The View

Global warming and robotics: the two biggest threats to the ‘Asian Century’

Region’s rise is by no means ‘preordained’, says Asian Development Bank in its book, Asia 2050: Realizing the Asian Century

PUBLISHED : Monday, 29 August, 2016, 9:38am
UPDATED : Monday, 29 August, 2016, 10:51pm

We are living in the “Asian Century”, so called because by 2050, the region is projected to be as wealthy as Europe on a per capita basis, and hold a dominant share of global economic output.

But what if it turns out to be the “Asian Half-Century”?

The narrative of an increasingly rich and busy Asia assumes we will continue on the current trajectory, however many things could go wrong.

“Asia’s rise is by no means preordained,” the Asian Development Bank wrote in its book, Asia 2050: Realizing the Asian Century.

If, for instance, various countries did not escape the so-called Middle Income Trap– where nations get richer but not as rich as the West on a per capita basis – then the region’s share of global GDP would stay where it is today, at just over 30 per cent.

The ADB has outlined policy mistakes that might derail the region’s growth story, but in an age of rapid technological change, we can imagine bigger disruptions.

Here are two potential factors that could bring an early end to the Asian Century: global warming and robotics.

Should the average temperatures continue to rise, some geographies will suffer more than others. Countries in the southern hemisphere, and close to the equator, are generally believed to be more vulnerable to climate change.

Laurence Smith, professor of geography at the University of California, Los Angeles, has argued that Scandinavia, Russia, Canada and the northern United States stand to reap a number of economic benefits from a warmer world.

Smith calls this bloc of beneficiaries the “New North,” and has written that by 2050, this bloc will be endowed with a relatively large fresh water supply, even as other countries will be parched; new and longer crop-growing seasons; easier access to natural resources now buried under ice; and newly opened shipping lanes. Immigrants will flock to the region for opportunities, and the necessary infrastructure build-out will add to growth.

Of course, this is all very speculative, but not beyond the realm of possible.

The other possible disrupter – robotics – is not all bad for Asia. Indeed, leaps in robotics technology could be a benefit for the demographically challenged northern Asian countries. Automation could keep factory jobs in these countries, while providing more high-end jobs to meet the employment preferences of more educated populaces.

ASEAN is set to become the world’s next manufacturing hub, in our view, as China continues its transformation into a more services-oriented economy
Standard Chartered Bank report on Asian manufacturing trends

However a true robotics revolution could be disaster for less-developed nations seeking the mercantilist, export-led path to riches.

As China moves up the value chain – and no longer has an endless supply of cheap labour – India and the Association of Southeast Asian Nations member countries are expected to fill its role.

“ASEAN is set to become the world’s next manufacturing hub, in our view, as China continues its transformation into a more services-oriented economy,” Standard Chartered Bank wrote in a recent report on manufacturing trends in the region.

The bank noted, as have many others, that ASEAN benefits from an ample supply of labour and its fast-growing middle class, whose growing consumer power acts as an additional lure for manufacturers seeking to relocate out of an increasingly expensive China.

Yet despite years of wage inflation in China, many manufacturers are staying put. One reason is because rapid advances in automation technologies have allowed many factory owners to replace workers with machines.

Standard Chartered’s own survey of nearly 300 manufacturers in the Pearl River Delta (PRD) found that nearly half are responding to wage pressures by investing in automation technologies. The next most popular strategy is to relocate facilities within China, to inland bases where the supply of willing factory workers is higher and wages are lower.

Only 13 per cent of factory owners said they planned to escape the escalating wage bill by transferring facilities to another country altogether, with Vietnam being the top pick.

Sure, this is expected to change in time: and indeed, the proportion of PRD-based factory owners looking to relocate overseas is higher than it was four years ago, which is one reason why Standard Chartered continues to view ASEAN as the “next manufacturing hub.”

But if technology or weather events derail the rise of ASEAN and populous India, then the Asian century will be a short one.

Cathy Holcombe is a Hong Kong-based financial writer