The rise of the rest

1
The rise of the rest Prepared for BMW
Stiftung 5 September 2008 ? Seoul Ross
OBrien Director, Economist Corporate
Network Hong Kong rossobrien_at_economist.com
2
Just when the growing was getting good Asia is
slowing, increasingly dragged down by inflation
and the rest of the world
US, EU, Japan weakening substantially in
2008/2009 World trade growth hit by OECD slump
Exports as a percentage of GDP
(incl exports of intermediate goods to other
Asian economies with final destination in US/EU)
EU-15
US
NO de-coupling, but emerging markets affected
with delay Commodity prices to weaken, but
likely to remain high given relative strength of
China and India
Source EIU
3
Just when the growing was getting good Asia is
still fast rising, but also still poorinflation
and a global slow-down may derail progress
GDP per capita, growth and composition, 2007
14,000
Per capita PPP GDP (US)
7,000
Exports as a percentage of GDP
(incl exports of intermediate goods to other
Asian economies with final destination in US/EU)
6
12
GDP growth rate ()
EU-15
10-12
Agricultural output of GDP
18-20
US
25-30
Source EIU
4
Working with their feetpaying with their
phones Asias migrantsthe worlds earliest
adopters of new technology and services

• 3 of the world works in a country not their own
• Risk takersand early adoptersin the extreme
• redefining global entrepreneurialism through
  technology adoption
• uninsured unbankedthey must knit their own
  safety nets

• Mobile commerce emerges as the developing worlds
  true dot-com revolution
• US1bn per month remitted to the Philippines
  through mobile phones

Philippines Overseas remittances, USbn
16
14
12
10
8
6
4
2
0
2003
2004
2005
2006
2007
Americas
Europe
Asia
Rest
5
Migration in the short termpolitical
engagement in the long term?
China Rising wagesand rising inequality

• Chinas Harmonious Society will be not be
  enough to improve economic equality
• Difficulties in commanding stability without
  real societal input

0.475
4.00
0.47
3.50
Labour costs (US/hr)
0.465
3.00
Gini Coefficient
0.46
2.50
0.455
2.00
0.45
1.50
0.445
1.00
0.44
0.50
0.435
0.00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Human Development Index (HDI), 2004
Source EIU, National Bureau of Statistics of
China
1.0
.9
Shanghai

• India already has the feedback loop China lacks
• India may find it easier to build a thriving
  diversified economy than China will be able to
  back-fill democracy

Urban
.8
Median HDI score
China
Urban-rural HDI score difference
.7
Rural
Gansu
India
.6
.5
Source UNDP Human Development Report, 2006
6
China and global energy resourcessolution or
sore spot?

• Chinas impact on the global environment (and
  135/barrel oil) is making the country more
  eco-aware
• will it change its energy consuming ways in
  time?
• China will commit US1trillion to sustainable
  energy production
• possibly reducing greenhouse emissions by 30 by
  2030
• but by then it will also be the worlds second
  largest oil importer

Reference scenario
Gt
Net oil trade, 2006 and 2030
China Energy-related C02 emissions
12
3Gt
10
8
Alternative Policy Scenario
6
4
2
0
2005
2010
2015
2020
2025
2030
Nuclear
End-use electricity efficiency measures
Renewables and biofuels
End-use fuel efficiency measures
Source International Energy Agency
Switching from coal to gas
7
E-Commerce with Chinas characteristicsAs Asia
becomes an e-readiness leader, will Chinas iron
fist lead it astray?
China Internet usage as a percentage of age
demographic
60
53.4

• Chinas continuing control over key
  sectorsnotably financial services and
  telecomsis going to stifle innovation sooner
  rather than later

47.6
50
36.8
40
32.2
30
20
8.0
10
0
15 yrs (36 cities)
15 yrs (4 cities)
15-44 yrs (4 cities)
15-44 yrs
6 yrs
(MHI RMB 2000)
Source TNS, CNNIC
China India Monthly mobile subscriptions added,
m

• Greater China technology markets continue to be
  All gear, no ideas

Oops
Source Marbridge Consulting, COAI
8
The mystery of the PyramidHow will Indias less
fortunate benefit from its growth?
9
China Aviation Innovation ARJ 21in partnership
with the world

• Chinas first large commercial aircraft will roll
  out by end 2007
• 14 produced and sold by 2010, and 550 by 2025
• Paving the way for a Very Large commercial
  aircraft program to rival Boeings Dreamliner

• Indigenous aint what it used to be
• Most of the technology in the ARJ21 is foreign,
  integrated by state-owned manufactures
• Chinese firms only produce the nose and other
  minor sub-systems in their own aircraft
• Growing appreciation of the global, integrated
  development model

10
Innovation the Hua-Way The pride of Shenzhen
learns technology leadership means collaboration,
not copying
Joint technology development
Joint ventures

• Once a pariah, now a preferred partner
• Huawei has translated global market share into
  RD relationships with both established and
  emerging technology players
• Not afraid to not be everywhere
• Huawei is learning to make strategic decisions
  about when to exit businesses
• Selling out its share of successful 3Com j-v
• Huawei Next Generation Leader?
• Getting focused (while staying big), Huawei has
  attracted leading edge firms keen to standardise
  on Huaweis solutions

Next Generation standard setting
11
Here comes the sun Transferring the value of
production to solar energy points to a deeper
problem
Taiwan prepares itself for a future linked to the
mainland
Roll up for the mystery tourwill 15,000 rich
tourists/week reinvent Taiwan tourism?
Ticket to rideTaiwans attempt to become a world
wireless technology leader runs against its
business model
12
Hello, babyTaiwan continues to struggle with
brand identification
Mobile Handsets
Own-brand manufacturing (OBM) efforts have
largely failed in high-tech Taiwanand Original
design manufacturing (ODM) is increasingly hard
to defend.
A dampening effect
Digital Cameras
Notebook Computers
Shipments (m)TaiwanRest of WorldSource
DIGITIMES Taipei