Interesting article about China ..........
China's star is steadily rising
Bill Jamieson, Scotsman.com
HOW easy it is, even at the start of a new year when we strive to look ahead, to lose sight of the bigger picture that really matters. I do not mean the Chancellor’s pre-budget forecasts, or the US budget deficit, or the IMF’s predictions for 2004, important though all these are.
I refer to the far greater and more sweeping drama in which we are all caught up and which will profoundly affect our world view in the years ahead. For we are in the throes of an epochal shift of global power and resource, from north to south and from west to east that is gathering in pace and in volume. It will see the dramatic ascent of China and the greater Asian region to one of the world’s most formidable economic regions, the loss of American hegemony and, unless there is radical change, the eclipse of Europe.
This is the global wheel of change. And within 25 to 30 years it will hugely affect our economies and our lifestyles. Nothing in the past 30 years can compare with the challenges and problems it will present. In fact, we have to go back to the first 30 years of the 20th century to try to grasp the magnitude of this change - and, by all means possible, to avoid a repeat of the horrific violence of that era.
This epochal shift is well under way. What compels our attention now is its growing visibility, both in terms of direct investment shift - shipping, textiles, electronics and basic services such as call centres - and increasing portfolio shift: China and Greater Asia as a whole coming to claim an ever increasing share of Western world investible funds and pension fund assets.
By the early 1990s the chief feature of global cross-border investment was the flow of direct investment and portfolio capital out of the triad blocs of North America, Europe and Japan into the disparate economies of southeast Asia, China and developing economies around the world. In 1983 global cross border foreign direct investment to emerging market economies stood at just $8.6bn. By 1987 it had climbed to $14.5bn. By 2000 it had soared to $149bn. In 2002, China was already the world’s largest single magnet for foreign direct investment, receiving $53bn against $30bn attracted by the US. The same quantum leap has been evident in portfolio equity capital flows, though they are more capricious and volatile. These are characterised by one striking theme: the relentless rise in the share being claimed by China and greater Asia.
Research last week from insurance giant Standard Life Investments sets out a dramatic swing in the relative size of the world’s stock markets. It forecasts that the combined size of the Brazilian, Russian, Indian and Chinese stock markets could almost match that of the US, Japan, the UK and Germany by 2050. It sees China growing to become the second largest global stock market, accounting for around 25%. Already pension funds and long term investment vehicles are raising the amount allocated for investment in the Far East. Ten years ago it would be typically around 2-5%. Now it is not uncommon to see some of the most conservatively run Scottish investment trusts with between 10 and 15% allocated to the Far East.
This capital shift is without precedent in scale and in its pace of acceleration. And it is re-shaping the world. It is today’s flows of capital that determine tomorrow’s growing industries and economies. And that is why they have enormous implications for the balance of global financial, political and economic power over the next 25 years.
Currently, Europe accounts for some 19.5% of global GDP, Japan for 13.3%, America 32% and China 3.7%. By 2025, according to the World Council for Sustainable Development, the US share of global GDP will have fallen to 20%. That of Europe will be down to just 10.3%, or barely half the US total. China will have advanced to more than 15% while the GDP share accounted for by other developing countries will have risen from 37% to 43%.
The key driver of this astonishing change in global economic power is population. North America, the EU and the Asian high income countries together generate some 77% of world GDP yet account for less than one sixth of the world’s population. But it is not just head count numbers that matter. Consider this comparison. China’s population is 1,285 million and growing at an average annual rate of 0.7% a year. Some 24.8% of its population is aged under 15. By contrast, the population of the euro area is 303.2 million, growing at just 0.3% a year and 16% of is aged under 15.
The real question begged by these compelling figures is not so much how long the extraordinary dominance of these high income economies will last, but how their dominance has endured for so long. To say that China could be challenging the economy of the US in size in 40 years and that Asia is likely to be the dominant economic region in the world by 2050 is not simply the product of a compelling story of demographics. It will also owe much to competitiveness, enterprise, an urge for material improvement and a formidable work ethic. These are the factors that are attracting global investment. Little wonder that even now China is the world’s fourth largest exporter.
But the starkest contrast is with Europe and in particular the economies of the Euro-zone. Back in October investment bank HSBC looked at the longer term prospects for Europe and its numbers were damning. World Bank figures looking out to 2010 suggest that the working population of the Euro-zone is now stagnating while the dependency ratio (those aged 65 as a proportion of the working age population) is already on a rising trend. But that’s not the end of the story. The pace of decline picks up after 2010 and the dependency ratio is forecast to double over the next 40 years. Specifically the forecast is that the Euro-zone’s working population will decline from 205 million in 2005 to 167 million in 2035 and to 155 million in 2045. Meanwhile the dependency ratio rises from 24.3 currently to 27.2 by 2010, 42.4 by 2030 and to 53 by 2045.
On the basis of a radical reform scenario, HSBC forecasts growth in the Euro-zone averaging 2.3% between 2005-09, slowing to 2% in 2010-19 and 1.6% in 2020-29. The ‘No Reform’ scenario sees growth of just 1.6% in 2006-09, followed by growth of 1.3% and just 0.8% thereafter.
For comparison, the five-year average annual rate of growth in India is 5.4% and for China 9.8%. Never doubt the magnitude of this global change that is now under way, or the problems that it will increasingly present.
business.scotsman.com |
