Global Demand after the Crisis

WHAT IS CHIMERICA?
FOUR UNCERTAINTIES

WHAT MIGHT GLOBAL DEMAND

LOOK LIKE AFTER THE CRISIS?

FIVE STRATEGIES THREE POST-

CRISIS MODELS
Chimerica : no independent ‘rise of the rest’.
Accounts for over 60% of the world’s cumulative growth for the past 5 years.
Emerging periphery relied
on final demand in the G3.

CORE Accumulated earnings were

recycled back to the core.

Financial innovation
channeled the credit supply
to residential investment,
fueling a housing asset
boom which boosted
consumption.

Export-led growth allowed

PERIPHERY for rapid industrialization
and urbanization in
emerging Asia, prompting
large spikes in commodity
prices.
WHAT IS CHIMERICA?
FOUR UNCERTAINTIES

WHAT MIGHT GLOBAL DEMAND

LOOK LIKE AFTER THE CRISIS?

FIVE STRATEGIES THREE POST-

CRISIS MODELS
The current crisis: Chimerica has temporarily collapsed.
There are four major uncertainties leading from the crisis. Each uncertainty may have
legacy effects that can move the world permanently away from Chimerica.

Changes in
composition of final
consumption
behavior
Legacy effect one: rising public debt
Sustained financing of this debt may break down.

Raises
probability of
country default.

Move from LT to
ST debt.
Legacy effect two: increased government intervention
Intervention may stifle innovation and future growth.
The greater
regulatory oversight
and tighter lending
standards may stunt
future growth in
startups and cause
technological
innovation to slow.

In the long run, this

may induce a severe
rollback in private
consumption
demand as long-run
growth slows with
declining innovation.
Legacy effect three: persistent protectionism
“Buy America” and beggar thy neighbor exchange rate policies may spark a
trade war.

The enactment of the

Smoot Hawley Act in the
1930s sparked a rapid
downward spiral in global
trade.

Competitive devaluation
and non-tariff barriers may
trigger retaliatory action.
Legacy effect four: G3 consumption changes
G3 consumers are saving more in response to a downturn.

US consumers
accounts for 70%
of US GDP.

Failure of the US
stimulus package
could lead to
sustained
negative growth
and bleak long-
term employment
prospects in the
US. This may, in
turn, entrench
savings habits.

Source: US Council of Economic Advisors

WHAT IS CHIMERICA?
FOUR UNCERTAINTIES

WHAT MIGHT GLOBAL DEMAND

LOOK LIKE AFTER THE CRISIS?

FIVE STRATEGIES THREE POST-

CRISIS MODELS
Post-crisis: three demand models
Snakes and Ladders transition. The dice is rolling …Where will we end up?

MODEL C
MENAGERIE

PRE-CRISIS
CHIMERICA

MODEL A
WOUNDED
BEAST

MODEL B
CHASM
 WOUNDED
BEAST
WB No fundamental shift from
Chimerica occurs.
Developed countries
continue to power growth.
15 SEPT. 2008 at THE G3
Emerging Asia continues to
fund G3.
PERSISTENT GOVT DEBT
FRAGILE BALANCE SHEETS However this is not a return
FUTURE ASSET BUBBLES to the status quo. This is a
transitory model.
RESOURCE VOLATILITY
The world is plagued by
more volatility as
imbalances are
exacerbated.
Wounded
Beast Each subsequent crisis
weakens this model.

High cost, High growth,

High volatility.

Key message: Resilience

CROSSING
THE CHASM
The world sees a
sustained shortfall in G3
demand.

Rising Asia looks inward

towards domestic
demand, but this may not
be fast enough to restore
world growth to previous
levels.

The period of adjustment

could be painful and might
take decades.

How can we grow in this

model?

High cost, low growth, low

volatility.

Key message: Survival

Chasm: consumption in emerging Asia
How fast can Asian consumers become a source of final demand?

The middle class is

projected to surge –
particularly in developing
countries and Asia.

But it may take decades for

37 Years
2.1%
Consumption* in 2007
If…
• World GDP grows at 4%,
• China’s GDP grows at 9%,
• China’s consumption share
of its GDP grows at 1%
consumption in emerging
Asia to drive global
demand.
China and India could be
beset with political and
social unrest.
17.5%

*as a percentage of world GDP Consumption in 2007

 $1,400

MENAGERIE
43
bil $4,500
mil
$500bil $200bil bil
$110bil 36
mil 4mil

100
This is the emergence of
46 mil mega-city regions in Asia as
mil
sophisticated, self-sufficient
Automobiles centers of final demand.
electronics
66 mil
$130bil Highly innovative $430bil
High tech innovation, mfg,
Regions could grow by
companies, finance, design complementing each other,
electronics, 18
telecoms, flat mil or through inward-looking
panel displays 120 mil
development.
$220bil
45 mil
How can we be
$50bil
irreplaceable in Asia’s
future?
$130bil
72 mil
20mil
Semiconductor
High cost, High growth, low
production facilities
19 mil
$100bil volatility.
$50bil
62 mil *The orange bar is Light Regional Product,
using satellite data of the light emitted at
night. Higher concentration of light is
$60bil correlated with stronger economic production.
$100bil Data on regional economic production is not
6mil comprehensive, so this proxy is useful for
comparison.
R Florida’s “Who’s your City?”
Disk drive, niche in S&T, top Western Universities,
creative center, high culture and street culture, top
destination for all lifestyles Key message: Relevance
Menagerie: Pearl River Delta snapshot
How fast can they shift gears from servicing exports to their domestic market?
¥711 bn PRD excluding HK, Macau (2007 figures)
10 mil GDP pp RMB 53,820, or 2.8 times national average
3.6% China’s population but 8.8% of national retail sales

3.8 mil
¥60 bn
Trade, MICE
Mfg in auto parts ..
F&B products ¥361 bn 7 mil ¥315 bn
6 mil 4 mil
¥111 bn

Mfg in industrial ceramics… Mfg in electronics … Mfg in laser diodes, electronics…

¥681 bn
8.6 mil

2.5 mil ¥123 bn ¥2,002 bn

Mfg in lighting, motorcycles… Logistics, Financial Center

Mfg in electronics, computers..
¥90 bn
4.5 mil ¥111 bn 1.5 mil 7 mil

Port

¥110 bn
Petrochemicals, Machinery 0.5 mil Financial, MICE, Business Svc, Port, Intl airport Center…

Entertainment, MICE Center

WHAT IS CHIMERICA?
FOUR UNCERTAINTIES

WHAT MIGHT GLOBAL DEMAND

LOOK LIKE AFTER THE CRISIS?

FIVE STRATEGIES THREE POST-

CRISIS MODELS
Five strategies: preparing for the shift away from Chimerica
Strategy Most important for Some suggestions …

Coping with increased WOUNDED BEAST

volatility and resource
scarcity Energy Food Metals Water Scalable
Ensure resource security &Minerals Infrastructure

Tapping on emerging
CROSSING THE CHASM
Asia’s sub-economies
Diversify from G3 final demand
Urban Rural Public sector
Consumption Consumption investment
Generating through flow MENAGERIE
of consumers
Tap on foreign consumption
Fertility Treatment Film, TV, anime Youth culture Finishing school
Baby Education Manga culture
Building niche capabilities MENAGERIE

Irreplaceable in Asia’s future

New agriculture New aquaculture
Building our hinterland MENAGERIE
Tap into hinterland final demand
Integrate with immediate region
with transport infrastructure.
http://futuresgroup.wordpress.com