In the decades ahead, Asia’s economies could go from participating in these flows to determining their shape and direction. More than half of the world population lives in Asia, where a billion people escaped poverty over the past three decades.

The rising middle class
There are more than two billion millennials in the world today. China has more than Europe, North America and the Middle East combined. Asia is home to 61% of them. It is estimated that Asia will account for more than half of the total middle-class consumption market by 2030 as the number of middle-class people in the US and Europe remains stagnant. The structural story for the Chinese consumer remains particularly robust. Chinese culture in itself encourages upward social mobility. In terms of consumption patterns, it has been observed that Chinese spending in the more affordable luxury categories also increases disproportionately as incomes rise, underpinning a rapid and robust uptake of premium consumer goods. The corona crisis causes a short-term dent in Chinese international travel but does not reverse the long-term trend, which grew at 10% per year during the last decade. The short-term dent will likely weigh on luxury items purchases overseas. For many luxury brands, Chinese consumers already contributed to one-third of total sales. Key beneficiaries also include Chinese brands. Chinese companies are also upping the ante with astute marketing, clever use of digital tools, superior supply chain management and quality product offerings. Power is being handed back to the Chinese consumer, with President Xi’s vision of ‘Common Prosperity’ expected to benefit mass consumption equities the most directly.

China’s new infrastructure
Infrastructure investments in China were traditionally concentrated in transportation facilities such as highways, railroads and airports. New infrastructure is built to accelerate the growth of the digital economy in China, which is now more than a third of the nation’s GDP. Information infrastructure includes technologies like 5G communication channels that enable data transfer speeds and latencies that are dozens of times quicker compared to current standards. It also includes cloud computing systems that are often multiple times as efficient when put into relation to on-premise storage solutions. The proliferation of IoT (internet of things) means a much more interconnected infrastructure. The interplay of those technologies leads to an overall growth impact that is much larger than the sum of its parts. Similar to old infrastructure, new infrastructure boosts investments in related industries, brings jobs and income to individuals, and directly stimulates demand in the economy. However, new infrastructure tends to exhibit higher investment returns than the old, given that it raises potential growth in the economy by boosting productivity.

Healthy China
China’s healthcare industry is a secular growth story driven by an ageing population, a rising middle class, increasing government spending, the growing incidence of chronic diseases, as well as expanding health insurance coverage. The United Nations forecast that the number of Chinese people aged 65 years and older will more than double by 2050, from 12% of the population in 2020 to more than 25%. The Chinese government has set a total healthcare spending target of RMB 16 trillion by 2030, up from the RMB 4 trillion in 2015 – a fourfold increase during the 15-year period. Domestic pharmaceutical firms with innovative drugs in their pipelines, contract research organisations, market leaders in drug distribution, medical devices manufacturers moving up the value chain and specialised private hospitals should benefit from these developments.

Moving up the value chain
Over the past 30 years, China has transformed from a low-end manufacturer of shoes and clothes to a market leader in home appliances and telecommunication technology. It has already developed world-class industries in digital commerce, artificial intelligence, social networks, digital payments and financial technology (FinTech). According to the Global Innovation Index, China ranked 12th in innovation performance in 2021. The country spent RMB 2.2 trillion or 2.2% of its gross domestic product (GDP) in research and development in 2019, up from RMB 100 billion or 0.95% of GDP when it joined the World Trade Organisation in 2001. Nevertheless, ongoing tension with the US around economical and political leadership has accelerated the trend towards technological self-sufficiency. ‘Made in China’ has evolved into ‘Made for China’ and ‘Made by China’, driven by China’s shift towards a consumption-driven economy, policy support for home-grown champions, changing inter-generational preferences. Fortunately, the Chinese market’s massive size and fast-changing nature provide plenty of room for innovators and entrepreneurs to learn by trial and error and allow them to rapidly scale up.