Liao Shuping, Xiong Qiyue and Wang Ningyuan also contributed to this article.
I. External demand recovery brings a gradual export trade recovery
Demand in developed economies such as Europe and the United States has recovered, the semiconductor industry has entered an upturn cycle, and global external demand is picking up. From mid-2022 to the end of 2023, the United States was in an active destocking cycle, with imports of goods growing at a significantly slower pace than consumption. Since 2024, the US has entered a replenishment cycle, with merchandise imports growing at roughly the same pace as consumption. The YoY growth rate of total inventories in manufacturing, wholesalers and retailers all bottomed out. YoY growth in US merchandise imports ended four consecutive months of negative growth in the first and second quarters of 2024, at 1.1% and 5.5%, respectively. As the level of inflation in the Eurozone has come down significantly, the demand side has begun to repair. In March 2024, the YoY growth rate of the Eurozone retail sales index ended 17 consecutive months of negative growth and entered a positive growth range. In June, the European Central Bank kicked off a rate cut that boosted consumption and investment activity in the Eurozone. Eurozone inventory replenishment is expected to become more pronounced in the second half of 2024. The inventory replenishment in the United States and Europe led to a rebound in demand for commodity imports, Korea and ASEAN countries' export trade benefited significantly. From January to June 2024, the cumulative YoY growth rate of South Korea and Vietnam’s exports to the United States was 19.1% and 17.4%, respectively. And the month-on-month growth rate remained basically above 15%.
The global semiconductor industry has emerged from a recessionary cycle, boosting trade recovery in Asian economies. The electronic products industry has entered an upturn cycle, stimulating the expansion of market demand for storage semiconductors; the continuous iteration and widespread application of large models of artificial intelligence have given rise to the demand for high-performance storage chips, especially high-bandwidth memory (HBM), an arithmetic chip. The World Semiconductor Trade Statistics (WSTS) expects the global semiconductor market to grow 16.0% to USD 611.23 billion in 2024 and 12.5% to USD 687.38 billion in 2025. Growth is primarily driven by memory chips and logic chips, with the market size for both types of chips expected to grow 76.8% and 10.7%, respectively, in 2024 and 25.2% and 10.4%, respectively, in 2025. The market size of both types of chips is expected to grow from 51.4% of the total semiconductor market size in 2023 to a level close to 60% in the next two years. As a leading player in the global storage semiconductor market, South Korea's semiconductor exports have grown significantly. In the first half of 2024, South Korea's semiconductor exports increased by 49.9% YoY. Among them, memory chip exports increased by 88.7% YoY, 79.5 percentage points higher than the total export growth. Vietnam's exports of electronic products have increased significantly as it has undertaken the industrial transfer of many semiconductor processing and manufacturing links. From January to July 2024, Vietnam's exports of computers and spare parts, mobile phones and spare parts ranked among the top two, both exceeding USD 32 billion, up 30.0% and 12.3% respectively YoY.
Under the combined effect of global supply chain adjustment and rising demand from the United States and Europe, Vietnam's export trade ushered in a strong recovery. Vietnam’s exports rose 17.0% YoY to USD 93.1 billion in the first quarter of 2024. From a product-specific point of view, the high growth of exports of labor-intensive goods has slowed down, replaced by high growth in exports of medium- and high-value-added products. In the first quarter of 2024, Vietnam’s textile and apparel exports grew by 7.9% and footwear exports by 11.7%, both of which were lower than the increase in total exports; exports of high value-added consumer electronics increased by more than 20%, reflecting the trend of upgrading Vietnam’s manufacturing structure.
II. Improved global liquidity shores up growing international direct investment
In 2024, the global liquidity environment will improve as global inflation levels decline significantly and major developed economies begin to initiate interest rate cuts. In June 2024, the ECB rate cut 25 basis points; in August, the Bank of England rate cut 25 basis points; US CPI growth declined YoY, raising market expectations for a Fed rate cut by the end of 2024. With interest rates falling in major economies, the investment climate for multinational enterprises has become more accommodating.
Developing Asian economies have actively introduced policies to attract foreign investment. In 2023, of the 37 policies related to cross-border direct investment adopted by developing countries in Asia, 33 were in support of cross-border direct investment activities, second only to the Africa region (34), with a share of 89.2%, higher than the Latin America region (73.7%) and the Europe region (45.7%). In terms of specific measures, promotion policies in the Asian region have been dominated by investment liberalization measures such as removing FDI access restrictions, relaxing foreign exchange controls, encouraging privatization and liberalizing land restrictions. Between 2014 and 2023, these measures accounted for 37% of the region’s support for cross-border direct investment policies, followed by investment facilitation measures, which focused on improving information transparency and streamlining investment procedures, with a share of 29% (Figure 1).
Source: UNCTAD.
Figure 1 Policies in support of cross-border direct investment in selected economies, 2014-2023
Notes: Investment facilitation measures include enhancing investment transparency and streamlining investment procedures; investment incentives include taxes, special economic zones, visas, work permits, etc.; investment promotion measures include formulating new investment policies and strategies and encouraging public-private partnership projects (PPPs); investment liberalization measures include the removal of restrictions on FDI investment, the removal of foreign exchange controls and the liberalization of land restrictions
Southeast Asian economies have been active in attracting foreign investment. Vietnam launched the National Strategy on Foreign Investment Cooperation for 2021-2030 period, which proposes nine concrete measures aimed at increasing the share of foreign investment from Asia, Europe and the United States to 70% and 75% respectively between 2021-2025 and 2026-2030. Cambodia adopted the new Law on Investment of the Kingdom of Cambodia, introducing policies to simplify registration procedures, strengthen investor protection and encourage foreign investment in strategic sectors. The Philippines has amended the Foreign Investment Actand the Public Service Act to allow foreign investors to establish and wholly own domestic Filipino enterprises (including small and micro enterprises) in the Philippines, and to remove restrictions on foreign investment in public services such as communications and transportation. Thailand exempts startups from enterprise income tax in 12 sectors. [1]Driven by the game of big countries and the policy of attracting foreign investment in their own countries, Southeast Asia has become a hotspot region for the transfer of the global industrial chain in this round. As one of the world’s leading countries in attracting foreign investment, China has continued to optimize its investment attraction policies. In August 2023 and March 2024, China issued theOpinions on Further Optimizing the Business Environment for Foreign Investment and Increasing the Attraction of Foreign Investment andthe Action Plan to Solidly Promote High-level Opening up and Make Greater Efforts to Attract and Utilize Foreign Investment, which made detailed arrangements for further attracting and utilizing foreign investment. East and South-East Asia remained the world’s most attractive regions for FDI, with inflows to these regions accounting for nearly 50% of the global total in 2023. Other developing Asian economies have also stepped up efforts to attract foreign investment. In 2023, Pakistan launched the Pakistan Investment Policy 2023, which focuses on improving the country’s attractiveness to multinational investors in four areas: reducing business costs, simplifying business processes, creating industrial clusters and special economic zones, and improving coordination between trade, industry and monetary policies; Jordan launched its Investment Promotion Strategy 2023-2026, setting up a dedicated agency to focus on attracting foreign investment in selected countries and foreign investors.
III. Service consumption growth shows bright prospects
Inflationary pressures will ease further in most Asian economies in 2024, with inflation returning to the central bank’s target range. Inflation in Asia is expected to be 2.9% in 2024, 0.4 percentage points lower than in 2023, according to the Asian Development Bank report. Among them, East Asia and Southeast Asia had the lowest inflation rates at 0.8% and 3.2%, respectively. In 2024, Asia's overall unemployment rate is expected to be 4.7%, 0.5 percentage points below the global average. Average wage growth in Asia is expected to be 5.2% over the same period, up 0.1 percentage points from 2023.
Higher incomes promote consumption transformation and the development of emerging service industries is promising. The McKinsey Global Institute expected 50% of global consumption growth to come from Asia over the 2015-2030 period. By 2030, the number of middle-class people in Asia will exceed 3 billion, and expanding middle-class population will lead to a shift in consumption towards quality consumption, with a marked increase in consumer demand related to quality, branding and personalized services. At present, online education, telemedicine, e-commerce and other emerging service industries are booming. Governments in Asia have actively promoted the development of the services industry and the opening up of the services industry to the outside world by lowering market access thresholds, optimizing the business environment, strengthening infrastructure development and other measures to provide a strong guarantee for the growth of the services consumption market.
The recovery of cross-border tourism activities accelerated, driving growth in service consumption. Asia is currently the focus of the global tourism industry, with Northeast Asia and Southeast Asia leading the global cross-border tourism growth. In 2023, Northeast Asia and Southeast Asia attracted YoY growth of up to 417% and 138% in international tourists, respectively, higher than the global average of 383 and 104 percentage points. Entering 2024, cross-border tourism in the two regions continues to maintain a booming growth trend (Figure 2), making them two of the fastest-growing regions in the world for cross-border travelers. Cross-border tourism in Asia has not yet returned to pre-epidemic levels and there is still room for further growth. Compared to the first quarter of 2019, the number of cross-border travelers in Northeast Asia, Southeast Asia, and South Asia decreased by 27%, 11%, and 7% YoY in the first quarter of 2024, and cross-border tourism revenues in many economies, such as China, Thailand, Indonesia, and Vietnam, remained significantly different from the pre-epidemic period. The Asian region continues to increase its openness to international tourism, helping to accelerate the recovery of international tourism in the region. Since 2023, China, Singapore, Thailand and many other countries have introduced visa facilitation, increased air capacity and other policy measures to promote international tourism. The new satellite terminal at Thailand’s Suvarnabhumi Airport has opened, and the 3rd runway is expected to be completed by 2024, with the expansion of Don Mueang International Airport and U-Tapao International Airport completed by 2030; Vietnam, Cambodia, Malaysia and Singapore have all announced plans to enhance airport capacity. According to the World Tourism Organization report, the Asia-Pacific region is the most open to international tourism, with e-visa and visa-on-arrival policies having become more common in countries in Southeast Asia and South Asia. Under the influence of measures to actively support the development of culture and tourism in many Asian countries, the tourism industry in Asia still has more room for recovery and will lead to economic growth.
Source: World Tourism Organization.
Figure 2 Year-on-year change in the number of cross-border tourists by region in the first quarter of 2024
IV. Emerging industries injects new energy into regional development
1. Positive progress in digital trade cooperation
Many Asian countries are actively strengthening cooperation in the field of digital economy, and regional digital trade is expected to develop rapidly. In September 2023, ASEAN launched negotiations on the ASEAN Digital Economy Framework Agreement (DEFA), which covers core elements such as digital trade, cross-border e-commerce, cross-border data flows and data protection, and digital payments, aiming to accelerate ASEAN’s digital transformation, and which is expected to result in a USD 2 trillion digital economy for the ASEAN countries by 2030. Negotiations on the expansion of the Digital Economy Partnership Agreement (DEPA) are also being actively pursued. In June 2023, South Korea completed the substantive consultations on accession to DEPA, becoming the first new member to join DEPA. China is also accelerating the process of accession to DEPA, including the digital economy and other economic and trade rules into the free trade negotiations. By the end of July 2024, China had held six meetings of chief negotiators with DEPA members to exchange in-depth views on the overall progress of the negotiations on China's accession to DEPA and on specific topics such as promoting cooperation in paperless trade, electronic payment and cybersecurity.
2. The green transformation of the economy continues to advance
The Asian region has a good foundation for the development of green industry. This is reflected in the abundant renewable energy resources, the leading green production technology, and the extensive attention paid to investment in the renewable energy field. In terms of resource reserves, Asia's hydro energy reserves account for 47.2% of the world's total, while the global shares of wind power and photovoltaic are 28.4% and 22.9%, respectively. Central Asia is rich in renewable resources, with hydropower, wind, solar, bioenergy and other energy sources. In terms of cleaner production technology, Asia accounts for 60% of the world's production capacity and is an important global provider of carbon-reducing green products, with about 70 per cent of the world's key components, such as photovoltaic modules, wind turbines and gearboxes, being supplied by China. In 2022, China's exports of wind power and photovoltaic products achieved a combined emission reduction of about 2.83 billion tons, accounting for about 41% of the world's renewable energy-converted carbon reductions over the same period. In terms of renewable energy investment, Asia is the region with the fastest growing scale of clean energy investment in the world. According to the National Energy Administration of China, China's energy transformation investment reached USD 676 billion in 2023, making it the world's largest energy transformation investment. [2]Japan and India also lead the world in solar and wind investment. In 2023, there was 1,225 greenfield projects in the sustainable development sector, with an increase of 30% in the number of projects and 54% in the value of projects, mainly in the fields of renewable energy, transportation and telecommunications.
Asia has actively promoted top-level green development design and introduced a number of incentive measures. At least 25 countries in the Asian region have made clear commitments to carbon neutrality. Several economies, including China, South Korea, Japan, India, Turkey, Kazakhstan and ASEAN countries, have issued policies to make detailed arrangements for their renewable energy installations, the construction of hydrogen energy supply systems, and the use of clean energy from nuclear power, in an effort to expand the supply of renewable energy (Table 1.8). In light of the development stage of their renewable energy markets, countries have adopted different measures such as electricity price subsidies, loan support and tax incentives to stimulate the demand for clean energy. Thailand and Vietnam offer large additional electricity price subsidies, and are experiencing rapid growth in installed renewable energy capacity. The People's Bank of China (PBOC) provides carbon emission reduction loan support tools, and after financial institutions issue carbon emission reduction loans to key areas, the PBOC provides financial support to the financial institutions at 60% of the loan principal.
Table 1 Renewable energy policy development in selected Asian countries
Country | Policy documents | Contents |
China | Guidance on Energy Work in 2023 | Vigorously develop wind and solar power generation, actively promote the large-scale development of photovoltaic and thermal power generation, steadily build offshore wind power base, plan to start the construction of offshore photovoltaic, vigorously promote the construction of decentralized onshore wind power and distributed photovoltaic power generation projects |
China | Medium- and Long-term Plan for the Development of the Hydrogen Energy Industry (2021-2035) | In 2025, a hydrogen energy supply system will be initially established with industrial by-production of hydrogen and hydrogen from renewable energy sources to be utilized in the vicinity, and the amount of hydrogen from renewable energy sources will reach 100,000 - 200,000 tons/year, and by 2030, a more complete hydrogen energy industry technology innovation system, clean energy hydrogen production and supply system will be formed |
India | By the end of 2030, the installed capacity of non-fossil power generation will increase to 500 million kilowatts and 50% of India's electricity will come from renewable sources | |
Indonesia | Comprehensive Investment and Policy Plan | Increase the share of renewable energy in electricity generation to 44% by 2030 |
Turkey | National Energy Plan | In 2035, the installed solar capacity will reach 52.9 million kilowatts, wind power 29.6 million kilowatts, and hydropower 35.1 million kilowatts, and the contribution of renewable energy growth to the incremental increase in the total installed capacity size will reach 74.3% |
Iran | Increase the installed capacity of renewable energy by 10 million kilowatts by 2026 | |
Saudi Arabia | Saudi Green Initiative | Increase the proportion of domestic renewable energy installations to 50% by 2030 |
Bangladesh | Renewable energy installations will account for 40% by 2041 | |
The Philippines | National Renewable Energy Program 2020-2040 | Renewables will account for 35% of electricity generation by 2030 and 50% by 2040 |
Pakistan | Alternative Renewable Energy Policy -2020 | Increase the renewable energy market share to 20% by 2025 and 30% by 2030. |
Kazakhstan | Concept on Transition towards Green Economy until 2050 | Increase the share of renewable energy generation in the country's total electricity generation to 50% by 2050. |
Iraq | By 2030, the installed capacity of photovoltaic power stations will reach 12 million kilowatts, and the proportion of renewable energy generation will reach 33% | |
Japan | Basic Guidelines on Climate Transition Finance | Extend the service life of nuclear power plants and commit to the development and construction of a new generation of nuclear reactors |
South Korea | 2024 Korean energy policy direction | Expand the number of nuclear reactors to 28 to increase the proportion of nuclear power to more than 30% by 2030 |
Singapore | Singapore's National Hydrogen Strategy | Take the development of hydrogen energy as the main decarbonization pathway to realize net-zero emissions by 2050, with hydrogen meeting 50% of electricity demand |
Vietnam | National Energy Master Plan 2021-2030, Vision to 2050 | By 2050, the average annual production of green hydrogen will reach 10-20 million tons |
Source: Boao Forum for Asia.
International cooperation on green development continued to deepen. Asian countries have carried out extensive and fruitful practical cooperation in power infrastructure, green technology and investment & financing. China is actively promoting power grid interconnection projects with neighboring countries, including cross-border interconnection projects such as China-Korea and China-Myanmar-Mangladesh. Central Asia, Northeast Asia, Southeast Asia and South Asia also have relevant planning and actual implementation of projects. The BRI International Green Development Coalition is an important platform for international green cooperation, through which Singapore shares its green technologies, green finance practices and urban construction experience, becoming a model for green transformation. The East Asia Summit Clean Energy Forum, APEC Energy Ministerial Meeting and the Association of the Electricity Supply Industry of East Asia and the Western Pacific provide communication and exchange platforms for Asian countries to carry out green transformation and upgrading. Multilateral institutions such as the Asian Infrastructure Investment Bank, the Asian Development Bank and the New Development Bank have provided concessional loans and technical assistance for green transformation in Asia, effectively supporting the green transformation and sustainable development of the Asian region.
V. Technological innovations push high-quality development in Asian economies
The quantity, quality and industrialization of innovation in Asia are accelerating. In the 2023 Global National Innovation Index ranking, Singapore rose to 5th place globally, with South Korea, China, Japan and Israel at 10th, 12th, 13th and 14th places respectively. The Asia-Pacific region has 32 of the top 100 global scientific and technological innovation centers in 2023. China ranks first in the world in terms of quantity and quality of technological innovation in the fields of life and health and biomedicine, new energy and low-carbon technologies, new materials and advanced manufacturing, and digital intelligent technology, with 23 selected global science and technology innovation centers. The Asian region is still actively increasing its investment in scientific and technological innovation. According to Forrester, spending on technology innovation in the Asia-Pacific region is projected to be USD 710 billion in 2023, up 6.4% YoY, with information and communications technology and services being the key areas of investment. The wave of digital transformation in Southeast Asian economies is driving investment growth in the region. Investment in computer and communication equipment is expected to grow 5.3% YoY, including mainly 5G equipment and data center construction. By increasing investment in innovation and R&D as well as promoting the industrial transformation of scientific and technological achievements, resources will flow towards high-efficiency, high-value-added industries, promoting the development of the industrial structure of the Asian region in a more rational and advanced direction, and labor productivity will be significantly improved.
[1] The 12 sectors include robotics, digital economy, medical centers, smart electronics, healthcare, tourism, agriculture and biotechnology, defense education, and human resource development, etc.
[2] In August 2024, the National Energy Administration of China released a white paper entitled China’s Energy Transition.
【This article is AFCA Working Paper No. 2024-28/191】
Expert Biography
Chen Weidong, Director Fellow of Asian Financial Cooperation Association Think Tankers Committee, General Manager of the Research Institute, Bank of China. Dr. Chen joined the Bank in 1999, and was closely involved in the IPO of Bank of China Hong Kong Limited and the restructuring and IPO of the Bank. From 2005 to 2011, Dr. Chen was the Deputy General Manager of the Strategic Development, Bank of China. From 2011 to 2014, he served as the Vice President of Bank of China Liaoning Branch. From 2014 to 2019, Dr. Chen served as the Executive Deputy Director and the Director of the Institute of International Finance, Bank of China. Dr. Chen is also the Secretary General of the China International Finance Society since February 2015, and the chief editor of the journals of Studies of International Finance and International Finance since July 2014.He graduated from the International Economy Department, Renmin University of China with a Ph.D. in economics in 1997.
Liao Shuping, Xiong Qiyue and Wang Ningyuan also contributed to this article.
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