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China and the global economy Why ignoring China is no longer an option..... Robin Bew, Chief Economist June 2004. The global outlook. Key points for 2004-05. World growth fantastic best for 20 years in 2004 developed and emerging markets surging ahead Exceptional times cannot last

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China and the global economy

Why ignoring China is no longer an option.....

Robin Bew, Chief Economist

June 2004



Key points for 2004 05
Key points for 2004-05

  • World growth fantastic

    • best for 20 years in 2004

      • developed and emerging markets surging ahead

  • Exceptional times cannot last

    • tipping point may have already passed

      • international liquidity is tightening

        • coping with the transition

      • global policy tightening

        • will slow world growth

  • Slowdown likely, but risks of worse


United states outlook
United States outlook

  • Recent performance stunning

    • more to come in the year ahead

  • But policy stimulus being withdrawn

    • strong momentum, but balance sheets?

  • Restraining factors

    • debts are high, spare capacity, assets prices vulnerable, external deficit

  • 2004 are great, but business conditions tougher in 2005-06?


Japan
Japan

  • Domestic economy is restructuring

    • under cover of export led growth

  • But needs more time

    • SME weakness, overcapacity, no pricing power

    • cannot yet offset export slowdown

  • Export deceleration will stall reform

    • still a long way to go before domestic recovery in place


Euro zone outlook
Euro zone outlook

  • Only a sluggish recovery

    • exports

      • but the euro

    • restocking, capex

      • business subdued

    • consumers

      • jobs, pensions

  • Policy boost?

    • debt levels

    • pension fears

  • Reform efforts?

GDP growth, %

Y-on-Y


The emerging world
The emerging world

  • Benefiting from OECD pickup

    • import demand surging

  • Selling into other emerging markets

    • regional trade dynamics

  • But risk appetite has fallen sharply

    • past 18mths were extraordinary

      • but investors now leaving

        • spreads rising



Key points for 2004 051
Key points for 2004-05

  • World growth fantastic

    • China is 6th largest economy at market prices, 2nd at PPP, growing at 9%

  • Exceptional times cannot last

    • Chinese policy tightening impacts domestically and also elsewhere

      • Commodities, trade

  • Slowdown likely, but risks of worse

    • Soft landings are hard to engineer

      • some investors will be hurt


The business response fdi
The business response—FDI

  • EIU survey of 500 business executives’ foreign direct investment strategies

    • China the key focus

      • New consumer markets, low-cost labour, new business markets

    • India the challenger

      • Skilled labour, R&D, outsourcing

    • US & eurozone dominate ‘operating criteria’

      • Supply chain efficiencies, acquisitions


The business experience
The business experience

  • Gap between expectations and reality

    • China is not an easy business environment

      • Regulation, competition, local protection, legal framework, infrastructure, skill levels

    • Macroeconomic stability not assured

      • Irrational exuberance

        • Foreign and domestic

  • But long term potential is enormous


China fdi forecasts
China FDI forecasts

  • China will attract US$67bn per year of FDI in 2004-08

    • Second only to the US

  • FDI will fund 7% of total Chinese investment

  • China’s share of world exports to rise to 10%

  • Improvements in operating environment should allow enhanced profitability


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