Emerging Asia altered as services sector becomes majority of economy
Dinh Tu quit being a monk three years ago and worked in a yoga studio in Ho Chi Minh City to cater to a growing Vietnamese middle class who are finding new outlets for their money. These days, he is selling insurance, too.
"People in Vietnam have more to spend now," said the 40-year-old agent for Tokyo-based Dai-ichi Life Insurance. "Because I'm no longer a monk, I have to worry about money, too. I can see that insurance is a good business."
As Tu and millions of other Asians switch from traditional occupations, farms and factories, the contribution of service industries to the region's emerging economies is poised to exceed 50 per cent for the first time. The watershed marks Asia's shift from its role as the world's workshop with countries led by China concentrating on building domestic economies.
From Japan's expansion in the 1960s to the Asian tigers of the 1970s and China's economic liberalisation in the 1980s, Asia's postwar growth has been driven by government strategies that poured investment into producing engineers and factories that made most of the world's clothes, toys and electronics.
With Asian wages and currencies rising, the investment-export model is becoming less attractive, and funds are switching to domestic consumer markets, increasing the need for banking, health care and retail workers.
"This is a natural consequence of Asia becoming wealthier," said Park Donghyun, a principal economist at the Asian Development Bank who has researched the region's shift from manufacturing.
Rising demand in a region with almost two-thirds of the world's people is rebalancing the global economic map. As export-dependent economies led by China shift focus to Asia's 525 million middle-income consumers, manufacturers such as General Electric are choosing to locate factories in Europe and North America, while service providers including international law firm Linklaters are sending staff to Asia.
Services will account for more than 50 per cent of developing Asia's gross domestic product for the first time either this year or next, from 48.5 per cent of regional output in 2010, Park said. That ratio is above 60 per cent in developing Europe and Latin America and 75 per cent for members of the OECD.
One effect will be less emphasis among Asian governments on currency levels, which are key to export-based economies.
"Interest rates will become more important than exchange rates," said Chua Hak Bin, an economist at Bank of America in Singapore. "When an economy gets richer and the trade component becomes smaller … they don't have a problem letting the currency slide and yet there is hardly an impact on inflation."
The climb up the technology ladder will help developing nations in Asia create higher-skilled and better-paid non-manufacturing jobs such as lawyers and bankers to supplement traditional roles like food-stall hawkers.