In September 2008, the global financial crisis hit Asia like a tidal wave, flooding in from the U.S. and Europe. Within weeks, Asian GDP growth rates began to tumble: China’s annual growth rate dropped from 13 percent in 2007 to about 9 percent in 2008, India’s slipped from 9 percent to below 6 percent, and Singapore’s plunged from 8 percent to less than 4 percent. Underlying these stark statistics were significant declines in exports. In March 2008, China and India had boasted year-over-year export growth rates of more than 30 percent; nine months later, both were well into negative territory. Foreign direct investment in these countries, and in Korea, Japan, and the nations of Southeast Asia, fell significantly as well.
But by September 2009, it was clear that China, India, and other emerging Asian economies would be the first part of the global economy to rebound. In the second quarter of 2009, China’s GDP was up 7.9 percent compared to the same quarter in 2008; India’s growth rates began to rise over the same period. This all came as a surprise to many observers, who had overestimated the importance of exports to the largest Asian economies and otherwise underestimated Asia’s healthy fundamentals. As
it turned out, domestic banking systems in China and India were relatively unaffected by the subprime and securitization crisis, and rapid growth in domestic demand, spurred by government stimulus, compensated for at least some of the drag caused by declining exports. Forecasts call for even better results in 2010. In addition, economic prospects are either stable or rebounding in Pacific Rim nations. In the second quarter of 2009, according to a survey in the Economist, Singapore, China, Korea, Japan, and Australia showed quarter-on-quarter annualized GDP growth of 21 percent, 15 percent, 10 percent, 0.9 percent, and 0.6 percent, respectively. The accuracy of specific numbers may be open to debate, but the general direction is undeniable.
This kind of growth, at a time when prospects for the economies of Europe and North America remain ambiguous or moribund, offers substantial opportunities for global businesses. And it also offers a warning: As the recession eases, the shift of global economic activity to Asia is accelerating. This transition had begun well before the collapse, but as recently as 2008 many Western businesses were essentially ignoring it. That is no longer a viable strategy.
Inside the Transition
For hundreds of years prior to the West’s Industrial Revolution, China and India together accounted for about half of the world’s economic activity. Then, as Western economies industrialized, China and India fell behind — down to only 8 percent in 1970. This trend began to reverse in the 1980s, and today, these two countries account for just over one-fifth of global economic activity. That may seem like a great deal, but not when you consider that they contain more than one-third of the world’s population. There are innumerable consumers in India and China seeking to buy products they have never had; an immense amount of financial capital, deployed effectively for growth; many eager and capable entrepreneurs; and a highly favorable business environment for the first time in hundreds of years. All this adds up to a significant shift in the world’s economic center of gravity.
Perhaps the most important component of this transition is the growth in Asian consumer markets. When the economic crisis struck, there were fears that weakening consumer spending around the world would spread to Asia. Indeed, more than 20 million Chinese people lost their jobs in the export sector, and the McDonald’s Corporation, a bellwether of consumer confidence in emerging markets, reported falling sales in southern China.