Tuesday's panel discussion on the global economic and business outlook, featuring panelists Bernard Yeung, Dean of NUS Business School; Johanna Chua, Managing Director, Chief Asia Pacific Economist and Head of Asia Pacific Economic and Market Analysis at Citigroup; Vikram Nehru, former Chief Economist for East Asia and the Pacific of the World Bank; Brett King, author of BANK 2.0 and host Mikael Hagstrom, Executive Vice President, Europe, Middle East, Africa and Asia Pacific, SAS; took on two broad topics:
- Opportunities for Asia and emerging markets because of uncertainties and turmoil in the advanced markets.
- Te role emerging markets, particularly China, may play in the future of the global economy.
I broke this panel discussion into two parts because this information seemed too valuable to condense into one post. Often, panel discussions seem somewhat scripted and rarely show the animation - almost agitation - that this discussion did. After the beginning discussion of the opportunities the S&P downgrade and slowed economies in the West offered the East, the discussion waned - each panelist answering only when questioned - until Hagstrom probed about the role the Chinese ecomomy and consumption might play in the future of the global economy. At that point, the panelists began to sit on the edge of their seats and often interrupted on another.
According to Brett King, there are some real questions as to how the new value chain and production in economies is going to finally shake out. "One thing Asia has is growth potential, but everyone is looking at US markets and asking, 'How are they going to grow their way out of this?'"
Bernard Yeung agreed that Asia has growth potential and is surely a future place for investment, particularly in China. But he cautioned about potential pitfalls. "There are a lot of opportunitities and a lot of land mines and future changes in policies - perhaps even future political unrest," he said. "I think the back to basics in Asia is that you need to know what you are getting into - not just today but in the future."
According to Johanna Chua, consumption has been resilient in Asia, "partly because employment has been quite strong and income growth is fine." She said that China is the big missing piece of the consumption/rebalancing puzzle. "Has China done enough to provide avenues or social safety nets so that people don't over save? Are there enough opportunities for consumption in Asia?" she said. "China needs to smooth out their consumption growth over time by borrowing for future income."
"There are three reasons why I expect the emerging nations to continue their growth," said Vikram Nehru. "First, rapidly rising incomes. The size of the middle class is expanding very fast in the emerging markets. In fact, it is expanding much more rapidly than GDP ... The second reason that I see there to be sufficient demand in the emerging markets is that some Southeast trade is the most rapidly growing component in world trade, which is indicative of the fact that increasingly emerging markets is becoming a greater force in the global economy. The third factor ... is that in Asia, the services sector in most parts of Asia is relatively underdeveloped. If these countries are able to liberalize the services sector, I see services becoming an important engine for growth in the coming decade."
"We talk a lot about China being the driver of growth in the emerging markets, but I'm not convinced," said King. "because China is an insular market. In my opinion, if consumption takes off in China, I'm not sure it helps anyone but China - except to provide a strong Chinese economy, which contributes to the global health."
Nehru disagreed that China was an insular economy. "For its size, I think the Chinese markets are relatively open," he said. "Consumption is high in China, but perhaps not as high as share per GDP. I would argue that enormous investment needs are in China." Nehru said investment is being made, but perhaps in the wrong areas.
Yeung agreed that investment in China now needs to turn toward sustainable growth. "The politicians need to provide leadership and look at the long-term," he said. "They need to think about the next 10 years. Governments need to get it together, I could almost say mature, grow up. What kind of leadership do we need to have to produce sustainable growth for the world?"
King put a fine point on the consumption arguement when he said, "I think there is one point that is going to be life-changing for Asia, we've got about 2 million people sitting in Asia today [who]don't have a bank account. When you talk about consumption, not having access to the financial system is an issue." According to King, financial inclusion in China and the rest of Asia will be hugely important to the consumption problem. Financial inclusion will provide access to consumer goods, services and better health care. Access will lead to increased demand.
This panel tackled a discussion that is being played out in many political and academic settings around the world.
What are your thoughts on the role that China will or should play in the future of the global economy? Is consumption our only salvation? Is growth the only road to recovery for the US and the Eurozone?
