Transcript Key Message - Joergen Oerstroem Moeller.

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
Prelude:
What do Alexander the Great and Kermit the Frog
have in common?
Brad Pitt is the guy to learn from fellows.
Key Message:
1st doctor: My patient had a cold, I ordered him to
take a cold shower.
Key message (cont.)
2nd doctor: But that will give him a pneumonia!
Key message (cont.)
1st doctor: Precisely, I build my reputation upon how
to cure pneumonia!
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.
Business cycle. (i)
Jolly good right now, but how sweet is the cake?
The brakes are on in the US
Electronic cycle
US consumer –hero or henpecked husband?
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.
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.
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.
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
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 semiprotectionist measures.
We are heading towards the third scenarium.
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?
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?
II. THE ASIAN ECONOMY
1. 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
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.
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?
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?
5. The snake in the paradise if any.
China. EEW (energy, environment, water). Financial
system. Domestic emigration.
India. Public finances. Infrastructure. Financial
system.
6. The reminder:
Is the Asian economy strong enough? A razors edge.
III. THE MUST READ LIST SUBMITTED
TO GEORGE W. BUSH.
Buy a trishaw instead of a car!
Bush
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
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?
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?
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.
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!
The Korean peninsula. For heavens sake no reunification
please!
Pakistan, a powder keg right in the middle of a Tivoli
bonfire.
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.
J. Ørstrøm Møller
www.oerstroemmoeller.com