B.C. Business Matters:
Ken Peacock >>
BC's growing orientation towards Asia
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By Ken Peacock
The ascent of China and other Asian countries more generally is transforming the global economy and reshaping trade patterns. The extent of this shift is exemplified by the fact that last year China overtook the United States to become the world’s largest trading country. This historic reorientation of trading patterns is certainly being felt here in British Columbia. BC’s merchandise exports to China have soared over the past decade, rising from just over $1 billion to $6.6 billion last year. Other Asian countries are also buying more BC products. Collectively, Asia Pacific countries now account for as big a share of BC’s exports as the United States, despite the natural trading advantages that BC has with the US – geographic proximity, a common language, similar institutions and business practices, a comprehensive free trade agreement (NAFTA) and a long history of close commercial and people-to-people ties.
Is this realignment permanent? Given divergent growth dynamics between advanced economies like the US and emerging economies such as China, India and Indonesia, the answer is likely yes. Although the US economy is now moving to a stronger growth footing, its rate of GDP growth is not likely to exceed 2.5% or at most 3% over the next five years. China, in contrast, will probably continue to grow in the 6% to 7.5% range over the balance of the decade. Other emerging Asian economies will also register much stronger rates of growth than in developed countries. And economic momentum also seems to be picking up in Japan, a mature economy that has long been an important trading partner for BC.
With growth comes affluence. A few years ago the OECD projected that we can expect the following realignments in global spending: Asian (ex Japan) middle class spending will surpass that of the US, EU and Japan combined by 2022; middle class spending in China will exceed that of the US in 2020. The projections suggest that the global middle class is poised to explode in size from 1.8 billion to 3.2 billion by 2020 and then to 4.9 billion by 2030. Keeping the BC-Asia commercial linkages in mind, it is worth noting that 85% of this anticipated expansion of the global middle class will be in Asia.
Looking ahead, BC’s merchandise exports to the US are set to climb as America’s economy strengthens and housing starts stateside continue to rebound. Underpinned by still solid economic growth in China and a rapidly expanding Asian middle class, however, there is a good chance that our exports to the Pacific Rim will grow at an even quicker pace, resulting in an even greater realignment towards Asia. If BC develops a substantial Liquefied Natural Gas industry with a focus on supplying Asian end-use markets, the province’s orientation towards Asia will be even more dramatic.