McCombs Knowledge To Go

April 13, 2010

Global Trade Outlook

by Professor John Doggett

We Are In The Eye of a S.I.P.

S.I.P.’s Are Scary

“A strategic inflection point is a time in

the life of a business [or country]

when its fundamentals are about to

change. That change can mean an

opportunity to rise to new heights. But

it may just as likely signal the

beginning of the end.”

Andy Grove, Only the Paranoid Survive

Birth of the BRICs

In 2001, as the Internet Bubble was

collapsing and the stock market was

imploding, Goldman Sachs predicted

that four countries would dominate

global economic activity in the 21st

Century.

Brazil

Russia

India

China

The Axis of the Future

Are These Guys Crazy?

6,100% Annual Inflation (1994)

Shock Therapy and the Oligarchs (1990s)

Two Weeks of Foreign Reserves (1991)

The Cultural Revolution (1966-1976)

Largest Countries By Population1. China 1,338,612,968 (slightly smaller than the US)

2. India 1,156,897,766 (slightly more than one-third the size of the US)

3. United States 307,212,123 (6.25% of the earth’s land mass = 424,378,888)

4. Indonesia 240,271,522 (slightly less than three times the size of Texas)

5. Brazil 198,739,269 (slightly smaller than the US)

6. Pakistan 174,578,558 (slightly less than twice the size of California)

7. Bangladesh 156,050,883 (slightly smaller than Iowa)

8. Nigeria 149,229,090 (slightly more than twice the size of California)

9. Russia 140,041,247 (approximately 1.8 times the size of the US )

10.Japan 127,078,679 (slightly smaller than California)

11.Mexico 111,211,789 (slightly less than three times the size of Texas)

12.Philippines 97,976,603 (slightly larger than Arizona)

13.Vietnam 88,576,758 (slightly larger than New Mexico)

CIA World Factbook - April, 2010

National GDP in 2009 (purchasing power parity)

Country GDP 2009 Growth %

1. United States $ 14,260,000,000,000 - 2.4%

2. China $ 8,789,000,000,000 8.7%

3. Japan $ 4,137,000,000,000 - 5.3%

4. India $ 3,560,000,000,000 6.5%

5. Germany $ 2,811,000,000,000 - 5.00%

6. United Kingdom $ 2,149,000,000,000 - 4.3%

7. Russia $ 2,116,000,000,000 - 7.9%

8. France $ 2,110,000,000,000 - 2.2%

9. Brazil $ 2,025,000,000,000 0.2%

10. Italy $ 1,760,000,000,000 - 4.8%

11. Mexico $ 1,482,000,000,000 - 7.1%

12. Spain $ 1,368,000,000,000 - 3.6%

13. South Korea $ 1,356,000,000,000 0.2%

14. Canada $ 1,285,000,000,000 - 2.5%

CIA World Factbook – April, 2010

Elephants Emerging from the Mist Total World Population = 6,790,062,216

BRIC Population = 2,834,291,250 (41.7%)

Total World Land Area = 174,814,000 sq. km. (- oceans)

BRIC Land Area = 38,471,715(22%)

Total World Gross Domestic Product = $58.07 Trillion

(Official Exchange Rate)

Total World Gross Domestic Product = $70.29 Trillion

(Purchasing Power Parity) (p.p.p.)

BRIC Gross Domestic Product (p.p.p.) = $ 16.49

Trillion (23.5%)

Source: CIA World Factbook – April 2010

Today, The BRICs Have Arrived

BRICs Economies collectively are now

23.5% of global GDP, which is $2.2 trillion

larger than America’s GDP.

China is the second largest economy in

the world. Today!

India is the fourth largest economy in the

world. Today!

The Trade Implications are Obvious

CIA World FactBook, Goldman Sachs and Professor Doggett Analysis

China is On the Move

Goldman Sachs says that China can

become the largest economy in the

world by 2035 by growing by 5% a year.

What does the world look like when

China’s economy is 9x bigger than it is

today?

What opportunities does this represent

for American entrepreneurs?

India is Rising

Goldman Sachs says that India can

challenge the US for #2 by 2040 by

growing by 6% a year.

What does the world look like when the

Indian economy is 12x bigger than it is

today?

What opportunities does this represent

for American entrepreneurs?

Here Comes The BRIC Middle Class

Goldman Sachs predicts that the BRIC Middle Class could grow 4x in the next decade

Never before have we seen the addition of 750 million new members of the middle class in one decade.

Goldman says that the BRIC Middle Class could grow from 250 million in 2005 to 3.5 billion by 2050*

Jim O'Neill, Managing Director & Head of Global Economic Research, Goldman Sachs, 5/06

Future GDP (PPP) Estimates

Source IMF (Oct 2009)

GDP Predictions

Dr. P. Konana, McCombs Business School, University of Texas at Austin

A Swarm of Inflection Points

India - Total Trade

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How Far The BRICs Have Come

In 2006 the G7 (US, Japan, Germany, France, Britain, Italy & Canada) held $1,253,900,000,000 in FOREX

By the end of 2007 China’s FOREX reserves had passed $1,500,000,000,000

China spent $65 billion for the Olympics. 5x the cost of the Athens Olympics.

China’s China Investment Corporation is a $300 billion State VC Fund

Today, China has $2,400,000,000,000 in FOREX reserves.Professor P. Konana, McCombs School of Business, University of Texas at Austin & Goldman Sachs

Go Where the Market Is

756 million Mobile Phone Users in

China (January, 2010)

Only 56.3% of China’s population

550 million Mobile Phone Users in India

19,000,000 Indians signed up for cell phone

service in January, 2010 . . . for the first time ever

612,903 new subscribers every day of the month

All of Motorola’s mobile phone ads are

developed and designed in Beijing

They outsource to the US and Europe for

“localization”

Exports in 2009 (Trillion US $)

1. China $1.194

2. Germany $1.121

3. U.S.A. $0.995

4. Japan $0.516

5. France $0.457

6. Netherlands $0.398

7. Italy $0.369

8. South Korea $0.355

9. United Kingdom $0.351

10.Hong Kong $0.317

Exports, continued

13. Russia $0.296

14. Singapore $0.269

15. Mexico $0.230

17. Taiwan $0.204

21. India $0.165

23. Brazil $0.159

24. Malaysia $0.156

25. Thailand $0.151

30. Indonesia $0.116

Greater China $2.270

Export Partners (2008) China

USA 17.7%

Hong Kong 13.3%

Japan 8.1%

South Korea 5.2%

Germany 4.1%

India

U.A.E. 12.3%

USA 11.7%

China 5.4%

Singapore 4.5%

United States

Canada 20.1%

Mexico 11.7%

China 5.5%

Japan 5.1%

Germany 4.2%

United Kingdom 4.1%

Brazil

USA 13.7%

Argentina 8.7%

China 8.1%

Netherlands 5.2%

Germany 4.4%

Imports in 2009 (Trillions US $)

1. USA $1.445

2. Germany $0.931

3. China $0.922

4. France $0.532

5. Japan $0.491

6. United Kingdom $0.474

7. Netherlands $0.3589

8. Italy $0.3587

9. Hong Kong $0.345

10.Belgium $0.315

Imports, continues

14. India $0.254

15. Singapore $0.245

16. Mexico $0.234

17. Russia $0.197

19. Taiwan $0.175

25. Brazil $0.136

26. Thailand $0.132

28. Malaysia $0.120

31. Indonesia $0.087

Greater China $2.407

Import Partners (2008) China

Japan 13.3%

South Korea 9.9%

Taiwan 9.2%

USA 7.2%

Germany 4.9%

India

China 10.8%

Saudi Arabia 6.9%

USA 6.7%

U.A.E. 6.7%

Iran 4.2%

United States

China 16.4%

Canada 15.7%

Mexico 10.1%

Japan 6.6%

Germany 4.6%

Brazil

USA 14.9%

China 11.6%

Argentina 7.9%

Germany 7.0%

LET’S FOCUS ON CHINA

Now

Welcome to the New China

copyright - John N. Doggett, 2008

31

Growth at Warp Speed

The People’s Republic of Communist China?

www.lenbracken.com/images/china31

Shenzhen in 1979

30,000 people lived here in 1983

Source: http://en.wikipedia.org/wiki/Image:57440.jpg

China’s Exploding Middle Class

In 2007, China had 80 million

middle class consumers 6% of China’s population

By 2020, China will have 700

million middle class consumers.

30% of China’s population

Source: McKinsey & Company

Chinese Banks and The World

36

GDP Growth Rate

Exports as percent of GDP

Imports as percent of GDP

GDP vs. Exports (% of GDP)

Source: World Bank World Development Indicators

GDP vs. Imports (% of GDP)

Source: World Bank World Development Indicators

US Trade (Im)Balance with China

http://www.census.gov/foreign-trade/balance/c5700.html

Who Owns Our Debt? (Billion US$)

May 2008

China = $506.8

Japan= $575.3

Caribbean Banking

Centers = $104.5

Oil Exporters = $164.2

UK = $271.2

Brazil = $151.4

Russia = $63.7

Luxembourg = $75.2

Hong Kong = $61.4

Taiwan = $38.9

January 2010

China = $889.0

Japan = $765.4

Oil Exporters = $218.4

UK = $206.0

Brazil = $169.1

Hong Kong = $146.6

Caribbean Banking

Centers = $143.5

Russia = $124.2

Taiwan = $119.6

Switzerland = $84.4 http://www.treas.gov/tic/mfh.txt

Who is Our Banker?

In May, 2008, we owed China, Inc.

$607.1 billion.

By January, 2010, this number had

grown to $1.16 trillion

We borrowed an additional $552.9

billion in 1 ½ years.

This is a 91.07% increase in their “line of credit”

to US

What Are They Buying Now?

Majority Share of GM China & GM India

Hummer from GM (Not anymore)

Volvo from Ford

15% of the Cleveland Cavaliers

20% of Fisher & Pavkel (New Zealand)

Oz Minerals (Australia) for $1.4 billion

Addax Petroleum (Swiss oil company)

for $7 billion

Access to Kurdish & Nigerian oil fields

9.9% of Morgan Stanley & Citibank

Rank Country Volume % change over 2008

1 United States 298.3 -10.6

2 Japan 228.9 -14.2

3 Hong Kong 174.9 -14.1

4 South Korea 156.2 -16.0

5 Taiwan 106.2 -17.8

6 Germany 105.7 -8.1

7 Australia 60.1 0.7

8 Malaysia 52.0 -3.0

9 Singapore 47.9 -8.8

10 India 43.4 -16.3

Source: PRC General Administration of Customs, China's Customs Statistics

China’s Top Trade Partners (2009 US $ Billions)

China’s #1 Trading Partners Australia 15.4%

Bangladesh 15.8%

Benin 36.1%

Burma 31.3%

Equatorial

Guinea 18.2%

Ethiopia 16.3%

Gambia 21.6%

Ghana 16.0%

Guinea 15.4%

Hong Kong 46.6%

Japan 18.8%

North Korea 57.0%

South Korea 17.7%

Lesotho 26.3%

Macau 31.1%

Madagascar 20.1%

Malaysia 13.9%

Nigeria 16.1%

Pakistan 14.3%

Paraguay 30.0%

Sierra Leone 10.2%

Sudan 20.3%

Tanzania 13.7%

Togo 35.3%

U.A.E. 12.9%

USA 16.4%

Vietnam 22.4%

China’s #2 Trading Partners Angola 15.2%

Argentina 12.4%

Armenia 8.6%

Brazil 11.1%

Canada 9.8%

Chile 11.9%

Columbia 11.5%

Comoros 12.5%

Democratic

Rep of Congo 18.7%

Cuba 11.8%

Egypt 9.9%

Germany 8.2%

Indonesia 11.8%

Iran 12.6%

Jordan 10.4%

Kazakhstan 25.0%

Kyrgyzstan 17.9%

Laos 10.4%

Libya 9.3%

Mauritania 8.9%

Mexico 13.5%

Mongolia 27.8%

Netherlands 10.1%

New Zealand 13.2%

Niger 11.0%

China’s #2 Trading Partners, cont. Peru 10.5%

Saudi Arabia 10.4%

South Africa 11.0%

Sri Lanka 12.4%

Syria 8.7%

Taiwan 14.0%

Tajikistan 11.9%

Thailand 12.7%

Turkmenistan 16.7%

Uzbekistan 15.3%

Yemen 11.8%

Zimbabwe 4.2%

Income per Capita in 2050 (2006 US$)

The “Rich Club”

United States $92,000

Korea $90,000

United Kingdom $80,000

Russia $78,000

Canada $75,000

France $74,000

Germany $68,000

Japan $67,000

Upper Middle Income Group

Mexico $62,000

Italy $58,000

Brazil $50,000

China $48,000

Turkey $45,000

Goldman Sachs BRIC Book (2007) - page 155

Income per Capita in 2050 (2006 US$)

Lower Middle Income Group

Vietnam $35,000

Iran $32,000

Indonesia $20,000

India $18,000

Egypt $17,000

Philippines $16,000

Low Income Group

Nigeria $10,000

Pakistan $5,000

Bangladesh $4,000

Goldman Sachs BRIC Book (2007) - Page 155

Dr. P. Konana, McCombs Business School,

University of Texas at Austin

Energy per Capita Rising with Incomes

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

- 5,000 10,000 15,000 20,000 25,000 30,000

Energy Consumption and GDP per Capita: 2002

Energy usage per capita (oil equivalent litres per person per year)

GDP per capita (1990 US dollars per person per year)

India

South Korea

China

Japan

UK

Australia

US

Source: GGDC, BP, GSJBW

Source: Roopa Purushothaman, Goldman

Sachs, BRICs Report 2003

Japan

UK

South Korea

Unprecedented Energy Growth

China became the World’s Largest Emitter

of energy-related CO2 in 2008.

China will become the World’s Largest

Consumer of Energy in 2010.

From 2007 and 2030, China will install

more new electricity generating capacity

than exists in the United States in 2007

World Energy needs in 2030 will be 55%

higher than in 2006

China and India will = 45% of this new

demand

World Energy Outlook - 2007

China’s Exploding Energy Demand

China’s Primary Energy demand will more than double from 1,742 million toe in 2005 to 3,819 million toe in 2030 ( 3.2% annual growth rate)

In 2005, the United States used 1/3 more energy than China

By 2010, China will use more energy than the United States

China’s primary energy demand will grow by 5.1% until 2015

World Energy Outlook - 2007

Who is Worried About IP?

Thermal Power Research Institute is

China’s world-leading laboratory on

cleaner coal, has just licensed its latest

design to Future Fuels in the US.

Future Fuels will pay about $100 million to import

from China a 130-foot-high maze of equipment

that turns coal into a gas before burning it. This

method reduces toxic pollution and makes it

easier to capture and sequester gases like

carbon dioxide under ground.

Future Fuels will ship the equipment to

Pennsylvania and have Chinese engineers teach

American workers how to assemble and operate it.

China Drawing High-Tech Research

Mark Pinto, Chief Technology Officer of

Applied Materials moved to Beijing in

January

Applied Materials is building its newest

and largest research labs in China

Applied held its annual shareholder’s

meeting in Xi’an, China.

Applied’s global headquarters are in Santa Clara,

California

Applied’s New Xi’an R&D Plant

This Will Be China’s Century

When Xie Lina, a 26-year-old Applied

Materials engineer here, was asked

recently whether China would play a

big role in clean energy in the future,

she was surprised by the question.

“Most of the graduate students in

China are chasing this area,” she said.

“Of course, China will lead everything.” New York Times, March 17, 2010

The Ball is In Your Court

You Control the Future

You Will Be The Captains of The Future

Your Children Will Either Cheer or Jeer

It’s Show Time!

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