21st Century Belongs to China, RTKL Predicts, Formerly 'Emerging Economy' Has Arrived
November 13, 2003 03:57 PM US Eastern Timezone
NEW YORK--(BUSINESS WIRE)--Nov. 13, 2003--
-Growing Pains Loom in Urban Development, Financial Markets and Trade- -Stress Expected on Commodity Prices and Supply-
Despite serious challenges, China may be on its way to surpassing the US as the largest global economy and world power. This was one of the major conclusions reached at a panel discussion today on "China's Emerging Economy". The discussion, sponsored by RTKL - one of the largest architecture and urban planning firms in the world - outlined key architectural, planning, investment, trade and economic trends emerging in China.
Unprecedented Urban Development
"Over the next seven years, more than 200 million people are expected to migrate to China's urban areas," said Paul Jacob, Chairman of RTKL and a driving force behind the firm's work in China. "As a result, we're seeing unprecedented investment in the country's physical infrastructure, housing, office spaces and landmark buildings. A major challenge is to preserve the historical identity of China's cities while, at the same time, embracing the future."
Jacob noted that, once Shanghai completes all plans under development, the city will be approximately seven times the size of Manhattan. As for Beijing, more than $20 - $30 billion has been invested in infrastructure and civic improvements in anticipation of the Olympics alone.
Among Mr. Jacob's other observations:
-- A New Baby Boom Generation - GenX and GenY: A significant percentage of the world's population between the ages of 20 and 35 resides in China. As a result, all aspects of the New China - design, urban development, local industry, financial markets - will be shaped, in large part, by GenX and GenY sensibilities.
-- The Rise of the Middle Class: China's middle class is growing quickly - at a pace of approximately 20% per year. As the Chinese standard of living continues to increase, expect to see the demand for consumer goods, housing, infrastructure and commodities rise dramatically.
The Investment Climate: Significant Opportunity, Considerable Risk
"As China rushes to construct the tallest buildings, the fastest trains and longest bridges, they are beginning to put a stress on the world commodity markets," said Arvind Sachdeva, senior portfolio manager at Victory Capital Management, the asset management arm of KeyCorp.
"If China's emerging middle class adopts US consumption patterns, they will consume approximately 80 million barrels of oil per day - more than the world is currently producing," said Sachdeva. "We're just coming out of a 20-year commodities bear market - when very little capital went into finding new resources - and now we're experiencing explosive growth."
Mr. Sachdeva also pointed to expanding consumer credit as an area of concern for the future. "China's consumer growth is faster than that of any other emerging economy. They are doubling their per capita income every ten years, compared to Japan, which took 30 years and Great Britain, which took 60," he noted. "This year alone, Chinese credit card transactions will total $200 billion."
Mr. Sachdeva concluded that "China's growth presents a wealth of export opportunities for the US." Yet, the investment climate remains risky, he warned. "As emerging economies grow richer, they can be measured by the crises they experience," he noted. "We should expect bumps in the road for China. They are likely to experience some setbacks."
World Trade: Challenges Loom in an Election Year
"China is no longer an emerging economy - it has arrived," said Dr. Nao Matsukata, Chair of Strategic International Business Practice at Hunton & Williams, a top international law firm. "The biggest challenge we face now is learning to work together - no small feat during an election year when rhetoric concerning 'loss of jobs' and the trade deficit is likely to drown out objective discussion."
Dr. Matsukata noted that the US and China need to work together to stabilize China's economic and political climate. "Over the next two to five years, the US needs to help stabilize China rather than pushing exports in hopes of immediate economic return," he said. "The long-term prosperity of our relationship with China, as well as our progress in global trade, depends on this cooperation."
Adding to the challenges facing China's growth, neighboring countries that should potentially be trade allies - such as Indonesia - currently view China as a threat. "The US needs to play a part in China's regional integration," Dr. Matsukata concluded. "China has become a major economic power. We need to accept that and make stabilization our priority."
China's Financial Markets: Bumpy Roads Ahead
"China's financial markets have hit an inflection point," observed John Trammel, CEO of Investor Select Advisors, a fund of hedge funds that specializes in Asian investment. "Formerly, China was known for huge bull and bear markets. Going forward, the market swings will be less, but there will be more of them."
Mr. Trammel noted that China's economy is defined by the three "I"s: incrementalism, inflation and inflection. "Incremental change will be the order of the day, regardless of external and internal pressures as evidenced by the recent Boeing, Ford and General Motors deals," he said. "Inflation is how China will most probably deal with their currency, trade and debt issues."
Mr. Trammel also warned investors to keep a close eye on China's banking industry. "There is approximately one trillion Renminbi in savings accounts throughout the banking sector earning about 1% interest, so the appetite for better returns is fantastic," he noted. "However, China's banks have some 750 billion Renminbi in bad debt on their books, creating a potential banking crisis that could make the Great Depression look like a onetime overdraft."
RTKL is a worldwide planning, architecture, design and creative services organization. Founded in 1946, the firm specializes in providing its services across the full development cycle to create places of distinction. With 800 employees in eleven offices around the globe, RTKL is an idea-driven firm providing innovative customized business solutions and seamless delivery to clients in the commercial, cultural, health and government sectors.
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