If global economies were cars, emerging Asia is one of the world’s fastest vehicles. And the developed world is the automotive equivalent of a glorified lawnmower on wheels
Just 15 years ago, the traditional troika of the world’s developed regions – the U.S., Japan and Europe – accounted for just over half of all industrial production. That means that half of the world’s manufacturing (everything from iPhones to rocket engines), mining (gold, rare earth metals, and everything in between), and utilities (like electricity and gas) were generated in these areas.
Emerging Asia, meanwhile – China, India, and nearly all of the dozens of other countries in the region, from Vietnam to Sri Lanka – accounted for just 14 percent. That figure was well below U.S. and European shares of the global industrial production pie, as shown below.
Since 2001, global industrial production grew overall by about 50 percent, or about 2.6 percent growth per year. And it’s up about 25 percent from the depths of the 2008-2009 global economic crisis.
Where did that growth come from?
About three-quarters of global industrial production growth came from emerging Asia. As shown below, the region’s share in total industrial production rose by nearly three times, to account for just over one-third of the world’s industrial output. Meanwhile, the combined share of the U.S., Europe and Japan fell to just 37 percent.
In relative terms, emerging Asia is a Hennessey Venom GT– and the developed world is sputtering along in a 31-year-old Yugo. According to Asianomics Group, an independent research company focused on the Asia-Pacific region, emerging Asia’s industrial output has grown 270 percent since 2001, and accounted for three-quarters of the total increase. Japan’s industrial output is flat, Europe’s is up 5 percent, and industrial output in the U.S. rose just 12 percent over the same period.
What’s next for the Hennessey Venom GT?
Over the past 15 years, a lot of the “easy” growth has been accomplished in emerging Asia. Countries in early stages of economic development tend to have favourable demographics (lots of young, low-skilled workers) and under-exploited resources that make economic growth “easy”. As an economy develops, these advantages diminish and the base upon which future growth has to happen is a lot bigger. You just can’t argue with the law of large numbers.
The law of large numbers says something that’s already big can’t continue to grow at a rapid pace forever. For example, it isn’t easy, but it’s possible for a company that generates US$1 billion in revenue to double its sales. But for a company that generates hundreds of billions of dollars in revenue (think of Apple or the Bank of China) doubling revenue is a far greater challenge.
What does that mean for emerging Asia’s future growth? The economy of China – by far the biggest in emerging Asia – was about 7 times bigger in 2016 than it was in 2001 (calculated in purchasing power of parity terms). It’s grown an average of 10 percent per year since 1991. But the base of that growth has been rising. For instance, in the early 2000s, China growing by 10 percent was like adding the equivalent of an economy the size of Kuwait’s every year. Now, growing about 6 percent per year is like adding on four Kuwaits per year. That’s a lot more difficult.
However, as we’ve written before, China’s industrial production is holding steady and its manufacturing industry has been expanding since January of last year – both signs indicate that the largest economy in Asia won’t give up too much ground any time soon.
Emerging Asia isn’t going to continue to eat the developed world’s lunch in terms of industrial production growth forever… it won’t be a Hennessey Venom indefinitely. But it’s still going to go a lot faster than the Yugo. And in the meantime, investors would be smart to focus a lot of their energy on Asia.