McKinsey hosted its annual Asian Leaders’ dinner at the World Economic Forum meeting in Davos in January, bringing together more than 70 top executives from around the region. They explored critical themes around Asia’s future, including geopolitical resilience, trade corridors, AI and gen AI, energy transitions, and demographic challenges. Clay Chandler, executive editor, Asia, at Fortune moderated the discussions. In this post-Davos interview, he talks with McKinsey senior partners Gautam Kumra and Joe Ngai about key insights and takeaways they gleaned from conversations at the dinner.
An edited transcript of the conversation follows.
Clay Chandler: Hello and welcome to McKinsey’s Future of Asia Podcast. I’m Clay Chandler, executive editor for Asia at Fortune. I’m joined by Gautam Kumra, chair of McKinsey’s Asia (ex-China) offices, and Joe Ngai, chair of its Greater China offices. We have a lot to talk about in this episode: this year’s gathering at Davos and what we learned there, recent developments in trade, technology, and geopolitics, and what all these mean for Asia and Asian business leaders. We’ll conclude with a few predictions for the remainder of the already tumultuous Year of the Snake.
I’ll begin by saying thank you for inviting me to join McKinsey at Davos for your annual Asia dinner and to lead the discussion. Joe, you concluded the dinner with an inspiring exhortation for CEOs to remember that often there are opportunities to be found in chaos, and that it’s important for CEOs and leaders to remain optimistic. However, global businesses now face the possibility of the US administration putting tariffs on companies that don’t make products inside the country. My opening question to you, Joe—is there still reason to be optimistic?
Joe Ngai: I believe that 2025 is going to be a year of uncertainty, one that could define the coming decade for leaders of companies and countries in Asia. What became clear in Davos was that, looking at the technology and macroeconomic trends, and demographics, Asia has a lot to be optimistic about. Look at countries such as India and what’s happening in the dialogue about the revival in Japan. Look at what we’re seeing in corporations that are waking up to interest from activist investors, and reforming themselves. And in China, DeepSeek seems to be taking over the gen AI discussion.
But as we heard, geopolitics will be front and center of many things. For CEOs, never before has there been so much emphasis on having to be close to what’s happening politically. I think that CEOs in the past, especially in Asia, minded their own business, did what they were good at, made some of the best-value-for-money products, and assumed that the world would want what they could offer. The East-to-West trade was what defined developed economies for decades. That is changing now. I think that we’re in for a year of adjustments and excitement, but we should be confident because a lot of macroeconomic factors are in favor of Asia.
Clay Chandler: Gautam, at the dinner, you talked about how Asian economies are evolving and how trade flows are changing in ways that might make it easier for Asia to cope with the recent upheavals in the East–West trade flow. Could you say more about that?
Gautam Kumra: Let me start by acknowledging that we are in a time when Asia is turning from being a minority of the world to becoming a majority of the world. You can look at it through various lenses. If you look simply at economic growth, more than half of the world’s economic growth currently is being driven by Asia. Last year was an important milestone for Asia, as more than half of the people in the region moved either into the rich or consuming categories, which has never happened before. By 2030, more than two-thirds of all middle-income households are going to be in Asia. In manufacturing, over half of the share of value-added manufacturing is now in Asia. In addition, more than half of the world’s trade touches Asia, and that is growing at a rate faster than trade around the rest of the world. No matter which lens you take, it’s fair to acknowledge that in a world going through tremendous change, Asia’s centrality and role of becoming the majority of the world is only going to become more important.
It’s fair to acknowledge that in a world going through tremendous change, Asia’s centrality and role of becoming the majority of the world is only going to become more important.
Gautam Kumra, chair of McKinsey’s Asia (ex-China) offices
In that context, there are a couple of important things happening on the trade front. One is that trade as a percentage of GDP has largely been flat. But if you look at trade in intellectual property services and people movements, it has been growing at a rate faster than trade in goods. And trade in Asia, even in physical goods, has been growing faster than in the rest of the world.
In addition, Asian countries are becoming more connected with each other within the region. In fact, the world is becoming more interconnected through data, intellectual property services, and the movement of people. In that context, it’s important to recognize that 18 of the 20 fastest-growing trade corridors—for example, between Vietnam and the United States—as well as 13 of the 20 largest trade corridors, touch Asia. I think Asia is going to be right at the heart of all geopolitical movements.
Clay Chandler: I’m interested in the idea that there are new, nontraditional corridors that connect Asia to other trade partners now. Are there new opportunities outside the region, as well as new ways in which businesses and economies can cooperate and collaborate within the region?
Gautam Kumra: There are trade corridors that are established and then corridors that are growing. For instance, Vietnam’s trade with China over the past five years has increased by about $50 billion worth of imports from China into Vietnam. Then, there are new and growing corridors, such as India and Japan. I spend a lot of time in Japan, and when I talk to businesses and CEOs there, they are thinking of trade outside the United States—India comes up more often than not; it probably sits in the top three trade partners for most Japanese CEOs. If you think about India’s need for infrastructure, investments, and the consumption opportunity, combined with Japanese technology and products, there’s a real synergistic play. I see that as an emerging corridor rather than an existing one that could get stronger. Another example would be India and the Middle East, which Prime Minister Modi has announced as a possible strategic corridor.
Clay Chandler: What potential do you see for collaboration between the Association of Southeast Asian Nations (ASEAN) and the Gulf States?
Joe Ngai: I think that it is very interesting in terms of what the Gulf States are trying to do. If you go to places such as Doha, Dubai, or Riyadh, there is a real optimism about the next 20 years of growth and development. They are thinking not only about how they can use their capital for investments, but also how to attract investments back into the Gulf States. There is not only an interesting phenomenon of capital flow from the Middle East into Asia, but also an investment flow back from Asia into the Middle East. This is new for any Asian company.
However, as every country thinks about how to play the next 20 years, especially around technology and industrialization, the model in which the East uses low labor costs to export manufacturing products to the West is extremely outdated now. I think in the next few years there are going to be very interesting investments and trade flows, and a lot of cross-regional collaboration. Many of these will be personalizations of new companies, joint ventures, and models that we’ve never seen before. Businesses that get to the forefront of this are going to prosper, and those that continue using the old models will slowly become irrelevant in the new world order.
Gautam Kumra: At the dinner, I bumped into an Indian CEO who is living in Riyadh. When I asked him what he was doing there, he said: “This is where the action is. We’re about to build a $100 billion company outsourcing manufacturing electronics in Riyadh. They don’t have the skill set and the leadership experience, so I have moved there to build it.” I believe there is going to be more movement of companies and talent to industrialize these countries. Equally, there is the consideration of long-term capital over the next ten years. If you look at Southeast Asia, it has an economy comparable to India in size. It’s almost $3.5 trillion, growing at a healthy rate. The complexity is that it’s not one market, so a company has to pick its spot, but I think Southeast Asia will have to be on the agenda.
Clay Chandler: Joe, how do you see the outlook for China right now?
Joe Ngai: The Chinese economy has been the subject of a lot of global attention, rightfully so. I believe that China this year will still contribute to 30.0 percent of global growth and its current growth rate of 4.5 to 5.0 percent is still very healthy for an economy of this size. But at the same time, if you talk to any Chinese company within the country, I think they are disappointed with domestic demand. There are many factors driving that. One is consumer sentiment and confidence. In the past couple of years, consumer confidence has been at a low, mainly due to real estate prices—that bubble has burst. There is pessimism around employment in terms of what jobs are going to lead to more upward mobility. And another consideration is whether China is getting into more of a middle-income trap.
I think that the headline is that, in terms of a global size of GDP growth, China is still at a very reasonable size, but domestic demand is the factor that needs to get back on a healthy trajectory. That remains something that the authorities and others are focused on. Do I see an upside there? I think that right now everyone has low expectations of how the rest of 2025 is going to pan out. And with low expectations, people in equity markets start to wonder if they are underestimating what the government is doing and what the recovery could be.
Clay Chandler: Do you think China is still a market in which foreign businesses can thrive and grow?
Joe Ngai: China is an ultracompetitive market; in fact, I don’t think there’s any other market in the world as competitive as it. Local companies aren’t necessarily thriving—they are also fighting for their lives, like every single multinational company. This is an environment in which everyone is looking at all competitive edges. For example, with electric vehicles in China, new features, cars, and models come out about every two months. If you’re not up to the game with the rate of innovation and the pace at which the competitive intensity is increasing—whether you’re a multinational or a small local company—you have no chance. That is what a lot of companies are finding out right now.
Clay Chandler: Gautam, last year at Davos, the Indian delegation was able to boast that their economy was the fastest-growing major economy in the world, at 7 percent plus. This year, the growth rate is down. How do you see prospects for big global companies in the Indian market?
Gautam Kumra: Starting with the big picture, I think India will in many ways be facing slower growth and economic headwinds for the next decade and perhaps longer, given the structural forces at work. The Indian economy has delivered about a 7 percent GDP growth rate over the past 30 years, and there’s certainly no reason to believe why it could not do so at least over the next 20. Right now, however, there are some structural weaknesses in the economy for a variety of reasons, including a slowdown in government investment, which was a big driver of growth over the past five years.
However, India is extremely well-positioned. One of the reasons is that some of the fundamental forces at work, such as rising consumption driven by demographics, are working in its favor. The number of middle classes in income and consuming households is not just growing at single digits; it’s doubling, tripling over the next many years.
The second reason is technology. India is one of the fastest digitizing countries in the world, next to Indonesia and a couple of other markets. That has opened up avenues to connect people with providers of products and services in ways that were unimaginable. There is significant smartphone penetration and high degrees of data usage, and the price points of data in India are the lowest in the world.
The third reason is the working population. India continues to boast a very young population—the average median age is less than 30 years. The working population will continue to grow at least to 2050 if not beyond, which is likely next only to Africa.
Last, the sustainability energy transition: Again, India is well-positioned for this, because there’s a lot to develop. The country is now on a path to build 500 gigawatts of renewable energy over the next couple of years.
When I put all of that together, structurally, I think India is relatively well-positioned to cope with geopolitical changes from all sorts of supported parties. Certainly, it’s not that simple to sustain that sort of growth. India needs to continue to reform—in land, labor, financial services, and sectors—not just at the federal level, but also at the state level. If there is continued reform in many of the sectors, there’s no reason to believe why India could not sustain its growth.
Clay Chandler: AI was one of the most popular topics during the week at Davos. I was struck by the American tech giants’ sense of confidence. But when we all got back from Davos, markets had gone into a dive over the announcement that DeepSeek allegedly was able to create a large language model (LLM) that was as good on performance metrics as OpenAI and was radically cheaper. I’d be interested to hear your thoughts about the significance of that breakthrough, if that’s what it is. Does this open and democratize the AI race?
Joe Ngai: What is interesting is the notion that AI and gen AI, at least on the application level, are not just about capital expenditure and deep pockets. I think that whether it’s DeepSeek or the next 15 AI companies that are going to come out in the next two years, what will be interesting is to see how companies will be able to harness the productivity and promise of gen AI. I think that is the most important consideration right now. DeepSeek is an interesting phenomenon because we have been focusing only on the heavy investment side of gen AI, which seems to involve only a handful of large companies around the world. We have forgotten that, in fact, it all comes down to how we’re going to use gen AI and the value for money around it. I think we are in the first chapter of this story.
To be honest, I don’t know whether gen AI will democratize companies, but what I do know is that, like anything else, the key is around how companies think about using it. What I’m seeing is that at the moment they are unable to use it in a productive way. There are small test cases here and there, but at the heart of it, it’s around the willingness to revisit all processes and consider functional organization in very different ways. I think that, as with many technologies, the bottleneck is not technology; it is humans and organizations. I hope that CEOs in Asia, with all the euphoria going on right now, take a deep look at themselves and say, “Are we the bottleneck of gen AI, and can we leapfrog and move ahead?”
Gautam Kumra: I think DeepSeek is an example of the rate of technological progress. We have solved the artificial gen AI problem, but having said that, what are the unlocks and what are the constraints? There are institutional constraints and also human constraints. Things such as energy, semiconductor chips, and data are going to be the institutional constraints. If you look at history, we have solved these kinds of big problems before. In the United States, solving these tech constraints will probably need about a trillion dollars’ worth of investments by the end of this decade, which is about 3 percent of GDP—that’s similar to what the country had to do when it was putting telecommunications into net infrastructure. Now is a time for that kind of infrastructure build. But another constraint is that while the technology is moving faster than one can imagine, human limitations are coming in the way of extracting value and delivering results into the bottom line. This is beyond technology and building capability. Digital quotient and change management capability in companies are where spending is directed at the moment. Hopefully this year will be a turning point from technology to value.
Clay Chandler: I’m reminded of the time when India got connected by an undersea cable, which allowed data to move at the speed of thought to companies in markets around the world. It feels like this is a moment when revolutionary technologies emerge at a rapid pace and enable firms that seize these technologies to become global players. Gautam, could there be an Indian equivalent of DeepSeek that breaks out in the next year or two?
Gautam Kumra: It is certainly a possibility. But I think it depends on where the new battleground will be. There will continue to be a global battleground around LLMs. What DeepSeek has shown is that it’s possible to do this at a different, lower cost.
I’m more excited about what one can do at the application layer and how these models can be used to develop small LLMs and more language context-specific models that can drive massive productivity and customer experience at a much lower cost. For example, in a market such as India, AI will probably be used differently from developed markets because, given the low labor cost in India, the opportunity might be less about cost-saving but more about customer experience.
Clay Chandler: I agree. I’ve heard some people refer to these technologies not as painkillers, but as vitamins. This has interesting implications for the entire Asian region. But looking at the global macroeconomic outlook, should business leaders in Asia be worrying about inflation again? Should that be part of their risk scenarios?
Gautam Kumra: I say this recognizing that we are not economists: I think it would be foolhardy not to plan at least for a scenario where inflation remains high and is difficult to bring down. Business leaders need to think of this not just as risk management, but also as an opportunity for creating and maximizing value. If I were a business leader, I would be looking at both defense and offense. For defense, I’d want to understand my supply chain, my manufacturing footprint, and my global network—how do they stay resilient in all different scenarios, including tariffs and inflation? Regarding offense, I’d be looking at where I want to double down and ask what the economic corridors and markets are that I’m going to focus on.
Then finally, how do I build my organization in this ever-changing world? How do I get my board and management team to help guide the company with regard to both defense and offense? Leaders need to think about the inputs and actions they can take in this context. You can’t predict all scenarios, so how do you build your team’s capability to navigate as soon as new information comes, including the scenario in which inflation does not come down?
Clay Chandler: Joe, does it feel to you that there’s more turmoil right now, that we’re in a moment that is much less predictable than any moment, say, since the 2008 financial crisis?
Joe Ngai: In the past couple of years, we’ve seen the COVID-19 pandemic, we’ve seen wars, and we’ve seen inflation. Is there going to be more of the same? I don’t know. I think we need to take all this in our stride and accept that uncertainty and volatility are par for the course. Yes, there’s a lot of uncertainty, but right now a company CEO is in the same position as everyone else.
I wonder whether all this, in some way, is a wake-up call for corporations to become more resilient and agile . . . so that, in the end, we will be grateful for having to deal with all this uncertainty.
Joe Ngai, chair of McKinsey’s Greater China offices
So, the question in this playing field is going to be: “How do I become more agile? How do I pivot earlier and faster?” There is a case for inflation, but we need to look at the other scenarios, such as more deregulation. It seems that there will be more opportunities opening up in other forms of collaboration. I think that investments in the United States could be an opportunity no one has thought of, but perhaps that is just one that’s opening up now. I tend to be an optimist and I think that as long as you move faster than the three guys next to you, there’s always an opportunity.
Another point is that, for a long time, business leaders, especially in Asia, didn’t think about politics in a big way. There wasn’t much of a geopolitical muscle. But increasingly, it seems as though we have to be active participants—or at least active observers—to be able to pivot in different ways. Even large local companies have to think about their global footprint in more positive and proactive ways than before—for diversification, for future opportunities, and for the ability to change around operations. This ushers in a new era for everyone. The bar is set higher; we all will need to raise standards.
Clay Chandler: Is there one thing that you think will be a surprising development in the remainder of the year ahead?
Gautam Kumra: The rate of change will never be slow this year; it will be a tumultuous year. If you look at the tech leader, if you look at the top 20 companies at the beginning of this year and by the end, I’d be surprised if there is not a dramatic change in the pecking order, simply because many companies will not survive this degree of change—and some new ones will thrive.
Joe Ngai: With the talk around tariffs and the new geopolitics, we can feel frustrated and sometimes wonder if the world is too chaotic. But my prediction is that this could make everyone sharper. I wonder whether European companies are going to wake up; I wonder whether Japanese companies are going to become more aggressive; I wonder whether Chinese companies are going to think about how they get to play the new global order. I wonder whether all this, in some way, is a wake-up call for corporations to become more resilient and agile, to be able to withstand all kinds of shock, so that, in the end, we will be grateful for having to deal with all this uncertainty.
Clay Chandler: No one likes change. It’s difficult, but often it’s a source of innovation and what we need to move forward. Thanks very much, Gautam and Joe.
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