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National Research University Higher School of EconomicsIQNewsAsia is learning to consume

Asia is learning to consume

Asia is turning from a ‘global factory’ into a colossal consumer of goods and services, and this could lead to radical changes in the world economy, Junior Research Fellow in the Centre for Comprehensive European and International Studies (CCEIS), Anastasia Likhacheva, said in the paper ‘A New Model of Development in the Asian Region: Continent of Consumption’ presented at HSE’s XVI April International Academic Conference.

Until recently, the nearly four billion people living in the Asian region were seen exclusively as a cheap and competitive part of production on the global market. Thanks to various economic successes and an increase in wages over the last fifteen years, a significant portion of these people – particularly in China – are taking on the role of demanding consumers. Since 2000, annual disposable income per capita has increased $1,800, while the urban population has grown by more 1.2 billion people.

Asia's main growing point for the coming years, if not decades, is regional consumption. A new development model means boosting trade and investments between countries of the region, as well as creating new transportation corridors throughout Asia’s largest economies, directing nations’ economic policy towards raising the quality of socioeconomic development, and increasing demand for high-quality goods and public services such as medicine, education, and social insurance. This might lead to a change in the international situation for Europe and the U.S. and to more opportunities for African and Latin American countries, Anastasia Likhacheva said in her paper.

A Matter of Taste

Improving the welfare of the Asian region, particularly China, will lead to a so-called protein revolution, which involves an increase in the amount of fruit and protein, particularly processed meat products, that people consume. This will also entail a rise in the number of restaurant goers. From 2001 through 2012, Chinese foreign trade saw agricultural imports increase fivefold to $156 billion, while import dependency doubled and net food imports reached $31 billion.

Demand for clothing, shoes, electronics, furniture, and other consumer goods will also continue growing, as will demand for high-quality goods and inessentials, Likhacheva believes. According to forecasts from the company McKinsey, in 2015, Chinese consumers will account for a third of the expensive bags, shoes, watches, and jewellery acquired throughout the world.

Another promising segment is the experiences market for the middle class and the rich. Over the next several years, investors will put $5 billion into China’s Disneyland. Further, in a country where winter sports have never been popular, ski resorts are being constructed, while demand for sports equipment and clothing is on the rise and more international-level competitions are being held. Another component to this demand is restaurants, theatres, cinemas, and art galleries, which will do their part in boosting sales of new goods, fresh imported foods, alcohol, equipment, etc.

Demand is growing for traditional services as well. In the majority of Asian countries, the quality of medicine, education, and social insurance, which are typically provided by the government, needs improvement. Likhacheva expects the government and private investors to increase spending and investments in the social sphere.

Without Getting off the Couch

Sales institutions are also changing drastically. In China, e-commerce is developing rapidly, though growth rates have slowed somewhat over the last two years. In 2013, for example, internet sales grew 43% compared with 2010 to 607.4 billion yuan. On average, Internet trade is growing faster than normal retail thanks to convenience, lower prices, home deliveries, and investments from manufacturers and retail stores. The items with the highest sales include clothing and footwear, electronics, appliances, and videogame equipment.

In September 2014, internet sales grew 49.9% year-on-year to 1.8 billion yuan, making internet trade one of the most dynamically developing sectors of the Chinese economy. China’s market for express deliveries, which soared over 60% in 2013, is the second largest in the world only after the U.S. In addition, 600 million Chinese people had internet access last year, which is equivalent to just around half of the population, while there were 277 million internet users in the U.S., or around 90% of the population.

Internet retail sales in China are expected to grow by 15%-20% per year on average. By 2020, they might reach $420-$650 billion, which will be equivalent to the amount of sales in the U.S., Great Britain, France, Germany, and Japan combined.

Fuel for Consumption

Under new conditions, Asia's most important developmental restrictions will remain institutional structure, international competition, and security challenges. The transformation that is occurring will require a quality reconfiguration of all the key economic processes in the region. This reconfiguration in particular will define the formation of new regional economic trends and impact the emergence of points of growth in the coming decade.

The most large-scale trends will be:

  • The gradual shift of energy, water, and other labour-intensive facilities from China to other countries of the region and to other continents. Relocating such facilities will take place on a grand scale over a longer period of around twenty years.
  • China's place as the economic and political 'core' of the Asian region, and as the most important source of direct foreign investments and a market for goods produced in other Asian countries. This will allow for Asia's dependence on the U.S., which dominates the world economy, to fall and for relatively autonomous economic development processes to arise in the region.
  • Asian countries' general reorientation towards more innovative products and products with a higher added value.

Whereas before, the most important measure of the Asian region's economic successes were standard growth rates, currently quality-based criteria are most important. Inclusive growth and economic efficiency are becoming the main formulas for all developing countries in the region, above all China. Inclusive growth implies distributing the gains from economic growth among all citizens, while also involving the maximum number of citizens in the economic development process itself. For China, this means raising the quality of urbanization, investing heavily in human capital, and significantly increasing the quality of public services.

Over the next 10-15 years, Asia's most critical issues will be providing the resources necessary for economic growth. Opportunities for extensively boosting consumption of traditional resources have either been exhausted or this consumption is too expensive and ineffective. This is why the region’s leading economies have no way of avoiding the use of non-traditional energy sources (biofuel, wind energy, etc.) and improving energy efficiency. In addition to this strategy, gas, oil, and food imports from abroad will increase, which opens up additional opportunities for energy exporting countries, above all Russia and Kazakhstan. This will be a powerful catalyst for such economies.

Competition for fresh water will grow in the region, and a transformed food market will be reflected in the future shift towards high-protein food, increased forage imports, and more intense food trade.

 

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