KTG w/ John Doggett 4.13.10- "Global Trade Outlook"

McCombs Knowledge To Go April 13, 2010

Global Trade Outlook by Professor John Doggett

We Are In The Eye of a S.I.P.

S.I.P.’s Are Scary

Birth of the BRICs
In 2001, as the Internet Bubble was collapsing and the stock market was imploding, Goldman Sachs predicted that four countries would dominate global economic activity in the 21 st Century.
B razil
R ussia
I ndia
C hina

The Axis of the Future

Are These Guys Crazy?
6,100% Annual Inflation (1994)
Shock Therapy and the Oligarchs (1990s)
Two Weeks of Foreign Reserves (1991)
The Cultural Revolution (1966-1976)

Largest Countries By Population
C hina 1,338,612,968 (slightly smaller than the US)
I ndia 1,156,897,766 (slightly more than one-third the size of the US)
United States 307,212,123 (6.25% of the earth’s land mass = 424,378,888)
Indonesia 240,271,522 (slightly less than three times the size of Texas)
B razil 198,739,269 (slightly smaller than the US)
Pakistan 174,578,558 ( slightly less than twice the size of California )
Bangladesh 156,050,883 (slightly smaller than Iowa)
Nigeria 149,229,090 ( slightly more than twice the size of California )
R ussia 140,041,247 ( approximately 1.8 times the size of the US )
Japan 127,078,679 ( slightly smaller than California)
Mexico 111,211,789 (slightly less than three times the size of Texas)
Philippines 97,976,603 (slightly larger than Arizona)
Vietnam 88,576,758 (slightly larger than New Mexico)
CIA World Factbook - April, 2010

National GDP in 2009 (purchasing power parity)
Country GDP 2009 Growth %
United States $ 14,260,000,000,000 - 2.4%
C hina $ 8,789,000,000,000 8.7%
Japan $ 4,137,000,000,000 - 5.3%
I ndia $ 3,560,000,000,000 6.5%
Germany $ 2,811,000,000,000 - 5.00%
United Kingdom $ 2,149,000,000,000 - 4.3%
R ussia $ 2,116,000,000,000 - 7.9%
France $ 2,110,000,000,000 - 2.2%
B razil $ 2,025,000,000,000 0.2%
Italy $ 1,760,000,000,000 - 4.8%
Mexico $ 1,482,000,000,000 - 7.1%
Spain $ 1,368,000,000,000 - 3.6%
S outh Korea $ 1,356,000,000,000 0.2%
Canada $ 1,285,000,000,000 - 2.5%
CIA World Factbook – April, 2010

Elephants Emerging from the Mist
Total World Population = 6,790,062,216
BRIC Population = 2,834,291,250 ( 41.7% )
Total World Land Area = 174,814,000 sq. km. (- oceans)
BRIC Land Area = 38,471,715 ( 22%)
Total World Gross Domestic Product = $58.07 Trillion (Official Exchange Rate)
Total World Gross Domestic Product = $70.29 Trillion (Purchasing Power Parity) (p.p.p.)
BRIC Gross Domestic Product (p.p.p.) = $ 16.49 Trillion ( 23.5%)
Source: CIA World Factbook – April 2010

Today, The BRICs Have Arrived
BRICs Economies collectively are now 23.5 % of global GDP , which is $2.2 trillion larger than America’s GDP.
China is the second largest economy in the world. Today!
India is the fourth largest economy in the world. Today!
The Trade Implications are Obvious
CIA World FactBook, Goldman Sachs and Professor Doggett Analysis

China is On the Move
Goldman Sachs says that China can become the largest economy in the world by 2035 by growing by 5% a year.
What does the world look like when China’s economy is 9x bigger than it is today?
What opportunities does this represent for American entrepreneurs?

India is Rising
Goldman Sachs says that India can challenge the US for #2 by 2040 by growing by 6% a year.
What does the world look like when the Indian economy is 12x bigger than it is today?
What opportunities does this represent for American entrepreneurs?

Here Comes The BRIC Middle Class
Goldman Sachs predicts that the BRIC Middle Class could grow 4x in the next decade
Never before have we seen the addition of 750 million new members of the middle class in one decade.
Goldman says that the BRIC Middle Class could grow from 250 million in 2005 to 3.5 billion by 2050*
Jim O'Neill, Managing Director & Head of Global Economic Research, Goldman Sachs, 5/06

Future GDP (PPP) Estimates Source IMF (Oct 2009)

GDP Predictions

A Swarm of Inflection Points Dr. P. Konana, McCombs Business School, University of Texas at Austin 1964-70 1989-94 2000-2005

How Far The BRICs Have Come
In 2006 the G7 (US, Japan, Germany, France, Britain, Italy & Canada) held $1,253,900,000,000 in FOREX
By the end of 2007 China’s FOREX reserves had passed $1,500,000,000,000
China spent $65 billion for the Olympics. 5x the cost of the Athens Olympics.
China’s China Investment Corporation is a $300 billion State VC Fund
Today, China has $2,400,000,000,000 in FOREX reserves.
Professor P. Konana, McCombs School of Business, University of Texas at Austin & Goldman Sachs

Go Where the Market Is
756 million Mobile Phone Users in China (January, 2010)
Only 56.3% of China’s population
550 million Mobile Phone Users in India
19,000,000 Indians signed up for cell phone service in January, 2010 . . . for the first time ever
612,903 new subscribers every day of the month
All of Motorola’s mobile phone ads are developed and designed in Beijing
They outsource to the US and Europe for “localization”

Exports in 2009 (Trillion US $)
C hina $1.194
Germany $1.121
U.S.A. $0.995
Japan $0.516
France $0.457
Netherlands $0.398
Italy $0.369
South Korea $0.355
United Kingdom $0.351
H ong Kong $0.317

Exports, continued
13. R ussia $0.296
14. S ingapore $0.269
15. Mexico $0.230
17. T aiwan $0.204
21. I ndia $0.165
23. B razil $0.159
24. M alaysia $0.156
25. T hailand $0.151
30. I ndonesia $0.116
Greater China $2.270

Export Partners (2008)
China
USA 17.7%
Hong Kong 13.3%
Japan 8.1%
South Korea 5.2%
Germany 4.1%
India
U.A.E. 12.3%
USA 11.7%
China 5.4%
Singapore 4.5%
United States
Canada 20.1%
Mexico 11.7%
China 5.5%
Japan 5.1%
Germany 4.2%
United Kingdom 4.1%
Brazil
USA 13.7%
Argentina 8.7%
China 8.1%
Netherlands 5.2%
Germany 4.4%

Imports in 2009 (Trillions US $)
USA $1.445
Germany $0.931
C hina $0.922
France $0.532
Japan $0.491
United Kingdom $0.474
Netherlands $0.3589
Italy $0.3587
H ong Kong $0.345
Belgium $0.315

Imports, continues
14. I ndia $0.254
15. S ingapore $0.245
16. Mexico $0.234
17. R ussia $0.197
19. T aiwan $0.175
25. B razil $0.136
26. T hailand $0.132
28. M alaysia $0.120
31. I ndonesia $0.087
Greater China $2.407

Import Partners (2008)
China
Japan 13.3%
South Korea 9.9%
Taiwan 9.2%
USA 7.2%
Germany 4.9%
India
China 10.8%
Saudi Arabia 6.9%
USA 6.7%
U.A.E. 6.7%
Iran 4.2%
United States
China 16.4%
Canada 15.7%
Mexico 10.1%
Japan 6.6%
Germany 4.6%
Brazil
USA 14.9%
China 11.6%
Argentina 7.9%
Germany 7.0%

LET’S FOCUS ON CHINA
Now

Welcome to the New China copyright - John N. Doggett, 2008

Growth at Warp Speed

The People’s Republic of Communist China?

Shenzhen in 1979 www.lenbracken.com/images/china31

30,000 people lived here in 1983 Source: http://en.wikipedia.org/wiki/Image:57440.jpg

China’s Exploding Middle Class

Chinese Banks and The World

GDP Growth Rate

Exports as percent of GDP

Imports as percent of GDP

GDP vs. Exports (% of GDP) Source: World Bank World Development Indicators

GDP vs. Imports (% of GDP) Source: World Bank World Development Indicators

US Trade (Im) Balance with China http://www.census.gov/foreign-trade/balance/c5700.html

Who Owns Our Debt? (Billion US$)
May 2008
C hina = $506.8
Japan= $575.3
Caribbean Banking Centers = $104.5
Oil Exporters = $164.2
UK = $271.2
B razil = $151.4
R ussia = $63.7
Luxembourg = $75.2
H ong Kong = $61.4
T aiwan = $38.9
January 2010
C hina = $889.0
Japan = $765.4
Oil Exporters = $218.4
UK = $206.0
B razil = $169.1
H ong Kong = $146.6
Caribbean Banking Centers = $143.5
R ussia = $124.2
T aiwan = $119.6
Switzerland = $84.4
http://www.treas.gov/tic/mfh.txt

Who is Our Banker?
In May, 2008, we owed China, Inc. $607.1 billion.
By January, 2010, this number had grown to $1.16 trillion
We borrowed an additional $552.9 billion in 1 ½ years.
This is a 91.07% increase in their “line of credit” to US

What Are They Buying Now?
Majority Share of GM China & GM India
Hummer from GM (Not anymore)
Volvo from Ford
15% of the Cleveland Cavaliers
20% of Fisher & Pavkel (New Zealand)
Oz Minerals (Australia) for $1.4 billion
Addax Petroleum (Swiss oil company) for $7 billion
Access to Kurdish & Nigerian oil fields
9.9% of Morgan Stanley & Citibank

China’s Top Trade Partners ( 2009 US $ Billions ) Source: PRC General Administration of Customs, China's Customs Statistics Rank Country Volume % change over 2008 1 United States 298.3 -10.6 2 Japan 228.9 -14.2 3 Hong Kong 174.9 -14.1 4 South Korea 156.2 -16.0 5 Taiwan 106.2 -17.8 6 Germany 105.7 -8.1 7 Australia 60.1 0.7 8 Malaysia 52.0 -3.0 9 Singapore 47.9 -8.8 10 India 43.4 -16.3

China’s #1 Trading Partners
Australia 15.4%
Bangladesh 15.8%
Benin 36.1%
Burma 31.3%
Equatorial
Guinea 18.2%
Ethiopia 16.3%
Gambia 21.6%
Ghana 16.0%
Guinea 15.4%
Hong Kong 46.6%
Japan 18.8%
North Korea 57.0%
South Korea 17.7%
Lesotho 26.3%
Macau 31.1%
Madagascar 20.1%
Malaysia 13.9%
Nigeria 16.1%
Pakistan 14.3%
Paraguay 30.0%
Sierra Leone 10.2%
Sudan 20.3%
Tanzania 13.7%
Togo 35.3%
U.A.E. 12.9%
USA 16.4%
Vietnam 22.4%

China’s #2 Trading Partners
Angola 15.2%
Argentina 12.4%
Armenia 8.6%
B razil 11.1%
C anada 9.8%
C hile 11.9%
C olumbia 11.5%
Comoros 12.5%
Democratic
Rep of Congo 18.7%
Cuba 11.8%
E gypt 9.9%
Germany 8.2%
Indonesia 11.8%
Iran 12.6%
Jordan 10.4%
Kazakhstan 25.0%
Kyrgyzstan 17.9%
Laos 10.4%
Libya 9.3%
Mauritania 8.9%
Mexico 13.5%
Mongolia 27.8%
Netherlands 10.1%
New Zealand 13.2%
Niger 11.0%

China’s #2 Trading Partners, cont.
P eru 10.5%
S audi Arabia 10.4%
South Africa 11.0%
Sri Lanka 12.4%
Syria 8.7%
Taiwan 14.0%
Tajikistan 11.9%
Thailand 12.7%
Turkmenistan 16.7%
Uzbekistan 15.3%
Yemen 11.8%
Zimbabwe 4.2%

Income per Capita in 2050 (2006 US$)
The “Rich Club”
United States $92,000
Korea $90,000
United Kingdom $80,000
Russia $78,000
Canada $75,000
France $74,000
Germany $68,000
Japan $67,000
Upper Middle Income Group
Mexico $62,000
Italy $58,000
Brazil $50,000
China $48,000
Turkey $45,000
Goldman Sachs BRIC Book (2007) - page 155

Income per Capita in 2050 (2006 US$)
Lower Middle Income Group
Vietnam $35,000
Iran $32,000
Indonesia $20,000
India $18,000
Egypt $17,000
Philippines $16,000
Low Income Group
Nigeria $10,000
Pakistan $5,000
Bangladesh $4,000
Goldman Sachs BRIC Book (2007) - Page 155

Energy per Capita Rising with Incomes Dr. P. Konana, McCombs Business School, University of Texas at Austin Source: Roopa Purushothaman, Goldman Sachs, BRICs Report 2003 Japan UK South Korea

Unprecedented Energy Growth
China became the World’s Largest Emitter of energy-related CO 2 in 2008.
China will become the World’s Largest Consumer of Energy in 2010.
From 2007 and 2030, China will install more new electricity generating capacity than exists in the United States in 2007
World Energy needs in 2030 will be 55% higher than in 2006
China and India will = 45% of this new demand
World Energy Outlook - 2007

China’s Exploding Energy Demand
China’s Primary Energy demand will more than double from 1,742 million toe in 2005 to 3,819 million toe in 2030 ( 3.2% annual growth rate)
In 2005, the United States used 1/3 more energy than China
By 2010, China will use more energy than the United States
China’s primary energy demand will grow by 5.1% until 2015
World Energy Outlook - 2007

Who is Worried About IP?
Thermal Power Research Institute is China’s world-leading laboratory on cleaner coal, has just licensed its latest design to Future Fuels in the US.
Future Fuels will pay about $100 million to import from China a 130-foot-high maze of equipment that turns coal into a gas before burning it. This method reduces toxic pollution and makes it easier to capture and sequester gases like carbon dioxide under ground.
Future Fuels will ship the equipment to Pennsylvania and have Chinese engineers teach American workers how to assemble and operate it.

China Drawing High-Tech Research
Mark Pinto, Chief Technology Officer of Applied Materials moved to Beijing in January
Applied Materials is building its newest and largest research labs in China
Applied held its annual shareholder’s meeting in Xi’an, China.
Applied’s global headquarters are in Santa Clara, California

Applied’s New Xi’an R&D Plant

This Will Be China’s Century

The Ball is In Your Court
You Control the Future
You Will Be The Captains of The Future
Your Children Will Either Cheer or Jeer
It’s Show Time!

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KTG w/ John Doggett 4.13.10- "Global Trade Outlook"

by UT Austin McCombs School of Business

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