Transcript Eastward shift in balance of economic power

EASTWARD SHIFT IN BALANCE
OF ECONOMIC POWER
Unit I
Part II
Power is relative

US most powerful…
But so were GreeK, Portuguese and English..
Economic downturn brought the empires down..

US may lose its position because:


 Its
internal indebtness
 Immobility of labor and
 Most of all because the strenght of Asia is rising..
A general view of world…



If the World Were a Village of 100 People_ A
Story About the World's People_(360p).flv
61% Asians
>40% in terms of popular languages
Recent changes in
 Economic
Power
 Education System
 Cultural space
 International Organizations

Global economic power shifting to Asia_(360p).flv
Importance of East
 Widening
of market..
 accounting
for a record share of many companies' profits…
potential buyers..
A
few cos…
Asia accounts for around one-third of
world retail sales




Figures from the Economist Intelligence Unit, a sister company
of The Economist, suggest that Asia accounts for around onethird of world retail sales (2010-11).
Asia is now the biggest market for many products, accounting
for 35% of all car sales last year and 43% of mobile
phones.
Asia guzzles 35% of the world's energy, up from 26% in
1995. It has accounted for two-thirds of the increase in world
energy demand since 2000
A rising consumer class also will drive innovation.
Asia's share of the world economy




If GDP is instead measured at purchasing-power parity (PPP)
to take account of these lower prices;
Asia's share of the world economy has risen more steadily,
from 18% in 1980 to 27% in 1995 and 34% in 2009.
By this gauge, Asia's economy will probably exceed the
combined sum of America's and Europe's within four years.
In PPP terms, three of the world's four biggest economies
(China, Japan and India) are already in Asia, and Asia has
accounted for half of the world's GDP growth over the past
decade.
Investment Magnets…

In 2009, 40% of global investment (at market
exchange rates) took place in Asia, as much as in
America and Europe combined.
Asian tigers compared to Old America




China and India, by contrast, possess the weight and dynamism
to transform the 21st-century global economy.
The closest parallel to their emergence is the huge young and
self driven workforce.
What's more, Chinese and Indian consumers and companies
now demand the latest technologies and features.
Studies show the attitudes and aspirations of today's young
Chinese and Indians resemble those of Americans a few
decades ago
India and China: the global powers




But in a way, even America's rise falls short in comparison to
what's happening now.
Never has the world seen the simultaneous, sustained takeoffs
of two nations that together account for one-third of the
planet's population.
For the past two decades, China has been growing at an
astounding 9.5% a year, and India by 6%.
Given their young populations, high savings, and the sheer
amount of catching up they still have to do, most economists
figure China and India possess the fundamentals to keep
growing in the 7%-to-8% range for decades.
Tremors in US



Little wonder the West is suffering from future
shock.
Each new Chinese corporate takeover bid or
revelation of a major Indian outsourcing deal elicits
howls of protest by U.S. politicians.
Washington think tanks are publishing thick white
papers charting China's rapid progress in
microelectronics, nanotech, and aerospace -- and
painting dark scenarios about what it means for
America's global leadership.
The real SHIFT


American business isn't just shifting research work
because Indian and Chinese brains are young,
cheap, and plentiful.
As Cisco's Scheinman puts it: "We came to India for
the costs, we stayed for the quality, and we're now
investing for the innovation."
And the population…




But India's long-term potential may be even higher. Due to its onechild policy, China's working-age population will peak at 1 billion in
2015 and then shrink steadily.
India has nearly 500 million people under age 19 and higher
fertility rates.
By mid-century, India is expected to have 1.6 billion people -- and
220 million more workers than China.
That could be a source for instability, but a great advantage for
growth if the government can provide education and opportunity for
India's masses
Students and Professional…




One implication is that the balance of power in many
technologies will likely move from West to East.
An obvious reason is that China and India graduate a
combined half a million engineers and scientists a year,
vs. 60,000 in the U.S
As most Western scientists will tell you, China and India
already are making important contributions in medicine
and materials that will help everyone.
Because these nations can throw more brains at technical
problems at a fraction of the cost, their contributions to
innovation will grow
Critical Analysis




Yet a closer look at the figures suggests that the shift in
economic power from West to East can be exaggerated.
Thanks partly to falling currencies, Asia's total share of
world GDP (in nominal terms at market exchange rates)
has actually slipped, from 29% in 1995 to 27% last year
.
In 2009 Asia's total GDP exceeded America's but was still
slightly smaller than western Europe's (although it could
overtake the latter this year).
To put it another way, the output of the rich West is still
almost twice as big as that of the East.
The Exports..



As for the popular belief that Asian producers are
grabbing an ever-larger slice of exports, the region's
31% share of world exports last year was not much
higher than in 1995 (28%) and remains smaller than
western Europe's.
Indeed, the shift towards Asia appears to have slowed,
not quickened.
Although China's share has grown since then, this has
been largely offset by the decline in Japan, whose
share of output and exports has halved.
The bulk of private-sector wealth still
lies in the West





What about Asia's financial muscle?
Asian stockmarkets account for 34% of global market
capitalisation, ahead of both America (33%) and
Europe (27%).
Asian central banks also hold two-thirds of all foreignexchange reserves.
The bulk of private-sector wealth still lies in the West.
The fact that Asian currencies make up only 3% of total
foreign-exchange reserves indicates how far Asia still
lags in financial matters.
Many currencies tumbled during the
Asian financial crisis in the late 1990s





The “rise of Asia” is no myth, however, GDP figures
converted at market exchange rates understate Asia's real
expansion.
Many currencies tumbled during the Asian financial crisis in
the late 1990s, slashing the dollar value of their economies.
Japan's nominal GDP has been squeezed by deflation.
More importantly, prices of many domestic products, from
housing to haircuts, are always cheaper in low-income
countries, implying that households' real spending power is
bigger.
Indian foreign exchange rate is at its low…
Population v/s consumption


Although over three-fifths of the world's population
live in Asia, they only account for just over one-fifth
of global private consumption, much less than
America's 30% share.
But official figures almost certainly understate
consumer spending in emerging Asia, because of
the poor statistical coverage of spending on
services.
Till when is the boom..





Today, China and India account for a mere 6% of global gross
domestic product -- half that of Japan.
They must keep growing rapidly just to provide jobs for tens of
millions entering the workforce annually..
Both nations must confront ecological degradation that's as obvious
as the smog shrouding Shanghai and Bombay, and face real risks of
social strife, war, and financial crisis.
Also, with wages rising fast, especially in many skilled areas, the
cheap labor edge won't last forever.
Both nations will go through many boom and harrowing bust cycles.
And neither country is yet producing companies like Samsung, Nokia
China and Dictatorship..





China has yet to prove it can go beyond forced-march
industrialization. China directs massive investment into public works
and factories, a wildly successful formula for rapid growth and job
creation.
But considering its massive manufacturing output, China is surprisingly
weak in innovation.
While China's big state-run R&D institutes are close to the cutting
edge at the theoretical level, they have yet to yield many
commercial breakthroughs.
"China has a lot of capability," says Microsoft Chief Technology
Officer Craig Mundie. "But when you look under the covers, there is
not a lot of collaboration with industry."
The lack of intellectual property protection, and Beijing's heavy role
in building up its own tech companies, make many other
multinationals leery of doing serious R&D in China.
The wastage…




China also is hugely wasteful.
Its 9.5% growth rate in 2004 is less impressive when
you consider that $850 billion -- half of GDP -- was
plowed into already-glutted sectors like crude steel,
vehicles, and office buildings.
Its factories burn fuel five times less efficiently than in
the West, and more than 20% of bank loans are bad.
Two-thirds of China's 1,300 listed companies don't earn
back their true cost of capital, estimates Beijing
National Accounting Institute
Efficiency… the requirement




India, by contrast, has develop amidst scarcity.
It gets scant foreign investment, and has no room to
waste fuel and materials like China.
India also has Western legal institutions, a modern
stock market, and private banks and corporations.
As a result, it is far more capital-efficient
Whats on cards!!!!

In the coming decades, China and India will disrupt workforces,
industries, companies, and markets in ways that we can barely begin
to imagine.




The upheaval will test America's commitment to the global trade
system, and shake its confidence.
In the 19th century, Europe went through a similar trauma when it
realized a new giant -- the U.S. -- had arrived.
"America should be as open-minded as Europe was 100 years ago."
How these Asian giants integrate with the rest of the world will
largely shape the 21st-century global economy
Here is India: the eastern shift
flagrunner..

jagdish bhagwati_India_ What's All the Hype
About__(360p).flv