2
Introduction
The Emerging Asian economic and investment
opportunity is undergoing a period of multifaceted,
swift and exciting transition. The region’s share of
global economic output is set to reach 55% by
2050 and its equity and corporate bond markets
are on course to assume close to a 30% global
share by 2030. Yet the means by which this activity
is generated is being transformed, primarily
motivated by an intensifying focus on sustainability.
Upper-middle-income Asian economies are
evolving from manufacturing export-led growth
models toward greater output from service sectors,
while large pools of domestic savings will progres-
sively fund consumption as the engine of growth,
thus rebalancing from debt-fueled investment.
Asia's export mix is becoming progressively more
value-added with a rise in domestic inputs, while
directionally, trade is increasing intra-regionally. The
Made in China 2025 initiative embodies this
evolution. However, rising labor costs are likely to
encourage a redistribution of China's dominant
export share among lower-income regional
economies with thriving manufacturing sectors.
This may be compounded by supply-chain
diversification necessitated by ongoing US-China
trade frictions.
Maturing Asian economies are losing their
demographic dividends, while other less-
developed neighbors will continue to reap the
benefits for the next decade(s). However, the
rise in wealth creation among Asian households
is the fastest of any global region, with 93 million
people joining the middle class in the last seven
years alone. This has far-reaching implications
for spending and investment trends as discre-
tionary income continues to grow. Geopolitically,
Asia is witnessing a shift in balance as regional
hegemonies projecting both soft and hard forms
of power compete for influence with conflicting
agendas. China’s signature Belt and Road
Initiative is a natural consequence of rising
confidence in its unique economic and political
model and a willingness to export it. Smaller
nations drawn into this struggle must therefore
try to protect their interests with the most
favorable economic and security alliances.
Administrative reform programs addressing
labor-market inefficiencies and investment in
human capital are set to further boost produc-
tivity. This, in combination with enhanced
governance and quality of institutions, will
serve to strengthen corporate profitability and
long-term value creation. Growing equity and
fixed income supply from the deepening of
Asian capital markets will increasingly be
absorbed domestically as deposit-saving pools
seek higher rates of return in an environment
of strengthening retail investment culture. We
expect an institutionalization of these assets
toward pension, insurance and mutual funds.
Finally, technological innovation and adoption
has transformed Emerging Asian economies,
with gains in mobile connectivity and internet
penetration going hand in hand with increased
financial inclusivity. Innovative technologies will
continue to enhance efficiencies and expand
access to services, thus presenting both
exciting opportunities and threats to service-
sector incumbents, altering financing, payments
and spending habits and acting as a strong
disinflationary force.
We hope that our findings prove valuable and
wish you an insightful and enjoyable read.
Urs Rohner
Chairman of the Board of Directors
Credit Suisse Group AG
Asia in Transition3
02
Introduction
For more information, contact:
Richard Kersley, Head Global Thematic Research,
Credit Suisse Investment Banking,
richard.kersley@credit-suisse, or
Michael O’Sullivan, Chief Investment Officer,
International Wealth Management, Credit Suisse,
michael.o’sullivan@credit-suisse
66
General disclaimer / Important information
65
About the authors
04
Economic: The path to more balanced growthTrade: Asian exports' evolving composition,
direction and global share
25
Demographic: An erosion in demographic
support presents fresh regional challenges
31
Wealth: The share of middle-class Asian
households is a quarter and rising
38
Geopolitical: Shifting economic and political
allegiances in an increasingly multipolar world
43
Reform: Improving governance will yield
superior value creation via productivity gains
52
Investment: The domestic institutionalization of
Asian capital markets
57
Technological: Asia's leading role in disruptive
technology and the implementation of cleaner
energy
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gesEmerging Asia's1progressively dominant contribu-
tion to growth and overall economic output has
been an evolving feature of the global economy for
decades. Over the last 30 years, Asia (excluding
Japan) has added approximately USD 19 trillion (in
nominal terms) to annual global gross domestic
product (GDP), rising to a 36% share of global
output in 2018 from 14% in 1988. Yet the means
by which this activity is generated is being trans-
formed, primarily motivated by an intensifying focus
on sustainability. The dynamics underpinning this
transition are multifaceted and include aging
populations, technological advances, burgeoning
credit, legacy inefficiencies in capital allocation,
deteriorating value creation, environmental degrada-
tion and political expediency.
Critical to ensuring uninterrupted trend growth
will be regional policymakers' agility in navigating
a successful path toward more balanced
economic models. A challenge in which success
is by no means guaranteed – indeed historical
precedent provides helpful examples of the
pitfalls to avoid when adjusting output composi-
tion. For instance, post-war Japan's investment
share of GDP peaked at 36% in 1973, marking
the end of a decade during which real GDP
1.Asia excluding Japan. The scope of this report is the
emerging Asia12 economies, in alphabetical order:
Bangladesh, China, India, Indonesia, Malaysia, Pakistan,
Philippines, South Korea, Sri Lanka, Taiwan, Thailand and
Vietnam.
Upper-middle-income Asian economies are evolving from manufacturing
export-led growth models toward greater output from service sectors,
while large pools of domestic savings will progressively fund consumption
as the engine of growth in place of debt-fueled investment.
growth averaged 9.3%. Following the 1974
Japanese economic recession triggered by the
previous year's global oil shock, the country
adopted a less investment-intensive economic
model associated with structurally lower growth
– over the following 15 years, the investment
share of GDP averaged 30% with real GDP
growth of 3.6% (just 39% of the rate in the
pre-1974 decade).
Asia's steady progression toward the
engine of global growth
The genesis of Emerging Asia's economic
ascendance may be traced to Deng Xiaoping's
landmark Open Door Policy reforms launched at
the third plenary session of the 11th party
congress in 1978 (coined by the famous
zeitgeist2to get rich is glorious!) and the
post-1960s rapid industrialization and sustained
growth of the four Asian Tigers (including
South Korea and Taiwan), which ultimately
spawned the so-called Tiger Cubs (ASEAN 5).
Driven by superior demographics, urbanizing
populations, productivity convergence with mature
economies, manufacturing specialization, increasing
access to credit and ongoing improvements to
governance and regulatory frameworks, Emerging
Asia's growth has outpaced that of the rest of the