Asia has become the world’s processing, manufacturing, and assembly hub. Its manufacturing sector value added increased from 29 percent to 53 percent of global total value added between 1992 and 2021.
The industrial landscape in Asia has been undergoing transformation towards the end of the twentieth century.
Asian industries have benefited from the large‑scale relocation of production and sourcing activities from many developed countries since the 1990s. In fact, industrial activities have soared across Asia since the beginning of this century, especially in China which has emerged as a manufacturing powerhouse.
Many Asian companies are now export‑oriented, and this has fuelled the expansion of international trade in Asia. Initially, manufacturers in lower‑cost production sites in China and Southeast Asia import machinery, equipment, key parts and components from the US, Europe, and Japan, while China’s production with higher value‑added and higher technology contents also need the supports of imported raw materials and intermediate goods, a significant portion of these produced in Asia by foreign investors or local enterprises. Such interdependency not only promotes trade between China and the rest of Asia, but also advances the overall industrial development in the region.
China has been progressively opening up to the outside world since its accession to the World Trade Organisation (WTO) in 2001. It has encouraged the relocation of production and sourcing activities from developed countries on a massive scale, especially to its coastal cities and provinces. At the same time, many emerging countries in Asia have further liberalised their economies, using their low costs to attract foreign investment to propel growth and development.
Of course, to talk of Asia in the singular is naïve. Asia’s countries encompass about 45 million square kilometers, almost five times the size of Europe. They feature enormous cultural and linguistic diversity, with about 2,300 languages against Europe’s 300, and significantly different political approaches. Economically, too, variations are huge, in both scale and composition. Take the per capita GDP of Nepal and Singapore: the latter’s is 60 times the former’s. But we can refer to these countries in the collective because they constitute a complementary and interlinked ecosystem, largely through mutual trade interests. Collectively, Asia is at center stage in this unfolding new global drama.
Asia’s robust economic growth and its position as the world’s manufacturing and trade hub give it a critical global role. Asia accounted for 57 percent of global GDP growth between 2015 and 2021. In 2021, Asia contributed 42 percent of world GDP (at purchasing power parity), more than any other region. It cemented its status as a major presence in world trade. In 2021, Asia accounted for 53 percent of global goods trade, and between 2001 and 2021, 59 percent of trade growth.
Asia is the world’s trade crossroads but could find itself in the crosshairs of trade tensions. Can Asia retain its commercially pragmatic model, keeping the benefits of trade amid growing geopolitical tension, and continuing to make its complementarity a strength?
Technology platforms.
The value created by tech is shifting beyond manufacturing, where Asia excels. Can Asia reinvent itself as a technology creator rather than (mostly) a technology manufacturer and consumer in a world where key frontier technologies may be more contestable?
Demographic forces.
Asia has the people to fuel growth, but the headwinds of aging are fiercest in the higher-productivity economies of the Pacific Rim. Can Asia deal with the pressing challenges of rapid aging in its highest-productivity economies by shifting its value chains and boosting productivity everywhere?
Resource and energy systems. Asia’s net-zero transition is simply bigger because it remains the world’s industrial base and has surging energy demands. Can Asia manage its dual challenge of securing rapidly growing energy needs and reducing the world’s largest carbon emissions?
Capitalization. Asia’s lower capital returns are not sustainable if the cost of capital and balance sheet stresses rise at a time when the region will demand the majority of global capital to continue growing. Can Asia mobilize all the capital it needs to power growth, deepening its financial markets to improve capital allocation while shoring up resilience amid balance sheet stress?
Consider Asia’s role in the world’s 80 largest trade routes, accounting for more than 50 percent of the value of global trade. Forty-nine include Asia on at least one end, and 22 on both ends. Asia is home to 18 of the 20 fastest-growing corridors, and 13 of the 20 largest.
