The world is used to dancing to the US’s beat. The US has been economically, culturally and militarily dominant for much of the last sixty years. However, recent events have weakened its hand and it looks set to emerge from the pandemic bloodied, indebted and with glaring internal divisions. To what extent does this pave the way for the emergence of China as the world’s pre-eminent super-power? Could this really be Asia’s century?
Asian countries have, in general, been far more disciplined and effective in their response to the pandemic. This has, by and large, allowed economic activity to resume. China is the only major economy to report positive economic growth in 2020 (at 2.3%, according to the IMF), while emerging and developing Asia as a whole only contracted 1.1% (1.).
This has allowed China to steal a march on the US. The Centre for Economics and Business Research (CEBR) said China will now become the world’s largest economy a full five years earlier than previously forecast, by 2028. India is not far behind, becoming the world’s third largest economy by 2030.
Asia used to be seen as a manufacturing centre, fulfilling Western demand for goods. Increasingly, however, trade runs between Asian countries and is not dependent on the strength or otherwise of Western economies. Shifting supply chains in response to the pandemic have accelerated this regional inter-dependence. (2.)
China has been instrumental in building these intra-Asian bridges, reviving its relationships with India, Japan, and South Korea creating regional cooperation pacts such as the China-Japan-ROK trilateral summit. Cooperation platforms such as APEC, ASEAN and the Shanghai Cooperation Organisation have also been designed to promote regional trade lines.
China’s ‘Belt and Road’ initiative has been designed as a modern equivalent of the Silk Road, a global infrastructure network to promote trade links across nations from Asia to Africa and Europe. The Chinese have used it not just for trade, but to drive their influence throughout the world. They are planning construction projects in over 60 countries (3.), at a cost of over $1 trillion. There have been controversies, such as the huge sums raked in by Chinese contractors, but it is a clear sign of the country’s ambition.
Western economies are likely to be laid low by their debt burden for many years. US debt has now surpassed $27 trillion and across Europe, debt has soared as countries have sought to spend their way out of the pandemic. Asian economies have more fiscal and monetary wiggle-room, having learned the lessons of excessive debt during their own debt crisis in 1997.
….and why it might not
America is back. During the Trump era, the US adopted an increasingly isolationist stance, taking itself out of major international organisations and agreements. This created a void that China was more than happy to fill. Biden has promised to move away from unilateralism and refocus on international alliances. This should strengthen global organisations and act as a check on China’s power.
In his early dealings with China, Biden has been willing to act tough on areas such as China’s treatment of the Uighurs and intellectual property theft. Chinese companies will not enjoy the same unfettered access to US markets, which might limit their ability to grow and put a check on China’s economic strength.
What does this mean for investors? Whether it is the Asian century or not, there is a new superpower in town. Any forward-looking portfolio needs to reflect this shift.