Top risks for doing business in Asia Pacific

By Jack Howell, Chief Executive Officer, Asia Pacific

When I first moved to Hong Kong in 2005, the GDP across the Asia Pacific (APAC) economies was about 23% of the global GDP. Today, it’s closer to 35%. This speaks of a rapid development and growth over a relatively short period of time. The region is home to 61% (4.4 billion) of the world’s total population, including three of the world’s most populous countries. Together, China, India and Indonesia account for 40% (2.9 billion) of the world’s population.¹

A key characteristic of APAC’s changing demographics is its aging population. By 2050, it is projected that 32% of the population in China and Japan will be over 60 years old.² This will inevitably cause strain on the social benefits structure, medical networks and government spending. Compared to the Western countries, insurance density is fairly low across the region despite the increasing affluence. As a result, we see a significant income protection gap, which would negatively impact families should disability or death happen to the breadwinner.

Geopolitical factors and a myriad of regulations within the region can also make it challenging for businesses. The good news is that we have seen significant progress over the past few years with market liberalization helping to reduce protectionist measures. Across the region, regulators in the financial services industry are increasingly focused on transparency, good governance and customer protection. This is creating a foundation for sustainable and profitable growth in the industry.

While economies have benefited from the growth, it is no surprise that inflationary pressures have contributed to various risks – asset bubble, strong currency and soaring medical costs. Years of hectic construction activity and easier access to debt have resulted in huge increases in real estate value while creating concerns about oversupply and unaffordable asset prices in some markets. A strong currency affects the cost of goods and services as well as demand from importing countries. As healthcare costs become less affordable, we can expect the health protection gap to widen even more.

The region has also been experiencing adverse effects of climate change in recent years, as seen by the number of large natural calamities – super typhoons, floods, earthquakes and tsunamis in Hong Kong, Japan, Indonesia and the Philippines. These devastating large-scale events cause extensive human and property losses and disrupt growth. A massive under-penetration of catastrophe loss insurance is putting tremendous strain on the private and government resources as a result of these large calamities.

Despite the risks, APAC will continue to be the growth engine for the global economy. I believe the continued rise of the middle class, improved financial literacy and positive demographics will propel this growth.