LONGREAD: the Asian super cycle is here

For nervous investors or for those seeking work or welfare in the stumbling economies of the West, it may come as a surprise to learn we are living through a golden age of economic advancement.

Stock markets may be volatile, Europe may be grappling with austerity and the USA slowly weaning off the federal cash infusions which have kept it out of recession, but history will record our current period as delivering – globally - the most dramatic lift in human well-being since man first emerged from the African savannah.

" Taken as a total package, it is hard not to be optimistic about the longer term outlook [for Asia]."
Graham White, Author

In the past 20 years hundreds of millions of people in Asia have made - and are still making - the transition from precarious poverty to something approaching a consumer lifestyle.

In speed and scale it is unprecedented, and it presages an era of development that is still building. Forget the China slowdown: in all probability, the best is yet to come. They will hit the odd speed-bump, but they will not fall off.

Staggering as China’s recent development has been it is only the first plank in what mining entrepreneur and funds chief Owen Hegarty calls the Asian Super Cycle.

In this scenario, China’s growth continues for another 15 to 20 years, by which time it will have comfortably eclipsed the USA as the world’s largest economy. It may even be greater than the US and Japan combined.

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After 2030 an ageing population will begin to slow China’s growth, but well before then South East Asian nations will be in a growth surge of their own. Add continuing growth in India, by then the most populous nation on the planet, and you have the components for a multi-generational cycle of prosperity. It is a vision Hegarty has been propounding for some years.

Mitsui’s Yasushi Takahashi backs Hegarty’s vision but takes it a step further: he too sees the renaissance spreading steadily westward through China, Indo China (the ‘Southern Corridor’ of development) and South East Asia and igniting India and perhaps Bangladesh - but then travelling down through Africa (population 1.1 billion) where the first stirrings are already visible.

With Mitsui’s famed penchant for long term thinking the company is already positioning itself for such eventualities.

This westward wave will thus create a surge of economic growth that will continue for perhaps a century to come.

Those who consider this optimistic might pause to consider: all the above is predicated on what might be called organic growth, an extension of current patterns. Any reasonable analysis would also add a technology dividend – the productivity and lifestyle improvements that will be delivered to much of the world from onrushing science.

If these can revitalise established giants like USA and Japan (and perhaps Europe) then the momentum may build further. Taken as a total package, it is hard not to be optimistic about the longer term outlook. 

Hegarty won’t call it a boom, because boom implies a bubble that will inevitably burst.

“What we are seeing is the transformation of economies,” he says. “Long-term development into self-sustaining consumer societies.”


Nobody suggests this progress will take the form of a single soaring arc. Every one of the seasoned executives and professionals we spoke to warns there will inevitably be hiccups along the way – just as the rise of Britain and the US in the 19th and 20th centuries was punctuated with bubbles and recessions which periodically paused but never derailed the over-riding economic growth.

Between 1865 (the end of the Civil War) and 1900 the USA suffered at least half a dozen recessions (actual negative growth, not a slowdown in growth) of various length and intensity, but they did not prevent the nation’s rise to economic superpower. Neither will a slowdown end China’s rise.   

If all this transpires as predicted it will bring about a tectonic shift in economic power. Asia’s output will be greater than f the USA and Europe combined within 30 years.

By 2050 an estimated 60 per cent of global GDP may be supplied from 10 Asian nations. Welcome to a world of opportunity. And challenge.


Individually, each of the countries and regions reviewed here has characteristics which can trigger a surge in growth. In some cases it is demographics, in others positioning in key trade routes. The potential triggers are varied, but there are two over-riding elements, Owen Hegarty says.  

One is the awakening of possibility: Modern media and communications mean people in poorer countries are now able to see on a daily basis how other people in other places are transforming their lifestyles.

“You can say Korea saw what Japan had done and that China saw what both had done,” Hegarty says. “Now the rest of Asia is seeing what China is achieving. 

“Those rising expectations are a big driver. Three billion people across Asia chasing a consumer lifestyle – with neighbouring role models on how to achieve it.  It is a powerful force.” 

Another factor is each successful transformation creates wealth - and when you have wealth being generated on the scale China has done in recent years, you have enhanced trade opportunities, enhanced business opportunities and a growing pool of investment funds.

To illustrate this, consider these projections supplied by ANZ.  By 2012 China’s direct foreign investment (i.e. funds invested abroad), had reached $US500 billion.

Within the next 15 years it could top $US10 trillion. Investment on that scale, particularly in under-capitalised economies such as in South East Asia, will be transformative.

And money will not come only from Chinese DFI: Stock market IPOs across Asia will channel billions more into profitable investment. The ANZ team forecasts the value of Asian equity market capitalisations (excluding Japan which has long had a very large stock market) will explode, from around $US9 trillion now to $US55 trillion in 2030.


• The ASEAN nations

Mike Smith not only backs continued growth in China, but believes the potential of South East Asia is under-rated by many. It is home to some 600 million people (making it more populous than all of Latin America) is rich in agricultural potential and in energy and mineral resources. It has a young and vigorous population and appears poised for China-style growth.

Smith envisages a belt of urban development – they would be called megacities almost anywhere but in Asia – stretching down through Vietnam, the Philippines and Indonesia and upwards through Malaysia and Thailand.

“This will entail a construction program approaching the scale we have witnessed in China over the past 25 years and triggering the same demand for resources and services,” he says.

“As China’s labour costs rise and it transitions to services and to higher value manufactures, we can expect South East Asia to become the manufacturing hub, much in the same way as China inherited the mantle when Japan (and later South Korea) became affluent.”

Yasushi Takahashi is buoyant about prospects for the Mekong countries – Vietnam, Thailand, Laos, Cambodia and Myanmar - not only as prospering economies in their own right but as beneficiaries of trade flows between the two great emerging economies of China and India.

These Mekong countries are the bridge along which millions of dollars of two-way trade will flow annually. Make that billions.

Primarily though, there is Indonesia, the world’s fourth most populous nation. World Bank forecasts suggest Indonesia’s GDP will surpass Germany and Japan within 30 years.

There is also the Philippines with more than 100 million people, largely young, educated and fluent in English (still the preferred language of global business). And Vietnam. It is easy to see why the region’s potential excites our panel.

Owen Hegarty agrees with all the above, but nominates a further catalyst: Resources.

The massive urbanisation of Asia will trigger a new wave of resources demand, he says, and a large part of it will be met from South East Asia itself which is rich in mineral potential and relatively undeveloped.

Not only SE Asia will benefit: Hegarty notes Far East Russia is also rich in resources and will experience growth of its own. Russia’s focus will progressively turn from Europe to the east.

There may be a global over-supply of many key resources for the next few years (resulting from a period of over-investment) but time and growth will correct that.

• India: Hurdles and hopes

There is caution about whether India can sustain the growth rates achieved by China (or by Japan and South Korea during their development phase). Some observe wryly an Indian ‘take-off” is a perennial dream, forever promised and forever just over the horizon, but others remain optimistic.

Whichever viewpoint you adopt, the reality is the sheer size of its population ensures with even moderate growth it will become one of the world’s top three economic powers by mid-century. 

Sam Walsh sees positives: He points out India has a young population with rising aspirations. He sees challenges aplenty for India’s Narendra Modi (for whom he has considerable respect) but believes solid growth will come, albeit on a state-by-state basis rather than in a single national transformation.

The global impact may be modest now because it is starting from a low base, but 20 years of compounding growth will see India a major economic force.

Yasushi Takahashi is even more optimistic: He sets a date of 2022 as the turning point for an Indian take-off.  That is, among other things, the point at which India will officially become the world’s most populous nation, but he sees various other forces aligning to create the necessary impetus. Not least of these is that even at current rates India’s economy will have almost doubled, giving it a critical mass.

While he acknowledges the vast variability between Indian states and the constraints India’s federal system puts on the capacity of the central government to drive development, he is optimistic the conspicuous prosperity of the progressive states will be a catalyst for reform elsewhere.  This latter point is shared by Prof Tan Kong Yam.

The entire group agree it will require a withering of India’s caste system and gender discrimination for the nation to fully unlock its vast human potential but, even as we wait for that, growth will continue.

The IMF, World Bank and Asia Development Bank all predict it will become one of the world’s big three economies over the next 20 to 25 years.

• Japan’s pioneering challenge

Then there is Japan. For all the intellectual and commercial energy that made it the first Asian Tiger (and currently the world’s third largest economy) Japan faces an ageing population and shrinking economy.

It is a problem many developed nations face, particularly in Europe, but Japan has, at least for now, chosen not to pursue an immigration or guest worker program - tools that have allowed the USA and other nations to defer the impact of lower birth rates.

Japan is probably world leader in developing strategies to meet this “de-population” challenge, but our contributors are divided on whether these can fully offset a shrinking workforce and a constrained domestic market.

Mitsui’s Yasushi Takahashi is firmly in the positive camp. He points out the proportion of the population that is economically productive (aged 16 to 65) peaked 20 years ago and the problems created by this are already being addressed through an emphasis on productivity -- with capital investment, technology (including robotics) and improved work practices, maintaining both output and competitiveness – in services as well as products.

Increasing female participation in the workforce and delayed retirement for older workers are also redressing the balance. Over time, selective immigration may also be a tool, he says.

And Japan long ago began the transition from labour-intensive mass-manufacturing to technology and capital intensive industries.

Takahashi sees synergies for all parties in the strengthening relationship between Japan and ASEAN nations. Even as China grows, Japan will still be an influence in shaping the new Asia, he says.

Ageing and declining populations are a feature of almost all the advanced economies (Germany has demographics not dissimilar to Japan’s). The world will be watching Japan’s success.


• Potential conflict

Overall there is confidence all the major economic blocs – China, Japan, India and the ASEAN nations – can add momentum to the Asian Century and that the rising aspirations of three billion people provide the potential for a growth super-cycle of unprecedented proportions.

What of the risks? Can this exciting economic vision be de-railed by international tensions?

Geoff Raby, former Australian ambassador to Beijing and still a resident there, sees an increased assertiveness among China’s rising middle classes.

“For years under Deng Xiaoping the internal Chinese mantra was: ‘Time is on our side; we can be patient,’ he says. China was focussed on building its economy; it had no desire to make the necessary military commitment, and nor did it have the military capacity, to challenge the USA outside China’s borders. All that could wait.

No longer. “The new middle classes, particularly in Beijing and Shanghai, are educated and have travelled,” Raby says. “They know China is now a global economic power and are starting to say: ‘If we are a great power shouldn’t we be treated like one; behave like one.’

“I think we will see China being more assertive in pursuing its interests in the coming years, but I don’t see that spilling into reckless military adventurism,” says Raby.

“One of the interests China wants to fiercely protect is its sea lanes – vital for a nation that imports a large proportion of its raw materials. The US Navy is currently supreme on the high seas and could, in the event of a serious confrontation, cut off the flow of oil and other commodities coming though the Straits of Malacca. 

“That is part of the strategy behind China’s One Belt One Road policy; extending overland transport links to ports on the Indian Ocean and into Central Asia and Europe. It wants alternative trade routes that cannot be blocked. The same concerns are also evident in China’s desire to project its power over the South China Sea.

 “Diplomats around the world understand this. There will be push and push back on all sides and plenty of strong rhetoric from leaders, but at a diplomatic level I think relationships will be largely managed,” says Raby.

• Debt, the great global shadow

There is however, one other cloud hanging over the heady prospect of a surging Asian Super Cycle: Global debt.

Don Argus, a Member of the Bank of America Global Advisory Council, expresses the concern most forcefully.

“There is research which suggests that when a nation’s debt exceeds 260 per cent of its GDP it approaches the limits of sustainability,” he says. “Currently the world’s largest economies – the USA, China, much of Europe and Japan – are at, or approaching, that level.

“I wouldn’t suggest that figure of 260 per cent is the precise edge of the precipice, but if it is even close we have cause for concern. We are entering dangerous ground, particularly if - or when - the US starts to raise interest rates.

“There’s a real risk that some people will need to take a serious haircut.

“This is not an Asian problem:  Developed nations are among those with the biggest debt, but the impact of any severe global correction would be felt heavily in developing nations dependent on capital for growth.”

Asia rode out the so-called Global Financial Crisis of 2008 so serenely the Chinese still refer to it as the Atlantic Financial Crisis. But post-GFC, rather than de-leverage, a host of large nations, led by the USA and Europe but now including China and Japan, have substantially increased their debt levels, raising the risk any new crisis would indeed be global.

 If that eventuates it could push the time frames for Asian growth - particularly for capital-hungry South East Asia – out significantly.

With or without a global crisis, Yasushi Takahashi sees a need for developed nations to curb their ever-rising debt. Stimulus has been the explanation in recent years, he says, but you cannot go on increasing debt forever; servicing costs eventually become a brake on the economy.

The problem he sees is leaders in democratic countries are afraid to rein in spending for fear of an electoral backlash. It will take inspirational leaders to convince the voting publics to accept this.

Right now, the developed world needs great leaders as much as the developing world. It is a time for heroes.

This story is an extract from "Riding the Asian Super Cycle” by Graham White, published by Collins Street Media, Melbourne. Recommended retail price $20.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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