Which Asian Economies Have the Most Sustainable Trade Policies?
To say that Asia has benefited from international trade is an understatement. By opening its economies to the rest of the world, the region has become a leading exporter in many of today’s most important industries.
Trade has also improved Asia’s quality of life, lifting over one billion people out of poverty since 1990. Without the proper controls, however, such rapid growth could have harmful effects on Asia’s environment and society.
In this infographic from The Hinrich Foundation, we break down the results of their 2020 Sustainable Trade Index (STI). Since 2016, this index has ranked 19 Asian economies and the U.S. across three categories of trade sustainability: economic, social, and environmental.
What Exactly is Sustainable Trade?
International trade is an important source of economic growth, enabling domestic businesses to expand, reach new customers, and gain exposure to foreign markets.
At the same time, countries that focus too heavily on exports put themselves at greater long-term risk. For example, an aggressive expansion into manufacturing is likely to impair the quality of a country’s air, while overdependence on a single product or sector can create an economy that is susceptible to demand shocks.
“The primary principle which underpins sustainable trade is balance. Trade cannot be pursued solely for economic gains, without considering environmental and social outcomes.”
– Merle A. Hinrich
Thus, sustainable trade supports not only economic growth, but also environmental protection and strengthened social capital. It involves finding a balance between short-term incentives and long-term resilience.
Measuring Sustainable Trade
The Sustainable Trade Index (STI) is based on three underlying pillars of trade sustainability. Every economy in the STI receives a score between 0 and 100 for each pillar.
|Pillar||Number of Indicators||Examples of Indicators|
The economic pillar measures a country’s ability to to grow its economy through trade, while the social pillar measures a population’s tolerance for trade expansion, given the costs and benefits of economic growth.
Last but not least, the environmental pillar measures a country’s proficiency at managing climate-related risks. Individual pillar scores are then aggregated to arrive at an overall ranking, which also has a maximum possible score of 100.
The Sustainable Trade Index 2020: Overall Rankings
For the first time in the STI’s history, Japan and South Korea have tied for first place. Both countries have placed in the top five previously, but 2020 marks the first time for either to take the top spot.
|1 (tied)||🇯🇵 Japan||75.1|
|1 (tied)||🇰🇷 South Korea||75.1|
|4||🇭🇰 Hong Kong||68.3|
|10||🇱🇰 Sri Lanka||50.4|
|15 (tied)||🇮🇳 India||46.9|
|15 (tied)||🇻🇳 Vietnam||46.9|
Advanced economies like Singapore, Hong Kong, and Taiwan were also strong performers, each scoring in the high 60s. At the other end of the spectrum, developing countries such as India and Vietnam were tightly packed within the 40 to 50 range.
To learn more, here’s how each country performed in the three underlying pillars.
1. Economic Pillar Rankings
Hong Kong topped the economic pillar for the first time thanks to its low trade costs and well-developed financial sector. Financial services have increased their contribution to Hong Kong’s GDP from 13% in 2004 to 20% in 2018.
The region’s recently initiated national security law—which has resulted in greater political instability—may have a negative effect on future rankings.
|1||🇭🇰 Hong Kong||69.6|
|4||🇰🇷 South Korea||63.3|
|5 (tied)||🇲🇾 Malaysia||61.2|
|5 (tied)||🇺🇸 U.S.||61.2|
|9 (tied)||🇯🇵 Japan||58.6|
|9 (tied)||🇵🇭 Philippines||58.6|
|13||🇱🇰 Sri Lanka||54.7|
China was also a strong performer, climbing to third for the first time. Asia’s largest economy benefits from a well-diversified group of trading partners, meaning it doesn’t rely too heavily on a single market.
The bottom five countries—India (16th), Myanmar (17th), Thailand (18th), Pakistan (19th) and Laos (20th)—suffered from issues such as payment risk, which is measured as the difficulty of getting money in and out of a country. This risk is especially damaging to trade because it discourages foreign direct investment.
2. Social Pillar Rankings
The social pillar features the highest average score, but also the largest gap from top to bottom. This gap has expanded over recent years, growing from 43.9 points in 2018 to 52.3 in 2020.
|3||🇰🇷 South Korea||86.9|
|8||🇭🇰 Hong Kong||57.8|
|18||🇱🇰 Sri Lanka||46.1|
Taiwan claimed the top spot for the second time, solidifying its reputation as Asia’s leader in human capital development. It performed well in the educational attainment indicator, with 93.6% of its population receiving a tertiary education.
China, despite its success in other pillars, only managed 16th. This was partly due to the effects of its now defunct one-child policy, which has been responsible for creating gender imbalances and a shrinking population.
3. Environmental Pillar Rankings
The environmental pillar has the lowest average score of the three. Japan, Singapore, Hong Kong, and South Korea were the only countries to score above 75.
|3||🇭🇰 Hong Kong||77.4|
|4||🇰🇷 South Korea||75.2|
|8||🇱🇰 Sri Lanka||50.4|
The top four performed well in areas such as air quality and water pollution, and with the exception of Hong Kong, have all introduced carbon pricing schemes in the past decade. This doesn’t mean these countries are without their flaws, however.
Land-constrained Singapore, for instance, ranked 16th in the deforestation indicator. The city-state is one of the densest population centers in the world, and has cut down forests to clear space for further settlement and urbanization.
Building Back Better From COVID-19
Despite the damage that COVID-19 has caused, there are some silver linings. This includes the environmental benefits experienced by China, where lockdowns reduced carbon emissions by 200 million tonnes in a single month. It’s been estimated that after two months, China’s reduced pollution levels saved the lives of 77,000 people.
These temporary improvements are an explicit reminder of the environmental and social costs associated with economic growth. In response, governments in Asia are taking steps to ensure the long-term sustainability of their nations. Japan and South Korea both announced their commitments to achieving carbon neutrality by 2050, while China set a similar goal for 2060.
Visualized: The Power of a Sustainable Investment Dollar
Do sustainable investments make a difference? From carbon emissions to board diversity, we break down their impact across three industries.
Visualizing the Power of a Sustainable Investment Dollar
Sustainable investments are booming.
Between January and November 2020 alone, investments in sustainable ETF and mutual funds grew 96%. The UN Principles of Responsible Investment now has over 3,000 signatories representing over $100 trillion in assets. The U.S. Commodity Futures Trading Commission established a Climate Risk Unit to analyze climate risk across derivative markets, and as of March 2021, new sustainability disclosures have come into effect in Europe.
But how do we know if sustainable investments have made a difference?
To answer this question, the above infographic from MSCI examines the effect of a sustainable investment dollar by looking at real-world examples.
A Sustainable vs. Unsustainable Dollar
To start, investing legend Benjamin Graham has compared the stock market to a “voting machine.” Just as consumers vote with their purchasing decisions, investors vote with their investment dollars. Especially in the short term, as more dollars flow to sustainable companies, this builds their exposure and access to capital.
In the long term, meanwhile, the market can be compared to a weighing machine. The market recognizes companies with profitable business models that improve their intrinsic value over time. Ultimately, this allows sustainable companies to expand and continue operating.
Given the rising momentum in both green assets and climate targets, here is how investment dollars have influenced and driven change across three industries.
1. Clean Energy vs. Fossil Fuel
Over the last several years, the energy sector has been associated with many of the problems causing climate change. For this reason, many investors are seeking out greener energy alternatives. But how does moving investment dollars from an ESG laggard to an ESG leader support the environment and society?
First, here is a brief explainer of ESG laggards and leaders:
- ESG laggards: companies with the weakest environmental, social, and governance (ESG) performance in their sector.
- ESG leaders: companies with the strongest environmental, social, and governance (ESG) performance in their sector.
|Industry laggard: U.S. oil & gas company||Industry leader: U.S. utilities company|
|Scale of carbon-intensive business lines equal to 73% of its operation||47% lower CO2 emissions than the industry average|
|This is the equivalent of adding 26 million cars on the road annually||This is the equivalent of removing 9.9 million cars off the road annually|
|1 of 20 oil and gas companies are responsible for contributing to one third of GHG emissions since 1965||Uses 3X as many renewable sources than industry average|
|3X fewer jobs are created vs. energy efficient sector, resulting in lower productivity||This is roughly the same as saving over 9 million pounds of coal burned|
|MSCI ESG Rating: CCC||MSCI ESG Rating: AAA|
Source: MSCI ESG Research
Based on the above example, investors have the ability to finance powerful green initiatives that reduce emissions by almost half, relative to their peers.
2. Safe vs. Unsafe Working Conditions
Weak safety protocols are a key sustainability issue for the industrial sector. Here’s how two companies compare:
|Industry laggard: South African mining company||Industry leader: U.S. mining company|
|11 fatalities in 2019||Zero fatalities in 2019|
|Faced lawsuits from miners surrounding lung diseases contracted from dust exposure in gold mines|
Settlement cost: $350 million
|Board-level oversight monitors health and safety performance|
|Lags behind peers in high incident rates||Leads peers in low incident rates|
|Lags behind peers in setting incident reduction targets||Leads industry in lost time incident rate & total recordable injury rate|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
Despite the risks involved in the sector, investors can choose to support companies that take greater precautions to protect their workers.
3. Building Trust vs. Losing Trust
Over the last several years, the financial sector has faced increased scrutiny over fraudulent activities. Moving investment dollars from an ESG laggard to ESG leader may make a difference:
|Industry laggard: U.S. bank||Industry leader: Dutch bank|
|$3 billion settlement in creating fictitious accounts to meet aggressive sales targets||Sustainable finance portfolio valued at over $20 billion|
|Drop in top-tier bank ratings||13% annual increase in climate finance|
|Board effectiveness questioned||Includes over 60 green loans, mobilizing environmentally friendly projects|
|Resignation of board members||Over 55% of board is female|
|MSCI ESG Rating: CCC||MSCI ESG Rating: A|
Source: MSCI ESG Research
From board diversity to green loans, a sustainable investment dollar supports companies that are actively advancing society and the environment.
Sustainable Investment: The Time to Act
Recently, investor dollars and shareholder activism have been closely linked.
Between 2018 and 2020, large institutional investors filed 217 shareholder proposals on climate change alone, putting increased pressure on companies. Meanwhile, 270 proposals were filed on corporate political activity and 228 on fair labor and equal employment opportunity over the same timeframe. Across all ESG proposals, $2 trillion in assets were pushing for more equitable corporate action.
Through the power of a dollar, investors can send a clear signal to companies: the time for sustainable investing is now.
China’s Economy: 40 Years of Soaring Exports
China’s economy today is completely different than 40 years ago; in 2021 the country makes up the highest share of exports globally.
Animated Chart: 40 Years of Soaring Exports in China
China has the second highest GDP in the world, and it exports 15% of all the world’s goods. But how did this come to be?
A mere 40 years ago, China’s economy was in an entirely different situation, making up less than 1% of global exports and still in the infancy stages of building its economy. The above animated chart from the UNCTAD showcases China’s rise to global trade dominance over time.
Timeline: The Rise to Power
The China of the mid-20th century looks remarkably different when compared to the modern-day nation. Prior to the 1980s, China was going through a period of social upheaval, poverty, and dictatorship under Mao Zedong.
Beginning in the late 1970s, China’s share of global exports stood at less than 1%. The country had few trade hubs and little industry. In 1979, for example, Shenzhen was a city of just around 30,000 inhabitants.
In fact, China (excluding Taiwan* and Hong Kong) did not even show up in the top 10 global exporters until 1997 when it hit a 3.3% share of global exports.
|Year||Share of Global Exports||Rank|
*Editor’s note: The above data comes from the UN, which lists Taiwan as a separate region of China for political reasons.
In the 1980s, several cities and regions, like the Pearl River Delta, were designated as Special Economic Zones. These SEZs had tax incentives that worked to attract foreign investment.
Additionally, in 1989, the Coastal Development Strategy was implemented to use strategic regions along the country’s coast as catalysts for economic development.
The 1990s and Onwards
By the 1990s, the world saw the rise of global value chains and transnational production lines, with China offering a cheap manufacturing hub due to low labor costs.
Rounding out the ‘90s, the Western Development Strategy was implemented in 1999, dubbed the “Open Up the West” program. This program worked to build up infrastructure and education to retain talent in China’s economy, with the goal of attracting further foreign investment.
Finally, China officially joined the World Trade Organization in 2001 which allowed the country to progress full steam ahead.
Made in China
Today China is a trade giant and manufacturing behemoth. Only the U.S. and Germany come close to its share of global exports, sitting at 8.1% and 7.8% respectively.
|Rank||Country||Share of Global Exports (2020)|
|#6||🇭🇰 Hong Kong SAR||3.1%|
|#7||🇰🇷 South Korea||2.9%|
China’s manufacturing industry has become dominant in producing just about anything from commonplace household items to integral pieces in automotive manufacturing. Some staples of Chinese manufacturing are:
- Precision instruments
- Industrial machinery for computers and smartphones
COVID-19 made China’s integral role in the global economy even more visceral, as major delays in the supply chain occurred when the virus hit the country.
An Economic Superpower
In 2021, China’s trade recovery from the crisis has bested most other countries—in Q1 2021, its exports grew by almost 50% compared to the previous year’s quarter, to around $710 billion.
And the country is not slowing down any time soon. Further plans for economic development are well under way, like Made in China 2025, with the goal of becoming a dominant player in global high-tech manufacturing. Additionally, the famous One Belt, One Road initiative has been funding infrastructure projects globally over the past decade, and the country is also a founding member of the RCEP—which is soon to be the world’s biggest trading bloc.
However, China still faces a series of challenges, such as:
- Population decline
- The onset of labor saving technology
- Trade wars with U.S. and sanctions from other trade partners, like Europe
- The emergence of ASEAN trade powers, like Vietnam
A declining population has many implications like a shrinking workforce and domestic market. Additionally, many companies are setting up shop in less costly manufacturing hubs like Vietnam.
Furthermore, inexpensive innovations in labor-saving technologies, such as robotics and automation, have already begun to undermine the cheap manual labor that has made China the world’s manufacturer.
All of these elements and more could potentially spell a slowing of growth in China’s export dominance. However, while the future for China may not be certain, currently, global trade and production could not function without it.
Datastream2 months ago
Mapped: The 25 Richest Countries in the World
Datastream2 months ago
Mapped: The 25 Poorest Countries in the World
Energy2 months ago
Visualizing the Power Consumption of Bitcoin Mining
Money3 weeks ago
Ranked: The World’s 25 Richest Millennial Billionaires
Markets1 month ago
Visualizing the Recent Explosion in Lumber Prices
Technology1 month ago
The World’s Top 50 Influencers Across Social Media Platforms
Misc2 months ago
Figures of Speech: 40 Ways to Improve your Writing
Datastream3 weeks ago
France’s Bernard Arnault Becomes the World’s Richest Person