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Johannesburg, 3 October 2013
China’s Changing Role in the Global Economy:
- Implications and Opportunities for the Resource Industry
Kobus van der WathFounder and Group Managing Director, The Beijing [email protected]
International Advisory and Procurement
The Beijing Axis 2
Disclaimer
This document is issued by The Beijing Axis. While all reasonable care has been taken in the preparation of this document, no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed herein. Opinions, projections and estimates are subject to change without notice. This document is for information purposes only, and solely for private circulation. The information contained here has been compiled from sources believed to be reliable. While every effort has been made to ensure that the information is correct and that the views are accurate, The Beijing Axis cannot be held responsible for any loss, irrespective of how it may arise. In addition, this document does not constitute any offer, recommendation or solicitation to any person to enter into any transaction or to adopt any investment strategy, nor does it constitute any prediction of likely future movements or events in any form. Some investments discussed here may not be suitable for all investors. Past performance is not necessarily indicative of future performance; the value, price or income from investments may fall as well as rise. The Beijing Axis, and/or a connected company may have a position in any of the investments mentioned in this document. All concerned are advised to form their own independent judgement with respect to any matter contained in this document.
The Beijing Axis 3
The Beijing Axis’ Knowledge & Network Synergies
Beijing Axis Commodities
• Commodity Marketing• Commodity Procurement
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• Transaction Origination• Corporate Finance Advisory
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• Strategy Formulation• Strategy Implementation
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The Beijing Axis 4
A number of megatrends are reshaping the global landscape – China is at the forefront of these trends
Source: Various; The Beijing Axis Analysis
IncreasingEnergy Needs
Despite Limited Resources
Food Security & Access to
Water
Centrality of Renewable
Energy Sources
Rise of Digital Media & Social Technologies
DemographicShift – Aging Societies vs.
Migratory Ones
Global Integration Across the Value Chain
Re-energised Political Consciousness
Security Issues Driven by Non-
state Actors
Rising Emerging Market
Consumption
Megatrends
12
3
6
7
4
5
8
9
China’s Rise…
A Slowing Western World…An Ascendant S. America
Continued AsiaGrowth Story
Increasing Number of
Resurgent African Countries Unrealised BRICS Potential..
Is China Still a Megatrend?
The Beijing Axis 5
Key global factors
Source: The Beijing Axis Analysis
The backdrop
• China’s rise … labour market and supply shock as a producer … engine as a consumer … investor
• New competitive lines and forces, winners/losers – the rise of Asia, BRICS, etc.
• A two-speed global economy over the medium and long-term
• A lasting GDP trajectory in Africa, Asia and Latin America – governance, growth, stability, infrastructure, confidence, etc.
The issues now
• Europe broken … fragile developed markets – and knock-on effects?
• China’s landing – soft or hard? Implications for growth and resource demand?
• Tapping into the China story vs. over-reliance on China and need to diversify economic ties
• Strategic intelligence – to make decisions in boardrooms around the world in order to reposition
The Beijing Axis 6
0% 5% 10% 15% 20% 25% 30% 35%0%
5%
10%
Shaded bubbles repre-sent 2012 figures
Emerging economies are outperforming developed economies in terms of economic growth. By 2015, the Asia-Pacific region is expected to account for one-third of the world’s GDP
Regional GDP Comparison (2012, 2015F)
GDP Average Growth Rate (2012-2015F)
Africa
Asia-Pacific
North America
Europe
Other AsiaSouth America
2012 to 2015F
Asia-Pacific is expected to account for the largest share of the world’s GDP by 2015FRising real incomes and high
commodity prices will continue to drive Africa’s growth
Developed economies are expected to continue to lose share in the world’s GDP over the coming years
A bubble this size represents GDP = USD 1,000 bn
Forecast world average GDP growth until 2015F
2012 to 2015F
BRICS 2015F GDP (USD bn) 2012 Growth Rate (%) 2012 GDP Per Capita (USD)
China 11,020 7.8% 6,091
India 2,308 5.0% 1,489
Russia 2,544 3.4% 14,037
Brazil 2,800 0.9% 11,340
South Africa 411 2.5% 7,508
3.9%
Asia-Pacific will add 1.5 times Africa’s 2012 GDP by 2015
Share of World’s GDP
Source: IMF; The Beijing Axis Analysis
The Beijing Axis 7
China’s rapid economic growth has positioned it as the world’s second-largest economy - likely to overtake the US around 2025 to become the world’s largest economy
Top Economies’ GDP, excl. US (USD bn, 1990-2015F)
Note: Forecasted GDP growth based on IMF Economic OutlookSource: IMF; The Beijing Axis Analysis
China Rank 10 10 9 7 9 8 7 7 7 7 6 6 6 6 6 5 4 3 3 3 2 2 2 2 2 …2?
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13F 14F 15F0
2,000
4,000
6,000
8,000
10,000
12,000 China
Japan
Germany
France
UK
Brazil
Italy
India
Russia
Indonesia
South Africa
2005: Chinasurpassed France
2007:Chinasurpassed Germany
2006: Chinasurpassed UK
Q2 2010: Chinasurpassed Japan
2000: Chinasurpassed Italy
1996: Chinasurpassed Brazil
1995: China surpassed Canada
2012
2
3456
7
91018
29
2015: Brazil to surpass UK and France
2015F
2346
7
5
8916
28
2007: India surpassed Korea
Rank
India Rank 12 14 15 15 15 14 14 14 12 13 13 13 12 12 12 13 14 12 12 11 9 10 10 9 9 …8?
8 10
The Beijing Axis 8
China, India and Indonesia are the prominent economies in developing Asia and account for 40% of the contribution of developing markets to the global economy
Note (1): Developed Asia includes Japan, South Korea, Taiwan, Singapore and Hong KongNote (2) The difference between GDP by province and GDP by industry is due to different statistical caliber. Usually, GDP reported by province is higher than the GDP reported by NBSC.Source: IMF; National Bureau of Statistical of China; The Beijing Axis Analysis
World GDP in 2012 World GDP in 2012 GDP in Developing Countries 2012
China GDP 2012
China GDP 2012
China GDP 2012
China GDP 2012
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Others
Germany
Russia
Japan
U.K.
U.S.
France
Italy
China
Canada
Brazil
Southwest
Northeast
East
South
North
Northwest
Zhejiang
Hebei
Guangdong
Liaoning
HunanHubei
Shandong
Jiangsu
Others
Henan
Primary Industry
Secondary Industry
TertiaryIndustry
Sichuan
Other Developed Countries
Other Developing Countries
China
Other Developing Countries
Other Developing Asia
China
USD 72 tn USD 72 tn USD 27 tn USD 8.2 tn USD 8.2/8.6 tn2 USD 8.2 tn USD 8.2 tn
Private Consumption Expenditure
Gross Capital
Formation
Net Exports
Regional dynamics….Industry breakdown…Expenditure approach
Four high-level drivers
IndiaIndonesia
Africa
Africa
Africa
Govt. Consumption Expenditure
Developed Asia1
The Beijing Axis 9
0%
5%
10%
15%
Brun
ei
Japa
n
Philip
pine
s
Bhut
an
Sout
h K
orea
Hong
Kon
g
Sing
apor
e
Sri L
anka
Mal
aysia
Mya
nmar
Nepa
l
Taiw
an
PNG
Paki
stan
Thai
land
Bang
lade
sh
Cam
bodi
a
Tim
or-L
este
Indi
a
Indo
nesi
a
Viet
nam
Laos
Chin
a
Mon
golia
Asian countries are set to grow at an impressive average rate of 5.8% per year, a pace that is beyond that of any other region - large developing economies in Asia will lead the way
Source: IMF; ADB; The Beijing Axis Analysis
Developed MarketsDeveloping MarketsEmerging Markets
Average GDP Growth Forecast for Select Asian Countries (2012-2016F)
Average : 5.8%
The Beijing Axis 10
Due to the diversity within the Asia region, it is useful to group countries based on economic development
2011 GDP (USD bn)
Per Capita GDP (USD)
Pakistan 210.2 1,194.3Bangladesh 113.9 735.0Sri Lanka 59.2 2,835.4Myanmar 51.4 842.2Nepal 19.0 619.5Brunei 16.4 31,007.9Cambodia 12.9 900.0Papua New Guinea 12.7 1,844.5
Mongolia 8.7 3,056.1Laos 8.3 1,319.6Timor-Leste 4.5 896.3Bhutan 1.5 2,287.7
2011 GDP (USD bn)
Per Capita GDP (USD)
China 7,298.2 5,444.8
India 1,826.8 1,488.5
Indonesia 846.5 3,494.6
Thailand 345.7 4,972.0
Malaysia 287.9 9,656.3
Philippines 224.8 2,369.5
Vietnam 122.7 1,411.2
2011 GDP(USD bn)
Per Capita GDP (USD)
Japan 5,866.5 45,902.7
South Korea 1,116.3 22,424.1
Taiwan 466.4 20,082.9
Singapore 259.9 46,241.0
Hong Kong 243.7 34,457.0
Tier 1: Emerging Markets Tier 3: Developed MarketsTier 2: Developing Markets
Note: Countries within each cluster are ranked by GDP sizeSource: World Bank; The Beijing Axis Analysis
The Beijing Axis 11
1990 2000 20100%
50%
100%
40%57% 65%
ROW APAC
Asia has become a fundamentally important engine of capital, trade and commodity consumption worldwide
Asia Pacific as % of World Total (%, 1990, 2000, 2010)
*Note: ROW stands for Rest of World and APAC stands for Asia-PacificSource: CEIC; CRU; UN; World Steel Association; The Beijing Axis Analysis
1990 2000 20100%
50%
100%
28% 26% 31%
ROW* APAC*
GDP
1990 2000 20100%
50%
100%
12% 13%30%
ROW APAC
FDI Inflows
1990 2000 20100%
50%
100%
7% 10%27%
ROW APAC
1990 2000 20100%
50%
100%
13% 19% 25%
Rest of GDP Imports
1990 2000 20100%
50%
100%
37% 44%65%
ROW APAC
FDI Outflows
Imports as % of GDP Steel ConsumptionCopper Consumption
1990 2000 20100%
50%
100%
14% 21% 24%
Rest of GDP Exports
Exports as % of GDP
1990 2000 20100%
50%
100%
28% 27% 29%
Rest of GDPGross Domestic Investment
GDI % of GDP
The Beijing Axis 12
Global Private Consumption Expenditure (USD tn, 2012)
India
Indonesia
China
South Africa
Brazil
Russia
Germany
Japan
United States
0 10,000 20,000 30,000 40,000 50,000
Source: World Bank; United Nations; The Beijing Axis Analysis
GDP Per Capita Across Selected Countries (USD, 2012)
Major Asian economies are yet to see a shift towards consumption-driven growth model – the GDP per capita of developing Asian economies still remains low
World US Japan China Germany Others (Asia)
Others
Tota
l Priv
ate
Cons
umpt
ion
Expe
nditu
re (U
SD tn
, 201
2)
57%
Represents consumption expenditure as a % of GDP
68% 61%60% 31%
40.5
2.5
10.7
3.6
2.1
12.4
Share of World
51% 57%
6%
26%
9%
5% 19%
31%
100%
7.4
2%
7%
1%
9%
10%
5%
14%
7%
X% Represents CAGR for GDP per capita during the period 2007-2012
1 India 1.05 tn 57% of GDP
2 Indonesia 0.46 tn 53% of GDP
18%
X%
Asian Countries
Smaller GDP per capita compared to peers, but growing more rapidly
Consumption expenditure is a much smaller share of GDP in China
The Beijing Axis 13
Fixed Asset Investment (USD bn, 2001-2012)
1997 1999 2001 2003 2005 2007 2009 2011 20120
1,000
2,000
3,000
4,000
5,000
6,000 Urban Areas Rural Areas
Source: MOFCOM; World Bank; The Beijing Axis Analysis
Total Investment in Urban and Rural Areas (USD bn, 1997-2012)
China’s fixed asset investment growth has moderated in recent years but remains solid – investment was focused primarily in urban areas so far, but this will change
01 02 03 04 05 06 07 08 09 10 11 120
1,000
2,000
3,000
4,000
5,000
6,000
0
10
20
30
40
50
60
Fixed Asset Investment Growth Rate (rhs)
Global financial crisis induced stimulus
Manufacturing and real estate account for half of the fixed asset investment
22%
X% Represents CAGR for the period 1997-2012
%
Urban-focused investments correlate with the rapid urbanisation process
% of GDP
34% 72%
The Beijing Axis 14
Top 20 World FDI Inflows (USD bn, 2012)
Source: WIR 2013; The Beijing Axis Analysis
Top 20 World FDI Outflows (USD bn, 2012)
China is an important investment destination and a global source of capital – FDI inflows outweigh FDI outflows
USJapanChina
Hong KongUK
GermanyCanadaRussia
SwitzerlandVirgin Is.
CanadaFrance
SwedenKorea
ItalyMexico
SingaporeChile
IrelandLuxembourg
0 50 100 150 200329US
ChinaHong Kong
BrazilVirgin Is.
UKAustralia
SingaporeRussia
CanadaChile
IrelandLuxembourg
SpainIndia
FranceIndonesiaColumbia
KazakhstanSweden
0 20 40 60 80 100 120 140 160 180
China ranked 2nd China ranked 3rd; fifth largest investor in Africa
FDI inflows in 2012 represent 3.27% of the GDP
FDI outflows in 2012 represent 2.27% of the GDP
The Beijing Axis 15
China’s OFDI Flow by Sector (USD bn; 2004, 2012)*
Kazakhstan
Russia
Indonesia
UK
Brazil
Canada
United States
Australia
0 20 40 60Note*: Business services includes investment in holding companies, regional headquarters and SPVs often established in offshore financial centers from where investments are made in other countries and sectors; Finance includes investments in the banking industry such bank branch offices, bank affiliated institutions, bank rep. offices and insurance institutions; Wholesale and retailing as well as transportation, warehousing and postal services are closely linked with China export and import activitiesSource: Heritage Foundation; IMF; MOFCOM; The Beijing Axis Analysis
Top Destinations for Chinese Outward Investment (USD bn, 2005-2012)
China’s outward FDI is diversified across geographies and industries - countries such as Australia and Canada receive a large proportion of their total OFDI from China
2004 20120
20
40
60
80
100
26.7
10.1
13.1
13.5
3.08.7
12.7OthersManufacturingTransport, Storage and PostMiningWholesale and Retail TradesFinanceLeasing and Business Services
CAGR
46.5%34.7%17.9%28.7%41.8%19.3%57.7%41.4% Total
8.5%
1.8%
5.9%
4.2%
1.2%
11.2%
2.1%
9.5%X%Represents China share of the country’s total inward investment stock
Pvt. Chinese companies accounted for 9% of the OFDI in 2012, up from 4% in 2010
South Africa?
The Beijing Axis 16Source: Fortune Magazine; The Beijing Axis Analysis
Asia-Pacific Fortune 500 Country Breakdown (2011)
Companies from the Asia-Pacific region continue to emerge as winners in global markets. Companies from China and India feature prominently in this equation
18
16
15
13
131212
109
7
46
Petroleum-RefiningAutomotiveBanking-and-FinanceInsuranceMetalsElectronicsEnergyITTradingTelecommunicationsOthers
68
56
14
88
89
Japan China South Korea
Australia India Taiwan
Others
China had just 16 companies in 2005
Asia-Pacific Fortune 500 Industry Breakdown (2011)
2005 2006 2007 2008 2009 2010 2011 20120
100
200
300
400
500
189 184 178 167 154 150 144 143
178 183 183 190 188 184 172 160
127 122 128 132 145 155 171 182
North America Europe Asia-Pacific Latin America Middle East
The domination of American companies in the global rankings has shrunk. Only 143 made the list in 2012 compared to 189 in 2005
Fortune Global 500’s Geographic Distribution (2005-2012)
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COPYRIGHT© The Beijing Axis Ltd. 2013. No part of this publication may be reproduced or transmitted in any form or by any means without prior written consent of The Beijing Axis.
International Advisory and Procurement
Kobus van der WathFounder and Group Managing Director, The Beijing [email protected]
THANK YOU!
