The Asia Story

Jeff Ang/Seng Leong

May 2007
The Asia Story

Brief overview of what

happened in Asia

Asia Today

Key Trends and Issues

Asia 2010 - 2050

2 7. mars 2009
GDP growth in the 90s …

90-96 `97 ‘98 ‘99

S. Korea 7.7 5.5 -5.5 10.2
Indonesia 7.8 4.6 -13.7 0.1
Thailand 8.1 1.1 -9.0 4.5
Malaysia 8.7 7.8 -6.7 5.0
Philippines 2.8 5.1 -0.5 2.9
Singapore 8.3 6.8 +1.5 5.6
Hong Kong 5.3 3.5 -5.1 2.3

Period of strong Asian financial

growth crisis V-shaped
recovery

Source: ADB

3 7. mars 2009
2000

Even stronger growth in 2000

‘98 ‘99 2000

S. Korea -6.7 10.7 8.8
Indonesia -13.2 0.2 4.2
Thailand -10.2 4.2 4.6
Malaysia -7.5 5.4 8.5
Philippines -0.5 2.9 3.9
Singapore +0.4 5.4 10.1
Hong Kong -5.1 2.9 10.5

Source: ADB

4 7. mars 2009
 Into the 21st Century

With renewed confidence

5 7. mars 2009
into the 21st Century - 2001

Trouble again in 2001

‘99 '00 '01
S. Korea 10.7 8.8 3.0
Indonesia 0.2 4.2 3.3
Thailand 4.2 4.6 1.8
Malaysia 5.4 8.5 0.4
Philippines 2.9 3.9 3.2
Singapore 5.4 10.1 -2.0
Hong Kong 2.9 10.5 0.2
Taiwan 5.4 5.9 -2.2

Source: ADB

6 7. mars 2009
into the 21st Century - 2001

Bursting of dot.com bubble,

recession in the US ...
6

5
2001 – 0.3%
4

3
% Growth in GDP

2
September 11
1
-0.6 -1.6 -0.3
0

-1
Underscores the reliance of
Asia on US markets
-2
1Q00 2Q00 3Q00 4Q00 1Q01 2Q01 3Q01 4Q01

US Quarterly GDP Growth

7 7. mars 2009
into the 21st Century - 2002

Fed Funds Rate

7 Fed responded • Bush moved in

6.5
6 with 11 • aggressive TAX CUTS
5.5 successive rate
5 • massive Defence
4.5 cuts Spendings
Percentage

4
3.5
3
2.5 US growth
2
1.5
1
rebounded in 2002
Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 to 2.4%

8 7. mars 2009
into the 21st Century - 2002

Recovered again in '02

'00 '01 '02
S. Korea 8.8 3.0 7.0
Indonesia 4.2 3.3 3.7
Thailand 4.6 1.8 5.3
Malaysia 8.5 0.4 4.2
Philippines 3.9 3.2 4.4
Singapore 10.1 -2.0 2.2
Hong Kong 10.5 0.2 2.3
Taiwan 5.9 -2.2 3.5

Source: ADB

9 7. mars 2009
into the 21st Century - 2002

… difference is
Other than exports
 across Asia, domestic consumption
grew at a rapid rate
 across many Asian cities, clusters
of affluent middle class started to
emerge
 Govts implemented policies that
encouraged consumption as
people were saving too much
 an important new leg to Asian
growth

10 7. mars 2009
into the 21st Century - 2002

… difference is
Other than exports

 intra-regional trade boomed

 exports to other Asian
destinations acct for >40% of
total exports, overtaking
exports to the US

Twin pillars that will underpin growth in East Asia

in the medium term

11 7. mars 2009
into the 21st Century - 2003

1st Half 2003

Dominated by
concerns about
Iraqi War and SARS

12 7. mars 2009
 into the 21st Century - 2003

Mid year 2003

Uncertainty ended .. Dow
Dow Jones
Jones

Focus on the positives

• Sentiments started to improve

Stock market took off

13 7. mars 2009
into the 21st Century - 2003

2nd Half 2003

Asian growth powered ahead
• China's export machine when into
overdrive
• emerged as critical driver of overall Asian
exports
– sucked in raw materials and capital
goods, and intermediate products
from the region
• on average, exports to China rose 30%
• To keep this going
• Asian CBs bought billions of USD to keep
their currencies weak
• Today, CBs hold USD 2.8 trillion in f.
reserves
– most of the reserves are re-invested in US
Treasuries
• Essentially, Asia lent US the money for
its spending spree on Asian products

14 7. mars 2009
into the 21st Century - 2003

China became epi-centre of Asian trade

As half of imports from

Asia are re-exported
to the West

sucked in raw
materials and capital
goods, and
intermediate
products from the
region

15 7. mars 2009
into the 21st Century - 2003

China displaces rest of Asia as the main source

of exports to US and EU
1st ten months of 2003

16 7. mars 2009
 into the 21st Century - 2003

... year-ended with strong momentum

.KLSE, Close(Last Trade) [Line] Daily .KS11, Last Trade [O/H/L/C Bar] Daily
06Feb03 - 25Sep03 04Jan03 - 28Aug03
Pr
.KLSE , Close(Last Trade), Line Pr
22Sep03 741.32 .KS11 , Last Trade, O/H/L/C Bar
750 760
22Sep03 741.54 741.68 718.35 719.42

Nikkei up 40% 740

Indo up 69% 740

730
720
720

.SETI, Last Trade [O/H/L/C Bar] Daily 700

710
04Feb03 - 26Sep03
Pr 680
700
.SETI , Last Trade, O/H/L/C Bar
22Sep03 566.54 568.44 562.53 562.53
690
560 660

680
.STI, Last Trade [O/H/L/C Bar] Daily
07Dec02 - 29Sep03
640
540
670
Pr
.STI , Last Trade, O/H/L/C Bar 1640
22Sep03 1590.07 1597.99 1581.94 1584.11 620
660 1620
520
1600
650 600
1580
500
1560
640
1540
580

630

620
480
Thai up 119% 1520

1500
560

1480
11Feb03 25Feb 11Mar 25Mar 08Apr 22Apr 06May 20May 03Jun 17Jun 01Jul 15Jul 29Jul 12Aug 26Aug 09Sep 23Sep 460
1460
540

1440
440 520

Korea up 39%
1420

1400
13Jan03 27Jan 10Feb 24Feb 10Mar 24Mar 07Apr 21Apr 05May 19May 02Jun 16Jun 30Jun 14Jul 28Jul 11Aug 25Aug
420 1380

1360

1340
400
1320

1300
380
1280

1260

360 1240

1220

1200
11Feb03 25Feb 11Mar 25Mar 08Apr 22Apr 06May 20May 03Jun 17Jun 01Jul 15Jul 29Jul 12Aug 26Aug 09Sep 23Sep 17Dec02 14Jan 11Feb 11Mar 08Apr 06May 03Jun 01Jul 29Jul 26Aug 23Sep

17 7. mars 2009
into the 21st Century - 2003

Real GDP 2002 2003

China 8.0 9.1
S. Korea 7.0 3.1
Taiwan 3.5 3.0
Hong Kong 2.3 1.5

Indonesia 3.7 4.5

Thailand 5.3 6.5
Malaysia 4.2 5.3
Philippines 4.4 4.5
Singapore 2.2 1.1
India 4.6 8.2

Emerging Asia 5.5 5.9

Source: ADB

18 7. mars 2009
into the 21st Century - 2004

1st half 2004

• Strong momentum was carried over
• US at robust 4.3% growth
• But concerns over
• Surging oil price
• China overheating

US Crude Oil

19 7. mars 2009
into the 21st Century - 2004

Real GDP ‘03 ‘04

China 9.1 9.5
S. Korea 3.1 4.7
Taiwan 3.0 5.7
Hong Kong 1.5 8.1

Indonesia 4.5 5.1

Thailand 6.5 6.1
Malaysia 5.3 7.2
Philippines 4.5 6.0
Singapore 1.1 8.4
India 8.2 7.1

Emerging Asia 5.9 6.7

Global growth reached 5.1%

Source: ADB

20 7. mars 2009
into the 21st Century - 2005

Real GDP ’04 '05

China 9.5 10.2
S. Korea 4.7 4.0
Taiwan 5.7 4.1
Hong Kong 8.1 7.3

Indonesia 5.1 5.6

Thailand 6.1 4.5
Malaysia 7.2 5.3
Philippines 6.0 5.1
Singapore 8.4 6.4 Maintained
India 7.1 8.5 strong
momentum

Emerging Asia 6.7 6.6

Source: ADB

21 7. mars 2009
How big is Asia ?

Nominal GDP US$

(2006 estimates)

Country Total (billion) Percentage of Region US 13.2trn

Japan 4,463 EU 10.3trn

Emerging Asia 5,771 100.0

China 2,554 44.3
Overtook UK
India 854 14.8 to become
Korea 877 15.2 world's 4th
largest
Taiwan 355 6.2
economy
Indonesia 351 6.1
Hong Kong 187 3.2 NOR 318bln
Thailand 195 3.4
Malaysia 147 2.5
Singapore 134 2.3
Philippines 117 2.0

22 7. mars 2009
 Asia in 2006

23 7. mars 2009
Asia 2006

1st Qtr growth was strong

Real GDP ’04 '05 1Qtr 2006

China 9.5 10.2 10.3
S. Korea 4.7 4.0 6.2
Taiwan 5.7 4.1 4.9
Hong Kong 8.1 7.3 8.2

Indonesia 5.1 5.6 4.6

Thailand 6.1 4.5 5.8
Malaysia 7.2 5.3 5.3
Philippines 6.0 5.1 5.5
Singapore 8.4 6.4 10.6
India 7.1 8.5 9.3

24 7. mars 2009
Asia 2006

Stock markets continued its rally from 2005 …

Daily Q.STI [Bar, MA 14] Daily Q/ .HSI [Bar, MA 14]
[Professional] [Professional] 12/12/2005 - 09/05/2006 (GMT)
05/12/2005 - 09/05/2006 (GMT)
Price
Price Q/.HSI , Last Trade, Bar
Q.STI , Last Trade, Bar 30/05/2006 15,976.37 15,976.37 15,869.18 15,910.88 HKD
30/05/2006 2,440.02 2,449.02 2,434.90 2,444.18 SGD

Singapore SE 10% (13%) HK SE 12% (4%)

Q/.HSI , Close(Last Trade), MA 14 17200
Q.STI , Close(Last Trade), MA 14 30/05/2006 16,220.38
30/05/2006 2,490.94 17100
2640
17000
2620 16900
2600 16800

2580 16700
16600
2560
16500
2540
16400
2520 16300
2500 16200
16100
2480
16000
2460
15900
2440 15800
2420 15700
15600
2400
15500
2380
15400
2360 15300
2340 15200

2320 15100
15000
2300
14900
2280
14800
09 16 23 03 11 18 25 03 10 17 24 03 10 17 24 31 07 17 24 02 09 16 23 04 11 18 25 03 10 17 24 03 10 17 24 31 10 19 26 04
Dec 05 J an 06 Feb 06 Mar 06 Apr 06 Dec 05 J an 06 Feb 06 Mar 06 Apr 06

Daily Q.BSESN [Line] Daily Q.J KSE [Bar, MA 14]

[Professional] [Professional] 14/12/2005 - 12/05/2006 (GMT)
29/07/2005 - 09/05/2006 (GMT)
Price
Taiwan SE 26% (16%) Price Q.J KSE, Last Trade, Bar
Q.BSESN, Close(Last Trade), Line 30/05/2006 1,335.606 1,355.616 1,335.606 1,355.616 IDR

Indian SE 28% (41%) Jakarta SE 26% (16%)

02/06/2006 10,451.33 INR
Q.J KSE, Close(Last Trade), MA 14
12300 30/05/2006 1,422.298 1500

12000 1480

1460
11700
1440
11400
1420
11100
1400
10800
1380
10500
1360
10200
1340
9900 1320

9600 1300

9300 1280

9000 1260

1240
8700
1220
8400
1200
8100
1180
7800
1160
7500 1140
11 26 12 26 10 25 10 25 09 23 06 23 07 22 08 23 07 25 20 28 05 13 20 27 06 13 20 27 06 13 20 27 05 13 21 28 05 12
Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 J an 06 Feb 06 Mar 06 Apr 06 Dec 05 J an 06 Feb 06 Mar 06 Apr 06 May 06

25 7. mars 2009
Asia 2006

… so did Asian currencies

Daily QSGD= [Bar] Daily QI DR= [Bar, MA 14]
[Professional] 10/10/2005 - 11/05/2006 (GMT) [Professional] 21/09/2005 - 12/05/2006 (GMT)
Price Price
QSGD=, Bid, Bar QI DR=, Bid, Bar
02/06/2006 1.5813 1.5813 1.5757 1.5799 / USD 02/06/2006 9,295 9,300 9,255 9,260 / USD
QI DR=, Close(Bid), MA 14 10300
1.7 02/06/2006 9,232
10200
1.69
10100
1.68
10000
1.67
9900
1.66
9800
1.65
9700
1.64
9600
1.63
9500
1.62
9400
1.61
9300
1.6
9200

USD/SGD USD/IDR
1.59
9100
1.58
9000
1.57 8900
1.56 8800
1.55 8700
21 04 18 02 16 30 13 27 10 24 10 24 07 21 05 04 18 01 15 29 13 27 10 24 07 21 07 21 04 18 02
Oct 05 Nov 05 Dec 05 J an 06 Feb 06 Mar 06 Apr 06 Oct 05 Nov 05 Dec 05 J an 06 Feb 06 Mar 06 Apr 06

26 7. mars 2009
Asia 2006

All was going well …

27 7. mars 2009
Year 2006

Over in the US …

3.00%
Core inflation
2.50% started to rise
2.00% beyond FED's
Fed's comfort range comfort
1.50%
range.....
1.00%
Core CPI y/y
0.50%
Core CPI
0.00% 3mth m.a.
Mar-06

Nov-06
Apr-06
May-06

Jul-06

Dec-06
Oct-06
Jan-06
Feb-06

Aug-06
Sep-06
Jun-06

28 7. mars 2009
Year 2006

… at the same time

Oil Prices (Jan 2006 to July 2006)

$80.00/bbl
$75.00/bbl

$66/bbl at start of
2006

29 7. mars 2009
 1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%

30
30-Jun-04
10-Au g-04
21-Sep-04
Year 2006

10-Nov-04

7. mars 2009
14-Dec-04
02-Feb-05
22-Mar-04
03-May-05
30-Jun-05
09-Au g-05
20-Sep-05
01-Nov-05
13-Dec-05
31-Jan-06
28-Mar-06
10-May-06
29-Jun-06
FED continued to raise rates 4x to 5.25%

Ben Bernanke
Year 2006

Last two hikes (and the warning of more) caused a

melt-down in the equity market
Dow Jones
Daily Q.DJ I [Bar, MA 14]
[Professional] 06/01/2006 - 22/05/2006 (GMT)
Price
Q.DJ I, Last Trade, Bar
31/05/2006 11,091.15 11,183.04 11,085.38 11,168.31 10 May
th USD
Q.DJ I, Close(Last Trade), MA 14
11600
31/05/2006 11,235.84
11550
11500
11450
11400
11350
11300
11250 17th May
11200
11150
11100
11050
11000
10950
10900
10850
10800
10750
10700
10650
12 20 27 03 10 17 27 06 13 20 27 03 10 18 25 02 09 16
J an 06 Feb 06 Mar 06 Apr 06 May 06

31 7. mars 2009
Asia 2006

Asian markets followed

Indian market was the worst hit
Daily Q.BSESN [Bar, MA 14]
[Professional] 22/12/2005 - 05/06/2006 (GMT)
Price
Q.BSESN, Last Trade, Bar
01/06/2006 10,472.46 10,597.23 10,193.48 10,279.88 INR
Q.BSESN, Close(Last Trade), MA 14 12400
01/06/2006 10,993.96
12200
12000
11800

11600
11400
11200
11000
10800
10600
10400
10200
10000
9800
9600

9400
9200
9000
28 04 12 19 27 03 13 20 27 06 13 21 28 04 13 21 28 08 15 22 29 05
Dec 05 J an 06 Feb 06 Mar 06 Apr 06 May 06

32 7. mars 2009
Asia 2006

Asian markets followed

Daily Q.J KSE [Bar, MA 14] Daily Q.STI [Bar, MA 14]
[Professional] [Professional] 29/11/2005 - 06/06/2006 (GMT)
09/12/2005 - 06/06/2006 (GMT)
Price
Price Q.STI , Last Trade, Bar
Q.J KSE, Last Trade, Bar 01/06/2006 2,394.36 2,416.73 2,381.09 2,389.54 SGD
01/06/2006 1,340.173 1,346.120 1,311.371 1,311.748 IDR
Q.STI , Close(Last Trade), MA 14
Q.J KSE, Close(Last Trade), MA 14 01/06/2006 2,455.75 2640
01/06/2006 1,392.317 1500 2620
1480
2600
1460
2580
1440
2560
1420
2540
1400
1380 2520

1360 2500
1340 2480
1320 2460
1300
2440
1280
2420
1260
2400
1240
2380
1220
1200 2360

1180 2340

1160 2320

1140 2300
1120
2280
1100
15 22 02 09 17 24 01 08 15 22 01 08 15 22 29 07 18 25 02 09 16 23 01 05 12 19 27 04 12 19 26 06 13 20 27 06 13 20 27 03 10 18 25 03 10 18 25 01
Dec 05 J an 06 Feb 06 Mar 06 Apr 06 May 06
Dec 05 J an 06 Feb 06 Mar 06 Apr 06 May 06

Jakarta Index Singapore Index

.. and likewise other Asian markets

33 7. mars 2009
Asia 2006

Asia on the verge

of
financial meltdown ?

34 7. mars 2009
 Asia 2006

Asia not on the verge of financial meltdown

Daily Q.OBX [Bar]
[Professional] 10/10/2005 - 08/06/2006 (GMT)
Price
Q.OBX, Last Trade, Bar
02/06/2006 320.22 329.34 320.22 328.47 NOK

390
380
370
360

• Sell-down was a global 350

340

equity markets affair, 330

320

including 310
300

Norway/Sweden, not an
290
280

Asian phenomenon
270
260
250
240
230
220
210

Norwegian SE 200
190
180
21 04 18 02 16 02 16 30 13 27 13 27 10 27 12 30
Oct 05 Nov 05 Dec 05 J an 06 Feb 06 Mar 06 Apr 06 May 06

35 7. mars 2009
Asia 2006

Asia has changed much

after the crisis

 Housekeeping improved
 Trade/current account surplus
 manageable foreign debt
 strong foreign reserves
 low inflation & interest rates
 stable currencies

36 7. mars 2009
Asia 2006

Asia has changed much

after the crisis

 Banking and financial sector

 After a period of consolidation and re-
capitalisation, has emerged stronger, NPLs
have fallen from the crisis high
 Despite high oil prices
 The macroeconomic fundamentals for Asia
still look good

37 7. mars 2009
 Asia 2006

2nd half '06, the markets recovered Daily Q.STI [Bar, MA 14]
[Professional] 22/04/2004 - 15/09/2006 (GMT)
Price
Q.STI, Last Trade, Bar
29/08/2006 2,447.51 2,454.71 2,446.60 2,450.06 SGD
Q.STI, Close(Last Trade), MA 14 2600
Daily Q.N225 [Bar, MA 14] 29/08/2006 2,456.50
[Professional] 12/05/2005 - 07/09/2006 (GMT) 2550
Price 2500
Q.N225, Last Trade, Bar
29/08/2006 15,881.92 15,946.42 15,811.73 15,890.56 JPY
Q.N225, Close(Last Trade), MA 14 17200 2450
29/08/2006 15,923.79
16800 2400
Daily Q.JKSE [Bar, MA 14]
[Professional] 08/04/2004 - 15/09/2006 (GMT) 16400 2350
Price
Q.JKSE, Last Trade, Bar 16000 2300
29/08/2006 1,424.972 1,427.642 1,418.760 1,426.761 IDR
Q.JKSE, Close(Last Trade), MA 14 2250
29/08/2006 1,417.271 15600
1500
2200
1450
15200
2150
1400 14800
2100
1350 14400
2050
1300 14000
2000
1250
13600
1950
1200
13200 1900
1150
12800 1850
1100

1050
12400 1800

1000 12000
S'pore SE 1750

1700
950 11600

900

850
Nikkei 11200
May Jul Sep
2004
Nov Jan Mar May Jul Sep
2005
Nov Jan Mar May Jul
2006
Sep

10800
800 Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep
2005 2006
750

Jakarta SE 700

650

May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep
2004 2005 2006

38 7. mars 2009
Asia 2006

2006 best year in more than a decade

Real GDP '05 '06
China 10.2 10.7
S. Korea 4.0 5.1
Taiwan 4.1 4.6
Hong Kong 7.3 6.8

Indonesia 5.6 5.5

Thailand 4.5 5.0
Malaysia 5.3 5.9
Philippines 5.1 5.4
Singapore 6.4 7.9
India 8.5 9.2
Vietnam 7.8 8.2
EMERGING ASIA 6.6 7.0

39 7. mars 2009
Asia 2006

… so was the stock markets

Start of 2006 End of Percentage
2006 Change for 2006
Ho Chi Minh 305 751 146%
Shanghai A 1223 2815 130%
Jakarta JSE 1,161 1,805 55%
India Sensex 9,422 13,786 46%
Philippines PCI 2,096 2,982 42%
Hang Seng 14,843 19,964 34%
Straits Times STI 2,369 2,985 26%
Malaysia KLCI 899 1,096 22%
Taiwan TWSE 6,457 7,823 21%
Nikkei 16,294 17,225 6%
S Korea KOSPI 1,383 1,434 4%
Thai SET 713 679 -5%

40 7. mars 2009
Asia 2006

.. and Asian Currencies !

Start of 2006 End of 2006 % Change
Thai Baht 41.00 35.42 13.60%
Indonesia Rupiah 9820 8986 8.49%
Korean Won 1008 929.50 7.79%
Singapore Dollar 1.6622 1.5335 7.74%
Philippine Peso 52.95 49.00 7.46%
Malaysia Ringgit 3.7790 3.5270 6.67%
Chinese Yuan 8.0682 7.8065 3.24%
India Rupee 45.08 44.26 1.82%
Taiwan NT 32.83 32.58 0.76%
HongKong Dollar 7.7509 7.7781 -0.35%
Vietnam Dong 15,913 16,051 -0.87%
Japanese Yen 117.90 119.01 -0.94%

41 7. mars 2009
 Outlook 2007/8

42 7. mars 2009
Asia 2007/08

Asia … continue to outstrip growth

rates in US, Europe and Latin
America

43 7. mars 2009
Forecasts 2007/8

World growth 2006 was 5.3%

• this year is expected to be weaker at 4.7%

2 of the largest engines of global growth

are expected to slow
• policy tightenings continue
• slump in US housing sector weighs on the overall economy

• US growth will slow from 3.3% in 2006

• to 2.2% in 2007

44 7. mars 2009
Forecasts 2007/8

GDP forecasts for 2007/8

Real GDP '06 '07 '08
China 10.7 9.8 9.1
S. Korea 5.1 4.4 4.5
Taiwan 4.6 4.2 4.4
Hong Kong 6.8 5.7 4.6

Indonesia 5.5 6.2 6.1

Thailand 5.0 4.0 4.6
Malaysia 5.9 5.8 5.6
Philippines 5.4 5.1 5.3
Singapore 7.9 4.5 4.4
India 9.2 8.3 8.0
Vietnam 8.2 7.2 7.0
EMERGING ASIA 7.0 6.8 6.5

Assuming oil price $64 (2007) and $63 (2008)

45 7. mars 2009
Asia 2007/08

Over last decade and a half,

despite Asian Financial Crisis,
Tian’anmen Square,
Terrorism, SARS,
e.t.c.

Here it is today,
the most dynamic growth region in the world,
with foreign reserves
in excess of USD 2.8 trillion

46 7. mars 2009
2007/08

As a result, MNCs will continue to seek a

higher proportion of their global revenue
in Asia
– especially in China and India –

than anytime in the last decade

47 7. mars 2009
 Looking Ahead

48 7. mars 2009
Looking Ahead

Key trends and issues ..

.. that will affect Asia’s growth and prosperity

49 7. mars 2009
Looking Ahead

The center of global economic gravity

will continue to shift to the Pacific

50 7. mars 2009
Looking Ahead

Asia has rock-solid fundamentals,

but also some serious challenges
• North Korea's nuclear ambitions
• High oil prices
• Bird flu
• Trade and currency disputes with the West
• Terrorism
• Tension across the Taiwan straits
• US – China relations

51 7. mars 2009
Strong Fundamentals

• Population 3.1 billion, 1/2 of world pop.

• pool of HR is young, hard-working, enterprising
• critical mass of demand and purchasing power
– total GDP US$ 9 trillion
• governments are pragmatic and pro-business

education conscious

52 7. mars 2009
Strong Fundamentals

• World highest savings rate

• ave. 30% of GDP, finance region’s investment

• Natural Resources
• Rich in natural resources

• Outward looking economic policy

• integration into global economy
• increasingly, dynamic private sector

53 7. mars 2009
 Key trends and issues

54 7. mars 2009
Key trends and issues

Axis of Evil - North Korea

55 7. mars 2009
Axis of Evil - North Korea

Kim Jong-il
• is an oppressive dictator
• a secretive cult figure with
missiles, chemical weapons
• a history of unpredictability
• his strategy
• until now, has been to
blackmail the West for
economic aid
• threatening to de-stabilise the
region through its nuclear,
missile & CB Warfare
programme

in the last decade, any aid given was abused – going to

military spending instead of feeding its people

56 7. mars 2009
 Axis of Evil - North Korea

On 9th October 2006

• In defiance of dire warnings
from US, China, Japan and
ROW, NK went ahead with a
nuclear bomb test

U.N Security Council

North Korea nuclear site

• On Oct 14th - UN Security

Council passed resolution to
impose sanctions and demand
that NK halt work on nuclear
arms development

57 7. mars 2009
Axis of Evil - North Korea

How useful are UN

sanctions ?
• China props up NK by providing most
of its external trade and investments
• 90% of NK's oil supplies

China wants peace and stability in the region, collapse of the

NK regime or a clash in the Korean peninsula would
• detrimental to its own growth, and the 2008 Olympic Games
• create a wave of refugees across its border
• or worst, unification led by Seoul would place American troops
right on the Chinese border

58 7. mars 2009
 Axis of Evil - North Korea
6 party talks
• China believes 6-party talks are a
realistic means of handling the issue
• Her priorities are
• NK regime survival
• Conciliatory NK behavoir
• NK regime reform

President Hu & President Roh

Japan PM Shinzo Abe Presdient Putin US Condoleezza Rice

59 7. mars 2009
 Axis of Evil - North Korea
6 party talks
• 1st round of talks were held in
Beijing on 18 Dec
• ended in stalemate
• Another was held on 13 Feb
• with heavy pressure from
China, produced an
agreement

Japan PM Shinzo Abe President Putin US Condoleezza Rice

60 7. mars 2009
Axis of Evil - North Korea
6 party talks
N. Korea agreed to dismantle its nuclear facilities in
return for up to one million tons of heavy fuel oil and
other economic and diplomatic benefits

• Shut down its nuclear facilites at Yongbyong within 60 days (deadline Apr 14th)
• It will get 50,000 tons of heavy fuel oil before the end of the 60 days deadline
• U.N nuclear inspectors are to be allowed to witness the process
• Afterwhich it will declare all nuclear facilities and disable them
• The agreement is an incentive system
• if N. Korea wants to receive all 950,000 tons within a year, it only has to finish the
disablement in a year. If it does in 2 yrs, it will be provided with the amount in 2 yrs
• Normalization between N.Korea and U.S. - Decision to removing N.Korea from its list of
"terror-sponsoring states"
• Normalization between N.Korea and Japan -- Discussion on historical issues including
Japanese kidnapped by N.Korea

61 7. mars 2009
Axis of Evil - North Korea
It's a good agreement, gives hope to diplomatic
solution … it's only the beginning of a long
long road to denuclearisation

Can we trust
him ?
Already, he has missed to Apr 14 deadline

62 7. mars 2009
Key trends and issues

Global trade and currency disputes

63 7. mars 2009
Global trade and currency disputes

Deficit is currently at 6.5% of GDP

Expected to be 7% in 2008 and 8% in 2010

64 7. mars 2009
Global trade and currency disputes

/.DXY, Last Trade [O/H/L/C Bar] Daily

07Jan02 - 26Feb04
• US administration
Pr
recognizes strong $
May 2002
120
118
116 policy is outdated
•
114
112 .. need to accept
lower $ as a means to
110
108
106
104
adjust the global
102 imbalances
100
98
96
• Since beginning
94
92
of 2002 year ..
90 trade weighted
index has fallen
88
2004 86

Mar02 May Jul Sep Nov Jan03 Mar May Jul Sep Nov Jan04 from 120 to 86 in
USD trade weighted index 2004

65 7. mars 2009
Global trade and currency disputes

The Dollar USD trade weighted index

(Jan 2002 – Current )

Weekly Q=USD [Bar, MA 14]

[Professional] 07/04/2001 - 13/03/2007 (GMT)
Price
120
118
116

 Although the USD had

114
112

staged a rebound in 2005,

110
108

this was short-lived and the

106
104
102

downtrend resumed in 2006 100

98
2005 96

 The weak USD trend will 94

92

likely continue into 2007-8 90

88
86
84
82
80
May Sep J an May Sep Jan May Sep Jan May Sep Jan May Sep Jan May Sep Jan
2001 2002 2003 2004 2005 2006

66 7. mars 2009
Global trade and currency disputes

2005, China removed the Yuan's peg against

the USD and revalued by 2%

 Small 1st step towards

greater Chinese and
Asian currency
strength

RMB could strengthen by at 3–5% every year

for the next few years

67 7. mars 2009
Global trade and currency disputes

• US lawmakers demand that the RMB be floated or

revalued … drafted a bill to impose heavy levy on all
Chinese import
• EU – ''Asian countries must share some of the burden of a
lower USD''
• IMF Chief Economist - .. … not just China but all the Asian
currencies …should appreciate, allowing themselves to
appreciate significantly against the dollar

In other words, Asian central banks should stop

manipulating currencies
to tilt terms of trade in their favour

68 7. mars 2009
Global trade and currency disputes

A bunch of Fed Reserve officials have joined the chorus

• Publicly opined that current acct deficit is not sustainable and
a gradually lower dollar is the desired solution
• We therefore expect that Asian currencies, particularly against the
USD, will rise substantially in the next 2 years
• Or prepare for a major global protectionist war

69 7. mars 2009
 Global trade and currency disputes

Collapse of the USD unlikely

 Overall, Asian
CBs will continue
to insure an
orderly
depreciation of
the USD through
continued
purchases of USD

70 7. mars 2009
 Key trends and issues

High oil prices

71 7. mars 2009
 Surging oil prices

US Crude
 If oil prices rebounds to US$ 80.00
and beyond …
 How will it affect growth in Asia?
 Which economies will be relatively more
vulnerable?

72 7. mars 2009
 Surging oil prices

Growth sensitivities and relative

US Crude
vulnerability

 3 channels oil prices affect GDP growth

 Tax to the consumer
 Higher import bill, declining trade balance with –
ve impact on investments
 Decline in exports due to slower global growth

73 7. mars 2009
 Surging oil prices

Impact on GDP for the various countries

 Korea, Thailand US Crude
and Taiwan are pp impact on GDP

most vulnerable
(reversed scale)
Scenario I: WTI at USD80
-1.4
Scenario II: WTI at USD90
-1.2
Scenario II: WTI at USD100
 For NOI, US$80 oil -1.0

price, sustained -0.8

for 6-12 mths, will

-0.6

-0.4
shave 0.3% off -0.2

GDP growth 0.0

 this is moderate, but 0.2

will pack more punch 0.4

Korea Thai Taiwan S'pore Phil HK China Indo M'sia NOI
when prices move to
USD90 and
USD100/bbl

74 7. mars 2009
Key trends and issues

Terrorism in SE Asia

75 7. mars 2009
Terrorism in South East Asia

• Jemaah Islamiah
• Terror organisation with
links to Al Qeda Australian Embassy in Jakarta
• Mission of JI is to
establish a pan-Islamic
caliphate in SE Asia
• de-stabilise the region

76 7. mars 2009
Terrorism in South East Asia

expect more incidents like Jakarta and Bali!

JI's spiritual leader –

Abu Bakar Bashir
Bali bomb blasts

In the long run …

 unlikely to succeed, but they can cause trouble and massive
disruptions which could rock investor sentiments in the region

77 7. mars 2009
Key trends and issues

Avian Flu

78 7. mars 2009
Avian Flu

• Vietnam, Thailand, Indonesia and southern China continue to

struggle with outbreaks of bird flu
• killed 168 people so far
• and let to the slaughter of >100m poultries
• Officials are moving quickly to quarantine each suspected
outbreak
• this should help prevent a major outbreak that would damage
economic growth

79 7. mars 2009
Avian Flu

• But in the last months, the risk of human-to-human

transmission of the deadly H5N1 strain of bird flu have
risen in Indonesia and Vietnam
• 7 members from the same family died, WHO has confirmed 3rd person pass-
through i.e. from person to person to person
• WHO is still investigating – meanwhile quarantined the whole village

.. the last time avian virus jumped

to humans was 1918, the Spanish Flu pandemic
– more than 40 mio people died compared to 8.3 mio in 1 WW st

80 7. mars 2009
Avian Flu

WHO experts have reached a number of firm conclusions

• The H5N1 virus has demonstrated considerable pandemic potential
• The world has moved closer to a pandemic than at any time since 1968.
• Based on the recurring pattern of past pandemics, the next one is
overdue.

81 7. mars 2009
Avian Flu

Are you prepared?

• Do you have Business Continuity Plan (BCP) if
specific countries or regions being quarantined
disrupts your supply chain?

82 7. mars 2009
Key trends and issues

Cross-Straits Relations

83 7. mars 2009
Unstable Cross-Straits Relations

Taiwan's champion for Independence

Ex-President Lee / President Chen

In a recent UN meeting, Singapore urged the int'l community

• 'not to allow the deteriorating relationship across the Taiwan Strait to
get out of control'

'The push towards independence by certain groups in Taiwan is most

dangerous because it will lead to war with mainland China
and drag in other countries'
• 'At stake is the stability of the entire Asia-Pacific region'

84 7. mars 2009
Unstable Cross-Straits Relations

Early last year …

• US moved away from its position of ''strategic ambiguity''
• Visiting US Secretary of State in Beijing said "There is only one China.
Taiwan is not independent. It does not enjoy sovereignty as a nation,
and that remains our policy, our firm policy."
• and that "Both sides …. look for ways of improving dialogue … move
forward toward that day when we will see a peaceful unification,"

85 7. mars 2009
Unstable Cross-Straits Relations

Chen shot back immediately …

• "Taiwan is absolutely a sovereign, independent
nation. It's a great nation, and it absolutely does
not belong to the People's Republic of China.
That is the present situation, that is the reality"

President Chen

Without intending to, Chen has stripped away his

pretence and put on record the status of Taiwan as
he frames it … and by extension his agenda towards
independence

86 7. mars 2009
Unstable Cross-Straits Relations

• China’s views are also crystal

clear
• China vowed to take Taiwan by force if Chen
goes ahead
• US, legally bound by Taiwan Relations Act (to
maintain capacity to resist use of force against
Taiwan) would be drawn into the fray

87 7. mars 2009
Unstable Cross-Straits Relations

In the event of War

• Rich costal provinces of Shanghai, Guangdong, Fujian, Jiangsu will bear
the brunt
• GDP could be slashed by 20 – 25%
• Foreign trade would be among the first casualties
• Current reserves of USD 1.2 trillion to help sustain the war
• Sell US treasuries to finance the war?

• Asia, indeed the world, would lose an important growth engine

88 7. mars 2009
Unstable Cross-Straits Relations

Chen in trouble
• Son-in-law is being charged for insider
trading and sent to jail
• Wife has been accused of accepting bribes
• Chen has offered to give up certain
powers to his PM
• Opposition is pushing to have him
President Chen recalled

Fighting for his political life, Chen is weak and unable to

pursue his cause. If his party loses the next presidential
election in 2008, we should see reduced tension
across the Straits.

89 7. mars 2009
Key trends and issues

China – US
Relations

90 7. mars 2009
 Sino-American relations

Not a question of 'if'

- but 'when'

 China will overtake Japan

as Asia’s largest economy
 to become world's 2nd largest
economy after USA
 2nd largest trading nation in
the world

91 7. mars 2009
 Sino-American relations

… this is
super-power economics

not to be taken lightly

92 7. mars 2009
 Sino-American relations

• Such strong growth comes with a price ..

• China in 2006 consumed est. 6.6 mio bpd of oil
• replaced Japan as world's 2nd largest consumer
• 2.9 mio bpd (44%) is imported
• By 2016, it will consume about 9.8 mio bpd
• likely to import 6 mio bpd (100% increase from today)
• it will be forced to even greater dependency on foreign
oil supplies

• Such energy needs carry massive geopolitical

implications
• The day may come when big consumers will have to
fight – literally, in the worst case scenario, for
supplies

93 7. mars 2009
 China and its energy needs

Increasing reliance on
imports

94 7. mars 2009
 Sino-American relations

• Not just energy

needs
• China’s hunger for
raw materials has
driven up global
commodity prices
• And it has an
aggressive strategy
in securing its
resource
requirements
around the world

95 7. mars 2009
 Sino-American relations

• Debates over how

soon oil production
will peak ..
• .. and the imminent
exhaustion of copper &
zinc within 14 and 11 yrs
respectively have become
more urgent
• Growing at the same
rate, China will press
against the limits of
some world resources
within the next decade

96 7. mars 2009
 Sino-American relations

Accumulated huge
amount of FX reserves
• 1st Qtr 2007 alone, fx
reserves rose USD 135bln
• taking the total to
USD 1.2 trillion

• Its current acct surplus

mirrors the current acct
deficit of the US

97 7. mars 2009
 Sino-American relations

 For the US, the key strategic issue in East

East is managing a rising China
… a great power will never voluntarily
surrenders pride of place
to a challenger

98 7. mars 2009
 Sino-American relations

Sept 2 0t h 2002

Bush's new doctrine

Paradigm change in US defence framework
 Strike first, Talk later
 alone if necessary

99 7. mars 2009
 Sino-American relations

It's an assertion of
US unilateralism
 reflects the unprecedented US global pre-eminence
Strategic thought underpinning the doctrine
challenges the world, not least China

100 7. mars 2009

 Sino-American relations

International Conference at Oxford University

eminent academics, historians, economists, global strategists

.. sober consensus that the Iraqi war has

much wider strategic aim

 cementing of US global supremacy

 removing any future threat to
America's oil supplies
 encircling China
 installing US-friendly 'democratic'
regimes across the Middle East and
Central Asia

101 7. mars 2009

 Sino-American relations

 US's interest is to
preserve the status  China's interest
quo, with US as the is to alter it in its
lone superpower favour

102 7. mars 2009

 Sino-American relations

This does not mean conflict is

inevitable
 China is facing  US needs
serious internal China's
political and support in its
economic anti-
challenges - terrorism
wants stable efforts/North
relations with the Korea
US

Sino-American relations
... if Asia is to prosper, stable S-A relations is a pre-requisite

103 7. mars 2009

 Asia 2010 - 2050

104 7. mars 2009

 Asia 2010 - 2050

The post-war era witnessed economic

miracles in Japan and S. Korea

But neither was populous enough to

power worldwide growth or change

105 7. mars 2009

 Asia 2010 - 2050
By contrast, China and India possess the weight and
dynamism to transform the 21st century global economy

Ave Growth
(1979-2006)
=9.4%

China's Growth

For past 2 decades, China grew 9.4% and India 6%

106 7. mars 2009

 Asia 2010 - 2050

Given their young population, high savings, and the sheer

catching up to do, they possess the fundamentals to keep
growing 7%- 8% for the next decades

107 7. mars 2009

 Asia 2010 - 2050

Never has the world seen the simultaneous takeoff of two

nations that together account for 1/3 of the
planet's population

108 7. mars 2009

 Asia 2010 - 2050

• India has 500m people

under age 19
• higher fertility rate than
China
• By 2050, India is
expected to have 1.6bln
people
• 220m more workers
than China

109 7. mars 2009

 Asia 2010 - 2050

Their share of world GDP will increase

from mere 5.6% to 18% in 2030

110 7. mars 2009

 Asia 2010 - 2050

At the expense of Japan and the EU

Share of global GDP

111 7. mars 2009

 Asia 2010 - 2050

Already, China and India have become important

growth markets

• 2006, China replaced Japan

as 2nd largest vehicle market
in the world (7.2m units).
By 2015, it should overtake
the US.
• China already has biggest
base of cell phone subs –
442m, and expected to
reach 600m in 2009
• This year, it will overtake
US in broadband home
connections (>79m subs)

112 7. mars 2009

 Asia 2010 - 2050

What makes the two giants especially powerful is that

they complement each other's strength

• ..with exports
topping USD 1.5trn
by 2010
• It one of the few
nations building
multi-billion-dollar
electronics and
heavy industrial
plants

113 7. mars 2009

 Asia 2010 - 2050

What makes the two giants especially powerful is that

they complement each other's strength

• India is a rising
power in
software, designs,
services and
precision
industries
• Such exports will
top USD 75bln by
2010

114 7. mars 2009

 Asia 2010 - 2050

China attracts more Foreign Direct Investments

• 2006, FDI was USD 65bln

• What holds India back
are
• bureaucratic red-tape
• rigid labour laws
• inability to build infra-
structure fast enough
• slow pace of reform
• This is changing steadily,
FDI last year was USD
12bln

115 7. mars 2009

 Asia 2010 - 2050

India has western legal institutions, modern stock

market and private banks and corporations.

• India’s banks have lower

non-performing loans

116 7. mars 2009

 Asia 2010 - 2050

China has 2x the per capital income of India

117 7. mars 2009

 Asia 2010 - 2050

China has 2x the per capital income of India

• But India will catch-up

• it has a younger
workforce
• Due to China’s one-child
policy, working age
population will peak at 1
billion in 2015 and then
shrink steadily

118 7. mars 2009

 Asia 2010 - 2050

By 2050, China and India combined could account for

50% of world’s GDP

• Barring major disasters

• Within 3 decades, India
should overtake
Germany as world’s 3rd
largest economy
• By mid-century, China
could overtake US as No. 1.
• Combined, they could
account for 50% of world’s
GDP

119 7. mars 2009

 Asia 2010 - 2050

The Bumpy Road Ahead

Both China and India have problems that
could cause serious disruptions
• Environment. Both are paying heavy ecological price for rapid
growth
• deteriorating air quality and growing water scarcity

• Political backlash over corruption, pollution and worker abuse

• Financial crisis if China’s banks are not whipped into shape
• Inadequate medical care for ageing population
• War – India and neighboring Pakistan or across the Taiwan
Straits

120 7. mars 2009

 Asia 2010 - 2050

The rise of China has thrown up 3 of the

greatest questions of our time

2. Can China translate its full potential into reality

without democracy?
• or will it collapse in the face of inevitable revolution?

121 7. mars 2009

 Asia 2010 - 2050

The rise of China has thrown up 3 of the

greatest questions of our time
2. Will the US be wise enough to keep its markets and the wider
world system open as this Chinese drama plays out?
• and in so doing accelerate the fundamental reforms that must
come to China
• or see China relapse into repression at home and nationalism
abroad

122 7. mars 2009

 Asia 2010 - 2050

The rise of China has thrown up 3 of the

greatest questions of our time

3. Set to overtake the US this year as the world's largest emitter of

greenhouse gases, will China shift its stand that global warming is
a problem for the rich nations to solve?

123 7. mars 2009

 Asia 2010 - 2050

Our prosperity, and even global peace

depend on the answers !!

124 7. mars 2009

 Asia 2010 - 2050

What is China thinking?

Q 1. Liberal democracy? No, not on the agenda.
• The CCP's long-term objective
is to retain power. It will justify
itself through
• strong economic growth, thus
delivering better living standards for
its people
• it's historic role in enabling China
regain pride and international
respect that has been lost since the
Opium War 1839-42.

125 7. mars 2009

 Asia 2010 - 2050

What is China thinking?

• To make it work, China has to adopt
an institutional infrastructure that can
Socialist support successful capitalism
Politics • Impartial courts to ensure Rule of
law
• Free (and responsible) press
Major
• Clear property rights
Challenge
• Effective corporate governance
• allows for independent auditors,
trade unions
Capitalist • Free intellectual inquiry
Economics • Properly functioning welfare
system

126 7. mars 2009

 Asia 2010 - 2050

What is the US thinking?

Q 2. Protectionism, contain China?
• Current Bush Administration
engages China
• The new Democrat-controlled
Congress is already threatening
trade sanctions
• Presidential candidates are
beating the protectionist
drums

• The 2008 Presidential Elections

will be critical

127 7. mars 2009

 Asia 2010 - 2050

Global warming

• China had argued strongly that

• it contributed only 8% of total CO2 emissions since 1850, while US 29%
and Europe 27%
• per capital emissions is 3.2 tonnes, while US is 20 and world average is 3.7
tonnes
• Advanced nations are to be blamed for the mess and should be
responsible for cleaning it up
• These nations should also offer substantial aid and free clean
technology to developing nations

128 7. mars 2009

 Asia 2010 - 2050

Global warming
• Its position has shifted in recent months
• its own water and air pollution is now the Air pollution, Inner Mongolia
worst in the world
• 20 of the world’s 30 most polluted cities
are in China
• large parts of China are short of water
• will become worse when glaciers on
Qinghai-Tibetan plateau continue to melt,
a vital source of fresh water for 750
million ppl in China, India and parts of
Asia
• left unchecked, rising tides will engulf
Shanghai, Tianjin and other coastal cities by
2050 when temp are expected to rise by 2 C.

129 7. mars 2009 Receding glacier, Szechuan

 Asia 2010 - 2050

Global warming
• Latest 5-year plan that runs till 2012, committed to
• ambitious goal of reducing CO2 emission by 4% a year
• increasing forest cover
• reducing China’s energy intensity by 20%
• This month, China signed an agreement with Japan to take
part in a framework for limiting global warming after 2012.

130 7. mars 2009

 Summary

131 7. mars 2009

 Summary

It's almost 10 years since Asian economies felt

this good

 Despite high oil prices, rising rates in the US

 GDP growth reached 7.0% in 2006, making it the most
dynamic region in the world
 average inflation remain low at 2.5%
 current acct post sizeable surplus of 4.5% of GDP
 forex reserves reached US$ 2.8 trillion

132 7. mars 2009

 Summary

This is set to continue into 2007/8

 Overall confidence is high, GDP expected to grow 6.8%
and 6.5% respectively

 1 – structural upturn in domestic

consumption
 2 - dynamic growth in intra-
regional trade

133 7. mars 2009

 Summary

 China is emerging as a major global player

 in the meantime, it's needs some cooling; wise and decisive
actions by competent leaders should avert disaster
 Oil prices beyond USD80/bbl will begin to bite
 Some countries will be more affect than others
 Asian currencies under pressure to re-value
 after removal of USD-peg by China and Malaysia

134 7. mars 2009

 Summary

 Geo-politics
 US-Sino relations
 possible conflict across Taiwan Straits
 Islamic extremist challenges in SEA
 N Korean's nuclear programme issue
 Looking ahead
 The tectonic plates that have defined Asia for the past half
centuries are moving. We looked out into 2010/2050, how
India and China could rise to become the central actors in
the global economy.

135 7. mars 2009

 The Asia Story

May 2007

136 7. mars 2009