Asia powers ahead in technology

Forty years ago, the Asia Pacific region (which contains much of East Asia, South Asia, Southeast Asia, and Oceania) was among the poorest areas of the world. In 1978, both Hong Kong and Singapore had to take out loans from the Asian Development Bank to support the respective health sectors. Today, both places are thriving financial centres and enjoy some of the highest amount of wealth per person anywhere on the planet.

This transformation has been brought about due to government and economic reforms, globalisation, hard graft and luck. But it’s also a story about technology, which is leading to an increasing number of investment opportunities.

Back in the 70s and early 80s, as the region started to develop, Asia simply adopted existing technology from richer countries in the West. However, as economies in the region advanced, Asian companies adapted existing knowhow to solve new problems. That’s why Asia now makes everything from clothing and cars to industrial robots and nuclear power plants.

Perhaps this is also why Asia still isn’t known for innovation. For many people, the abiding impression is of a place that copies rather than invents. While that may once have been true, companies in many Asian countries are now setting the pace and developing new technology to tackle some of today’s biggest problems.

China cleans up its act

Take the environment; China, a notorious polluter, invested more money in renewable energy in 2015 than the United States, Japan and Britain combined. It’s making a big push to put itself at the centre of the nascent electric-car industry and is already the world’s largest market for these vehicles. The authorities there are considering an eventual ban on the production of petrol and diesel cars.

Chinese company BYD is the world’s biggest battery-maker and one of a handful of companies researching the creation of cheaper rechargeable batteries. Batteries are one of the biggest costs in electric vehicles; their hefty price tag is one reason the electric car market is yet to really get on track.

Meanwhile, India ranks seventh in the world for solar-energy capacity. A few years ago, it didn’t even feature in the league table of major solar power producers. With more mega solar farms to become operational in 2018, India hopes to achieve around 160 gigawatts of renewable energy capacity by 2022. To put this in context, the country’s total grid capacity today is just over 180 gigawatts.

Addressing inequality

One of the criticisms levelled at China and India is that wealth has become too concentrated in the hands of too few people. If social inequality is too high, this often leads to civil unrest, hampering economic growth. Again, however, technology is helping to provide a solution.

India is using fingerprint and iris scans to help alleviate chronic poverty. The inability to verify someone’s identity has impeded basic tasks such as opening bank accounts and claiming government assistance. Poor record-keeping led to fraud, corruption and identity theft.

To address this, the country has built a national database that assigns a unique 12-digit identification number to each person, linked to their biometric data. Out of a population of around 1.3bn, more than 1.1bn are now registered.

More bank accounts allow government payments to be made directly to beneficiaries, rather than via corruption-prone intermediaries. Eventually, this database, riding on the ubiquitous smartphone, may form the basis of the next generation of digital financial services. That, in turn, could enable cashless payments across different platforms, or even allow people to open a bank account with a selfie.

Asia technology companies join the global leaders

This handful of examples illustrates an important shift: we might soon look to these fast-growing parts of Asia for a glimpse of tomorrow’s technology, whether in the form of solar panels, drones, supercomputers or innovations in financial technology.

So how should investors respond? Principally, they need to review their understanding of the capabilities of these Asian companies. Many firms have moved beyond the low-cost, low-value-added export model that worked so well in the early days of Asia’s development.

In 2016, inventors in Asia Pacific accounted for more than 47% of all international patents, almost as many as the combined total from North America and Europe. So it’s clear that these countries harbour ambitions beyond assembling phones designed in California.

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