The world today is facing multiple economic and political upheavals, while a new era is emerging from this turbulence. According to a recent study by the McKinsey Global Institute, titled *Asia’s New Era*, Asia is poised to play a pivotal role in this era, though it may also face more severe global challenges. These challenges include trade friction, aging populations, energy security, and the transition to net zero.
In this context, Asian companies are actively preparing for significant strategic shifts. The McKinsey Global Institute, in collaboration with the Asia Business Council, conducted a survey with business leaders from the region. More than 82% of these leaders are optimistic about the new era. However, this optimism is tempered by a sense of urgency for transformation. Three-quarters of the surveyed corporate leaders stated that there is a need for significant or even transformational strategic adjustments in multiple areas of their businesses.
“In a previous era, globalization and digitalization were the main themes of the times. And the Asian region, especially China, was undoubtedly the biggest beneficiary of the last era.” Mr. Jeongmin Seong, Director of McKinsey Global Institute China, stated, “Thus, Asia is entering a new era with the advantage of being the ‘new majority’ of the world. Overall, the diverse and dynamic Asian economies are becoming an important part of the global economy and will have the ability to shape a whole new era.”
"The core elements shaping this new era will be fundamentally different from those of the past 30 years," said Chris Bradley, Co-Leader of McKinsey Global Institute and Senior Partner at McKinsey & Company. "These critical factors converge in Asia, which also means that Asia may face more prominent and severe global challenges in various aspects. For example, Asia holds a crucial position in global trade, but it may also become the focal point of trade disputes."
"Overall, Asian business leaders remain optimistic about the new era. However, they also recognize that companies need to undergo significant, even transformational, strategic shifts to address the comprehensive challenges brought by the new era," said Nick Leung, Senior Partner at McKinsey & Company. "Most business leaders believe that this transformation requires companies to take action in multiple areas, including the optimization of globalization strategies, the application of technology, improving productivity, building energy and sustainability strategies, and the more efficient use of capital. This indicates a widespread recognition that the future environment will be vastly different from the past."
The core content of the research includes:
- **Asia enters a new era with the advantage of being the "new majority" of the world.** From 2015 to 2021. Asia contributed 57% of global GDP growth and most of the increase in trade and production value, with 56% of the global middle-class families located in Asia.
- **The fundamental elements shaping the new era are completely different from the past 30 years.** These critical factors converge in Asia, making the region face more prominent and severe global challenges in five areas:
- **Asia holds a crucial position in global trade.** Of the world’s 80 largest trade corridors, Asia occupies one end of 49 corridors in terms of imports or exports, and both ends in 22 corridors. Of the 20 fastest-growing trade corridors, Asia accounts for 18; of the 20 largest trade corridors, Asia accounts for 13. In 2021. China occupied 11 of the 20 largest global trade corridors and 11 of the 20 fastest-growing ones from 2016 to 2021. Furthermore, China’s trade partners have become increasingly diverse. In recent years, China’s trade with Brazil, Chile, Poland, Saudi Arabia, and the UAE has been growing at over 15% annually. From 2018 to 2022. China’s share of U.S. imports decreased by about 6 percentage points, while the share of other Asian economies increased by 4 percentage points. Meanwhile, trade between China and Vietnam grew by 16% annually, indicating the possible formation of a new trade triangle between China, other Asian economies, and the U.S. China is also central to strategically important trade corridors for metals, energy minerals, and electronic products (chips). For example, of the world’s 40 largest chip trade corridors, 10 serve imports to mainland China. Additionally, Asia’s economic integration is as close as that of the European Union, though Asia's integration is driven by trade cooperation rather than treaty-based governance like the EU. This suggests that Asia has adopted a pragmatic, reciprocal economic development model based on complementarity. However, in the new era, with non-economic factors likely to have a greater impact, can Asia continue to engage in pragmatic cooperation in a more competitive multipolar world?
- **Asia has achieved technological innovation in manufacturing, but technological competitiveness is evolving from specific technologies within industries to cross-domain technologies.** Currently, China has become an innovative economy in many respects. For instance, China is a formidable force in innovation in sectors related to manufacturing, such as electric vehicles and consumer electronics. As manufacturing becomes increasingly commoditized, Asian economies, including China, need to break the limits of manufacturing by investing in cross-domain technology innovations like artificial intelligence and clean technology to capture more global revenue and profits. We see that China has begun to emerge in these areas. Of all new unicorn companies related to cross-domain technologies founded after 2016. 20% are from China. In some fields, this proportion is even higher; for example, China accounts for 46% of unicorns in electrification, renewable energy, and climate technologies, and 26% in applied AI, generative AI, and machine learning. However, Asian economies, including China, still rely on imports to support their position in the technology value chain. In 2022. China’s intellectual property imports were three times its exports. In the new era, can Asian economies continue to climb their innovation curves, especially in breakthroughs and developments in new cross-domain technologies?
- **Over the past 30 years, Asia enjoyed an ideal demographic structure, with a surge in young labor and rapid productivity growth in major economies.** However, in the new era, high-productivity economies along the Pacific Rim face the severe challenge of rapidly aging populations. It took over 50 years for the median age of the U.S. and U.K. populations to rise from 30 to 40 years, but it took only 15 years in South Korea, 22 years in Japan, and is expected to take 23 years in China. By 2050. 30% of China’s population will be aged 64 or above. To continue improving living standards, maintaining wage growth and productivity increases will be critical. This will require retraining China’s workforce. Previous research by the McKinsey Global Institute suggests that by 2030. up to one-third of global job and skill transitions could occur in China. Moreover, the application and development of automation will play a key role. We see that from 2017 to 2021. the density of robots in China’s manufacturing sector grew at a rate of 35% per year, with 322 robots deployed per 10.000 employees. In the new era, can Asian companies provide retraining for workers and continuously improve productivity through automation?
- **Asia has long been a major global energy consumer and will need to access more energy to support economic growth.** However, the region’s population is still in an "energy under-coverage" phase — per capita energy consumption in Asia is only one-third that of OECD economies, and China’s is about 60% of the OECD level. Asia’s energy self-sufficiency is relatively low, especially in oil and natural gas, where it remains highly dependent on imports. Asia is the world’s largest net importer of fossil fuels, with a net import value of $775 billion in 2021. Of this, over 70% of China’s oil and 40% of its natural gas were imported. Additionally, Asia is a key region for the global energy transition. According to the International Energy Agency, Asia is expected to account for 64% of the world’s additional renewable energy generation capacity between 2019 and 2024. with its overall share reaching 56% by 2040. Asia also plays a significant role in helping the world reduce emissions. China assembles 66% of the world’s batteries and produces 54% of global electric vehicles. It also accounts for over 80% of the production capacity in all key stages of the global solar panel supply chain. However, we must also acknowledge that Asia faces significant decarbonization challenges. Asia is still the world’s factory, with industry accounting for the largest share of its final energy consumption at 47%, and about 53% in China, much higher than the EU’s 26% and North America’s 22%. Yet, industry is one of the most difficult sectors to decarbonize. In the new era, how will Asia meet its high energy demands while fulfilling its decarbonization and emission reduction commitments?
- **Asia is the region that absorbs the most capital in the world**—from 2000 to 2021. Asia attracted $91 trillion in capital investment. However, in the future, Asia will still need to mobilize more capital to support its development. It is estimated that over the next decade, fixed investment in Asia could approach $140 trillion—more than the combined total of $89 trillion in the U.S. and the EU. Meanwhile, with rising global interest rates, declining property prices, and slowing economic growth, many Asian economies are facing increasing balance sheet risks. For example, in China, by the second quarter of 2023. the debt-to-GDP ratio had risen to 284%. China's capital output ratio tripled from 2010 to 2022. meaning that three times more capital is needed to achieve the same GDP growth. In this new context, can Asia improve the efficiency of its financial system and strengthen financial resilience to better deploy the world's largest pool of capital?
- **Asia is entering a new era with the advantage of being the "new majority" of the world.** Between 2015 and 2021. Asia contributed 57% of global GDP growth. Additionally, Asia accounted for 59% of global trade growth from 2001 to 2021. and 53% of the global manufacturing value added in 2022. In this new era, Asia stands at a fundamentally different starting point and, in many ways, will play a central role in shaping the future.
- **We conducted a survey in collaboration with the Asia Business Council** to understand the views of Asian business leaders. Given the enormous opportunities in Asia, 82% of respondents expressed optimism about Asia’s new era. However, this optimism is accompanied by a sense of urgency for change. Asian business leaders seem to believe that the new era will be fundamentally different from the past 30 years, and they are ready to adjust their strategies accordingly. Based on the survey results, we categorized the respondents into three groups:
- **About 10% of companies indicated that they could “continue business as usual.”** These relatively few company leaders believe that trends in the five areas of world order, technology platforms, demographics, resources and energy systems, and capital have relatively little strategic significance for their companies. For them, the key is to closely monitor trends, continually experiment, and steadfastly implement strategic initiatives.
- **Approximately 16% of companies need to rethink strategies focused on one or two key areas.** The leaders of these companies stated that they need to focus on future trends in core areas, empower their organizations, reassess traditional models, be willing to experiment, and scale up successful pilot projects. The most important areas for these companies are typically technology and energy.
- **The remaining majority of companies (74%) believe it is necessary to drive a comprehensive transformation across three or more areas.** These leaders believe that the new era will have profound and comprehensive impacts on their businesses, requiring deeper strategic adjustments. This is because the five areas—international order, technology platforms, demographics, resources and energy systems, and capital—are interrelated and mutually reinforcing.