1 Asian Drivers and Emerging Countries Standard Chartered London June 15th 2006 Javier Santiso Chief Development Economist & Deputy Director OECD Development Centre

2 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

3 Emerging Asia 8.0% GDP share of world output (WEO, 2004) EU 30.7% US 29.6% Korea&Japan 12.7% China 4.2% The cognitive impact: The emergence of new capitalisms. Center and Periphery rebalanced… LatAm 4.8% Asia represents more than one fifth of world output.

4 China has doubled its GDP in 8 years: a unique combination of economic pragmatism and catching up process…without the help of Money Doctors! Chinese growth rates has been higher than those observed in Brazil and Mexico during their glorious years. Source: based on WEO and PWT PPP per capita GDP in constant prices (thousand of US$, estimate)

5 Asia´s growth is based on an outward looking strategy: a development strategy to follow for Latin America and Africa. Source: IMF DOTS … and its share in world merchandise trade has duplicated in less than a decade. Source: WTO, National Statistics China’s trade openness surpasses that of all Latin American countries …

6 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

7 Some findings: The Good, The Bad and the Ugly. Countries specializing in the production and export of components, capital goods and raw materials feel positive effects from China’s growth while countries specialized in the production of consumer goods feel negative effects (Eichengreen & Tong, 2005). The exchange rate issue maters: a 20% appreciation of the renmimbi reduces exports to the US by a fifth, while other regions will increase their sales to that market (0.5% for Latin America) (Lopez Cordoba, Micco and Molina, 2005). Tout est pour le mieux dans meilleur des mondes? (Candide, Voltaire).

8 China´s strong demand for energy and commodities: a bonanza or a threat? Source: BBVA, Cochilco Source: JP Morgan estimates Source: BP

9 Source: C.HJ.Kwan, Nomura Institute of Capital Markets Research Source: Blázquez, Rodríguez and Santiso (2006) China’s demand for commodities: a bonanza or a threat?

10 China has become a major destination of Brazilian exports: The bonanza. Source: SECEX Source: BBVA Trade Balance with China p US$ millions Major countries of destination of Brazilian exports United States22,6%1ºUnited States21,1% Argentina11,2%2ºArgentina7,6% Netherlands5,4%3º Netherlands6,1% Germany5,3% 4ºChina5,6% Japan4,6%5ºGermany4,2% Italy3,8%6ºMexico4,1% Belgium3,8%7ºItaly3,0% United Kingdom3,0%8ºJapan2,9% France2,5%9ºChile2,6% Spain2,4%10ºFrance2,3% Mexico2,2%11º United Kingdom2,2% Chile1,9%12ºSpain2,1% Russia1,6%13º Belgium2,0% Paraguay1,6%14º Russia1,7% China1,4%15º Venezuela1,5%

11 Brazilian exports of primary products: more is not better (Dutch disease and monopsony power: issues to watch). Source: BBVA and Bradesco

12 1 The cognitive effect: new emerging capitalisms. The trade effect: the dark side of the boom. 2 China and India as a wake up call. 3

13 China competes intensively with Mexico on a global level Source: Blázquez, Rodríguez and Santiso (2006)

14 11,700 Km Lower transport and communication costs Access to FTA Just-in-time delivery Mexico is more competitive in manufacturing more sophisticated products which require frequent communication with the client or supplier and short reaction times. Shipping time 24 Days 160 Km 4 Days Mexico benefits from its geographic proximity to its major export markets: Mexico’s competitive advantage: proximity to export markets

15 Source: US Census Bureau, CIBCWM (2005) * Total expenditure on freight as a share of total imports of commodity, average for all countries Source: CIBCWM (2005) México vs. China at different oil prices Mexico’s competitive advantage: lower transport costs US imports from China tend to be more transport sensitive than from Mexico. Could transport savings offset Chinese lower wages ?

16 Pending reforms : the upgrade of port facilities

17 Conclusions: A Watch List Africa and Latin America: Out of the Value-Chain Game? The share of China’s total exports produced by foreigners has risen sharply, from 32% to 60% between 2000 and Foreign outsourcing is becoming a major driver of India’s and China’s high tech exports, both countries moving up quickly in the value added ladder. In 2005 for example, of China’s top 100 exporters, 53 were foreign companies and all were electronics/information technology companies.