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 channelled the credit supply to residential investment, fuelling a housing asset boom which boosted consumption. Export-led growth allowed PERIPHERY for rapid industrialisation and urbanisation 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. Rising indebtedness in G3 economies Increased government intervention Creeping protectionism Changes in G3 consumption behaviour
Legacy effect one: rising indebtedness
in G3 economies Sustained financing of this debt may break down. Fragile balance sheets and increased probability of country default. Substitution away from US-backed assets could occur over time.
Legacy effect two: increased government
intervention Intervention may stifle innovation and future growth. Compliance with tighter international lending standards. Rise in state-run banking industries could stifle innovation. Greater regulatory oversight may stunt future growth in start-ups and slow long run growth.
Legacy effect three: creeping protectionism
Protectionist elements of recession policies may spark a trade war. EC: agricultural export subsidies Korea: import tariffs, Russia: auto bailout, import tariffs, export subsidies, forex currency Increasing instances controls depreciation France: auto bailout, lending restrictions, asset protectionism China: auto bailout, of protectionist Germany: auto bailout, lending restrictions export subsidies Ukraine: import tariffs Taiwan: currency measures. Greece, Denmark: lending restrictions depreciation, Iceland: forex controls potential chipmaker Sweden: auto bailout bailout Canada: auto bailout Competitive devaluation and non-tariff barriers may trigger retaliatory action. US: ‘Buy American’, auto bailout Cumulative impact Mercosur: proposal to on trade could be increase common external Australia: auto tariffs bailout substantial in the India: import tariffs, Argentina: license safety and food Indonesia: entry point requirements, forex medium term. labelling restrictions restrictions for imports, controls, auto bailout new import procedures Ecuador: import tariffs use of domestic Brazil: attempted import products, forex controls license requirements
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
Post-crisis: moving through the fog
The short term will be like moving through a volatile and uncertain fog as economies and the financial system seek to adapt. Which future will emerge? Wounded Beast NOW Unstable Chimerica persists until new centres of final demand appear. Chasm Sustained shortfall in demand. New centres of final demand take decades to develop. Abyss Long slump, persistent instability.
Wounded Beast No fundamental shift
from Chimerica occurs. G3 final demand continues to power growth. Emerging Asia continues to fund G3. However this is not a return to the status quo, it is transitory and unstable. Branching point: If global imbalances are resolved over time, we see the rise of multiple centres of final demand. If not, we enter Chasm.
Wounded Beast Chimerica restarts. US
consumption recovers and powers growth. Phase One – Business as usual World growth at x% Singapore growth at x+% Chimerica restarts and G3 final demand continues to power global growth. Volatile swings. Branching point Source of demand G3 unable to contain imbalances. US consumption recovers and Each crisis weakens Chimerica, powers world growth. bringing it closer to Chasm. China continues to rely on export engine and public sector investment to grow. MNC supply chains Supply chain globalisation continues. Comparisons of final Trade flows demand today Free trade continues (not to scale) Talent flows Southern Cal $710bn Talent still attracted to G3 but explores Pearl River Delta $220bn emerging Asia. Beijing-Tianjin $110bn Delhi-Lahore $50bn Food-Energy-Water-Metal/Mineral resource flows High volatility due to demand speculation. High costs. Supply disruptions. Key message: Resilience
Wounded Beast Rise of the
Rest. Emerging Asia’s final demand proportion grows relative to G3. World growth at x% Phase Two – Asia emerges Singapore growth at x+% Export sector diminishes in importance while emerging Asia’s urban middle Key message: Relevance classes and rural sectors grow. Branching point Source of demand Emerging Asia develops many centres of self-sufficient US consumption is lower, US Comparisons of final demand. exports to emerging Asia. demand in 30 years China relies less on exports, (not to scale) more on rural and urban classes Comparisons of final Southern Cal $1,300bn for growth. demand in 15 years Pearl River Delta $2,700bn (not to scale) MNC supply chains Beijing-Tianjin $1,300bn HQs relocate from G3 to Southern Cal $937bn Delhi-Lahore $270bn emerging Asia, following demand. Pearl River Delta $735bn Beijing-Tianjin $368bn Trade flows Delhi-Lahore $113bn Overlapping regional trade architectures emerge. Talent flows Reversal of talent flows to Asia. Talent is sorted by quality of place. FEWMM resource flows High costs. High volatility due to speculation. Supply disruptions.
Crossing the Chasm The world
sees a sustained shortfall in G3 demand. Emerging 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. G3 EMERGING DEMAND ASIA DEMAND
Chasm G3 centred export model
loses its primacy. Decades long low growth ensues. Phase One – Collapse of final demand World growth at x% Singapore growth at x-%? US higher saving rates are entrenched and US consumption habits are permanently altered. How long will it take PRD to Source of demand reach Boston-Washington- Government is the main source of demand. NYC region consumption Emerging Asia’s middle class growth slows. levels? (Present figures) Urbanisation proceeds but is slower. Boston-Washington-NYC MNC supply chains Pearl River Delta 36 years! Greater Mumbai Supply chains rerouted towards surviving pockets of final demand. (AP HQ replaced by China HQ) Trade flows Trickle of trade but international trade architecture is largely intact. Branching point Talent flows Social and political instability spiral out of control and push the world into Abyss. Talent reroutes towards surviving pockets of final demand. FEWMM resource flows Less volatility in prices and less supply disruptions. But costs will still trend higher Key message: Survival with China’s urbanisation needs.
Chasm A different ‘Rise of
the Rest’. New mega regions that are not export-dependent. Phase Two – New centres of growth emerge World growth at x% Singapore growth at x-%? New mega regions rise on the back of their innovation capabilities and final demand market size. Who are these new Source of demand mega regions centreed Rural and urban classes become significant on both innovation and sources of final demand in regions able to final demand? retain their innovation infrastructure. Export plays a smaller role. MNC supply chains Regional supply chains centred on surviving pockets of innovation and final demand. Trade flows Intraregional trade more important than international trade. Talent flows In the absence of exports as a main growth engine, innovation drives growth. Talent is particularly critical to this rise of the rest. FEWMM resource flows High cost, moderate volatility. Possible supply disruptions. Key message: Relevance
Abyss The world goes into
a long slump marked by persistent instability. Middle class collapses and anti-foreign sentiment rises. A vicious spiral emerges. Stagnation World growth at x% Singapore growth at x--% US recovery efforts fail. Asset prices do not recover and government stimulus is unsustainable. Key message: Survival Source of demand Export-model breaks down. Middle class growth collapses, urbanisation stalls. Governments with Branching point reserves try to prolong growth. Heavy government intervention will not lead MNC supply chains the world to Wounded Beast. Anti-foreign sentiment gives rise to International coordination restarts trade “Buy local, Hire local, Source local”. engine and redesigns a new financial MNCs forced to breakup. “Pre-1991 platform. The world moves into Chasm. India” closed economy model. Trade flows Death of WTO. Competitive devaluation and beggar thy neighbour provisions. Talent flows Most talent is immobile and remains bound to home markets. FEWMM resource flows Considerable supply disruption with Who is left standing? Emerging Asia nations accompanying price volatility. who have their acts together? China?
Five questions: preparing for the
shift away from Chimerica Some suggestions … Questions Most important for Ensure resource security How can Singapore cope RESILIENCE with increased volatility Food Energy Metals Water Scalable and resource scarcity? &Minerals Infrastructure Diversify from G3 final demand How do we tap on Asia’s SURVIVAL emerging sub- Urban Public sector Rural economies? Consumption investment Consumption Tap on foreign consumption How do we generate a SURVIVAL through flow of consumers into Education Healthcare BT MICE Singapore? Irreplaceable in Asia’s future How do we develop RELEVANCE Singapore’s niche capabilities? New agriculture New aquaculture Integrate with immediate region Greater political and economical How should we build our coordination with our neighbours. SURVIVAL ASEAN hinterland?
Talent flows will determine continued
prosperity. How do we rig talent flows in our favour? Talent is most critical to ensure Singapore’s relevance. We should not lose sight of talent flows unlike other countries which are putting up barriers to talent. Talent is Singapore’s trump card. Key message: Singapore cannot lose sight of talent.
$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 centres 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 Singapore be $50bil irreplaceable in this model? High cost, moderate growth, $130bil 72 mil low volatility. 20mil Semiconductor $100bil production facilities 19 mil *The orange bar is Light Regional Product, $50bil using satellite data of the light emitted at 62 mil night. Higher concentration of light is correlated with stronger economic production. Data on regional economic production is not $60bil comprehensive, so this proxy is useful for $100bil comparison. 6mil R Florida’s “Who’s your City?” Disk drive, niche in S&T, top Western Universities, creative centre, high culture and street culture, top Key message: Relevance destination for all lifestyles
Tomorrow’s self-sufficient mega-regions? How fast
can the PRD 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 Centre 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 Centre… Entertainment, MICE Centre