NBAS Luncheon meeting – 21 February 2008.

Future trends shaping Asia. By Prof. Jørgen Ørstrøm møller

I. The global economy February 2008. (2/3) Fasten Safetybelt!

I. The global economy February 2008. (3/3) Fasten Safetybelt!

US probably in recession, also Japan. Global recession? Depend on

economic development in Asia excl Japan.

Supply chain. Importance of export to the US. Domestic demand, consumption

II. Supply Chain. From 1996 to 2003 China´s share of US

import rose from 8,5% to 22,4%. Other Asian countries share fell to 1/3. Points to an asian supply chain geared to export from Asia via China, but now

When Chinas GDP ↑ with 1%, import of consumption goods from the following countries ↑ with:

Japan 1,04%, Singapore 1,06, Malaysia 1,29%, Korea 1,30%, Indonesia 1,46%,India 1,54%

Points to swing from Us controlled to Asia controlled economy.

III. Export to US. Goldman Sachs about netexport as driver for

China. 2,7pp in 2005, 2,2pp in 2006, 1,6pp in 2007

Goldman Sachs. Zerogrowth in US and 8% growth in China anyway.

China´s export to US (% of total export) was in 2000 31%, primo 2007 23%.

Deutsche Bank reckons that reduction of US growth with 1 percent point reduces China's export growth with 4 percent points and Chinas GDP with 0.5 percent points.

IV. Driver– export or domestic demand.

V. Preliminary conclusion.

Asia and in particular China less dependent on US than before. Looks like high growth is achievable even if US goes into recession albeit of course at a lower rate.

How strong is Asia?

VI. Strengths. (1/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption.

Intraregional trade (%) 1980 og 2005: ASEAN 15,9 25,7 ASEAN + Kina, Japan,Korea 29 39 Same + Hong Kong +Taiwan 38,7 55,1 PM. EU (25) 57,3 64,6. NAFTA 33,2 42,1. Free trade agreemnts. China-ASEAN, India-ASEAN, China-

India. Japan and Korea also in the picture. A large market with 3 bn inhabitants and freedom of

localization, comparative advantages can be exploited. The world has never seen anything like that.

VI. Strengths. (2/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

China sits on $US 1400 bn of which 400 is treasury bonds. Continue?

New investment pattern, Blackstone, Chinalco versus BHP-Rio Tinto.

New trend instiutional investors. Think about it, who is going to decide? Those in position of the money.

Merril Lynch, UBS, Morgan Stanley, Citigroup. What does it mean?

SWF soon $US 3 bn rising towards 12 bn in 2015.

VI. Strengths. (3/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

VI. Strengths. (4/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

Japanese multinationals? Not really. Lenovo-IBM, CNOOC, Petrochina.

Knowledge, management more than market share. ICBC 20% of Standard Bank (SA) operating in 18 African countries.

M&As or minority shareholder. Indian companies. Mittal Steel, Tata. Chinese and Indian comoanies enter each

other´s markets.

VI. Strengths. (5/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

Figures from 2006. China FDI in $US 69 bn. Out $US 16 bn. India FDI in $US 12 bn. Out $US 15 bn.

Fortune Oct 29, 2007India. 2004. For. buy ind. Comp. $US 2,9 bn – ind buy for 1,5 2005. 8,0 4,5 2006. 10,1 21,7 2007 – 3 first Q´s. 28,1 18,1

VI. Strengths. (6/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

Comparative advantage. China labour productivity. India capital productivity. New driver for global economy.

2004. China. India.(mastercard)

Labour productivity. GDP pr unit. UsD 2140 1380.Capital productivity 10-12%. 15-17% Trade 2007 approx. $US 20 bn. 15 years ago $US 150. April 2005 Primeminister Wen Jiabao in India. November 2006 Kongresparty chairman Sonia Gandhi in

China. November 2006 President Hu Jintao in India. December 2007 joint military exercise. January 2008 Primeminister Manmohan Singh in China.

"necessary for both India and China to consult each other more frequently“.

They do not threaten each other´s vital interest.

VI. Strengths. (7/7). Economic integration, savings/swf, multinationals, China/India-Chindia, private consumption

Asia. High savingsrate yes but strong growth and rising share of population with householdincome > 5.000 UsD stimualtes consumption.

Qualitative consumption in asian hubs. Luxury, branding, trendsetters.

Massconsumption in Asia, China og India. Now 17,4% af urban households in China

indcome $US 5.000. In 2014 90% y/y increase24%.

Restructuring of retailtrade in China and India.

VII. Asia´s problems.

The 1980 model runs out of steam Demography in Asia. Less propitious international

environment. We move from the age of abundance

to the age of scarcity.

VIII. Conclusion. Economic powershift from the West to Asia. Political adjustment lags behind as established powers

cling to influence. Germany one hundred years ago. UK and USA. Transfer of power rarely takes place without conflict.

Can Asia as rising ´superpower´ and the US with Europe in the sidecar manage such a transfer of power and create a steering system to replace the one shaped 1945-1950?

If yes, splendid. If no then what about globalization.

Jørgen Ørstrøm Møller