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Global Demand after the Crisis
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
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.
PERIPHERY
Export-led growth allowed for rapid industrialization and urbanization in emerging Asia, prompting large spikes in commodity prices.
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
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.
Raises probability of country default.
Move from LT to ST debt.
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 longterm employment prospects in the US. This may, in turn, entrench savings habits.
Source: US Council of Economic Advisors
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
Post-crisis: three demand models Snakes and Ladders transition. The dice is rolling …Where will we end up?
MODEL C MENAGERIE
PRE-CRISIS CHIMERICA
MODEL A WOUNDED BEAST
MODEL B CHASM
WOUNDED BEAST
WB 15 SEPT. 2008 at THE G3
No fundamental shift from Chimerica occurs. Developed countries continue to power growth. 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 RESOURCE VOLATILITY
transitory model.
The world is plagued by more volatility as imbalances are exacerbated.
Wounded Each subsequent crisis Beast 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 consumption in emerging Asia to drive global demand.
37 Years 2.1% Consumption* in 2007
If… • World GDP grows at 4%, • China’s GDP grows at 9%, • China’s consumption share of its GDP grows at 1% *as a percentage of world GDP
China and India could be beset with political and social unrest. 17.5% Consumption in 2007
$1,400 bil
43 mil $500bil
$110bil
$4,500 bil
$200bil
36 mil
4mil
This is the emergence of mega-city regions in Asia as sophisticated, self-sufficient centers of final demand.
100 mil
46 mil
MENAGERIE
Automobiles electronics 66 mil $130bil
Highly innovative companies, electronics, telecoms, flat panel displays
$430bil
High tech innovation, mfg, finance, design
18 mil 120 mil
$220bil 45 mil
How can we be irreplaceable in Asia’s future?
$50bil
$130bil 20mil
Regions could grow by complementing each other, or through inward-looking development.
72 mil
Semiconductor production facilities
19 mil
$100bil
High cost, High growth, low volatility.
$50bil 62 mil $60bil $100bil 6mil
Disk drive, niche in S&T, top Western Universities, creative center, high culture and street culture, top destination for all lifestyles
*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?”
Key message: Relevance
Menagerie: Pearl River Delta snapshot How fast can they shift gears from servicing exports to their domestic market? PRD excluding HK, Macau (2007 figures) GDP pp RMB 53,820, or 2.8 times national average 3.6% China’s population but 8.8% of national retail sales
¥711 bn 10 mil
3.8 mil
¥60 bn Trade, MICE Mfg in auto parts ..
¥361 bn
F&B products
7 mil ¥315 bn
6 mil
Mfg in industrial ceramics…
4 mil
¥111 bn
Mfg in laser diodes, electronics…
Mfg in electronics …
¥681 bn 8.6 mil 2.5 mil ¥123 bn Mfg in lighting, motorcycles…
¥2,002 bn Logistics, Financial Center Mfg in electronics, computers..
4.5 mil ¥111 bn
1.5 mil
¥90 bn
7 mil
Port Petrochemicals, Machinery
¥110 bn 0.5 mil
Entertainment, MICE Center
Financial, MICE, Business Svc, Port, Intl airport Center…
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
Five strategies: preparing for the shift away from Chimerica Strategy
Some suggestions …
Most important for
Coping with increased volatility and resource scarcity Ensure resource security Tapping on emerging Asia’s sub-economies
WOUNDED BEAST Energy
Food
Metals Water &Minerals
Scalable Infrastructure
Rural Consumption
Public sector investment
Youth culture
Finishing school
CROSSING THE CHASM
Diversify from G3 final demand Urban Consumption
Generating through flow of consumers
MENAGERIE
Tap on foreign consumption Fertility Treatment Film, TV, anime Baby Education Manga culture
Building niche capabilities
MENAGERIE
Irreplaceable in Asia’s future New agriculture
Building our hinterland
New aquaculture
MENAGERIE
Integrate with immediate region
Tap into hinterland final demand with transport infrastructure.
http://futuresgroup.wordpress.com
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
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.
PERIPHERY
Export-led growth allowed for rapid industrialization and urbanization in emerging Asia, prompting large spikes in commodity prices.
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
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.
Raises probability of country default.
Move from LT to ST debt.
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 longterm employment prospects in the US. This may, in turn, entrench savings habits.
Source: US Council of Economic Advisors
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
Post-crisis: three demand models Snakes and Ladders transition. The dice is rolling …Where will we end up?
MODEL C MENAGERIE
PRE-CRISIS CHIMERICA
MODEL A WOUNDED BEAST
MODEL B CHASM
WOUNDED BEAST
WB 15 SEPT. 2008 at THE G3
No fundamental shift from Chimerica occurs. Developed countries continue to power growth. 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 RESOURCE VOLATILITY
transitory model.
The world is plagued by more volatility as imbalances are exacerbated.
Wounded Each subsequent crisis Beast 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 consumption in emerging Asia to drive global demand.
37 Years 2.1% Consumption* in 2007
If… • World GDP grows at 4%, • China’s GDP grows at 9%, • China’s consumption share of its GDP grows at 1% *as a percentage of world GDP
China and India could be beset with political and social unrest. 17.5% Consumption in 2007
$1,400 bil
43 mil $500bil
$110bil
$4,500 bil
$200bil
36 mil
4mil
This is the emergence of mega-city regions in Asia as sophisticated, self-sufficient centers of final demand.
100 mil
46 mil
MENAGERIE
Automobiles electronics 66 mil $130bil
Highly innovative companies, electronics, telecoms, flat panel displays
$430bil
High tech innovation, mfg, finance, design
18 mil 120 mil
$220bil 45 mil
How can we be irreplaceable in Asia’s future?
$50bil
$130bil 20mil
Regions could grow by complementing each other, or through inward-looking development.
72 mil
Semiconductor production facilities
19 mil
$100bil
High cost, High growth, low volatility.
$50bil 62 mil $60bil $100bil 6mil
Disk drive, niche in S&T, top Western Universities, creative center, high culture and street culture, top destination for all lifestyles
*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?”
Key message: Relevance
Menagerie: Pearl River Delta snapshot How fast can they shift gears from servicing exports to their domestic market? PRD excluding HK, Macau (2007 figures) GDP pp RMB 53,820, or 2.8 times national average 3.6% China’s population but 8.8% of national retail sales
¥711 bn 10 mil
3.8 mil
¥60 bn Trade, MICE Mfg in auto parts ..
¥361 bn
F&B products
7 mil ¥315 bn
6 mil
Mfg in industrial ceramics…
4 mil
¥111 bn
Mfg in laser diodes, electronics…
Mfg in electronics …
¥681 bn 8.6 mil 2.5 mil ¥123 bn Mfg in lighting, motorcycles…
¥2,002 bn Logistics, Financial Center Mfg in electronics, computers..
4.5 mil ¥111 bn
1.5 mil
¥90 bn
7 mil
Port Petrochemicals, Machinery
¥110 bn 0.5 mil
Entertainment, MICE Center
Financial, MICE, Business Svc, Port, Intl airport Center…
WHAT IS CHIMERICA? FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND LOOK LIKE AFTER THE CRISIS?
FIVE STRATEGIES
THREE POSTCRISIS MODELS
Five strategies: preparing for the shift away from Chimerica Strategy
Some suggestions …
Most important for
Coping with increased volatility and resource scarcity Ensure resource security Tapping on emerging Asia’s sub-economies
WOUNDED BEAST Energy
Food
Metals Water &Minerals
Scalable Infrastructure
Rural Consumption
Public sector investment
Youth culture
Finishing school
CROSSING THE CHASM
Diversify from G3 final demand Urban Consumption
Generating through flow of consumers
MENAGERIE
Tap on foreign consumption Fertility Treatment Film, TV, anime Baby Education Manga culture
Building niche capabilities
MENAGERIE
Irreplaceable in Asia’s future New agriculture
Building our hinterland
New aquaculture
MENAGERIE
Integrate with immediate region
Tap into hinterland final demand with transport infrastructure.
http://futuresgroup.wordpress.com
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