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Global Demand after the Crisis
WHAT IS CHIMERICA?FOUR UNCERTAINTIES
THREE POST- CRISIS MODELS
FIVE STRATEGIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
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.
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 for rapid industrialization and urbanization in emerging Asia, prompting large spikes in commodity prices.
CORE
PERIPHERY
WHAT IS CHIMERICA?FOUR UNCERTAINTIES
THREE POST- CRISIS MODELS
FIVE STRATEGIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
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 one: rising public debt Sustained financing of this debt may break down.
Move from LT to ST debt.
Raises probability of country default.
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.
Competitive devaluation and non-tariff barriers may trigger retaliatory action.
The enactment of the Smoot Hawley Act in the 1930s sparked a rapid downward spiral in global trade.
Legacy effect four: G3 consumption changesG3 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
WHAT IS CHIMERICA?FOUR UNCERTAINTIES
THREE POST- CRISIS MODELS
FIVE STRATEGIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
Post-crisis: three demand models Snakes and Ladders transition. The dice is rolling …Where will we end up?
MODEL AWOUNDED
BEAST
MODEL BCHASM
PRE-CRISISCHIMERICA
MODEL CMENAGERIE
WOUNDEDBEAST
No fundamental shift from Chimerica occurs. Developed countries continue to power growth. Emerging Asia continues to fund G3.
However this is not a return to the status quo. This is a transitory model.
The world is plagued by more volatility as imbalances are exacerbated.
Each subsequent crisis weakens this model.
High cost, High growth, High volatility.
FRAGILE BALANCE SHEETSFUTURE ASSET BUBBLES
RESOURCE VOLATILITY
15 SEPT. 2008 at THE G3
WB
WoundedBeast
PERSISTENT GOVT DEBT
Key message: Resilience
CROSSINGTHE CHASMThe 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
The middle class is projected to surge – particularly in developing countries and Asia.
But it may take decades for consumption in emerging Asia to drive global demand.
China and India could be beset with political and social unrest.
If…• World GDP grows at 4%,• China’s GDP grows at 9%,• China’s consumption share of its GDP grows at 1%
37 Years
Consumption* in 2007
Consumption in 2007*as a percentage of world GDP
2.1%
17.5%
Chasm: consumption in emerging AsiaHow fast can Asian consumers become a source of final demand?
Highly innovative companies, electronics, telecoms, flat panel displays
High tech innovation, mfg, finance, design
Semiconductor production facilities
Disk drive, niche in S&T, top Western Universities, creative center, high culture and street culture, top
destination for all lifestyles
45 mil
$220bil
66 mil
$130bil
19 mil $100bil
6mil$100bil
72 mil
$50bil
62 mil
$60bil
120 mil
$50bil
20mil$130bil
100 mil
$4,500 bil
46 mil
$500bil
43 mil
$110bilMENAGERIE
This is the emergence of mega-city regions in Asia as sophisticated, self-sufficient centers of final demand.
Regions could grow by complementing each other, or through inward-looking development.
How can we be irreplaceable in Asia’s future?
High cost, High growth, low volatility.
*The orange bar is Light Regional Product, using satellite data of the light emitted at night. Higher concentration of light is correlated with stronger economic production. Data on regional economic production is not comprehensive, so this proxy is useful for comparison.R Florida’s “Who’s your City?”
36 mil
$1,400 bil
18 mil
$430bil
4mil
$200bil
Automobiles electronics
Key message: Relevance
Menagerie: Pearl River Delta snapshotHow fast can they shift gears from servicing exports to their domestic market?
¥711 bn10 mil
¥681 bn
8.6 mil
¥90 bn1.5 mil
¥361 bn6 mil
¥111 bn4 mil
¥315 bn7 mil
¥123 bn2.5 mil
¥111 bn4.5 mil
¥60 bn3.8 mil
¥110 bn0.5 mil
¥2,002 bn
7 mil
Logistics, Financial CenterMfg in electronics, computers..
Financial, MICE, Business Svc, Port, Intl airport Center…
Entertainment, MICE Center
Trade, MICEMfg in auto parts ..
Mfg in electronics … Mfg in laser diodes, electronics…
Mfg in lighting, motorcycles…
Mfg in industrial ceramics…
Petrochemicals, Machinery
PRD excluding HK, Macau (2007 figures)GDP pp RMB 53,820, or 2.8 times national average3.6% China’s population but 8.8% of national retail sales
Port
F&B products
WHAT IS CHIMERICA?FOUR UNCERTAINTIES
THREE POST- CRISIS MODELS
FIVE STRATEGIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
Five strategies: preparing for the shift away from ChimericaStrategy
Coping with increased volatility and resource scarcity
Tapping on emerging Asia’s sub-economies
Generating through flow of consumers
Building niche capabilities
Building our hinterland
Ensure resource security
Diversify from G3 final demand
Tap on foreign consumption
Irreplaceable in Asia’s future
Integrate with immediate region
Most important for
WOUNDED BEAST
CROSSING THE CHASM
MENAGERIE
MENAGERIE
MENAGERIE
Energy WaterMetals &Minerals
Food Scalable Infrastructure
Urban Consumption
Rural Consumption
Public sector investment
Fertility TreatmentBaby Education
Film, TV, animeManga culture
Youth culture Finishing school
New agriculture New aquaculture
Tap into hinterland final demand with transport infrastructure.
Some suggestions …
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