Overview
Today over half of the world's population lives in Asia. The region has most of the world's fastest growing economies and many forecasters believe that up to two-thirds of the world's economic growth in the next ten to twenty years will be in Asia.That part of the region in which the fastest economic growth has taken place in the past ten years or so has been Eastern Asia - from the countries in the Northeast of Japan and Korea, through China, Hong Kong, Taiwan and into the nations of Southeast Asia, especially those in the regional association known as ASEAN (the Association of South East Asian Nations) which now consists of Singapore, Malaysia, the Philippines, Indonesia, Thailand, Brunei and Vietnam.
To get a sense of how dramatic shift in the global economy has been, if we go back to the year 1960 that region accounted for only 4% of world production (generally measured in terms of GDP or Gross Domestic Product). In that same year, the percentage of the world's GDP provided by North America was 37%. Today, North America and East Asia each provide about 25% of the world's production. If you add the nations of South Asia especially India, Pakistan, Bangladesh and Sri Lanka, Asia tops North America in terms of the percentage of world production.
While the economies of many countries in the have been growing at under 4% in recent years, many of those in Asia have been developing at rates near or even above 10% year after year over the past decade. Foreign investors have flocked to Asia because of the strong growth prospects, stable governments, and favourable business environments that characterise many of the economies. Despite a slowdown in growth rates in the last year, Asia remains a magnet for worldwide investment flows.
But Asia's high economic growth is not fuelled only by foreign investment. Many economists point to the high savings rates of many Asian countries as a key factor in their rapid development. Japan for instance is the world's largest creditor nation, holding much of the debt of Western countries like the United States, Canada and places like Singapore, Taiwan, Hong Kong and China have large foreign currency reserves. And savings rates have been much higher in Asia than in the West. These again are usually expressed as a percentage of GDP, and in East Asia the average savings rate is over 30% compared to under 10% in Canada and much of the West. In other words, Asia has large pools of their own capital to fuel their own economic development. As their economies continue modernise, and they develop more fully their bond and stock markets this capital will be more fully mobilised to sustain their overall economic development.
Asia is also increasing trading and investing among its own economies, more and more and thus becoming less dependant on only what happens in the West. For example, by most ways of calculating, Japan in today the world's second most powerful economy or second richest nation. High wages, the cost of land, the high exchange value of the Yen and other costs of doing business have led to a great many Japanese companies setting up plants in other countries where these costs are a great deal lower. Much of that investment has gone into other parts of Asia. This is also true of Taiwanese and Hong Kong investment moving into countries like China and those of Southeast Asia.
Today as the economies of these countries develop and costs get higher, they are still attractive to this kind of investment because they are developing large middle classes who want to purchase foreign-made products. So investment continues to flow in their direction in order to be close to where there is rapidly increasing consumer spending.
Many of the trade barriers, both tariff and non-tariff between the countries are being reduced or eliminated. Many of these economies are involved in APEC (Asia Pacific Economic Co-operation) along with Canada, the United States, Mexico and Chile. This organisation is committed to further reducing trade barriers and developing new ways of facilitating economic co-operation and trade, such as greater uniformity in standards, improved travel for businesspeople and a common commitment to a set of targets for freer trade.
One of the most dramatic developments in Asia is the rise of a large middle class. When I use this term, I simply mean families who have the disposable income to purchase an increasing number and variety of consumer products including expensive foreign made imports, and for the wealthiest of them to travel widely as tourists, including to North America and send their children to private schools or abroad for their education. The growth of Asia's so-called middle class each year may well equal or exceed the total population of Canada!
While huge populations like those in China and India pose enormous challenges to those countries, think for a moment of the opportunity side of such large numbers. Take for example the population of China. To equal China's population of 1.2 billion you would have to add to the population of Canada, those of the Untied States, the European Union, Japan and all of Southeast Asia! If you add India's population of just under one billion (1995 estimate of 937 million) the picture is even more staggering. A very large number of both of these countries' people are very poor, but there are other parts which are developing extremely rapidly and are already well plugged into the international economy and have a huge and expanding middle class. For example if you compare the most populous and industrialised part of Canada - the Toronto to Montreal corridor to a similar stretch of land around China's major financial and commercial centre, Shanghai you are comparing a population of 5 or 6 million to one of just under 200 million. In fact the population of Shanghai alone is close to half that of Canada's total population.
Of course all the news is not good. And population growth presents major challenges to several Asian countries. China has worked hard at controlling its population largely through a one child policy. The birth-rate has dropped significantly but because of the current size of age of the population the overall increase in numbers continues to be very high and it will be well into the next century before China can hope to be at zero population growth at which time its total population will likely be well in excess of 1.5 billion. Meanwhile India's population is rapidly approaching a billion and with a current rate of growth estimated to be 1.9% compared with China's current estimate of 1.1% India's population could well exceed that of China's at some point early in the next century.
Will the Growth Continue?
Will Asia's economic boom continue? Certainly its overall rate is likely too slow. In fact it has slowed in the past year. Certainly too many of these countries have huge challenges facing them, population being only one of them. With rapid economic growth in the past, little attention has been paid to environmental problems.
Today many of these countries face very difficult and expensive environmental challenges of cleaning up their air and water, finding sustainable solutions to the disposal of their toxic wastes, stopping soil erosion and the loss of agricultural land to urbanisation, their tropical rain forests to overlogging and their seas to overfishing. These are not only issues related to the quality of life of their citizens. If they are not resolved continued environmental degradation will undermine their economic growth. That's the bad news. The good news is that many of their governments recognise this, are beginning to put in place the controls and investment to reverse the situation, and the World Bank and other international lending and foreign aid agencies are giving this high priority on their ODA (Official Development Assistance on foreign aid) budgets.
There are many other challenges to some of Asia's economies, such as inadequate infrastructure, education and slow political and social reform. Infrastructure, such as the roads, airports, ports, railway lines and telecommunications that move goods, people and information through their countries and beyond to international markets is often inadequate with resultant slowdowns and bottlenecks that have a very negative effect on the economy. Education and training have not been able to keep up in providing the professional and skilled labour that the exploding economies require. For example, Asia is not training anywhere near the number of engineers it requires. And in some of the countries political and social reform have not kept up with economic reform. If this gap and that between the have and have not people and regions continues to grow, political stability could be threatened.
Continued high economic growth throughout Asia will depend upon meeting these and other challenges successfully and also on political stability. If any of the major countries in the region were to become politically unstable this could have a major negative impact on the economic health of the whole area. While I do not predict this, there are challenges in this area as well, and it is an issue that is impossible to predict.
Canada and Asia Many of the challenges facing Asia present Canada with opportunities. And of course its overall rapid economic growth means that if we are to prosper we must take advantage of that growth and plug into those economies. Canada's strengths match very well with Asia's needs. Asia still requires large amounts of our resources, such as coal to fire the steel mills of Japan and Korea, lumber pulp and paper form our forest industry, grains and other food products from our farmers. We are also making inroads into value added products and all kinds of services.
i) Aerospace
If you look at almost any sector of the Canadian economy there is a demand in Asia for its products and services. For example, look at Asia's needs in the aerospace industry. Increased travel to and from Asia is expected to grow by 170% over the next 15 years or two and a half times that of the world average. Within the next twelve years over half of the world's travel will take place within the Asia Pacific or between it and the rest of the world. Asia will purchase huge numbers of aircraft from the jumbo jets to the smaller regional aircraft that Canada excels in making. The demand for aerospace equipment in Asia over the next decade is forecast in the range of hundreds of billions of dollars. Canada already has a good slice of the world market, such as 35% of large business jets, 20% of regional turbopop aircraft and 75% of flight simulators. And our management expertise in everything related to air travel, modernising airports and training staff will be in high demand.
ii) Information Technologies & Telecommunications
Or think of the world of information technologies and telecommunications. Canada has some 15,000 firms in this area offering a wide range of products and services from telecommunications equipment and services to computer hardware, software, geomatics products, instrumentation and electronic components. The opportunities in Asia are staggering. The need for new phone lines in the region if met would see the number increase by 180% over the next four years. China alone will probably build additional phone capacity every year equal to what currently exists in Ontario and Quebec. Canadian suppliers of rural telecommunications, microwave systems, telephone switch gear, cellular base stations, fibre optics networks and software and management systems are well placed to take advantage of opportunities in this area.
iii) Energy
Think also of the area of energy. With economies developing at close to 10% growth every year many of these countries desperately need additional power. While the world-wide growth in energy consumption is about 2.2%, annually, the average in Asia is 3.5%. China in particular is in desperate need of more power generation capacity to maintain the pace of modernisation. Canada has some of the best technology and human resource expertise in the world from nuclear to hydroelectric, oil and gas exploration, transmission and power generation.
iv) Environment
We have already mentioned the enormous environmental challenge facing Asia. Again Canadian companies from coast to coast, and not only large ones, but small and medium enterprises (SMEs) have world class technologies and engineers and other highly skilled people who are successfully penetrating these markets. It is estimated that the market for environmental products and services in Asia in 1996 was US $60 to 80 billion. Canada's environmental industry employs close to 150,000 workers in about 4,500 companies most of them with fewer than 200 employees. Their annual sales are around $11 billion so there is lots of room for this sunrise industry to expand in the Asian market.
v) Infrastructure
In the area of infrastructure Canada again has both products and services to sell to Asia from computer systems relating to transportation, high speed light urban transit systems to the engineers and other skilled workers who have the experience and expertise that Asia needs. In overcoming the challenges of distance in our own country, we have developed skill as infrastructure builders -- of hydroelectric, thermal and nuclear power plants and high-voltage transmission lines; state-of-the-art communications networks; rail and mass transit systems and vast gas transmission networks. It is estimated that Asia will spend US $3 trillion on infrastructure over the next decade, as the region makes up for past underspending, and allows for rapid urbanisation that will add a billion people to the region in the next generation, as well as to maintain competitiveness in a globalized economy.
vi) Building Products
We are also finding new opportunities to add value to our products in Canada, thus creating wealth and jobs here, before exporting them to Asia. For example we not only ship large quantities of lumber to Asia, but we are now providing prefabricated houses or parts of houses to the Asian market. Here the devastating earthquake that hit Kobe, Japan a few years gave Canada the chance to demonstrate how we could assist them, and ourselves, by providing Canadian built homes.
vii) Agrifood
Or take for example the area of agriculture. Ten or fifteen years ago, Asia was really only interested in our raw products. Today with the development of their economies and the rise of their middle class and the loss of agricultural land to urbanisation, they offer us a huge market for value added agricultural goods, from pre-packaged fast food goods to luxury items and even health foods. And their food and retail industry want our expertise in processing, packaging and marketing as well as other areas. Again, many small Canadian companies have found niche markets for their high value added goods.
viii) Business Services
The developing economies of Asia are also importing business services, where the demand is often higher than for manufactured products. The demand is growing by at least 10% a year and Canada's export of these services to Asia has been expanding by over 14%. In other words we are getting more than our share of the market. Canadian law firms, banks, accountants, insurance companies, computer consultants and architects to name but a few are prospering from Asia's economic boom. East and Southeast Asia alone spend well over US $50 billion a year on business and education services.
ix) Education Training
Canada has one of the best education and training systems in the world. Asia's high demand for highly educated and trained peopel far outpaces its ability to provide them. For example the region literally needs tens of thousands of mroe engineers each year than its universities are training. Over half othe foreign students studying in Canada come from Asia. The spending of foreign students in our communities totals close to $3 billion per year, creating jobs and opportunities for Canadians across the country. When they return to Asia they often move up their career ladders very rapidly and are soon in positions of influence in business, government and other sectors. If their experience in Canada has been a good one, which is usually the case, they become our best allies and business partners in the future. They know our brand names, like Canadians and want to do business with us. There is probably no area of our interactions with Asia which is strategically more important to our economic development than our training of Asia's future leaders.
Canada's Economic Relations with Asia -- How are we doing? Given the exciting developments in Asia's economies over the past decade and even if half the predictions come true for the next decade, Canada simply must get its full share of the Asian market if we are to sustain our own prosperity and create more jobs. But for everything we have to sell there are strong competitors in other countries. How are we doing? In short, we're not doing too badly -- but we must do better.
In 1983 Canada passed a watershed. For the first time in our history we traded more across the Pacific than the Atlantic. Today Japan is our number two trading partner after the United States and five of our top ten trade partners after the US are in Asia (Japan, China, the Republic of Korea, Hong Kong and Taiwan). Japan accounts for over half of that Asia trade.
But while the volume of our trade has been going up, Canada has in fact not been doing as well as many of our major competitors. Our exports to Asia as a percentage of all the products Asia imports is lower than that of the US, Germany, Australia, the United Kingdom, France and Italy. WE have in fact been losing market share. There are however some problems with the statistics as they are recorded. For example some of Canada's exports to Asia transit the United States and appear as American exports. Moreover trade in services - business services, education, tourism, engineering consulting and so on - are not fully or accurately reported. And in this area Canada does very well.
However, the point is that if half to two thirds of the world's economic growth is going to be in Asia we must do better than we have. For many of Canada's companies the richest market in the world, the United States, just a few miles away from our major cities, tends to focus all their attention. Why go to the cost and time it takes to penetrate the difficult ant distant Asian markets, some ask? The answer is simple: that's where the real growth is now and probably in the future. The Prime Minister's Team Canada approach, taking large delegations of business people and the provincial premiers and territorial leaders to Asia to demonstrate dramatically our interest in doing more business with Asia has been very successful.
But at the "end of the day" Canadian business people must be committed to those markets themselves. They must do the market research, make the long expensive trips to the region and understand the cultures and different business systems in these countries. They will need more youn Canadians in their firms who have studied Asian languages, know Asian cultures and preferably have experienced Asia first hand. It's not that all young Canadians should strive to become Asian experts. But if Canada's young graduates whatever their area of education and training might be, add to that an appreciation of Asia, its cultures and customs we can strengthen our competitive position in Asia. At the same time these individuals can strengthen their career opportunities, whatever the field they choose. I remember the story of the Harvard Business School professor who asked his class what the language of international business was. Several students answered at the same time - "English". The Professor was silent. Then a young woman put up her hand and correctly said "It is the language of your client".