ASIA FUTURE SHOCK BUSINESS CRISIS AND OPPORTUNITY IN THE COMING YEARS Michael Backman ASIA FUTURE SHOCK 0230_006779_01_prels 13/8/07 15:12 Page i Also by Michael Backman: The Asian Insider: Unconventional Wisdom for Asian Business Big in Asia: 30 Strategies for Business Success (with Charlotte Butler) Big in Asia: 25 Strategies for Business Success (with Charlotte Butler) Inside Knowledge: Streetwise in Asia Asian Eclipse: Exposing the Dark Side of Business in Asia 0230_006779_01_prels 13/8/07 15:12 Page ii MICHAEL BACKMAN Asia FUTURE SHOCK BUSINESS CRISIS AND OPPORTUNITY IN THE COMING YEARS 0230_006779_01_prels 13/8/07 15:12 Page iii © Michael Backman 2008 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. 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A catalog record for this book is available from the Library of Congress. 10987654321 17 16 15 14 13 12 11 10 09 08 Printed in China 0230_006779_01_prels 13/8/07 15:12 Page iv Chapter 1 ġ Population Dynamics: How Asia’s Face is Changing 1 Chapter 2 ġ The Internet, Big Business and Freedom 13 Chapter 3 ġ China’s Military Buildup 21 Chapter 4 ġ 20 Million Japanese to go Missing 31 Chapter 5 ġ The Two Koreas to Reunify 37 Chapter 6 ġ The Rush Out of India by Indian Companies 43 Chapter 7 ġ Asia’s Nuclear Future 50 Chapter 8 ġ Water Wars 57 Chapter 9 ġ China to Have the World’s Biggest Number of English Speakers 66 Chapter 10 ġ China’s HR Nightmare 71 Chapter 11 ġ India’s HR Nightmare 77 Chapter 12 ġ Wanted! 250 Million Wives: Asia’s Shocking Gender Imbalance 82 Chapter 13 ġ Asia’s Meaningless Borders 89 Chapter 14 ġ Growing Family Breakdown in Asia 97 Chapter 15 ġ China Builds an Economic Bloc based on Corruption 103 Chapter 16 ġ Vietnam: The New China? 110 v Contents Introduction vii 0230_006779_01_prels 13/8/07 15:12 Page v vi Contents Chapter 17 ġ Burma: The Next Vietnam 118 Chapter 18 ġ Does Indonesia Have a Future? 125 Chapter 19 ġ From Malaysia Boleh to Malaysia Bodoh? 132 Chapter 20 ġ China’s Healthcare Sector to Boom 140 Chapter 21 ġ The Next Tsunami: Mainland Chinese Tourists 147 Chapter 22 ġ Medical Research to Shift to Asia 153 Chapter 23 ġ New Switzerlands: Private Banking and Money Laundering Shift to Asia 161 Chapter 24 ġ Asia’s Coming Medical Tourism Bonanza 167 Chapter 25 ġ Growing Corporate Ownership by Charities in Asia 174 Index 181 0230_006779_01_prels 13/8/07 15:12 Page vi vii Not long ago we needed to look for a school for our son Shimon who was then not yet five. An interview with the headmaster was part of the app- lication process for one north London school. It turned out that he would interview us rather than the other way round. The headmaster told us that the school was “very strong on Latin” and those boys who showed an aptitude for it would be permitted to go on to study ancient Greek, evidently a reward for having done well at Latin, judging by the glint in the headmaster’s eye. I was appalled. “Latin!” I said. “Why do you teach Latin? How many people in the world today speak Latin?” “Err, well none, but Latin is the root of all languages,” said the head- master. “What, you mean Chinese, Vietnamese, and Indonesian?” “Oh, not those languages,” said the headmaster, “I mean all European languages.” “Oh, the dying languages of Europe, like French. Do you know how many people in the world today speak Chinese?” The headmaster shook his head. “I couldn’t say.” “More than a billion.” The headmaster looked surprised. “Do you have any plans to teach Chinese?” I asked. “None. I can’t say that I’ve thought about it.” I thought to myself: “You make young boys learn languages that no one speaks anymore and then ignore some of the most important languages in the world today – you idiot!” But then for many in London, Asia is still the Far East, with particular emphasis on the word “far” as if the Internet and jet aircraft are still to be invented. Introduction 0230_006779_01_prels 13/8/07 15:12 Page vii The world is changing. Obviously a bit too fast for certain north London headmasters. But for others, such as corporate planners, business strat- egists, and – although they might not know it – the odd five-year-old, what Asia will be like in the next 10, 20 and 30 years is of immense importance. Asia will be very different then compared with now. When Shimon is in his twenties, China will have the world’s largest economy on a purchasing power parity (PPP) basis. The Economist Intelligence Unit (EIU) has estimated that by 2020, Asia will account for 43% of the world economy, up from 35% in 2005. 1 It won’t be more important or richer than the West, but what it will be is more important than it is now – a rebalancing is underway rather than a revolution. There will be 400 million more people in Asia than now. India will be close to being the world’s most populous country and Mumbai will be the world’s most populous city. Vietnam will have an economy like Guang- dong’s. North and South Korea probably will be reunited. Asia will be home to half the world’s nuclear reactors. The world’s biggest nation of English speakers will be China. Mandarin usage will swell by at least 50% in China too. And China will have a powerful navy and be a major exporter of sophisticated arms. A hundred million Chinese tourists will pour out of China every year. Large, sprawling Indian multinationals will range across the world’s economies more than they do now. Important Asian companies will be controlled by charitable trusts. Africa will be wracked with ethnic tension but this time between Africans and Chinese migrants rather than Indians. There will be 20 million fewer Japanese than today. India and China will have as many as 250 million more men than women, possibly leading both to expand their armies after years of contracting them. And Indonesia and Malaysia will have run out of oil – both will rue the wasted opportunities of the preceding decades. Asia’s governments will increasingly allow their citizens more freedom, but not political freedom. Those countries that are not democratic now will have gone no closer to becoming democracies. And those that are democ- ratic will have stepped away from it, to become more authoritarian. The model of economic and social freedom but without commensurate polit- ical freedom will be the model of choice as other alternatives have been tried and found wanting. Ruling parties in China, Vietnam, Malaysia, and Singapore increasingly don’t much care what the citizenry do as long as they don’t threaten their power. The emerging contract between Asia’s governments and their citizenry is “let us stay in power and in return we will leave you alone and deliver economic growth and jobs.” Media freedom is stifled and, ironically, the Internet is in the process of being press-ganged into serving Asia’s autocrats rather than undermining them. viii Introduction 0230_006779_01_prels 13/8/07 15:12 Page viii Myanmar’s rulers would like to follow this model too, it’s just that they understand almost nothing about economics. And those countries that do change governments – the Philippines, Thailand, India, and now Indonesia – have tended to underperform compared with the rest and will learn that fighting over wealth distribution before that wealth is created is a luxury they can ill afford. After all, democracy is the reward for building a good economy, not an ingredient for achieving one. No Western economy was ever a fully fledged democracy before it became seriously rich. Asia will learn this too. Will the rule of law be strengthened in Asia? It will, but not evenly or quickly. It remains weak in most of Asia. That ought to be an unmitigated bad. But it isn’t. Asia has actually found ways to profit from this. Consider healthcare. The cost of medical malpractice insurance is exorbitant in the US and directly contributes to the high cost of surgery in the US. Surgeons and hospitals in Thailand don’t need such cover because the Thai legal system is poor and unpredictable and few patients bother to sue their doctors in Thai courts. Even if they did, any awards are unlikely to be substantial. And so Bangkok’s hospitals are able to offer very competitive, high-quality surgery to foreigners who are willing to take the risk. Thous- ands of Americans and other Westerners are beginning to fly to Thailand for medical treatment. The trickle will become a flood. Authoritarianism is going to pay dividends as well. Laboratory testing on animals is under threat in the West from animal rights activists. The irony is that they are not succeeding in having animal testing ended but shifted. They are helping to push it offshore, away from the gaze of Western regulators and an inquisitive media, to destinations like Singapore and Beijing where political activists have no voice and scientists can get on with their work unhindered. Stem cell research too is proceeding apace in Singapore because Singapore is not a plural society; interest groups are not given a voice and so little opposition can take root. It’s the same with infrastructure development. China spends seven times what India does on infrastructure. Why? Partly because it can. The authorities in China do not face protests and court action each time they announce plans to build a new highway or power plant as is often the case in India. Several years ago, a writer called Jim Rohwer wrote a book called Asia Rising. Asia promptly collapsed. “It doesn’t do much for your credibility writing a book with a title like that,” said Rohwer to me on the margins of a conference in Jakarta shortly after many of the region’s currencies had plummeted and their economies were heading into recession. But the long- term trend is that Asia is rising. It’s just that the route is not linear and Asia’s economies are not rising at the same rate. It’s the detail that matters. Introduction ix 0230_006779_01_prels 13/8/07 15:12 Page ix [...]... health and income needs for an expanding number of retirees must be catered for Elsewhere in Asia, countries that maintain high birth-rates – such as Bangladesh and the Philippines – face other challenges How will they find jobs for all the new entrants to the labor force? How can they guarantee sufficient food? And how can they manage their environments in a sustainable way in the face of increasing and. .. smaller so that there are fewer relatives to help with child rearing Exploding Urbanization Asia is urbanizing People everywhere are leaving farming and heading to the cities In China, the rush to China’s coastal cities that is currently underway is the biggest migration of humans in the history of mankind The process is speeding up In the next 20 years, another 1.1 billion people will live in Asia s cities... two-thirds of the world’s chronically poor And if the measure is lifted to US$2 per day, then the number in Asia living on this or less blow out to 1.9 billion.18 It’s a reminder that with all the good news about record levels of economic growth in China and India and India’s extraordinary successes with IT and outsourced back-office processing, the problem of poverty in Asia remains very real and. .. market in terms of sheer numbers than does China But spending power in China is far greater and the difference is growing Today China represents 39% of Asia s population and South Asia 40% But China’s relative importance will decline further, not just compared with India and the rest of South Asia but compared with all of Asia It has one of the lowest population growth rates in the region, due to the. .. increasingly useful tool in the coming decades as they search and destroy dissidents and would-be dissidents All the while, the greater flow of information afforded by the Internet will allow Asia to reap huge economic benefits otherwise denied by an underresourced conventional media Freedom and liberty in Asia face a new threat in the decades to come It is the Internet The Internet was to sound the death knell... would rather keep the mix of Chinese versus other races at existing levels And so it is more sympathetic to allowing settlement in Singapore of ethnic Chinese from other countries, particularly Indonesia and Malaysia But if the population is to reach 7 million by 2030, then one in every two people residing in Singapore will not have been born there What will be the implications of that for Singapore’s... cleanliness and efficiency, many do find the Singapore government overbearing Whatever answer the government comes up with, one thing is certain: in 20–30 years the average Singaporean will be quite a different animal from now Suggestions for Business Strategists and Scenario Developers Ǡ Ǡ Ǡ Ǡ Ǡ Ǡ Ǡ Population-wise, the relative importance of the various Asian economies will change considerably in the coming. .. planners when it comes to designing public spaces, for example headroom in shopping malls, handrails on staircases need to be shifted up, and the meaning of eye level changes when it comes to displaying merchandise Asian airlines are having to increase the space between seats, and the rows of seats in cinemas need to be further apart Clothing and footwear retailers in Asia must now stock a wider range... Interestingly, the introductory pages on Fortinet’s website are available in a range of European and Asian languages But the page on web filtering is available only in English, Thai, Korean, Japanese, and Chinese (traditional and simplified).2 China Leads the Way Already China is second only to the US in having the world’s greatest number of Internet users, with perhaps only 8% of its population online... of millions of Chinese will be Internet users The Chinese government is making sure that it is prepared It has developed a highly restrictive firewall around the Internet It’s built into each level of the Internet’s infrastructure in China, including Internet service providers and routers Against all expectations, it successfully blocks countless sites 2 The Internet, Big Business and Freedom Google . in Asia Asian Eclipse: Exposing the Dark Side of Business in Asia 0230_006779_01_prels 13/8/07 15:12 Page ii MICHAEL BACKMAN Asia FUTURE SHOCK BUSINESS CRISIS AND OPPORTUNITY IN THE COMING YEARS 0230_006779_01_prels. ASIA FUTURE SHOCK BUSINESS CRISIS AND OPPORTUNITY IN THE COMING YEARS Michael Backman ASIA FUTURE SHOCK 0230_006779_01_prels 13/8/07 15:12 Page i Also by Michael Backman: The Asian Insider:. the good news about record levels of economic growth in China and India and India’s extraordinary successes with IT and outsourced back-office processing, the problem of poverty in Asia remains very