China and India In The Next 20 Years

China or India – Or China AND India?

There is an economic miracle of sorts taking place in today’s global economy, and it is coming as no shock to the people who have been watching the global picture develop these last ten years. However unsurprising it is in general, there will be people who, although they knew it was coming, may not have expected to see it happen in their lifetime. The economic miracle is taking place in Asia. That may not be terribly specific, given the size of the continent itself (the world’s largest continent), so to specify: Where the miracle is really happening is in two particular countries: China and India.

There was always the potential for this to happen, given the raw data that is available to anyone. China and India are two of the world’s largest countries by size, and easily the two largest by population with almost 40% of the world’s people living between them. This mix of landmass and population combined with the resultant ability to call on raw materials gives both China and India the opportunity to maximize any opportunity and become global powerhouses. But this dimensional magnitude has in both cases been both a blessing and a curse. The spread of both countries, allied to China’s historic insularity and India’s numerous dividing factors, has held both back from becoming quite as successful as they might have hoped.

As the 21st century really gets going, with its first decade almost inked into the history books, both China and India look ready to make their big impact on the world’s economy. Both countries are expected to have a big century, and by the middle of this one will, on any reading of the situation, have economies which outstrip the current largest in the world, that of America. China will get there first – by 2030 on a conservative estimate, followed by India within the next 20 years. Will America and others be able to catch up in the mean time and overturn the predictions? It’s hard to say, but the economy does sometimes throw up unexpected situations.

Another question which might arise is that of whether competition between India and China will be a stalling factor in either country’s growth. This is not expected to be the case, as the economic strengths of both countries complement each other quite well, and may in fact enable mutual growth in countries which are showing greater expansion in their economies than any other major nation.

China is endlessly improving on a mass-manufacturing front, and expanding its range of industrial plants in order to cement its role as a world leader in that respect. India is marking its territory as a master of precision manufacturing and software innovation. The two working together will be able to supply the world with much of what it wants without stepping on each other’s toes. It is impressive to see how quickly both have developed, and interesting to wait and see what is next from these two future superpowers.

Goldman Sachs – Wait, How Did THAT Happen?

Goldman Sachs Tops Expectations

First Published: July 20, 2009

The financial markets are continuing to stabilize gently, but it really isn’t worth looking for anything to happen this year in terms of growth or profit for any of the wealth creation industries in the West. We know that, we have been told it often enough. Anyway, the investment banks who would have had periods of growth right about now are still punch drunk from the bailout that happened as 2008 was drawing to a close. Lehman Brothers went bust. Bear Sterns nearly followed it. All over Europe banks were bailing out other banks and then having to be bailed out by the government – witness the situation in the UK where Lloyds TSB bought out Halifax Bank of Scotland and then had to be bailed out itself as it took hold of HBOS’s balance sheet and found that it was weighed down with toxic assets.

Against this background, what would you say if it were to be reported that an investment bank had just reported record profits? Yes, I know, and most people would agree – although they might clean up the language slightly in mixed company. Yet somehow, Goldman Sachs – which, let’s remember, had to have some of that bailout money in order to keep afloat last autumn – has just reported second quarter earnings of $3.44 billion. That is pretty high during a recession. It’s pretty high during a stagnant market. In fact, it is incredible at any given time, and yet here we are during the worst financial depression since just after the Second World War and Goldman Sachs reports profits that make it look like they could pay back everyone else’s bailout money as well as their own some time soon.

Just how has this happened? And what’s more, if they needed bailing out only half a year ago and yet can turn around a huge profit in such a short space of time, should they really be paying out bonuses that make even the President of the United States’ salary look fairly cheap? If Goldman Sachs have just returned second-quarter earnings of $3.44 billion then they have enough to pay a pretty hefty bonus to every American taxpayer – after all, the taxpayer played a pretty sterling role in this recovery by making sure Goldman Sachs didn’t go to the wall.

Well, OK, we understand, that isn’t how finance works. But there is going to be a lot of scrutiny on Goldman Sachs, not least on its third quarter. Seemingly, the year in finance is going to see the market reversal at least slow down, so with those favourable conditions we should expect to see the same kind o f performance again from Goldman Sachs, wouldn’t you think? If not, then it seems something strange has been happening. Sure, they have successfully underwritten some pretty healthy projects recently, but a 65% rise on the second quarter last year seems to be in the realms of fantasy, and if there is any special knowledge involved in such wealth creation, maybe they could share it with a world that really needs it right now.

China – THE Superpower of the Future?

It Is Expected That By 2050 China
Will Have The Highest GDP On The Planet

First Published Date : July 28, 2009

The four separate and disparate countries which make up the grouping known as BRIC have taken up a lot of newsprint in recent times, often with an alarmist tone. The old order certainly seems to be being shaken up a little, if not completely overturned, and it is the identity of the countries doing it which is surprising most people. Although the countries themselves are not tied by anything concrete beyond some early multilateral trade talks Brazil, Russia, India and China do all have something in common. They are all in the top ten nations of the world in terms of

population. Between them these four countries have a combined population of more than two and a half billion. In terms of percentage they are home to more than forty percent of the people in the world.

Although sizeable in terms of geographical mass and population, however, these countries with the possible exception of Russia had not, until recently, been seriously grouped in the “superpower” category by the generality of analysts. Decentralised populations, poor communications linkups and government policy were among the reasons for these countries being associated more than anything with political stricture and

grinding poverty. And while it would be hopelessly naïve to say that poverty was a thing of the past in any of the above nations, there is no denying that they have each somewhat overturned their reputations and are on target to be the most important economies in the world within a generation.

China, for its part, spent much of the 20th century with a reputation for insularity, government repression of subjects and human rights abuses.

While the country still has work to do to shake off the reputation, it is certainly opening up in comparison with the past. This is expected to continue, and may need to if China is to meet the expectation that by 2050 it will have the highest GDP on the planet, increasing from its most recent annual GDP of US$4.4million to a number higher than seventy million, twice the forecasted GDP for the expected nearest competitor, the US. What this confers on China, its government and its industries is a great deal of bargaining power. International summits without China are increasingly going to be seen as largely irrelevant, because even if a powerful group of countries wish to move the world in one direction its richest, and most populous, nation exercises powerful veto muscles.

There is no doubt that the way China moves in the coming years will have a major influence on the way the world will move. There is some question over how this will change China as a country. Money at the moment is not as evenly distributed and like India, China has a significant proportion of its population living beneath the poverty line. If its greater financial muscle results in more of the Chinese population sharing in a greater level of its wealth, then it is inevitable that China’s cultural reach will increase. Having hosted the Olympic Games in 2008, it is thought

that China will next bid to host the soccer World Cup – and with that comes greater scrutiny. Financial change is coming to China, now how will that change be reflected in the rest of it?

The sign of a recovery? Maybe not so much

Financial Update Week in UK

First Published: August 11, 2009

It is a sign of the times we are living in that more people than ever are actually sitting forward when the TV news switches to finance, as opposed to flipping the channel to find something less boring instead. With the global impact of what was, after all, a global credit crisis, people now want to know about finance. It affects jobs, housing, and after a while it has an impact on everything, from the personal to the political. This week has seen a slew of financial results emerging in the United Kingdom, one of the first countries to be hit by the “credit crunch”, and one of the bell-weather free market economies of the world. To call them a “mixed bag” would be about right…

As the week started two of the biggest banks operating in the UK announced major profits in the billions. Barclays and HSBC each raked in profits for the first six months of the year in the region of CA$5.5 million. Given that it was in the banking sector that the fire started in the UK, two of their major banks reporting such positive results early on is encouraging indeed. The sign of a recovery? Maybe not so much. The other half-year results which emerged this week seem to be somewhat more circumspect, if not downright pessimistic. Among them are some tales of woe, some tales of qualified hope, and a whole lot that can only be described as “hmmm” results.

Bad for the UK government is the news that Northern Rock, the ailing bank it took over (in the aftermath of the UK’s first run on a bank in many, many years) has posted further losses – in the region of CA$1.35 billion. How much of this loss-making is down to how the bank is being run, how much is down to the existing recession conditions and how much is down to the now tattered reputation of the Newcastle-based bank is currently hard to tell. Given that every UK taxpayer now has a stake in the bank, the financial results of Northern Rock are of interest to everyone in the country – and it would be fair to say they aren’t turning cartwheels with joy right now.

Then there is the story of Lloyds HBOS. Twenty or more years ago, there were four banks called Lloyds, TSB, Halifax and the Bank of Scotland. Then Lloyds merged with TSB to create Lloyds TSB, and Halifax and the Bank of Scotland created HBOS in the same way. After a government-backed takeover of HBOS by Lloyds TSB at the end of last year, the buoyant Lloyds TSB found that HBOS’ debt level was far greater than first thought, and this week they announced financial results which showed their first-half numbers to be in the negative margin. Time will tell how they ride out this storm, especially with the Bank of England announcing an additional £50 billion of “quantitative easing”, essentially adding new money to the economy.

India and ASEAN Sign Trade Deal

India Continues Its Endeavour

First Published: August 18, 2009

As India continues its endeavour to become one of the world’s global economic superpowers, the latest piece of good news for the country’s economists came this week when the country agreed a free trade pact with the ASEAN complex, a powerful negotiating bloc made up of ten South East Asian countries. This pact is expected to greatly strengthen India’s external trade muscle at a time when it has the eyes of the financial world upon it. Much of the talk in financial forums over the past couple of years has related to the BRIC nations – Brazil, Russia, India and China. These four countries are seen as being greatly influential to the future economic path which the world will take.

The ASEAN countries – Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, Philippines, Singapore, Thailand and Vietnam – account for much of South Asia’s wealth outside of China, Japan and North and South Korea and as partners wield a considerable amount of influence and purchasing power. By coming to an agreement with this trading bloc India has guaranteed itself the opportunity to trade with the countries without the imposition of tariffs – a major reason why many countries can struggle to make the economic impact they would wish to. With a list of natural resources that makes India a potentially very desirable trading partner, getting such agreements in place is hugely beneficial going forward.

Economic strength is something that gets built over time and needs to be accumulated in the face of challenges. As such India will take some time to be up there at the top of the world’s nations by GDP, but such a time is considered to be highly likely if not certain by the world’s top economists. This is why the nations involved in ASEAN see it as important to be involved with India. A country which brings in a lot of money through international trade will be in a position to spend a lot, too. Being geographically relatively close, India and the ASEAN countries will no doubt find a lot of opportunities for trade. The other economies in the area are considered to be too strong (China, Japan and South Korea) for working as a bloc to be worth their time, or too insular (North Korea) to even consider it.

India itself is geographically in an interesting position. Its closest neighbour, Pakistan, is not one of its allies due to the history between the countries. Therefore India is likely to continue to look further afield in order to satisfy its trading potential. Also in the pipeline is a national space program which will require no small amount of materials from outside the borders of India. In this respect it will be interesting to see what shape the trading between India and ASEAN (and its other trading partners) will take in the years to come. There has never been a better time to look for a trade agreement with India, and this should be borne out when we start seeing concrete figures.