East Asia – constituting China, Japan, North Korea, South Korea, Mongolia and Taiwan – may be set to replace the United States as the world’s foremost economic power. This presents powerful opportunities for sharing in the growth of the region.

 

 

A staggering 1.7 billion people are living in East Asia (UN Estimates, 2023). Modern humans began settling in this region as much as 60 000 years ago (Stanyon, Sazzini & Luiselli, 2009). Historically, East Asia became such a point of growth for three reasons:

 

– River systems: Large river systems, such as the Yellow River, present a source of irrigation, transportation and fertile land. This served as a basis for settlement. These river systems continue to support enormous populations today (Szczepanski, 2019).

– Climate: For the most part, the climate in East Asia is temperate or subtropical: well-suited to agriculture to enable a stable food supply (Climate Centre, 2021).

– Economic development: East Asia has been a hub of economic growth at various points in time. This is the case right now – it is the most rapidly urbanising region in the world (World Bank, 2018).

 

 

What has East Asia achieved since the 1950s?

 

– Poverty reduction: East Asia has transformed spectacularly from a state of severe poverty before the 1950s. By 2015, the region had reduced its poverty rate to around four percent. China alone has lifted 850 million people out of poverty since the 1970s (World Bank, 2022).

 

 

– Massive shares of global GDP: Currently at 44%, the Asian share of global GDP is expected to be over 50% by 2030. This is, in large part, due to the massive current and future projected growth of the Chinese GDP (World Economics).

 

 

– A powerful middle class: East Asia’s middle class makes up half of the global middle class (Ahnsan, 2018). China’s middle class is the fastest growing in the world. The Chinese middle class is shaping consumption trends worldwide, encouraging investment away from mature markets in the West to China (Sandal, 2023).

The growing influence and capability of East Asia – particularly of China – can be compared to the boom years of the United States. After World War Two, the United States saw massive increases in GDP growth, consumer spending, production, housing, employment and education (Pruitt, 2020). This catapulted the United States to dominant superpower status: a status East Asia is rapidly chasing.

 

 

When the United States is compared to East Asia

 

– East Asia already has a cumulatively larger GDP: In 2021, the combined GDP of East Asia was $23.9 trillion, compared to $23.3 trillion in the United States (World Bank, 2022).

– China grows far more quickly: Over the past ten years, the United States’ share of global GDP growth was 9.7% compared to an impressive 31.7% from China. If current growth continues, the GDP of China will be more than double that of the United States by 2030 (World Economics, 2023).

 

 

– Average income per capita is higher in the United States: The average GNI per capita of the United States was $70 930 in 2021, compared to $11 880 in China and $42 650 in Japan (World Bank, 2023). Chinese median household income has, however, grown by over 800% from 2000 to 2020 (NBSC, 2021). Median household income in the United States grew by only 11.5% over the same two decades (US Census Bureau, 2021).

– East Asia has faster-growing foreign direct investment: In 2021, inward foreign direct investment in the United States amounted to $4.98 billion compared to $3.58 billion in China and $1.91 billion in Hong Kong SAR (UNCTAD, 2022). China has experienced an increase of more than 200% from 2000-2020, compared to a 48% increase for the United States (UNCTAS, 2021) (Bureau of Economic Analysis, 2020).

 

 

– East Asia saves more: Gross domestic savings amount to 24.7% in Japan, 35.7% in South Korea and 45.7% in China. This is much higher than the 17.4% savings rate of the United States (World Bank, 2021).

East Asia is nearly on par with the United States and growing far more quickly. The boom in East Asia looks a lot like the growth that pre-empted the economic rise of the United States.

 

East Asia has been here before

 

What is today China, Mongolia and South Korea were thriving economic strongholds until 1700. Powerful empires like the Tang Dynasty (618-906), the Song Dynasty (960-1279) and the Mongol Empire (1206-1398) were once the largest economies in the world (Baum, 2021).

 

 

Four key advantages made these empires so powerful – strengths which are just as relevant today (Baum, 2021):

– Trade routes: Collectively known as the Silk Road, China’s intricate overland routes were used to assemble technology, goods and services that no other region could access. This trade legacy has stuck around: in 2021, China was the world’s largest exporter and second-largest importer (OEC, 2023).

– Superior technology: East Asia employed and regularly innovated irrigation techniques that were not yet used by other regions. This allowed for an agricultural surplus. Today, East Asia is a world leader in technological innovation, particularly in the e-commerce, artificial intelligence and fintech industries (Sedik, 2018).

– A taxable farm surplus: China had the world’s first civil service system, which collected tax revenue from the agricultural surplus. China has upheld a civil service system throughout its history. Its modern-day taxation and protocols are, in many ways, on par with that of the West (Jarrett & Huihan, 2009).

– Skilled traders: A rigorous education system provided a specialised class of highly skilled artisans. The East Asia of today has an equally impressive system. East Asia houses seven of the world’s top ten education systems. These are centred around deep learning for the 21st century (IMF, 2018).

 

 

At present, East Asia faces a few key challenges: territorial disputes, environmental degradation, rivalry with the United States and hindrances to free trade (Mishra, Balatchandirane & Tiwary, 2021). However, the region’s longstanding history of overcoming challenges – enough so to maintain economic dominance for over one thousand years – is a telling indication of its resilience in the face of adversity.

 

Work ethic and a culture of efficiency

 

East Asia is not only resilient as a region: it is home to some of the hardest workers in the world. China’s work ethic is based on a Confucian principle calling for status hierarchy, collectivism and consistent hard work to achieve perfection in outcomes (Kan, Matusik & Barclay, 2017). Its ‘996’ technological business culture prescribes work from 9 a.m. – 9 p.m., six days a week (Schwartz, 2021). Japan and South Korea have very similar requirements for perfection and overtime (Samson, 2017).

 

 

This culture is very different from the West, where, in the United Kingdom, four-day workweek trials are being performed (Christian, 2023). The East Asian work ethic may become central to outperforming the rest of the world.

 

What East Asia could mean for Investors

 

There are ways to share in the fast-paced growth of East Asia. Currently, companies like Tencent and Alibaba, the Whatsapp and Amazon equivalents of China, trade much more cheaply than their Western counterparts. These companies are effective monopolies in the world’s most populated region – a region which may soon be the next global economic powerhouse.