Who will be the next superpower? Social infrastructure holds the key (2024)

Who is the world’s current superpower?

The United States remains the world’s only superpower, despite today’s geopolitical friction. It is by far and away the leader when the three defining features of a superpower are tallied up: that’s a nation’s economic wealth, ‘hard’ military assets, and ‘soft’ power – in terms of cultural exchanges, diplomacy or the dissemination of ideas. Using this definition, there’s little doubt that the world remains unipolar.

Needless to say, the question of how to define a superpower is topical. It’s broadly accepted that superpower status depends on both hard and soft power, and this definition is further articulated by respected US political scientists John Mearsheimer and Joseph Nye.

Who are the superpower contenders?

By 2050, more countries are likely to be defined as superpowers, joining the United States and creating a multipolar world order. Extrapolating current economic, geopolitical, and demographic trends would suggest that China is likely to become a new superpower, although its economy is currently faltering. Less well appreciated, India seems likely to join the United States and China in shaping world affairs, helped on its way by the demographic dividend of a young and growing population that should propel economic growth.

This is the view of Dr Damien Ng, Julius Baer’s Next Generation Research Analyst, explained in a peer reviewed journal article focusing chiefly on India’s rise to superpower status.

He cautions, though, that the future is not yet written and that challenges associated with social infrastructure could yet stall progress. “We must not forget that each of these countries has its unique set of challenges,” he says. “Over the long term, they will need to overcome these domestic challenges associated with wealth inequality, which otherwise will hold them back.”

What challenges are in China and India’s path?

For investors with a long-term view, this delicate path to the global top table has implications. In particular, as China and India seek to become more prosperous countries, with higher living standards, they will need to develop their social infrastructure, especially education and healthcare. This is likely to create a supportive environment for these sectors to varying degrees in each country.

Overhauling education and healthcare

While Asian governments have focused on building roads, ports and airports in recent years, Dr Ng believes that social infrastructure – chiefly education and healthcare – is equally in need of attention. As the Covid-19 pandemic swept across the world over the past three years with tragic consequences, it exposed the cracks in many countries’ education and healthcare systems, as well as how much their future prosperity depends on fixing them.

In his view, this social infrastructure deficit is closely linked to rising wealth inequality. Whether in the United States, China or India, inequality has risen in the past 30 years, he says, but in India it’s most extreme, effectively hollowing out the middle class that any thriving economy depends upon. Attending to India’s social infrastructure would go some way to helping to counter this.

The contrasts are especially stark in India: a country with great momentum yet big challenges. Its population is set to overtake China’s in 2023, with both home to over 1.4bn people this year, according to the United Nations. With a lower median age than the United States or China, this has powerful implications for economic growth as an increasing number of young people enter the workforce. Added to that India has large armed forces and substantial defence expenditure, along with its dazzling array of cultural assets.

Even so, the country’s challenges could stall progress. These include “widespread poverty, chronic corruption, societal divides, an overburdened public healthcare system, and pressing environmental challenges,” according to Dr Ng. At the heart of these inter-linked challenges are unequal access to high-quality education and a struggling healthcare system. Improve this social infrastructure and the country will be further on its way to becoming the exemplary inclusive growth story of the 21^st Century.

China has its own, different problems. While wealth inequality is not so extreme, a fast-ageing population brings healthcare challenges. By 2040, more than a quarter of Chinese, 402 million people, will be over 60 due to longer life expectancy and declining fertility, according to the World Health Organization. As the population ages, so the diseases of old age like cancer are fast-growing problems.

Two powerful investment trends

From an investment perspective, China and India’s quests to overcome their respective social infrastructure challenges in the next 30 years are likely to support healthcare and education, according to Dr Ng. With the exception of private education in China, where for-profit tutoring has been banned, the leading companies in these sectors are thriving.

A greying China, for instance, brings not just challenges but also opportunities as the government and private sector align to improve health and social care.

“After all, senior citizens need a wide range of services and support for maintaining their lifestyles,” notes Dr Ng. “That is where longevity can become an opportunity for investors. Investing in the silver economy requires a segmental investment approach, since there is a wide range of services and support that senior citizens need for maintaining their lifestyles. In view of the frailty of old age and the shifting lifestyle preferences of the greying population, sectors relating to healthcare and elderly-care services should remain bright.”

A mounting healthcare challenge is cancer – China accounted for almost a third (30%) of cancer-related deaths worldwide in 2020. Against this troubled background, China has become one of the world’s fastest growing genomics markets, as gene-sequenced personalised therapies revolutionise treatment.

In India, the pandemic galvanized the government into developing digital health as a way of strengthening its provision of healthcare. As a result, the digital health market has been booming.

Education technology (EdTech) companies are also flourishing as people aspire to supplement the learning that their children receive in government schools. As a result, India is one of the leading countries for EdTech venture capital investing worldwide.

What’s the bottom line for investors?

So, China and India’s paths to superpower status are delicate, depending on how well they develop social infrastructure, so bolstering equality. As they seek to do so, government must partner with the private sector, helping it to succeed in these areas. That will provide a long-term fair wind for leading companies, to the benefit of investors.