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Today’s Topic

Today’s Topic. The rebalancing of China, India, and Emerging Asia. Lewis Economic Theory The China Story The India Story Introduction of ASEAN Asian Investment Strategy. A Theory of Economic Growth. Arthur Lewis (1915 – 1991) Nobel Prize Winner in Economics in 1979

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Today’s Topic

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  1. Today’s Topic The rebalancing of China, India, and Emerging Asia. • Lewis Economic Theory • The China Story • The India Story • Introduction of ASEAN • Asian Investment Strategy

  2. A Theory of Economic Growth Arthur Lewis (1915 – 1991) Nobel Prize Winner in Economics in 1979 Introduced the “Lewis Model” in 1954 The “Lewisian Turning Point” If an economy has a young work force and policy that invests into that, growth will develop and at a particular point will become self-sustaining. Has become widely associated with the economic development of China.

  3. Lewisian Turning Point & China • Economy in China in 1992: • Average age of worker: 23 • Real annual growth rate: 12-14.2 % • Share of employment by SOEs: >60% • Ranking by Nominal GDP: 11th (1990 est) • Economy in China in 2012: • Average age of worker: 37 • Real annual growth rate in Q2 of 2012: 7.6% • Share of employment by SOEs: <20% • Ranking by nominal GDP: 2nd

  4. The China Story • Economy is being re-balanced • Shift from over-dependence on export driven and cheap manufacturing to consumer driven economy • China is aging with 180 million people older than 60 now, and estimated to reach 248 million in 8 years (source: China State Council) • Workforce is getting more expensive; shifting policies to benefit the local labor pool • Minimum wage increasing in most provinces • Social welfare costs for businesses increasing • Evolving middle class about 247 million, 18.2% of population (source: WSJ) • Middle Class growing rapidly, estimated to be over 600 million by 2020 (source: WSJ) • Demand for better quality and more choices • Cheap manufacturing relocating to other areas of Asia

  5. China’s Growth part 1 Growth Moving Inland 2012 H1 Results:

  6. China’s Growth part 2 Growth now coming from the 4th, 5th, and 6th Tier Cities. • Estimated number of 4-6th tier cities is around 500. • KFC China now has more than 3,000 stores in nearly 700 cities. • Upgrading from cheap domestic brands to up-market items (i.e. Adidas, Starbucks, Imported Wines, shopping at Carrefour etc)

  7. The China Story Takeaways • The 1st and 2nd tier cities are becoming aligned with Western standards. • The growth has shifted inland to the 3rd to 6th tier cities. • China’s “slowdown” of 7% GDP is on eastern coast • Central and western China grew at 9.2% in 2011. • China’s domestic demand is evolving and blossoming. • It is a diverse market that requires localized detail • Cheap manufacturing is moving within China and across Asia.

  8. The India Story • Average age of Indian worker today: 23 • Predicted to embark on a similar growth trajectory that China did 20 years ago, with one big difference: India’s already has a middle class consumer market of 250-300 million. • Consumer market to grow at 5% to 10% annually. • GDP growth rate is at 6% (2011), and set to increase to 8% in 2013. • Able to provide labor intensive manufacturing, as well as domestic consumption.

  9. Understanding India in the China context • Similar Population size • China: 1,343,239,932 (July 2012 est.) • India: 1,205,073, 612 (July 2012 est.) source: www.cia.gov • Similar size middle class of around 250 million • India’s growth dynamics are still in 1st to 2nd tier cities • Infrastructure is the opportunity, with government incentives • FDI reform occurring, markets being liberalized • Will see a partial shift from “Made in China“ to “Made in India”

  10. India vs. China The two economies revolve around two, completely separate political ideologies. • Both work, but in very different ways. • India is less bureaucratic than perceived vs. China is more political than perceived. • Not one or the other, but both.

  11. The India Story Takeaways • Infrastructure is the Opportunity • Not as poor or as derelict as perceived. • Growth improving and set to be 8% plus from 2015 • Consumer Middle Class same size as Chinas’ • Indias’domestic demand is evolving and blossoming. • It is a diverse market that requires localized detail • Cheap manufacturing and services are moving to India.

  12. ASEAN – Association of Southeast Asian Nations • Comprises of 10 Asian Countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam. • Free Trade Zone of 600 million people, with zero tariffs on all products and services by 2015. • GDP: USD 1.8Trillion (2011 est.)

  13. ASEAN’s impact upon China and India • EU is negotiating individually with ASEAN members • EU has 1985 agreement with China, slowly being upgraded • EU possibly to sign FTA with India end of this month • China has a FTA with ASEAN on 7,000 products • India has a FTA with ASEAN on 4,000 products • ASEAN has signed FTAs with China, Australia, New Zealand, Japan and S. Korea. • New RCEP Agreement including China being negotiated • Asia’s regional focus with shift to Singapore • TPP kicking in affects Vietnam in particular ASEAN FTA by 2015, creates a market in total of 3.8 billion consumers, including 700 million of middle class standard.

  14. Asian Investment Strategy • China - manufacturing for local markets, increasing opportunities for sale of products • India- manufacturing for local and export markets, increasing opportunities for sales of products • Vietnam, Indonesia, Thailand - manufacturing for export markets across ASEAN FTA nations (RCEP) and beyond

  15. Suggested Regional Structure for China, ASEAN, and India Subsidiaries in China and/or India for local markets Domicile Regional Office in Singapore (services & tax) Manufacturing in ASEAN for export markets, including free trade with China, India, Japan, S. Korea and Australiasia.

  16. UOB Bank Singapore “Intra-Asian Trade Flows to Help Global Economy Top US$100 Trillion by 2020” Fastest growing bilateral trade corridors: China-India China-Asia China-Africa China-EU China-U.S. Singapore is in the centre of this trade & supply chain.

  17. Asia Briefing Ltd. Our subsidiary Asia Briefing Ltd. has published legal, tax and investment information since 1999 about doing business in China, India, Vietnam, Hong Kong, and Russia.

  18. Q&A Welcome to Emerging AsiaWelcome to Dezan Shira & Associates For inquiries: Chris Devonshire-Ellis chris@dezshira.com

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