The world after the financial crisis

1. Global Demand after the Crisis

2. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE QUESTIONS
CRISIS SCENARIOS

3. 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.

4. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE STRATEGIES
CRISIS SCENARIOS

5. 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

6. 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.

7. 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.

8. 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

9. 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

10. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE QUESTIONS
CRISIS SCENARIOS

11. 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.

12. 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.

13. 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

14. 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.

15. 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

16. 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.

17. 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

18. 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?

19. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE QUESTIONS
CRISIS SCENARIOS

20. 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?

21. 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.

22. For discussion, please.

23. $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

24. 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