Although the Asian economic development is facing many uncertainties, the future potential of regional economic cooperation in Asia will continue to be released, the industry chain is more closely linked because the degree of development of Asian countries and resource endowments are different. While more emerging economies in Asia began to systematically layout the development of the digital economy, and actively deployed the green transformation. Besides, cross-border e-commerce cooperation between China and ASEAN will become a new highlight of economic and trade cooperation in Asia, thanks to the population and structural advantages.
I. Closer intra-regional industrial chain connection
Degrees of development and resource endowments has not been uniform across Asian countries. China, Japan, South Korea are establishing a competitive advantage in some of the high-end industries; Vietnam, Indonesia, Cambodia, Thailand and other Southeast Asian countries are establishing a relatively competitive advantage in lower labor costs, foreign-funded enterprises are befitted from tax incentives, and some commodities exported to Europe and the United States developed countries are also entitled to tariff preferences, expanding the competitive advantage of these countries in the processing and manufacturing of labor-intensive products. This complementary advantages will promote the deepening of intra-regional industrial cooperation relations. For example, China, Japan and South Korea have increased investment in the aforementioned low-cost countries. In recent years, electronics industry’s division of labor adjustment within Asia is more obvious. BIEL Crystal, Goertek Inc., Luxshare Precision Industry Co.,Ltd., Xiaomi Corporation, Ningbo Fujia Industrial Co.,Ltd.and other enterprises in consumer electronics field are building new or expanding production capacity in Vietnam. Large home appliance enterprises, such as Midea Group and Hisense Group Co.,Ltd. layout production base in Thailand in 2021. Japan's Toshiba Corporation, Sharp Corporation and South Korea's Samsung will transfer the production capacity to Southeast Asian countries. All of the aforementioned enterprises have mainly shifted low value-added processing and assembly links. Along with the adjustment of the industrial labor division structure, the trade exchanges within Asian factories have become closer, and the degree of their interdependence has been increased. In 2021, the trade dependence indexes of Indonesia, Malaysia, the Philippines, and Thailand on Asian factories were 0.74, 0.66, 0.73, and 0.65, respectively, which increased by 0.17, 0.11, 0.23, and 0.08 points, respectively, compared to 2001.
The potential of regional economic cooperation has been unleashed continuously, enhancing the competitiveness of the region in the global market. On January 1, 2022, Brunei, Cambodia, Laos, Singapore, Thailand, Vietnam, China, Japan, New Zealand and Australia take the lead in the implementation of the RCEP; South Korea, Malaysia, Myanmar, Indonesia and the Philippines have developed the RCEP. And currently, the RCEP has entered into a new stage of full implementation. Under the RCEP rules of origin, the production value of commodities in each RCEP member country can be calculated cumulatively, which is conducive to multinational corporations in the RCEP region relying on the resource endowment and market advantages of each country, more flexible adjustment of the production layout in order to realize the efficient allocation of resources. In the one year since its entry into force, the RCEP region has led the world in absorbing cross-border investment growth. In 2022, the RCEP will attract a total of USD 580 billion in foreign investment, accounting for 45% of the global FDI. Asian countries seize the opportunity of the current round of global industrial chain regionalization in order to actively promote regional economic integration, and build a closer regional common market, which can effectively reduce trade costs and enhance the resilience of the regional industrial chain and supply chain.
Since the set-up of the Belt and Road Initiative, infrastructure construction has been a key area of focus and has made great achievements. Six major economic corridors, including the China-Pakistan Economic Corridor, the New Eurasian Land Bridge, the China-Indochina Peninsula Economic Corridor, the China-Mongolia-Russia Economic Corridor, the China-Central Asia-West Asia Economic Corridor, the Bangladesh-China-India-Myanmar Economic Corridor, have achieved stage-by-stage results. A number of major transportation projects, such as the China-Laos Railway, Jakarta-Bandung High-speed Railway, China-Russia-Heihe River Bridge, Gwadar Port in Pakistan, and Lamu Port in Kenya, have been completed and put into operation. These transportation infrastructure projects have shortened transportation time and facilitated trade and investment exchanges. The World Bank estimates that the completion of the Belt and Road infrastructure projects will shorten transportation time by up to 12% in the countries along the route, and by an average of 3% in the rest of the world. Countries with comparative advantages in time-sensitive industries such as fresh fruits and vegetables and electronic products will get the benefit, and FDI in low-income countries that originally lagged behind in infrastructure is expected to increase by a significant 7.6%. 2023 will mark the 10th anniversary of the Belt and Road Initiative, and it is expected to go from the overall layout to the meticulous and detailed design. With the convening of the Third Belt and Road Summit Forum on International Cooperation, more precise and focused measures to improve the connectivity of the Belt and Road Initiative will be formed, and economic, trade and humanistic exchanges will be strengthened within the region as well as with the rest of the world.
II. Transformation and upgrading of emerging industries
(i) Digital economy
The digital economy in Asia is developing rapidly. Asia's share of global trade in digital services has continued to rise, from 16.6% in 2005 to 25.6% in 2021, ranking second among the five continents and 5.9 percentage points ahead of the Americas, which is in third place. According to a study by the China Academy of Information and Communications Technology, China, Japan, South Korea and India have all ranked among the top 10 in terms of the size of the global digital economy, with the second, fourth, seventh and eighth places respectively; in 2022, South Korea, Japan, and China's digital economy as a proportion of GDP will increase by 18.0, 14.1, and 11.2 percentage points respectively compared to that of 2016, which is a higher level of growth rate when compared to that of the major countries in the world. China's digital economy continues to lead the world in terms of development speed, is the world's largest in terms of data size, and possesses the advantages of the whole industrial chain in the research, manufacturing and application of 5G technology. The Chinese government has released the 14th Five-Year Plan for the Development of the Digital Economy, which makes a more detailed deployment for the establishment of a prosperous and mature digital economy in 2025, and plans that the added value of the core industries of the digital economy will account for 10% of GDP by 2025, an increase of 2.2 percentage points compared with that of 2020. Japan has advanced electronics and information technology manufacturing industries to support its digital development. Meanwhile, Japan set up a dedicated Digital Agency in 2021 to enhance industrial digitization and digital industrialization in all aspects, from digital infrastructure construction to the development of digital technology applications, under the guidance of the three major digital strategies of National Data Strategy,the Science, Technology, and Innovation Basic Plan 2021-2025, and Integrated Innovation Strategy 2021. In 2019, South Korea became the first country in the world to launch 5G services and was ranked as the world's most digitized government in the OECD's Digital Government Index (DGI). In 2020, the Korea New Deal announced, the Digital New Deal is one of the plan's three core pillars, and that $11.7 billion in funding was provided for the Digital New Deal in 2021 for the establishment of a big data platforms, development of artificial intelligence, and improvement of digital infrastructure. India has more than 7,000 kilometers of coastline on both the east and west sides, but port logistics is inefficient, and it wants to develop digital maritime by virtue of its location. In 2021, India released the India Maritime Vision 2030, which plans to streamline the process of major ports and improve the efficiency of port logistics through the use of artificial intelligence, machine learning and other technologies.
In recent years, more Asian emerging economies have begun to systematically lay out the development of the digital economy. In 2020, Indonesia released the Blueprint for Digital Transformation of the Banking Sector, relying on fintech to accelerate the digital transformation of the financial sector. In 2021, Indonesia released the Digital Roadmap for Indonesia 2021-2024, including six strategic directions such as infrastructure, public services, technological production, legislation, geo-competitiveness, and digital culture, and identifying 10 focus areas such as digital transformation and tourism, digital trade, digital financial services, digital media and entertainment, digital agriculture and fisheries, digital real estate and cities, digital education, digital health, industry digitization, and digitization of government agencies, and proposing at least 100 major initiatives to achieve an inclusive digital transformation. In 2020, Vietnam released the National Digital Transformation Plan to 2025 and Development Direction to 2030, to promote the formation of globally competitive digital technology enterprises while developing the digital government, digital economy, and digital society. In 2021-2022, Malaysia successively released the Blueprint for Malaysia's Digital Economy, the MyDigital Plan, in three stages to promote the development of the digital economy in six core directions, the goal is to create 500,000 digital economy employment opportunities in 2025, to attract up to 70 billion ringgit of investment in the digital economy. In 2022, the digital economy's contribution to Malaysia's GDP of about 22.6%, is expected to grow to 25.5% by 2025.
(ii) Green development
Asian countries attach great importance to sustainable development and are actively deploying a green transition. In early 2020, Japan released its Carbon Neutral Green Growth Strategy 2050as a key strategy to stimulate economic recovery. The strategy establishes 14 green high-growth potential areas, with goals that include increasing efforts to promote electric and hybrid vehicles, stepping up research of next-generation battery technology, and creating smart transportation and logistics systems. The Japanese government has established a green fund and, through the use of industrial policies such as subsidies and tax incentives, plans to attract about USD 2.3 trillion of private capital to invest in green development, aiming to achieve economic growth of about USD 0.9 trillion and USD 1.9 trillion in 2030 and 2050, respectively. In 2021, Singapore announced its Green Development Blueprint for 2030, with a clear vision in the areas of electric vehicles, renewable energy, green finance, etc., confirming clear development goals and specific initiatives. In March 2022, South Korea released the First National Carbon Neutral-Green Development Basic Plan (2023-2042), which plans to invest in five years in the research and development of core technologies for carbon-neutral industries, the development of zero-carbon energy sources and green transformation and upgrading, and the subsidization of electric and hydrogen vehicles, with an investment of about USD 0.07 trillion (equivalent to 89.9 trillion won) in five years. Central Asia has an excellent renewable energy base, with a wide range of energy sources such as hydro, wind, solar, and bioenergy. In recent years, the governments of the five Central Asian countries have also been actively promoting the development of related industries. Uzbekistan has successively issued a series of documents such as the National Sustainable Development Goals and Tasks until 2030 and theTransition Strategy to a Green Economy 2019-2030, which are in line with the $120 billion domestic and foreign investment attraction strategy to vigorously develop renewable energy projects, and the other four countries are actively deploying to increase the introduction of renewable energy equipment, establish clean energy power stations, etc. that support the green transition of their countries.
Currently, most of Asian region relies on coal power. However, Asia is expected to become one of the world's largest renewable energy markets as it pushes forward with sustainable development. According to Fitch Solutions, by 2030, Asia's renewable energy capacity is expected to reach 2,400 GW, accounting for 57.4% of global capacity, most of which will come from China and India. China, with its technological and cost advantages in photovoltaic and wind power, is leading Asia's renewable energy transition. China's PV capacity is expected to reach 43% of the global share by 2030, up 4 percentage points from 2020. China is the world's leading producer of key components for photovoltaic panels. The International Energy Agency estimates that China's production of polysilicon wafers, ingots and wafers will account for 95% of global production in 2025. India is also promoting the transformation of coal-fired power generation, and its production capacity of photovoltaic cells and modules will be increased accordingly. 2022-2030, India is expected to add more than 120 GW of renewable energy, of which, more than two-thirds of the new capacity is solar. South Korea attaches great importance to the development of hydrogen energy industry, its global utility-scale stationary fuel cell installed capacity of hydrogen energy accounted for about 50%. It’s estimated that in 2030, South Korea's hydrogen energy industry will be worth 20 billion U.S. dollars.
Figure 1 Global Share of PV Production Capacity in Major Countries and Forecasts (%)
Source: Fitch Solutions
Transportation electrification is also an important part of the green transition and will create opportunities to new energy vehicle investment in Asia. New energy vehicle penetration rates vary widely across Asia. In 2022, China's market share of new energy vehicle sales will be 27.6%, while Indonesia's share will be less than 1%. Many Asian economies have broad prospects for the development of new energy vehicle market, with the continuous improvement of charging infrastructure and in-depth breakthroughs in battery technology, the popularity of new energy vehicles in the Asian region will have a significant increase in the sales of new energy vehicles. And the sales of new energy vehicles in Asia is expected to account for 52% of the proportion of the world in 2030.
III. Cross-border e-commerce being a new bright spot
The Asian region was originally a blue ocean market for cross-border e-commerce, which has developed rapidly in recent years and has become an important global e-commerce market. Statista data show that half of the top ten economies in the world in terms of e-commerce sales in 2022 come from Asian countries. China, Japan, South Korea, India, and Indonesia rank first, third, sixth, seventh, and ninth in terms of sales globally, respectively. In 2022, China's e-commerce sales are 1.5 trillion dollars, ahead of the second place of the United States 0.7 trillion dollars. A number of well-known cross-border e-commerce enterprises have also emerged in the Asian region, which continue to innovate their business models and actively expand their overseas markets, and will continue to lead Asian cross-border e-commerce to the forefront of the world. As of the end of August 2023, China's representative cross-border e-commerce enterprises operating overseas, Temu (the overseas version of Pinduoduo), SHEIN, TikTok Shop (TikTok's e-commerce platform), AliExpress (Alibaba's cross-border e-commerce platform), and Singapore's Shopee, have all announced the launch of the full hosting mode which solves the key problem of cross-border operation for sellers on their way to the sea and greatly reduces the threshold for sellers to participate in cross-border operation. AliExpress was the first to announce the launch of fully managed services at the end of 2022, and in March 2023, AliExpress orders grew by more than 50% year-on-year, of which, buyers from Japan and South Korea grew by more than 70%. Alibaba attaches great importance to the Southeast Asian e-commerce market, the fourth quarter of fiscal year 2022 financial report shows that its holding of Southeast Asian e-commerce platform Lazada in Southeast Asia's market share continues to increase. In the first half of 2023, its two rounds of injection of capital into Lazada accumulates about 1.2 billion U.S. dollars. Temu in cross-border e-commerce business overseas is also very active. As of the end of August 2023, Temu has entered 27 countries (regions) including Europe, the US, Japan and South Korea. The growth prospects of e-commerce markets in India and ASEAN are optimistic. The forecasts of several research organizations all show that the e-commerce market size in India will grow at a CAGR of around 20% in the next few years, and by 2026, India's e-commerce market size is expected to exceed $130 billion. Thanks to its population size and structural advantages, ASEAN's e-commerce business is highly active, and cross-border e-commerce cooperation between China and ASEAN will become a highlight of economic and trade cooperation in Asia.
Figure 2 E-commerce Turnover and Forecasts in Selected ASEAN Countries (USD billion)
Source: E-Conomy Sea 2022：Through the waves，towards a sea of opportunity
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 and Wang Ningyuan also contributed to this article.
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