TURNING AROUND ASIA

Dominic Barton, head of consultancy firm McKinsey tells Chris Owen why Asia is more important than ever

Asia’s emerging economies were certainly not immune to a financial crisis made in the West. As Westerners withdrew money from Asian markets and stopped buying Asian-made products, these economies were hit hard. However, the fact that they now appear to be bouncing back more strongly than others suggests that export drops were only partly responsible for the collapse in GDP growth. In most Asian economies, falling domestic demand, rising food and energy prices and tighter monetary policies also played a part. As export markets are likely to remain weak for some time, recovery in Asian economies will be largely dependent on increased domestic consumer spending.

“I’m a bull on Asia and that’s driven a lot by the consumer,” says Dominic Barton, worldwide managing director of global consultancy firm McKinsey. “Basically you have 900 million people in the region urbanising and moving into the middle class — an unheard of number in human history — which is going to drive a huge amount of growth in the region.”

Some argue that emerging Asian economies are not pulling their weight because their consumers prefer to save rather than spend. But over the past five years consumer spending there has grown by an annual average of 6.5%, faster than in any other part of the world. Consumption has fallen as a share of GDP, but that is a result of investment and exports growing even faster. The exception is China, where private consumption fell from 46% of GDP in 2000 to 35% last year. Consequently, China’s government has taken action to boost consumption. Barton says: “If you look at the stimulation programme what gets me excited is that it’s been quite focused. There’s a big part on infrastructure, but a lot of the stimulus is focused on the lower-upper-middle-class group coming into the system, helping them buy TVs, scooters, phones etc. I think if China can shift to more of a domestically driven economy versus an export-driven economy, or an infrastructureinvestment- driven economy, that’s good for all of us. We need to ignite the consumer.”

But for those who believe that Asia can singlehandedly drive the global economic recovery, he sounds a note of caution: “The only challenge, I would say, is that while there are hundreds of millions of people, their purchasing is at lower levels. There is no way China is going to power us out of this crisis, but this crisis is igniting the consumption that will be important for all of us.” In addition to China he points out that Indonesia, with over 200 million people, and Vietnam are also very significant economies. “I think this is a very different world we are entering into,” says Barton. “We’re not going to jump into it but we’re finding with our global clients that if you do not have a footprint in Asia, if you don’t have anchors in different parts of the region, in 10 years you’re going to be an irrelevant institution because of how fast things are changing in this market.”