DABS Meeting, February 15, 2005. Topic: Global Political and Economic Trends with Special Emphasis on Opportunities and

1. DABS Meeting, February 15, 2005.Topic: Global Political and Economic Trends with Special Emphasis on Opportunities and Risks in Asia. By: J. Ørstrøm Møller, Adjunct professor at Copenhagen Business School, Ambassador of Denmark. Singapore, 15 February 2005

2. Prelude: What do Alexander the Great and Kermit the Frog have in common?Brad Pitt is the guy to learn from fellows.

3. Key Message:

4. 1st doctor: My patient had a cold, I ordered him to take a cold shower.

5. Key message (cont.) 2nd doctor: But that will give him a pneumonia!

6. Key message (cont.) 1st doctor: Precisely, I build my reputation upon how to cure pneumonia!

7. I. GLOBAL ECONOMY Four trends shape the economy. Present equilibrium rests on interacting preferences between US and China. Question: When, not if, will purchasing power be transferred from US to China and how?1. Trends.

8. Business cycle. (i) Jolly good right now, but how sweet is the cake?The brakes are on in the USElectronic cycleUS consumer –hero or henpecked husband?

9. Bubbles and debt. (ii) Since 1989 three bubbles: Japan stock market. Japan property. US tech stocks. Now the fourth one has come to roost: Global property market. It will burst. US debt is phenomenal. Public debt. Private debt. Pigs may fly but not in this case. Somewhere above 2,5% (present level) US interest rates will trigger of the drama.

10. Shift to China and India. (iii) China and India 3,9% or 18,6% of global gross national product (GNP). China: Manufacturing economy, price setter goods, technology. India: Service sector, price setter services, solutions.

11. Technology shift. (iv) New technology where? China 330 mill. mobile phones rising to 402 mill. at the end of the year. India 45 mill. increasing with 2 mill. every month Year 2010. China global leader with 178 mill. PC’s. India 80 mill. Cernet2, IPv4 to IPv6.

12. US China interacts –fortunately– in a positive way US consumes. China produces. This is the flywheel controlling the global economy in a POSITIVE way. When it stops and it will, the global economy becomes a stranded whale

13. Transfer of purchasing power. It can be done in at least three ways. (i) Internationally agreed economic policies. Fiscal policy and monetary policy. Did you hear Bush, Cheeny and Rumsfeld outline their economic policy? Forget it. (ii) Adjustments of currency rates. Nope! (iii) The market takes over. A combination of forced changes of currency rates, destabilising capital flows and semi-protectionist measures. We are heading towards the third scenarium.

14. And what does that mean for currency rates? Euro-US$ has more or less run its course. The currency in focus is YEN! And not Yuan. Upside opportunities: Rupee, Bath, Peso, Rupiah. The Ringgit peg?

15. Can we sweep together? The flywheel for the global economy: Is the Asian economy strong enough to replace the US economy as a global pull factor?

16. II. THE ASIAN ECONOMY • What are the flywheels for the Asian economy? More and more integrated – self-sustaining. More and more geared by private consumption. Look out for middle class in China and India

17. 2. South East Asia. Two main economic models emerging. • Eksport, IT, biotech – Singapore, Hong Kong, Taiwan, maybe Malaysia and to a lesser degree Thailand. Still linked to US economy • Domestic demand and resource-based – Indonesia, Phillipines, maybe Thailand and maybe Malaysia. • Delink from US economy – ref prognosis for currency rates • Outsourcing - has been dealt with.

18. 3. The Vision. Free Trade Agreement (FTA) encompassing China-India-South East Asia. Likely. Why? In 2004 US$13,6 bill.Year 2000:US$3 bill. After increase of 79%. China second largest trading partner for India. India far down the list for China. Repercussions?

19. 4. One striking difference between China and India. The financial system. Why is it interesting? Channel savings into investment or neutralise it, thus producing surplus on balance of payments. China savings rate is about 40% of GNP and China imports about US$60 bill. in foreign direct investment (FDI). Growth rate about 9% India savings rate about 25% of GNP, imports only US$5-10 bill. in FDI. Growth rate 7-8% What does that tell us?

20. 5. The snake in the paradise if any. China. EEW (energy, environment, water). Financial system. Domestic emigration. India. Public finances. Infrastructure. Financial system.

21. 6. The reminder: Is the Asian economy strong enough? A razors edge.

22. III. THE MUST READ LIST SUBMITTED TO GEORGE W. BUSH.

23. Buy a trishaw instead of a car!

24. Bush

25. The drive for energy, especially oil and LNG. • China and to a certain extent India storming ahead. • Clash with US political risks. • Oil price for the next decade? • Investment in infrastructure

26. The diggers will pull it off. Likely trend for other natural resources. Implications for political and economic balance, who will benefit, who will have to pay?

27. The safe bet that will almost certainly go wrong: China will follow the course of Japan and and stumble being pushed back economically triggering off social and political upheavals. Why is China different?

28. Islamic inspired terrorism.Iraq. An Islamic republic. Will it work?Fight against terror. Shifts from blitzkrieg to attrition warfare. Key observation. A civil war inside Islam. Forget everything else.

29. Can Taiwan go wrong? I love you, you do not love me! I hate you, you love me! I do not like the way you look, but I love George W. Bush!

30. The Korean peninsula. For heavens sake no reunification please!

31. Pakistan, a powder keg right in the middle of a Tivoli bonfire.

32. IV. A FEW CONCLUDING REMARKS A few years ago: The worst is behind us, trouble is we are moving backwards!Now: We have turned around to face the difficulties, hoping to scare them away!This is Asia’s century. We can see it comming. It will change the world.

33. J. Ørstrøm Møller www.oerstroemmoeller.com