The main countries that make up what is commonly known as emerging Asia are China, India, the Philippines, Indonesia, Malaysia, Thailand and Vietnam, although the region can be much larger (the IMF, for example, includes a total of 29 countries). Both the epithet «emerging» and the presence of China and India in the list immediately imply that the economic development of the area as a whole has been positive over the last few years but the actual figures are still astonishing. As can be seen in the first graph, while in 1980 the region accounted for 7.5% of the world's GDP, a figure that lagged far behind the 24.9% of the US and the 30.9% of the European Union, in 2010 its share had rocketed to 23.3%, clearly outdoing the 19.9% of the US and the 20.3% of the European Union. Although this excellent progress raises many different questions, we will attempt to provide a simple answer to two of them: How did emerging Asia manage to achieve this position and, particularly, will this trend continue?

Before starting to analyse the region's main features, it is useful to take a moment to underline the fact that the differences between its different countries have been and continue to be substantial. At the top of the list, of note are Malaysia, China and Thailand, with a GDP per capita in purchasing power parity of 16,000, 8,600 and 9,000 euros, respectively. At the other end of the scale are Nepal, Myanmar and Bangladesh, with a GDP per capita of around 1,500 euros. Now that we have stressed the deeply heterogeneous nature of emerging Asia, we will analyse those factors that characterise it and have made the region as a whole one of the world's leading economic blocks.

One of the factors accompanying the region's growth over the last few decades has been a sharp rise in credit, something which has often raised doubts regarding the sustainability of the level of activity achieved by the region. But although it is true that the ratio of private credit to GDP has grown considerably over the last few decades, in general this has been a natural process of convergence as the financial system was highly undeveloped: in the main countries of emerging Asia, the ratio of private credit to GDP in 1980 was only 35.6%, reaching 98.2% of GDP in 2010 (whereas in the US private credit already represented 94.2% of GDP in 1980). In this aspect, however, we should also point out the region's lack of homogeneity. In general, this ratio tends to be higher in the more economically mature countries such as Malaysia, where it stands at 117% of GDP. However, in Indonesia, with a GDP per capita of 4,700 euros, it is only 29.0%.

We should also remember that the rise in credit has occurred while external financing has remained at moderate levels. In the region as a whole, external debt peaked in 1998 when it reached 35% of GDP. From that point onwards it fell to 15%, a figure at which it has stabilised over the last few years. One of the lessons learned by the countries suffering from the Asian crisis at the end of the 1990s is that they needed to achieve more balanced growth without resorting too much to external financing. The current account, which had maintained a deficit in the 1980s and 1990s, increased considerably from that moment, reaching an average of 3.0% between 2000 and 2013. This has meant that, in general, the region's countries have accumulated a significant buffer of reserves to help them tackle potential episodes of financial instability with more confidence.

This combination of a solid external position and enviable growth capacity has been achieved thanks to a dramatic expansion in export capacity. This is surely the key to the region's success. By way of example, in 2010 exports of goods and services from emerging Asia accounted for 30% of the world's total, according to UNCTAD data, a figure higher than that of the European Union and the countries of the Free Trade Area of the Americas. Fundamentally this change was brought about by two factors. Firstly, in 2001 China joined the World Trade Organization (WTO). Secondly, the revolution in Information and Communication Technology (ICT). China joining the WTO and the competitive advantage provided by its low labour costs were a massive attraction for the more labour-intensive jobs in production which, indirectly, also benefitted its neighbouring countries in the region, which have gradually joined the production chain led by China, supplying it with intermediate goods.

The ICT revolution is equally important. Lower communication costs have helped firms monitor their production processes much more thoroughly, irrespective of where each of the production stages is located, and the main Asian countries are taking advantage of this. According to the World Economic Forum index, which measures each country's technological capacity, the region's situation has improved considerably over the last few years but what is particularly notable is the progress made by the main emerging Asian countries, now in second place in the ranking of the various emerging areas, only behind Europe.

This positive development on the part of these Asian economies is supported by two additional factors: the population's higher educational attainment and solid investment in infrastructures. Once again the World Economic Forum index is useful to summarise the educational situation of the different emerging countries. The European countries also outperform their Asian counterparts in education but this time by a smaller margin. With regard to investment in infrastructures, however, it is revealing that nine out of the ten main ports on the planet are located in Asia.

But it is not all good news. It goes without saying that there are also risks threatening the region, particularly inequality and institutional fragility. It comes as no surprise that the very fact of becoming more industrialised and growing at very fast rates thanks to external demand should increase inequality between those regions involved in this globalisation (for example, those with access to the sea) and inland regions without access to international trade. However, the growing trend over the last few years has led to several indicators reaching worrying levels. For example, one way of measuring inequality is by comparing the income of those representing the richest 10% and those representing the poorest 10% of the population. Following this procedure, while an individual who forms part of the richest 10% in the US in 2004 had 5.4 times more than the poorest 10%, this figure rises to 10.8 in India and 13.7 in China. These are clearly very high figures that could cause serious social tensions.

Economic growth is also testing the region's institutional quality. As the level of activity rises, it is increasingly important to have solid institutions capable of providing a stable, efficient legal framework. The «rule of law» index calculated by the World Bank is highly illustrative in this respect since it measures how confident citizens are in their rights to property and contracts being respected and in the justice system and the police. This index varies between –2 and +2, the higher number reflecting the best institutions. As a benchmark, in 2010 this index was 1.6 in the US. However, it should be noted that the average for the region of emerging Asia has fallen between 2000 and 2010, from 0.1 to 0.0. Once again there are many differences between countries: for example, it improved in China (from
–0.5 to –0.3) and Malaysia (from 0.3 to 0.5), and fell in India (from 0.3 to 0) and Thailand (from 0.5 to –0.2).

To conclude, although we have seen that the countries of emerging Asia cannot be treated as a homogeneous whole, the region's leading role in the world economy looks like continuing in the future. For this to be the case, it will be necessary to carry out institutional reforms, to continue investing in ICT to be able to benefit from its advantages and potential and, naturally, to also improve education.

European Unit and International Unit,

Research Department, "la Caixa"