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Asian Perspectives

July 23rd, 2004 · No Comments

WSJ writes that “the rising incomes of many of Asia’s rural residents — thanks in part to government spending — are beginning to make a mark in both the economic and investment pictures around the region.”

Rebellious farmers in India, fed up with development skewed toward technology and the urban elite, set the stage for what is developing into a pan-Asian development and investment theme by throwing out the Bharatiya Janata Party-led government in elections in May. The new ruling coalition promptly passed a budget that included an extra 100 billion rupees ($2.18 billion) for investment in irrigation, food-for-work programs and other rural projects.

The message from India — that rural areas really matter — has been resonating for some time with the Chinese Communist Party, which doesn’t face popular elections but feels the heat from peasants angry about widening income disparities, proliferating local fees and taxes, and the loss of farmland to factory owners and golf-course developers. After decades spent cosseting urban industry with subsidies and preferential policies, tax breaks and other benefits now are flowing to farmers.

Another article in WSJ (no link available) had an interesting point – growth in Asia (especially India and China) is being driven by thw twin resolutions of outsourcing and rising domestic consumption.

The consumption revolution changes how Asian consumers consume and the outsourcing revolution changes how Asian producers produce. Each ushers in further changes. The new ways of consuming and producing turn out to be intricately linked and mutually reinforcing, and will prove to have far-reaching ramifications.

The consumption revolution is better known as it has been going on for longer. The export-led growth regime that served the Asia/Pacific region well for much of the post-World War II period has now been supplanted by domestic consumption-driven growth.

Setting the stage is the rapid expansion of the middle class, which is defined as someone with a minimum level of income of $5,000 per person per year (which is the level where consumption begins to shift quickly from basic necessities to discretionary spending). The investment bank CLSA estimated the total size of this middle class at 226 million in 11 Asia/Pacific countries excluding Japan in 2002. More than 65 million of these individuals are already in China, which is the country where the middle class is growing fastest. By 2010, this number could reach 541 million in Asia/Pacific.

The rise of the middle class translates into broadly based growth in domestic demand. This phenomenon stands in sharp contrast with the past situation of a small elite at the top buying luxury goods, while the vast majority lived at subsistence level.

This twin revolution, which is firmly underway today, will therefore see the emergence of Asia/Pacific as a high-performance economic region in the coming years. The region’s foundation of growth will therefore be more balanced and sustainable. More knowledge-intensive and higher-paying employment will be created. The middle class will grow much bigger, with all the benefits that a vibrant and prosperous middle class brings.

Tags: Emerging Markets

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