New Delhi: The share of goods traded across boarder in both India and China has dramatically fallen since around 2006 and stood at around 8.5% and 8.3%, respectively, in 2017, as more goods were consumed domestically than exported, McKinsey Global Institute said in a report titled “Asia’s Future Is Now".
The Institute said global output, over the past decade, has continued to rise but the share of goods traded across borders has fallen by 5.6 percentage points. “This decline does not reflect trade disputes or hint at an impending slowdown. Instead, it reflects healthy economic development in China, India, and the rest of emerging Asia," it added.
As consumption rises, more of what gets made in these countries is now sold locally instead of being exported to the West, the report said. “Over the decade from 2007 to 2017, China almost tripled its production of labour-intensive goods from US$3.1 trillion to US$8.8 trillion. At the same time, the share of gross output China exports has dramatically decreased, from 15.5% to 8.3%. India has similarly been exporting a smaller share of its output over time. This implies that more goods are being consumed domestically rather than exported."
According to the report, as wages rose in China and the country moved into higher-value activities, its share of global exports of labor-intensive goods has declined by 3 percentage points. “This has created an opening for other countries to step in. In the past decade, Vietnam, India, and Bangladesh have managed to grow their exports of labor-intensive manufactured goods (particularly textiles) by annual rates of 15%, 8%, and 7%, respectively. This trend can turn unknown cities into new manufacturing hot spots," it added.
However, low-cost labour alone will not be enough and infrastructure, workforce skills, and productivity will be critical to competitiveness in the decade ahead, the report cautioned.
The institute also studied broadly the 5,000 largest global firms. In 1997, Asia accounted for only 36% of them, but by 2017, that share was up to 43%. The countries represented in this group also drastically changed. China accounts for the biggest increase by far.
“But India has also seen significant growth, and countries such as the Philippines, Vietnam, Kazakhstan, and Bangladesh are now represented on the list. By contrast, half of Japan’s largest firms have dropped off," the report said.
The number of Indian firms in the top 5,000 global firms list has shot up to 142 from $879 billion revenue in 2015-17 from 25 with $14 billion revenue during 1995-97, according to the report.