LONGREAD: the Asian super cycle is here

Stock markets may be volatile, Europe may be grappling with austerity and the USA slowly weaning off the federal cash infusions which have kept it out of recession, but history will record our current period as delivering – globally - the most dramatic lift in human well-being since man first emerged from the African savannah.

" Taken as a total package, it is hard not to be optimistic about the longer term outlook [for Asia]."
Graham White, Author

In the past 20 years hundreds of millions of people in Asia have made - and are still making - the transition from precarious poverty to something approaching a consumer lifestyle.

In speed and scale it is unprecedented, and it presages an era of development that is still building. Forget the China slowdown: in all probability, the best is yet to come. They will hit the odd speed-bump, but they will not fall off.

Staggering as China’s recent development has been it is only the first plank in what mining entrepreneur and funds chief Owen Hegarty calls the Asian Super Cycle.

In this scenario, China’s growth continues for another 15 to 20 years, by which time it will have comfortably eclipsed the USA as the world’s largest economy. It may even be greater than the US and Japan combined.

After 2030 an ageing population will begin to slow China’s growth, but well before then South East Asian nations will be in a growth surge of their own. Add continuing growth in India, by then the most populous nation on the planet, and you have the components for a multi-generational cycle of prosperity. It is a vision Hegarty has been propounding for some years.

Mitsui’s Yasushi Takahashi backs Hegarty’s vision but takes it a step further: he too sees the renaissance spreading steadily westward through China, Indo China (the ‘Southern Corridor’ of development) and South East Asia and igniting India and perhaps Bangladesh - but then travelling down through Africa (population 1.1 billion) where the first stirrings are already visible.

With Mitsui’s famed penchant for long term thinking the company is already positioning itself for such eventualities.

This westward wave will thus create a surge of economic growth that will continue for perhaps a century to come.

Those who consider this optimistic might pause to consider: all the above is predicated on what might be called organic growth, an extension of current patterns. Any reasonable analysis would also add a technology dividend – the productivity and lifestyle improvements that will be delivered to much of the world from onrushing science.

If these can revitalise established giants like USA and Japan (and perhaps Europe) then the momentum may build further. Taken as a total package, it is hard not to be optimistic about the longer term outlook. 

Hegarty won’t call it a boom, because boom implies a bubble that will inevitably burst.

“What we are seeing is the transformation of economies,” he says. “Long-term development into self-sustaining consumer societies.”

BUMPS, BUT NO DERAILMENT

Nobody suggests this progress will take the form of a single soaring arc. Every one of the seasoned executives and professionals we spoke to warns there will inevitably be hiccups along the way – just as the rise of Britain and the US in the 19th and 20th centuries was punctuated with bubbles and recessions which periodically paused but never derailed the over-riding economic growth.

Between 1865 (the end of the Civil War) and 1900 the USA suffered at least half a dozen recessions (actual negative growth, not a slowdown in growth) of various length and intensity, but they did not prevent the nation’s rise to economic superpower. Neither will a slowdown end China’s rise.   

If all this transpires as predicted it will bring about a tectonic shift in economic power. Asia’s output will be greater than f the USA and Europe combined within 30 years.

By 2050 an estimated 60 per cent of global GDP may be supplied from 10 Asian nations. Welcome to a world of opportunity. And challenge.

THE CATALYSTS

Individually, each of the countries and regions reviewed here has characteristics which can trigger a surge in growth. In some cases it is demographics, in others positioning in key trade routes. The potential triggers are varied, but there are two over-riding elements, Owen Hegarty says.  

One is the awakening of possibility: Modern media and communications mean people in poorer countries are now able to see on a daily basis how other people in other places are transforming their lifestyles.

“You can say Korea saw what Japan had done and that China saw what both had done,” Hegarty says. “Now the rest of Asia is seeing what China is achieving. 

“Those rising expectations are a big driver. Three billion people across Asia chasing a consumer lifestyle – with neighbouring role models on how to achieve it.  It is a powerful force.” 

Another factor is each successful transformation creates wealth - and when you have wealth being generated on the scale China has done in recent years, you have enhanced trade opportunities, enhanced business opportunities and a growing pool of investment funds.

To illustrate this, consider these projections supplied by ANZ.  By 2012 China’s direct foreign investment (i.e. funds invested abroad), had reached $US500 billion.

Within the next 15 years it could top $US10 trillion. Investment on that scale, particularly in under-capitalised economies such as in South East Asia, will be transformative.

And money will not come only from Chinese DFI: Stock market IPOs across Asia will channel billions more into profitable investment. The ANZ team forecasts the value of Asian equity market capitalisations (excluding Japan which has long had a very large stock market) will explode, from around $US9 trillion now to $US55 trillion in 2030.

THE RISKS OF DERAILMENT

• Potential conflict

Overall there is confidence all the major economic blocs – China, Japan, India and the ASEAN nations – can add momentum to the Asian Century and that the rising aspirations of three billion people provide the potential for a growth super-cycle of unprecedented proportions.

What of the risks? Can this exciting economic vision be de-railed by international tensions?

Geoff Raby, former Australian ambassador to Beijing and still a resident there, sees an increased assertiveness among China’s rising middle classes.

“For years under Deng Xiaoping the internal Chinese mantra was: ‘Time is on our side; we can be patient,’ he says. China was focussed on building its economy; it had no desire to make the necessary military commitment, and nor did it have the military capacity, to challenge the USA outside China’s borders. All that could wait.

No longer. “The new middle classes, particularly in Beijing and Shanghai, are educated and have travelled,” Raby says. “They know China is now a global economic power and are starting to say: ‘If we are a great power shouldn’t we be treated like one; behave like one.’

“I think we will see China being more assertive in pursuing its interests in the coming years, but I don’t see that spilling into reckless military adventurism,” says Raby.

“One of the interests China wants to fiercely protect is its sea lanes – vital for a nation that imports a large proportion of its raw materials. The US Navy is currently supreme on the high seas and could, in the event of a serious confrontation, cut off the flow of oil and other commodities coming though the Straits of Malacca. 

“That is part of the strategy behind China’s One Belt One Road policy; extending overland transport links to ports on the Indian Ocean and into Central Asia and Europe. It wants alternative trade routes that cannot be blocked. The same concerns are also evident in China’s desire to project its power over the South China Sea.

 “Diplomats around the world understand this. There will be push and push back on all sides and plenty of strong rhetoric from leaders, but at a diplomatic level I think relationships will be largely managed,” says Raby.

• Debt, the great global shadow

There is however, one other cloud hanging over the heady prospect of a surging Asian Super Cycle: Global debt.

Don Argus, a Member of the Bank of America Global Advisory Council, expresses the concern most forcefully.

“There is research which suggests that when a nation’s debt exceeds 260 per cent of its GDP it approaches the limits of sustainability,” he says. “Currently the world’s largest economies – the USA, China, much of Europe and Japan – are at, or approaching, that level.

“I wouldn’t suggest that figure of 260 per cent is the precise edge of the precipice, but if it is even close we have cause for concern. We are entering dangerous ground, particularly if - or when - the US starts to raise interest rates.

“There’s a real risk that some people will need to take a serious haircut.

“This is not an Asian problem:  Developed nations are among those with the biggest debt, but the impact of any severe global correction would be felt heavily in developing nations dependent on capital for growth.”

Asia rode out the so-called Global Financial Crisis of 2008 so serenely the Chinese still refer to it as the Atlantic Financial Crisis. But post-GFC, rather than de-leverage, a host of large nations, led by the USA and Europe but now including China and Japan, have substantially increased their debt levels, raising the risk any new crisis would indeed be global.

 If that eventuates it could push the time frames for Asian growth - particularly for capital-hungry South East Asia – out significantly.

With or without a global crisis, Yasushi Takahashi sees a need for developed nations to curb their ever-rising debt. Stimulus has been the explanation in recent years, he says, but you cannot go on increasing debt forever; servicing costs eventually become a brake on the economy.

The problem he sees is leaders in democratic countries are afraid to rein in spending for fear of an electoral backlash. It will take inspirational leaders to convince the voting publics to accept this.

Right now, the developed world needs great leaders as much as the developing world. It is a time for heroes.

This story is an extract from "Riding the Asian Super Cycle” by Graham White, published by Collins Street Media, Melbourne. Recommended retail price $20.