Asia’s rise as the epicentre of global trade could be stunted if governments in the region do not put policies in place to encourage digital trade, according to a new report.

The region was responsible for 41% of total global exports last year, according to the United Nations. Manufacturing powerhouses such as China and Vietnam churn out a huge array of consumer goods, while other populous states such as India and Indonesia fuel growing demand for imports.

But in its 2022 annual outlook, UK think tank and advisory group Asia House warns that trade growth could stall in key countries and trap some on a middle-income trajectory rather than following the footsteps of nations such as Japan and South Korea into advanced economy status.

“By some metrics… cross-border trade is in a secular downtrend that predates the pandemic,” the think tank says.

“Investment, as well as cross-border trade, may well decelerate further in 2022 as the global economy stages an uneven recovery at best,” Asia House says in the report. “The World Trade Organization (WTO) sees Asian exports growing at just 2.3% this year [compared to 2021], below pre-pandemic levels.”

The same WTO forecasts, published in October last year, say exports from Asia will still be almost 19% higher than in 2019, thanks largely to strong growth during 2021.

The UN Economic and Social Commission for Asia and the Pacific, in a November 2021 report, forecast more gradual trade growth in 2022 compared to the previous year, predicting real export growth of 4.1% compared to 2021.

“For the 21st century to become the ‘Asian Century’, with Asia’s economies set to take a share of over half of global GDP by 2050, only a determined effort by the authorities to fill an evident policy gap will enable growth to continue at the required levels,” the think tank says.

It argues that governments need to focus on green finance, digitalisation and enhanced regional cooperation in order to maintain strong economic growth.

The region is already home to inter-country trade dialogue through the Association of Southeast Asian Nations (Asean) and most major Asian economies have joined the Regional Comprehensive Economic Partnership (RCEP), a free trade agreement encompassing 15 signatories, including China.

A UN report published last month found that the eventual tariff reductions dictated by RCEP will boost intra-Asian exports by nearly 2%, or US$42bn, compared to 2019 levels.

The pact will also redirect trade away from non-members such as the US and EU nations, the United Nations Conference on Trade and Development (UNCTAD) said, making the region “a new centre of gravity for global trade”.


Digitalisation desired

Asia House’s outlook also ranks major Asian economies on metrics such as digital facilitation of trade, which it measures using data such as information and communication technology exports, digital currency policies and electronic documents and digital infrastructure.

China and Thailand receive the highest marks, while India and Vietnam trail.

A major impetus to digital readiness will be creating digital trade agreements, the report argues.

“Digitally enabled transactions of trade in goods and services are developing into an important impetus for growth. Digital trade [is] predicated on the movement of data. Digital data agreements need to be accelerated to expedite cross-border trade and investment.”

India is singled out in the report as a major potential beneficiary of digitalised trade finance, noting a 2015 move by the State Bank of India to shift its trade finance operations onto a single platform.

The think tank also points to a data analytics project in Vietnam to ease access trade finance for small and medium enterprises (SMEs) as an example of how digitalisation can boost trade.

SMEs face higher rates of rejection from trade finance applications compared to larger companies, mainly because financial institutions sometimes struggle to obtain enough information about them, or because small businesses may lack the knowledge to make successful applications.

In October last year the Asian Development Bank estimated the global trade finance gap to be US$1.7tn. The figure was not broken down by region, but around two thirds of banks that responded to the ADB’s survey said they expect trade finance demand to increase in Asia over the next two years, almost double the number who responded similarly for other regions.