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Home » As India, China Double Consumption Rates, Intra-Asia Trade to See Huge Growth

As India, China Double Consumption Rates, Intra-Asia Trade to See Huge Growth

May 9, 2016
IHS Global Insight

For instance, China and India's share of world consumption is set to rise from 12 percent in 2016 to 27 percent by 2035. We're also going to see very rapid growth in consumption in emerging Asian markets over the next two to three decades, with Asia Pacific consumption as a share of world consumption forecast to rise from 27 percent in 2016 to 39 percent by 2035. This will translate into continued rapid growth in intra-Asia trade. Intra-Asia containerized trade dominates all other container trade lanes in terms of volume, and is forecast to grow at 5.1 percent per year over the medium term outlook to 2018. Total containerised trade in East Asia is forecast to rise from 25.9 million TEUs in 2014 to 31.6 million TEUs by 2018, according to forecasts by IHS Global Insight.

The link between rapid growth in consumer spending and online sales will be a primary driver of growth in cargo transportation and logistics services in the region, particularly in China and India. The Chinese e-commerce market is already the largest in the world, having overtaken the US, with an estimated 400 million Chinese purchasers already buying online. Chinese online retail sales of goods and services in Q1, 2016 reached $158bn, up 27.8 percent year-on-year, driving rapid growth in China’s logistics industry. The Indian e-commerce market is much smaller than China, but is growing very rapidly, with e-commerce sales estimated to have risen from $4bn in 2009 to $40bn in 2016, helped by the rapid growth in sales of smart phones and tablets, which have facilitated online buying by Indian consumers. In Q1, 2016, sales of smart phones in India grew by 23 percent year-on-year.

In Southeast Asia, e-commerce is also growing rapidly, buoyed by the rapid growth in the size of the middle class. IHS Global Insight forecasts that Indonesia will grow at about 5 percent per annum over the next decade, with GDP forecast to reach $3.8tr by 2030, up from $930bn in 2016. The Indonesian e-commerce market is already estimated to be worth $6bn in 2016, dominated by e-sales to Indonesian consumers for travel-related spending, notably on airlines and hotels.

Supporting the expansion of consumer spending will be the development of more manufacturing in the region, with Southeast Asia set to continue to enjoy growth in the lower-end manufacturing segment, including products such as garments and electronics, much of it at the expense of China.

Asia’s changing manufacturing patterns have already driven extraordinary growth in some Southeast Asian countries. Vietnam, for instance, has seen the annual output value of its electronics sector rise from $6.9bn in 2011 to $45.8bn last year. China’s rising wage costs make it difficult for coastal provinces to compete at the lower end of the manufacturing sector. This is an inevitable consequence of becoming a middle income economy, but China’s manufacturing sector is shifting towards more complex products. The Chinese government introduced the “Make in China 2025” strategy last year to drive a shift in manufacturing towards higher value segments including power equipment, precision tools and robotics, railway equipment and aerospace.

With projected growth of 7.5 percent per annum over the medium-term to 2020, India will be increasingly important in terms of the region’s GDP growth. The Indian government is implementing the “Make in India” initiative to accelerate manufacturing investment, accompanied by government efforts to ramp up infrastructure development. A key objective of the Indian government’s focus on infrastructure and manufacturing is to boost the manufacturing sector share of total GDP. This is currently just 15 percent in India, well below that of East Asian countries, including South Korea and China, where the share is about 30 percent. There are early signs that the Indian government’s initiatives are starting to result in stronger investment inflows. For example, Foxconn recently announced a $5bn investment plan to build electronics factories in India. Government commitments to develop infrastructure, including the ports and transportation sector, will help in this regard.

Source: IHS Global Insight

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