How Business Transformed Nations and Lifted People Out of Poverty in China & East Asia
by Francis Tsui
How have businesses, especially SMEs, transformed nations and lifted people out of poverty in China and East Asia? What were critical and contributing factors?
More than 1.5 billion people, about 38% of the population of Asia or 22% of the world population, live in geographic East Asia. The region is one of the world’s most densely inhabited places, with 133 inhabitants per square kilometer (340 per square miles), being about three times the world average of 45 per square kilometer (120 per square mile).
In recent decades, at least up till the Covid pandemic, East Asian economies are increasingly one of the key global growth engines with a sustained high single to double digit economic growth and development, and are fast emerging as a manufacturing and information technology hub of the world. One of key characteristics of the East Asia region is the presence and contribution of a large small and medium-sized enterprises (SME) sector comprising the majority of enterprises in all the region’s economies, and especially in the region’s urban scenes.
A New Consumer Culture
The rise of the East Asian urbanization phenomenon has one distinct characteristic. While urbanization in North America for the most part goes horizontal as cities sprawl, urbanization in East Asia goes vertical, with buildings scaling tall. It is now very common to see residential apartment buildings in excess of fifty stories tall or higher in places like Hong Kong, Shanghai, Seoul, or even Ho Chi Minh City and Phnom Penh. The result of such a mode of urbanization is that a huge number of people are packed into a rather small catchment area. People’s proximity to each other has become closer. Never before have we seen higher density of people within shouting or maybe even whispering distance with each other, which is very conducive to accelerated entrepreneurial economic activities.
The urbanization and modernization of some of the largest cities in East Asia ushers in new lifestyles. The birth of an urban middle class among the baby boomer and Gen X generations breeds for the first time a leisure class or a leisure lifestyle. Roaming about on the streets or in shopping malls, exercising in gyms, attending concerts or cultural events, or hanging out at coffee shops are activities unheard of possibly just two generations ago for anyone in Asia. Nowadays, these have become common pastimes. A new consumer culture has emerged out of over half a century of a mostly peaceful political environment, without major wars, and significant economic progress for many developing economies. The gradual rise of disposable income level among East Asians means that most people and families have more to spend. Indeed, East Asia is at a historic moment of major wealth creation and generational transfer. All of these exciting developments have created fertile soil and opportunities in multiple dimensions, including the emergence and maturation of SMEs. It has also brought about new possibilities for mission.
A Lift Out of Poverty
The emerging role of small and medium-sized enterprises (SMEs) is also an indicator of the economic prosperity that helps to lift people out of poverty. And, the SMEs in East Asia and China have indeed scored spectacular success. In the last 30 years, according to the World Bank, East Asia accounts for two-fifths of global growth, and, during the same period, the number of extremely poor people living in East Asia fell by almost a billion. This is also the same period we saw SME businesses grow in leaps and bounds in East Asia and China.
However, there is no general, universally accepted definition for SMEs globally. SMEs have been defined against various criteria, such as different sectors, the number of workers employed, the volume of output or sales, etc. For instance, in Hong Kong, any business with less than 250 employees is considered an SME. Yet, in China, for industrial, or construction, or transport services, to fit into a SME classification, the number could be up to 2,000 to 3,000 people employed.
When we look across East Asian economies, SMEs represent some 98.7% of all businesses, provide almost 64% of total employment, and contribute over 50% of the national export and 47% of industrial output respectively.
As for China, the currently second largest economy and the largest exporter in the world, it has witnessed the SMEs moving from the fringe and a supplementary role into an important component of the still fast growing economy. SMEs have become the engines of China’s rapid economic growth. They contribute around 59% GDP, 50% of tax revenue, 68% of foreign trade volume, and over 75% of urban employment. They are also responsible for 65% of invention patents and 80% of new products in the country. They contribute significantly to the nation’s increasing efficiency in resource allocation and distribution by mobilizing and utilizing local human and material resources. Each year, there are about five million SMEs more in China, representing a 10% year on year growth rate.
Critical Factors
There are several critical contributing factors that cause such a spectacular emergence of the SMEs in this region.
1. There has been a long tradition of moms-and-pops stores in Asia. Transitioning out from a pure agrarian economy, entrepreneurial ingenuity birthed numerous proprietors who started store fronts right in front of their humble dwellings while their homes were still in the back.
2. The urbanization trend in Asia not only brought in a concentration of population, it also offers ready employable workers as well as plenty grassroots consumers, which encourage the growth of small businesses.
3. Globalization in the first decade of the 21st century brought large scale division of labor opportunities to this region mainly in the low to mid-level skilled manufacturing ventures, hence further diversified the SME movement from retail and service to manufacturing sectors. The specialized segmentation of supply chains offers plenty opportunities for SMEs to take advantage of.
4. Into the new millennium, the availability of a more educated and inspired generation has birthed a new breed of entrepreneurialism which armed with new skills called disruptive technology with new startups in many fields the majority of which are all SMEs.
Next week, we will look at the implications of these trends in a second blog post focusing in on how we could see macro impact through business as mission in urban Asia and beyond.
Francis K. Tsui is from Hong Kong and has been active in Asian mission in the last two decades serving as faculty, mentor, and Board member with Asian Access and AsiaCMS. He holds multiple higher degrees in modern Chinese history, business administration, as well as mission and leadership studies. Recently, Francis has completed and received his DMin degree from Fuller Seminary.
Photo by Ben Parker on Unsplash
