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 21 st 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 Population 1. 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
Billions 1960 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 $ Billion $ Billion A Swarm of Inflection Points Japan - Total Trade China - Total Trade $300 $350 $250 $300 $200 $150 $100 1964-70 $250 $200 $150 $100 1989-94 $50 $50 $0 $0 $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 India - Total Trade 2000-2005 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Dr. P. Konana, McCombs Business School, University of Texas at Austin
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 United States USA 17.7% Canada 20.1% Hong Kong 13.3% Mexico 11.7% Japan 8.1% China 5.5% South Korea 5.2% Japan 5.1% Germany 4.1% Germany 4.2% India U.A.E. 12.3% USA 11.7% China 5.4% Singapore 4.5% 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 $2.407
Import Partners (2008) China United States Japan 13.3% China 16.4% South Korea 9.9% Canada 15.7% Taiwan 9.2% Mexico 10.1% USA 7.2% Japan 6.6% Germany 4.9% Germany 4.6% India Brazil China 10.8% USA 14.9% Saudi Arabia 6.9% China 11.6% USA 6.7% Argentina 7.9% U.A.E. 6.7% Germany 7.0% Iran 4.2%
Now LET S FOCUS ON CHINA
Welcome to the New China copyright - John N. Doggett, 2008
Growth at Warp Speed 31
The People s Republic of Communist China?
Shenzhen in 1979 www.lenbracken.com/images/china31
30,000 people lived here in 1983 Source: http://en.wikipedia.org/wiki/image:57440.jpg
China s Exploding Middle Class In 2007, China had 80 million middle class consumers 6% of China s population By 2020, China will have 700 million middle class consumers. 30% of China s population Source: McKinsey & Company
Chinese Banks and The World 36
GDP Growth Rate
Exports as percent of GDP
Imports as percent of GDP
GDP vs. Exports (% of GDP) Source: World Bank World Development Indicators
GDP vs. Imports (% of GDP) Source: World Bank World Development Indicators
US Trade (Im)Balance with China http://www.census.gov/foreign-trade/balance/c5700.html
Who Owns Our Debt? (Billion US$) 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
China s Top Trade Partners (2009 US $ Billions) 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 #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
Energy per Capita Rising with Incomes Energy Consumption and GDP per Capita: 2002 9,000 Energy usage per capita (oil equivalent litres per person per year) 8,000 US 7,000 6,000 Australia 5,000 4,000 South Korea South Korea UK Japan Japan 3,000 UK 2,000 1,000 China India - - 5,000 10,000 15,000 20,000 25,000 30,000 GDP per capita (1990 US dollars per person per year) Source: GGDC, BP, GSJBW Dr. P. Konana, McCombs Business School, University of Texas at Austin Source: Roopa Purushothaman, Goldman Sachs, BRICs Report 2003
Unprecedented Energy Growth China became the World s Largest Emitter of energy-related CO 2 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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