Asia’s growing influence in the United States - economically and culturally - is very apparent in the Federal Reserve’s Twelfth District. The nine western states form a geographical gateway to Asia, and because of the close ties, can provide insight into Asian economic and financial developments. The Twelfth District is an attractive destination for trade and investment by Asian companies because of its location. Also, the District’s geographical position has contributed to a long and rich history of Asian immigration into the region.Asia ; Federal Reserve District, 12th ; International trade ; Banks and banking - Asia

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Research Papers in Economics

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10
15
20
25
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35
40
0
5
10
15
20
25
30
35
40
Share of World GDP at Purchasing Power Parity Percent
Source: International Monetary Fund, World Economic Outlook Database
’86 ’87 ’88 ’89 ’90 ’91 ’92 ’93 ’94 ’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05E ’06E
Total Asia
United States
China
Japan
India
Gateway to Asia
The global economy is increasingly shaped 
by developments in Asia.1 Home to nearly 
two-thirds of the world’s population, Asia’s 
share of global gross domestic product (GDP) 
grew to an estimated 35 percent in 2005, from 
25 percent in 1990. In contrast, U.S. GDP  
as a percentage of world GDP has remained 
fairly constant over the past 15 years, at  
about 20 percent. 
Asia’s growing influence in the United States—
economically and culturally—is very apparent in the 
Federal Reserve’s Twelfth District. The nine western 
states form a geographical gateway to Asia, and because 
of the close ties, can provide insight into Asian economic 
and financial developments. The Twelfth District is 
an attractive destination for trade and investment by 
Asian companies because of its location. Also, the 
District’s geographical position has contributed to a 
long and rich history of Asian immigration into  
the region.
Both Asia and the Twelfth District benefit from 
this growing interdependence. The western states profit 
from exports to Asia’s booming domestic markets,  
capital from Asian investors, and an inflow of highly 
skilled professionals. Asia benefits from the Twelfth 
District’s technology centers, educational institutions, 
and dynamic financial system. As this relationship 
becomes closer, Asia’s significance to the District’s 
economic vitality grows. 
Three Stories of Asia 
Recent developments in Asia are defined by three 
stories: the economic recovery in Japan, the rebound 
from the Asian financial crisis of the late 1990s, and 
the rise of China’s and India’s economic importance. 
In the first story, although Japan has the second largest 
economy in the world, it has suffered through more 
than a decade of economic stagnation and steadily 
weakening corporate and banking sectors. Fortunately, 
Japan now appears to be exiting from its economic 
difficulties and experiencing a rebound in property 
prices, equity markets, and consumer prices. 
The second story centers around the countries 
that suffered most during the Asian financial  
crisis: Thailand, Indonesia, and South Korea. After 
the severe financial and economic difficulties that 
began with the floating of the Thai currency in 1997, 
these countries implemented a series of structural 
reforms that have improved the region’s economic 
stability. At present, these three countries each have  
a solvent, growing banking system and a GDP that 
exceeds pre-crisis levels.
The third story, which is the topic of many recent 
headlines, is the rise of China and India. These two 
7
Asia’s rising share of global GDP is largely due to China’s strong economic performanceFederal Reserve Bank of San Francisco
countries, with a combined population of 2.3 billion, have 
exhibited dramatic growth, mainly due to a well-educated, 
plentiful workforce and a low-cost wage structure. China 
and India have captured the world’s attention with their 
rapid economic growth rates, burgeoning populations, 
and significant impacts on global trade. Many analysts 
predict that, as these two economies continue to grow, 
they will eventually overtake the economies of Europe 
and the United States. One study projects that China’s 
economy will surpass the economies of Japan and  
the United States by the middle of the twenty-first 
century, while India will overtake the major European 
economies within the next 20 years.2 However, the 
dominance of China and India is by no means assured; 
both countries face significant socioeconomic hurdles 
that could derail their progress.
Growing Trade
Trade ties between Asia and the Twelfth District 
are close. In 2004, 44 percent of all the District’s exports 
went to Asia, approaching twice the national average of 
26 percent. Hawaii sent 73 percent of its exports to Asia 
in 2004, Alaska 68 percent, and California 43 percent. 
Except for Nevada, every state in the District ships  
a higher percentage of its exports to Asia than the  
national average. Merchandise exports from the Twelfth 
District to Asia consist primarily of information 
technology (IT) goods, non-high-tech durables such 
as consumer electronics, and nondurables such as food. 
Japan is both the largest investor and the largest export 
market for the District; however, trade with China 
and India is growing rapidly. 
The Technology Connection
The Twelfth District’s large IT sector has clearly 
benefited from a connection to Asia. Highly skilled 
workers from Asia occupy prominent positions in many 
IT firms in the District. Indians, Chinese, and Taiwanese 
have established the most significant presence, especially 
in Silicon Valley. Similarly, the Twelfth District has 
influenced Asia’s 
booming IT industry. 
Many Asians have 
taken the skills and 
expertise they acquired 
in the United States  
to start companies 
back home. This is 
particularly true in Taiwan and China, where Silicon 
Valley alumni have played important roles in 
developing the IT industry. Recently, venture capital 
and private equity firms from the Twelfth District 
have been financing young IT firms in Asia, with 
China and India attracting the greatest interest.
Asian Banking Presence 
The Federal Reserve Bank of San Francisco takes a 
special interest in the growing presence of Asian-related 
banks in the Twelfth District because its banking 
supervision responsibilities for foreign banks are 
primarily tied to Asia. Over the past several years,  
the number of banks catering primarily to local Asian 
immigrants has increased significantly. These banks 
help serve the financial needs of individuals and  
small firms in the local Asian communities in the 
District. About 45 percent of the country’s Asian 
American-owned banks are headquartered in the 
Twelfth District; these banks hold $25 billion in 
assets and account for nearly three-quarters of total 
Asian American-owned bank assets in the country. 
Twenty-two of the District’s Asian American banks 
are headquartered in California, four are in Hawaii, 
and two are in Washington. The District also is home 
to branches and subsidiaries of 33 banks headquartered 
in Asia, with local assets of $123 billion. These 
branches and subsidiaries primarily facilitate 
transactions for companies in their home countries. 
Japan is both the largest 
investor and the largest 
export market for the 
District; however, trade 
with China and India is 
growing rapidly.
8
1.   For this discussion, Asia is defined as Bangladesh, Bhutan, Cambodia, China, 
Hong Kong, India, Indonesia, Japan, Lao People’s Democratic Republic,  
Malaysia, Maldives, Myanmar, Nepal, Pakistan, Philippines, Singapore,  
South Korea, Sri Lanka, Taiwan, Thailand, and Vietnam.
2.   Goldman Sachs. 2003. “Dreaming with BRICs: The Path to 2050,” Global 
Economic Paper No. 99. October 1. Gateway to Asia
9
44%  24%  23%  9%  36% 26%  23%  15%
2004 Merchandise Exports: Twelfth District 
Sources: U.S. Department of Commerce: Tradestats Express; FRBSF 
2004 Merchandise Exports: United States 
Asia  North 
America 
Europe  Other  North 
America 
Asia  Europe  Other 
0  20  40  60  80  100  0  20  40  60  80  100 
Merchandise exports from the Twelfth District to Asia approached twice the national average in 2004
1.   Carl Dahlman and Anuja Utz. 2005. “India and the Knowledge Economy: 
Leveraging Strengths and Opportunities.” Knowledge for Development 
Program, World Bank Institute. April. 
Since Indians and Americans of Indian origin 
have played a significant role in the development of 
the Twelfth District’s IT industry, it’s not surprising 
that a version of Silicon Valley has formed in India. 
Centered in the south Indian city of Bangalore, 
India’s IT industry is enjoying rapid growth and 
making a significant impact on the global technology 
scene. While other Asian nations have developed 
large electronics hardware industries, only India 
boasts a deep, globally competitive software sector. 
Staffed by a highly skilled, English-speaking, and 
low-wage workforce, Indian software firms have 
enjoyed extraordinary growth. Industry revenues 
have increased more than fivefold—from $5 billion 
to $28.5 billion from fiscal year-end 1998 to 2005. 
While IT revenues account for approximately  
4 percent of India’s GDP, the IT sector boosts  
the country’s larger economy by creating indirect 
employment, spurring reform, and increasing 
investors’ interest in India. Subsidiaries and branches 
of Western-owned multinationals control much of 
the Indian IT sector, but top Indian-owned firms are 
growing fast and attracting international recognition. 
Indian companies also are increasingly opening 
offices and acquiring firms in the United States. 
Prospects for India’s IT sector remain bright. 
Despite problems posed by rapidly rising wages, 
skilled labor shortages, and weak infrastructure, 
local firms’ capabilities continue to develop. Firms 
now are moving beyond low value-added services 
such as coding and programming to offer high-
margin consultancy and research and development 
services in areas such as finance, pharmaceuticals, 
and technology. One study forecasts Indian IT 
revenues will continue to boom, rising at a 38 percent 
compound annual rate to reach $77 billion by 2008.1 
In this scenario, IT’s contribution to India’s GDP 
could rise to 20 percent.
India’s Silicon Valley
1.   Carl Dahlman and Anuja Utz. 2005. “India and the Knowledge Economy: 
Leveraging Strengths and Opportunities.” Knowledge for Development 
Program, World Bank Institute. April. 

Gateway to Asia

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Gateway to Asia

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