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

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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

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What do Alexander the Great and Kermit the
Frog have in common?Brad Pitt is the guy to
learn from fellows.
Prelude
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Key Message
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• 1st doctor My patient had a cold, I ordered him
  to take a cold shower.

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Key message (cont.)

• 2nd doctor But that will give him a pneumonia!

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Key message (cont.)

• 1st doctor Precisely, I build my reputation upon
  how to cure pneumonia!

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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.
I. GLOBAL ECONOMY
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Jolly good right now, but how sweet is the
cake?The brakes are on in the USElectronic
cycleUS consumer hero or henpecked husband?
Business cycle. (i)
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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.
Bubbles and debt. (ii)
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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.

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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.
  PCs. India 80 mill. Cernet2, IPv4 to IPv6.

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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

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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.

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• 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?

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• 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?

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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

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• 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.

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• 3. The Vision. Free Trade Agreement (FTA)
  encompassing China-India-South East Asia. Likely.
  Why?
• In 2004 US13,6 bill.Year 2000US3 bill. After
  increase of 79. China second largest trading
  partner for India. India far down the list for
  China. Repercussions?

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• 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 US60 bill. in foreign direct
  investment (FDI). Growth rate about 9
• India savings rate about 25 of GNP, imports only
  US5-10 bill. in FDI. Growth rate 7-8
• What does that tell us?

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

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

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III. THE MUST READ LIST SUBMITTED TO GEORGE W.
BUSH.
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• Buy a trishaw instead of a car!

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Bush
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• 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

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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?
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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?
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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.
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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!
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The Korean peninsula. For heavens sake no
reunification please!
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Pakistan, a powder keg right in the middle of a
Tivoli bonfire.
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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 Asias century. We can see
it comming. It will change the world.
IV. A FEW CONCLUDING REMARKS
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• J. Ørstrøm Møller
• www.oerstroemmoeller.com