NBAS Luncheon meeting – 21 February 2008.

1. NBAS Luncheon meeting – 21 February 2008. • Future trends shaping Asia. • By Prof. Jørgen Ørstrøm møller

3. I. The global economy February 2008. (2/3) Fasten Safetybelt!

4. I. The global economy February 2008. (3/3) Fasten Safetybelt! • US probably in recession, also Japan. • Global recession? Depend on economic development in Asia excl Japan. • Supply chain. • Importance of export to the US. • Domestic demand, consumption

5. II. Supply Chain. • From 1996 to 2003 China´s share of US import rose from 8,5% to 22,4%. Other Asian countries share fell to 1/3. Points to an asian supply chain geared to export from Asia via China, but now • When Chinas GDP ↑ with 1%, import of consumption goods from the following countries ↑ with: • Japan 1,04%, Singapore 1,06, Malaysia 1,29%, Korea 1,30%, Indonesia 1,46%,India 1,54% • Points to swing from Us controlled to Asia controlled economy.

6. III. Export to US. • Goldman Sachs about netexport as driver for China. 2,7pp in 2005, 2,2pp in 2006, 1,6pp in 2007 • Goldman Sachs. Zerogrowth in US and 8% growth in China anyway. • China´s export to US (% of total export) was in 2000 31%, primo 2007 23%. • Deutsche Bank reckons that reduction of US growth with 1 percent point reduces China's export growth with 4 percent points and Chinas GDP with 0.5 percent points.

7. IV. Driver– export or domestic demand.

8. V. Preliminary conclusion. • Asia and in particular China less dependent on US than before. Looks like high growth is achievable even if US goes into recession albeit of course at a lower rate. • How strong is Asia?

9. VI. Strengths. (1/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption. Intraregional trade (%) 1980 og 2005: • ASEAN 15,9 25,7 • ASEAN + Kina, Japan, Korea 29 39 • Same + Hong Kong + Taiwan 38,7 55,1 PM. EU (25) 57,3 64,6. NAFTA 33,2 42,1. • Free trade agreemnts. China-ASEAN, India-ASEAN, China-India. Japan and Korea also in the picture. • A large market with 3 bn inhabitants and freedom of localization, comparative advantages can be exploited. The world has never seen anything like that.

10. VI. Strengths. (2/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption • China sits on $US 1400 bn of which 400 is treasury bonds. Continue? • New investment pattern, Blackstone, Chinalco versus BHP-Rio Tinto. • New trend instiutional investors. Think about it, who is going to decide? Those in position of the money. • Merril Lynch, UBS, Morgan Stanley, Citigroup. What does it mean? • SWF soon $US 3 bn rising towards 12 bn in 2015.

11. VI. Strengths. (3/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

12. VI. Strengths. (4/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption • Japanese multinationals? Not really. • Lenovo-IBM, CNOOC, Petrochina. Knowledge, management more than market share. ICBC 20% of Standard Bank (SA) operating in 18 African countries. • M&As or minority shareholder. • Indian companies. Mittal Steel, Tata. • Chinese and Indian comoanies enter each other´s markets.

13. VI. Strengths. (5/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption • Figures from 2006. • China FDI in $US 69 bn. Out $US 16 bn. • India FDI in $US 12 bn. Out $US 15 bn. Fortune Oct 29, 2007 India. 2004. For. buy ind. Comp. $US 2,9 bn – ind buy for 1,5 2005. 8,0 4,5 2006. 10,1 21,7 2007 – 3 first Q´s. 28,1 18,1

14. VI. Strengths. (6/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption • Comparative advantage. China labour productivity. India capital productivity. New driver for global economy. 2004. China. India.(mastercard) Labour productivity. GDP pr unit. UsD 2140 1380. Capital productivity 10-12%. 15-17% • Trade 2007 approx. $US 20 bn. 15 years ago $US 150. • April 2005 Primeminister Wen Jiabao in India. • November 2006 Kongresparty chairman Sonia Gandhi in China. • November 2006 President Hu Jintao in India. • December 2007 joint military exercise. • January 2008 Primeminister Manmohan Singh in China. "necessary for both India and China to consult each other more frequently“. • They do not threaten each other´s vital interest.

15. VI. Strengths. (7/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption • Asia. High savingsrate yes but strong growth and rising share of population with householdincome > 5.000 UsD stimualtes consumption. • Qualitative consumption in asian hubs. Luxury, branding, trendsetters. • Massconsumption in Asia, China og India. • Now 17,4% af urban households in China indcome  $US 5.000. In 2014  90% y/y increase24%. • Restructuring of retailtrade in China and India.

16. VII. Asia´s problems. • The 1980 model runs out of steam • Demography in Asia. • Less propitious international environment. • We move from the age of abundance to the age of scarcity.

17. VIII. Conclusion. • Economic powershift from the West to Asia. • Political adjustment lags behind as established powers cling to influence. Germany one hundred years ago. UK and USA. Transfer of power rarely takes place without conflict. • Can Asia as rising ´superpower´ and the US with Europe in the sidecar manage such a transfer of power and create a steering system to replace the one shaped 1945-1950? • If yes, splendid. If no then what about globalization.

18. Jørgen Ørstrøm Møller