the medium to long-term economic outlook for asia...new digital technologies may evoke a paradigm...

Copyright (C) Mitsubishi Research Institute, Inc.

The Medium to Long-Term Economic Outlook for Asia

February 3, 2017

Yoko Takeda

Mitsubishi Research Institute

Copyright (C) Mitsubishi Research Institute, Inc. 1

Issues for discussion for Asian Economy


Issues for discussion both for Asia and global economy

Will a huge middle/high income class emerge in Asia?

Will new digital technologies evoke a paradigm shift

of global competition?

Can developed economies overcome secular

stagnation?

Can we address anti-globalization and dissatisfaction

with inequality?


New digital technologies may evoke a paradigm shift

Factors That Determine Firm’s Location

2015 2030

Labor cost

Infrastructure

Technology

Labor cost

Technology ・AI, IoT, Robots

Social infrastructure

・Intellectual property

・Privacy protection

・Cyber security

Source: MRI

Demand factor

Demand factor ・Customization


Opportunities and disadvantages for emerging Asia

Jobs that were previously outsourced from developed economies to

emerging economies may reverse course. e.g. Lack of skilled labor, immature legal system to protect privacy and

patents.

Opportunities

Disadvantages

Some new technologies may diffuse rapidly in emerging economies due

to the absence of vested interests.

e.g. Mobile payments are rapidly becoming the norm in China.


0.1 0.2 1.2

6.0

10.2

15.7

21.9

28.5

35.4

0

5

10

15

20

25

30

35

40

2011 2012 2013 2014 2015 2016 2017 2018 2019

Forecasts

(Trillion yuan)

Gross Merchandise Volume of

Mobile Third-Party Payment in

China

Source: iResearch Global Inc.

Backshoring and Technology

Intensity of the Sector in Europe,

2010 - Mid - 2012

Notes: Results for Austria, Switzerland, Germany, Denmark, Spain, France, Hungary,

Portugal, Netherlands, Sweden and Slovenia. Total number of observations is

3,293.

Source: Dachs, B. and C. Zanker (2015), Backshoring of Production Activities in

European Manufacturing.

Opportunities and disadvantages for emerging Asia

2.7%

3.0%

5.3%

7.5%

0% 5% 10%

Low technologysectors

Medium-lowtechnology sectors

Medium-hightechnology sectors

High technologysectors

Technology intensity(classified by sectors)

Share of backshoring firms


GDP Growth Rates and GDP per Capita (2015 vs. 2030 forecast)

Sources: IMF; MRI forecasts.

0

5,000

10,000

15,000

20,000

25,000

0 1 2 3 4 5 6 7 8 9

Real GDP growth rates (%, the average rates over 2016-2030)

GD

P p

er

capita

（US dollar）

China

Thailand

Indonesia

India

7,990

22,468

4,960

9,869

11,305

1,6173,362

5,742

2030 forecast

Actual in 2015

Will a huge middle/high income class emerge?


0.8

1.0

1.1

0.6

0.2

0.0

0.1

0.6

1.5

0.9

0.8

0.2

1.2 0.8 0.4 0.0 0.4 0.8 1.2 1.6Billion people

2030

Upper high （>$40）

Lower high（$20-$40）

Upper middle （$10-$20）

Medium middle（$4-$10）

Lower middle（$2-$4）

Low（<$2）

2014Consu

mption e

xpenditure

per

capita /

day


Sources: United Nations; IMF; The World Bank; MRI estimates.

Population by Income Class in Emerging Asian Economies

1.9 billion

people

3.4 billion

people



Volume of Nominal Household Consumption

in Emerging and Developed Countries

Notes: All figures are MRI estimates. The ratios of household final consumption expenditure to GDP used for these estimates are the

actual values of 2015. As for China, the ratio is set higher than the actual value on the assumption that China will shift to a

consumption-driven economy.

Sources: United Nations; IMF; The World Bank; MRI estimates.

China

USA

ChinaUSA

Euro Area

ASEAN

Euro Area

Japan

India

Japan

Brazil

0

5

10

15

20

25

30

35

Emerging Developed Emerging Developed

2015 2030

（Trillion dollar）

8

21

32

29


Global Outlook


1.3% 1.0%0.2%

2015 2020 2030

6.9%

5.7%

3.6%

2015 2020 2030

7.6%7.1%

4.7%

2015 2020 2030

2.6%2.2% 1.7%

2015 2020 2030

2.0%

1.0%0.6%

2015 2020 2030

4.8% 4.7%3.8%

2015 2020 2030

-3.8%

1.9%1.4%

2015 2020 2030

MRI forecasts for global GDP growth rate

Notes: Real GDP growth rates after 2016 are MRI forecasts. As for Japan, data and forecasts are presented on a fiscal year basis.

Sources: MRI forecasts.

Economic Outlook for Major Countries and Regions

Going towards 2030

Euro Area

China

Japan

USA.

India ASEAN5 Brazil


0

5

10

15

20

25

30

35

40

45

1980

1985

1990

1995

2000

2005

2010

2015

2020

2025

2030

India China

USA Japan

ASEAN10 Euro Area

(Trillion dollar)

Forecasts

Two possible “catch-ups” by 2030

Nominal GDP of Major Emerging and Developed Economies

Note1: Estimation results vary substantially depending on the assumption of exchange rates. The GDP growth rates after 2016 are MRI forecasts. The

exchange rates are generally based on the IMF forecasts. As for China, the yuan is assumed to appreciate until 2020, and to stabilize after 2021. The

Indian Rupee is assumed to depreciate about 1% per year. Japanese Yen rates are MRI forecasts.

Notes2: ASEAN10 refers to Indonesia, Malaysia, the Philippines, Singapore, Thailand, Vietnam, Brunei Darussalam, Laos, Myanmar, and Cambodia.

Sources: IMF; MRI forecasts.

Japan-India and Japan-ASEAN reversals

US-China reversal


Japan Outlook


Japan’s Potential GDP Growth Rate

Source: MRI estimates.

4.24.8

2.5

0.6 0.70.6 0.6 0.4 0.3 0.1

-1

0

1

2

3

4

5

6TFP

Capital stock

Labor

Potential GDP

(Year-over-year percent change)

Forecasts

Economic outlook for Japan


Promote innovation and mitigate demographic vortex

Innovation e.g. AI, IoT, robots

Economic system reform e.g. Labor market reform,

social security reform

More risk-taking by

corporate sector e.g. Investments in new

markets

Three prescriptions: Japan’s Potential GDP

(Higher-growth Scenario)

Sources: MRI questionnaires; Agency for National Resources and

Energy; MRI estimates.

4.24.8

2.5

0.6 0.70.6 0.6 0.9

1.21.3

-1

0

1

2

3

4

5

6

TFP

Capital stock

Labor

Potential GDP

(Year-over year percent change)

Forecasts


Conclusions

Emerging Asian markets have marked growth potential.

But, its actual performance depends on whether:

(i) new digital technologies evoke a paradigm shift

(ii) China can solve its structural problems

(iii) emerging Asia can avoid the middle-income trap

If Japan can conquer the challenges lying ahead, it has

a chance to achieve both a high-quality growth and a

sustainable society.


Appendix

Economic Outlook for China


Economic outlook for China

China’s Potential GDP Growth Rate

Sources: CEIC; MRI Estimates.

China’s GDP growth rate may decline to 4 percent or lower in 2030

-2

0

2

4

6

8

10

12

14

01-05 06-10 11-15 16-20 20-25 26-30

Labor Capital Stock

TFP Potential GDP

（Year-over-year percent change）

Forecasts


The strengths and weaknesses in China’s economy

①Transformation to an innovation-driven economy underway

Venture Capital Funding of Startups in China

Sources: Venture Enterprise Center; Bloomberg.

15

37

56

68

1.1 1.0

0

20

40

60

80

2013 2014 2015 2016

USA

China

Japan

（ Billion dollar ）



Non Performing Loans China’s Corporate and General

Government Debt

Note: Corporates are non-financial corporations, including state-owned

enterprises.

Source: BIS. Sources: CEIC; China Banking Regulatory Commission.

②Ballooning non-performing loan problems

90

110

130

150

170

190

07 08 09 10 11 12 13 14 15 16

（Percent of GDP）

20

30

40

50

60

07 08 09 10 11 12 13 14 15 16

（Percent of GDP）

Corporate debt

General Government debt

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4

2012 2013 2014 2015 2016

万

Non-performing loan value (right scale)

Non-performing loan ratio (left scale)

（%）（Trillion yuan）



Ratio of People Over 65 Years Old

Source: United Nations.

③Looming social instability due to rapidly aging

0

5

10

15

20

25

30

12

13

14

15

2000 2010 2020 2030 2040 2050

Total population (left scale)

Ratio of people over 65 years old (right scale)

（100 million people）

Forecasts

（％）


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