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EASTWARD SHIFT IN BALANCE OF ECONOMIC POWER Unit I Part II.

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Presentation on theme: "EASTWARD SHIFT IN BALANCE OF ECONOMIC POWER Unit I Part II."— Presentation transcript:

1 EASTWARD SHIFT IN BALANCE OF ECONOMIC POWER Unit I Part II

2 Power is relative  US most powerful…  But so were GreeK, Portuguese and English..  Economic downturn brought the empires down..  US may lose its position because:  Its internal indebtness  Immobility of labor and  Most of all because the strenght of Asia is rising..

3 A general view of world…  If the World Were a Village of 100 People_ A Story About the World's People_(360p).flv If the World Were a Village of 100 People_ A Story About the World's People_(360p).flv  61% Asians  >40% in terms of popular languages

4 Recent changes in  Economic Power  Education System  Cultural space  International Organizations  Global economic power shifting to Asia_(360p).flv Global economic power shifting to Asia_(360p).flv

5 Importance of East  Widening of market.. accounting for a record share of many companies' profits… potential buyers.. A few cos…

6 Asia accounts for around one-third of world retail sales  Figures from the Economist Intelligence Unit, a sister company of The Economist, suggest that Asia accounts for around one- third of world retail sales (2010-11).  Asia is now the biggest market for many products, accounting for 35% of all car sales last year and 43% of mobile phones.  Asia guzzles 35% of the world's energy, up from 26% in 1995. It has accounted for two-thirds of the increase in world energy demand since 2000  A rising consumer class also will drive innovation.

7 Asia's share of the world economy  If GDP is instead measured at purchasing-power parity (PPP) to take account of these lower prices;  Asia's share of the world economy has risen more steadily, from 18% in 1980 to 27% in 1995 and 34% in 2009.  By this gauge, Asia's economy will probably exceed the combined sum of America's and Europe's within four years.  In PPP terms, three of the world's four biggest economies (China, Japan and India) are already in Asia, and Asia has accounted for half of the world's GDP growth over the past decade.

8 Investment Magnets…  In 2009, 40% of global investment (at market exchange rates) took place in Asia, as much as in America and Europe combined.

9 Asian tigers compared to Old America  China and India, by contrast, possess the weight and dynamism to transform the 21st-century global economy.  The closest parallel to their emergence is the huge young and self driven workforce.  What's more, Chinese and Indian consumers and companies now demand the latest technologies and features.  Studies show the attitudes and aspirations of today's young Chinese and Indians resemble those of Americans a few decades ago

10 India and China: the global powers  But in a way, even America's rise falls short in comparison to what's happening now.  Never has the world seen the simultaneous, sustained takeoffs of two nations that together account for one-third of the planet's population.  For the past two decades, China has been growing at an astounding 9.5% a year, and India by 6%.  Given their young populations, high savings, and the sheer amount of catching up they still have to do, most economists figure China and India possess the fundamentals to keep growing in the 7%-to-8% range for decades.

11 Tremors in US  Little wonder the West is suffering from future shock.  Each new Chinese corporate takeover bid or revelation of a major Indian outsourcing deal elicits howls of protest by U.S. politicians.  Washington think tanks are publishing thick white papers charting China's rapid progress in microelectronics, nanotech, and aerospace -- and painting dark scenarios about what it means for America's global leadership.

12 The real SHIFT  American business isn't just shifting research work because Indian and Chinese brains are young, cheap, and plentiful.  As Cisco's Scheinman puts it: "We came to India for the costs, we stayed for the quality, and we're now investing for the innovation."

13 And the population…  But India's long-term potential may be even higher. Due to its one- child policy, China's working-age population will peak at 1 billion in 2015 and then shrink steadily.  India has nearly 500 million people under age 19 and higher fertility rates.  By mid-century, India is expected to have 1.6 billion people -- and 220 million more workers than China.  That could be a source for instability, but a great advantage for growth if the government can provide education and opportunity for India's masses

14 Students and Professional…  One implication is that the balance of power in many technologies will likely move from West to East.  An obvious reason is that China and India graduate a combined half a million engineers and scientists a year, vs. 60,000 in the U.S  As most Western scientists will tell you, China and India already are making important contributions in medicine and materials that will help everyone.  Because these nations can throw more brains at technical problems at a fraction of the cost, their contributions to innovation will grow

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16 Critical Analysis  Yet a closer look at the figures suggests that the shift in economic power from West to East can be exaggerated.  Thanks partly to falling currencies, Asia's total share of world GDP (in nominal terms at market exchange rates) has actually slipped, from 29% in 1995 to 27% last year.  In 2009 Asia's total GDP exceeded America's but was still slightly smaller than western Europe's (although it could overtake the latter this year).  To put it another way, the output of the rich West is still almost twice as big as that of the East.

17 The Exports..  As for the popular belief that Asian producers are grabbing an ever-larger slice of exports, the region's 31% share of world exports last year was not much higher than in 1995 (28%) and remains smaller than western Europe's.  Indeed, the shift towards Asia appears to have slowed, not quickened.  Although China's share has grown since then, this has been largely offset by the decline in Japan, whose share of output and exports has halved.

18 The bulk of private-sector wealth still lies in the West  What about Asia's financial muscle?  Asian stockmarkets account for 34% of global market capitalisation, ahead of both America (33%) and Europe (27%).  Asian central banks also hold two-thirds of all foreign- exchange reserves.  The bulk of private-sector wealth still lies in the West.  The fact that Asian currencies make up only 3% of total foreign-exchange reserves indicates how far Asia still lags in financial matters.

19 Many currencies tumbled during the Asian financial crisis in the late 1990s  The “rise of Asia” is no myth, however, GDP figures converted at market exchange rates understate Asia's real expansion.  Many currencies tumbled during the Asian financial crisis in the late 1990s, slashing the dollar value of their economies.  Japan's nominal GDP has been squeezed by deflation.  More importantly, prices of many domestic products, from housing to haircuts, are always cheaper in low-income countries, implying that households' real spending power is bigger.  Indian foreign exchange rate is at its low…

20 Population v/s consumption  Although over three-fifths of the world's population live in Asia, they only account for just over one-fifth of global private consumption, much less than America's 30% share.  But official figures almost certainly understate consumer spending in emerging Asia, because of the poor statistical coverage of spending on services.

21 Till when is the boom..  Today, China and India account for a mere 6% of global gross domestic product -- half that of Japan.  They must keep growing rapidly just to provide jobs for tens of millions entering the workforce annually..  Both nations must confront ecological degradation that's as obvious as the smog shrouding Shanghai and Bombay, and face real risks of social strife, war, and financial crisis.  Also, with wages rising fast, especially in many skilled areas, the cheap labor edge won't last forever.  Both nations will go through many boom and harrowing bust cycles. And neither country is yet producing companies like Samsung, Nokia

22 China and Dictatorship..  China has yet to prove it can go beyond forced-march industrialization. China directs massive investment into public works and factories, a wildly successful formula for rapid growth and job creation.  But considering its massive manufacturing output, China is surprisingly weak in innovation.  While China's big state-run R&D institutes are close to the cutting edge at the theoretical level, they have yet to yield many commercial breakthroughs.  "China has a lot of capability," says Microsoft Chief Technology Officer Craig Mundie. "But when you look under the covers, there is not a lot of collaboration with industry."  The lack of intellectual property protection, and Beijing's heavy role in building up its own tech companies, make many other multinationals leery of doing serious R&D in China.

23 The wastage…  China also is hugely wasteful.  Its 9.5% growth rate in 2004 is less impressive when you consider that $850 billion -- half of GDP -- was plowed into already-glutted sectors like crude steel, vehicles, and office buildings.  Its factories burn fuel five times less efficiently than in the West, and more than 20% of bank loans are bad.  Two-thirds of China's 1,300 listed companies don't earn back their true cost of capital, estimates Beijing National Accounting Institute

24 Efficiency… the requirement  India, by contrast, has develop amidst scarcity.  It gets scant foreign investment, and has no room to waste fuel and materials like China.  India also has Western legal institutions, a modern stock market, and private banks and corporations.  As a result, it is far more capital-efficient

25 Whats on cards!!!!  In the coming decades, China and India will disrupt workforces, industries, companies, and markets in ways that we can barely begin to imagine.   The upheaval will test America's commitment to the global trade system, and shake its confidence.  In the 19th century, Europe went through a similar trauma when it realized a new giant -- the U.S. -- had arrived.  "America should be as open-minded as Europe was 100 years ago." How these Asian giants integrate with the rest of the world will largely shape the 21st-century global economy

26 Here is India: the eastern shift flagrunner..  jagdish bhagwati_India_ What's All the Hype About__(360p).flv jagdish bhagwati_India_ What's All the Hype About__(360p).flv


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