This year is the 40th anniversary of China’s ‘open door’ policy – Deng Xiaoping’s market reforms that eventually created an economic superpower. This was probably the most important development in a region that has changed beyond recognition.
In the mid-1960s, the Asia Pacific region was the poorest in the world. In 1978, when the Asian Development Bank granted its first health-sector loans, the beneficiaries were in Hong Kong and Singapore. Today, both places are thriving financial centres and among the world’s richest per capita. Other regional economies produce many of the things the world needs to buy.
This is a tale of market reform, state sponsorship, globalisation, hard graft and luck. But it’s also a story about technology: early on, it was technology transfer from the developed world; later, Asia adapted existing knowhow to solve new problems. That’s why Asia makes everything from clothing and cars to industrial robots and nuclear power plants.
Perhaps this is also why Asia still isn’t known for innovation. For many people, the abiding impression is of a place that copies rather than invents. While that may once have been true, emerging Asian countries are in the vanguard of employing new technology to tackle some of today’s biggest problems.
Emerging Asian countries are in the vanguard of employing new technology to tackle some of today’s biggest problems.
Take the environment. China, a notorious polluter, invested more money in renewable energy in 2015 than the United States, Japan and Britain combined. It’s making a big push to put itself at the centre of the nascent electric-car industry and is already the world’s largest market for these vehicles. The authorities there are considering an eventual ban on the production of petrol and diesel cars.
China’s BYD, in which Warren Buffett’s Berkshire Hathaway holds a 24.6% stake, is the world’s biggest battery-maker and one of a handful of companies researching the creation of cheaper rechargeable batteries. Batteries are one of the biggest costs in electric vehicles; their hefty price tag is one reason they have yet to take off.
India, inequality and identity
Meanwhile, India ranks seventh in the world for solar-energy capacity; a few years ago, it didn’t even feature in the league table. With more mega solar farms to become operational in 2018, India hopes to achieve around 160 gigawatts of renewable energy capacity by 2022. To put this in context, the country’s total grid capacity today is just over 180 gigawatts.
Then there’s the issue of social inequality. India is using fingerprint and iris scans to help alleviate chronic poverty. The country has built a national database that assigns a unique 12-digit identification number to each person, linked to their biometric data. Out of a population of around 1.3 billion, more than 1.1 billion are registered.
The inability to verify someone’s identity impeded basic tasks such as opening bank accounts and claiming government assistance. Poor record-keeping led to identity theft, fraud and corruption. More bank accounts allow government payments to be made directly to beneficiaries, rather than via corruption-prone intermediaries. Eventually, this database, riding on the ubiquitous smartphone, may form the basis of the next generation of digital financial services – enabling cashless payments across different platforms, or even allowing people to open a bank account with a selfie.
This handful of examples illustrates an important shift: we may soon look to emerging Asia for a glimpse of tomorrow’s technology – whether in the form of solar panels, drones, supercomputers or fintech innovations. The implication is that so-called ‘emerging’ markets will turn to each other for their technology needs, rather than relying on handouts from the developed world.
Investors, inventors and inflection
So how should investors respond? Principally, they need to review their understanding of the capabilities of emerging Asian companies. Many firms have moved beyond the low-cost, low-value-added export model that worked so well in the early days of Asia’s development.
In 2016, inventors in Asia accounted for more than 47% of all international patents, almost as many as the combined total from North America and Europe. So it’s clear that regional economies harbour ambitions beyond assembling phones designed in California. Admittedly, that Asian tally includes Japan, but China is on track to overtake Japan for patents filed, while its annual investment in research and development is expected to surpass that of the US by 2020.
Four decades after Deng Xiaoping unleashed forces that transformed an entire continent, we may have reached an inflection point. Just as the global financial crisis, Brexit and the election of Donald Trump showed that the West doesn’t have all the answers, the developed world’s technological superiority could be the next sacred cow waiting to be slaughtered.
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