Chimerica : no independent ‘rise
of the rest’. Accounts for over 60% of the world’s cumulative growth for the past 5 years. Emerging periphery relied on final demand in the G3. CORE Accumulated earnings were recycled back to the core. Financial innovation channeled the credit supply to residential investment, fueling a housing asset boom which boosted consumption. Export-led growth allowed PERIPHERY for rapid industrialization and urbanization in emerging Asia, prompting large spikes in commodity prices.
The current crisis: Chimerica has
temporarily collapsed. There are four major uncertainties leading from the crisis. Each uncertainty may have legacy effects that can move the world permanently away from Chimerica. Changes in composition of final consumption behavior
Legacy effect two: increased government
intervention Intervention may stifle innovation and future growth. The greater regulatory oversight and tighter lending standards may stunt future growth in startups and cause technological innovation to slow. In the long run, this may induce a severe rollback in private consumption demand as long-run growth slows with declining innovation.
Legacy effect three: persistent protectionism
“Buy America” and beggar thy neighbor exchange rate policies may spark a trade war. The enactment of the Smoot Hawley Act in the 1930s sparked a rapid downward spiral in global trade. Competitive devaluation and non-tariff barriers may trigger retaliatory action.
Legacy effect four: G3 consumption
changes G3 consumers are saving more in response to a downturn. US consumers accounts for 70% of US GDP. Failure of the US stimulus package could lead to sustained negative growth and bleak long- term employment prospects in the US. This may, in turn, entrench savings habits. Source: US Council of Economic Advisors
WOUNDED BEAST WB No fundamental
shift from Chimerica occurs. Developed countries continue to power growth. 15 SEPT. 2008 at THE G3 Emerging Asia continues to fund G3. PERSISTENT GOVT DEBT FRAGILE BALANCE SHEETS However this is not a return to the status quo. This is a FUTURE ASSET BUBBLES transitory model. RESOURCE VOLATILITY The world is plagued by more volatility as imbalances are exacerbated. Wounded Beast Each subsequent crisis weakens this model. High cost, High growth, High volatility. Key message: Resilience
CROSSING THE CHASM The world
sees a sustained shortfall in G3 demand. Rising Asia looks inward towards domestic demand, but this may not be fast enough to restore world growth to previous levels. The period of adjustment could be painful and might take decades. How can we grow in this model? High cost, low growth, low volatility. Key message: Survival
Chasm: consumption in emerging Asia
How fast can Asian consumers become a source of final demand? The middle class is projected to surge – particularly in developing countries and Asia. But it may take decades for 37 Years consumption in emerging Asia to drive global 2.1% demand. Consumption* in 2007 If… China and India could be • World GDP grows at 4%, beset with political and • China’s GDP grows at 9%, social unrest. • China’s consumption share of its GDP grows at 1% 17.5% Consumption in 2007 *as a percentage of world GDP
$1,400 MENAGERIE 43 bil $4,500
mil $200bil $500bil bil 36 $110bil 4mil mil This is the emergence of 100 mega-city regions in Asia as 46 mil mil sophisticated, self-sufficient centers of final demand. Automobiles electronics 66 mil Regions could grow by $130bil $430bil Highly innovative High tech innovation, mfg, complementing each other, companies, finance, design electronics, 18 or through inward-looking telecoms, flat mil 120 mil panel displays development. $220bil 45 mil How can we be $50bil irreplaceable in Asia’s future? $130bil 72 mil High cost, High growth, low 20mil Semiconductor volatility. $100bil production facilities 19 mil $50bil *The orange bar is Light Regional Product, 62 mil using satellite data of the light emitted at night. Higher concentration of light is $60bil correlated with stronger economic production. Data on regional economic production is not $100bil comprehensive, so this proxy is useful for 6mil comparison. R Florida’s “Who’s your City?” Disk drive, niche in S&T, top Western Universities, creative center, high culture and street culture, top Key message: Relevance destination for all lifestyles
Menagerie: Pearl River Delta snapshot
How fast can they shift gears from servicing exports to their domestic market? PRD excluding HK, Macau (2007 figures) ¥711 bn GDP pp RMB 53,820, or 2.8 times national average 10 mil 3.6% China’s population but 8.8% of national retail sales 3.8 mil ¥60 bn Trade, MICE Mfg in auto parts .. ¥361 bn 7 mil ¥315 bn F&B products 6 mil 4 mil ¥111 bn Mfg in industrial ceramics… Mfg in laser diodes, electronics… Mfg in electronics … ¥681 bn 8.6 mil 2.5 mil ¥123 bn ¥2,002 bn Mfg in lighting, motorcycles… Logistics, Financial Center Mfg in electronics, computers.. ¥90 bn 4.5 mil ¥111 bn 7 mil 1.5 mil Port ¥110 bn Petrochemicals, Machinery 0.5 mil Financial, MICE, Business Svc, Port, Intl airport Center… Entertainment, MICE Center
Five strategies: preparing for the
shift away from Chimerica Some suggestions … Strategy Most important for WOUNDED BEAST Coping with increased volatility and resource scarcity Food Energy Metals Water Scalable &Minerals Ensure resource security Infrastructure Tapping on emerging CROSSING THE CHASM Asia’s sub-economies Diversify from G3 final demand Urban Public sector Rural Consumption investment Consumption Generating through flow MENAGERIE of consumers Tap on foreign consumption Finishing school Youth culture Fertility Treatment Film, TV, anime Baby Education Manga culture MENAGERIE Building niche capabilities Irreplaceable in Asia’s future New agriculture New aquaculture Building our hinterland MENAGERIE Tap into hinterland final demand Integrate with immediate region with transport infrastructure.