as a whole) seems promised to a bright future, John Lipsky from the IMF outlines major challenges that still need to be overcome:

1. A very large number of Asia’s citizens remain poor or vulnerable (i.e: rural China/India…).

2. Most developing countries still need to develop a foundation of macroeconomic stability (policies and frameworks)

3. Structural reforms should take place in order to boost trade in the poorest developing economies.

4. Large investments in infrastructure are needed in rural Asia to reduce poverty and boost the region’s economies.

5. Social safety nets are almost nonexistent in many of Asia’s poorest regions. Protecting the poor and vulnerable by raising access to basic public services (such as health care, access to clean water) is in urgent need.

6. Finally, one of the biggest long term threats to SEAsia is that it is one of the world’s most vulnerable regions to climate change (i.e: coastal lines in SE Asia, agriculture…).

For your “continued interest”:

The richest countries of Asia classified by Nominal GDP (Purchasing Power Parity), excluding Russia, listed below:

1. China - 8.8 trillion US$ (6’100 US$ per capita). Has grown 70 times since 1978 (economic liberalization).

2. Japan - 5 trillion US dollars (32’600 US$ per capita). Has 11 top companies out of Global top 100. Though currently has a debt valued at 200% of GDP.

3. India - 3.548 trillion US dollars (per capita) - Fastest growing economy: 7 % per year.

4. South Korea – 1.343 trillion US$ (27’700 US$ per capita) – Technology giant in the world.

5. Indonesia – 969 billion US$ - (4’000 US$ per capita)

6. Taiwan – 693 billion US$ - Known as one of the “Four Asian Tiger”.

Data from IMF, 2010.

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Over the next couple of weeks we will go over several major aspects who usually come to mind first when an organization is looking to invest and/or enter the Asian markets...Bookmark this page and check-in soon again… :)