European entrepreneurs: please head East!

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AGM Abogados

Global trade volumes suffered a sharp plunge in 2020, in spite of a late-year bounce.

Put in perspective, some of the leading Asian economies did pretty well in this pandemic year with Taiwan, China, and Vietnam GDP expanding over 2% while South Korea economy contracted only 1%.

Abandoning our European-centric view could however help us to identify more signs of change, underpinning the somewhat lesser relevance of the pandemic impact.

Profound Changes Underway

Let’s go to the point, world trade volumes have lagged global GDP growth since even before the 2008 global financial crisis.

The causes? Automation. Digitization. The rise of a services economy.

Global value chains dispersion has been indeed shrinking for more than 15 years. Automation and digitization gradually reduced the implacable search for low-wage low-productivity locations.

Just about the same time, China started rebalancing its growth pattern towards more domestic consumption, including sophisticated services. This is reshaping the globalization model (and we assume the pandemic might only speed up the process).

In other words, as China middle class grew, it consumed domestically more of what it produced. The same pattern is being reproduced with a slight delay in the neighbouring emerging economies with Vietnam as the current champion.

In China and South East Asia, large middle classes will buy more and more technology products and high value-added services. These are huge opportunities for European investors.

No wonder the European Union and China signed in December 2020 the CAI (Comprehensive Agreement on Investments), which is deemed to open the Chinese market to more European products and services.

Whatever the impact of the pandemic in the western world, we should be looking eastwards!

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