2. The rebalancing of China, India, and Emerging Asia.
Today’s Topic
The rebalancing of China, India, and Emerging Asia.
Lewis Economic Theory
The China Story
The India Story
Introduction of ASEAN
Asian Investment Strategy

3. A Theory of Economic Growth
Arthur Lewis (1915 – 1991)
Nobel Prize Winner in Economics in 1979
Introduced the “Lewis Model” in 1954
The “Lewisian Turning Point”
If an economy has a young work force and policy that invests into that, growth will develop and at a particular point will become self-sustaining.
Has become widely associated with the economic development of China.

4. Lewisian Turning Point & China
Economy in China in 1992:
Average age of worker: 23
Real annual growth rate: %
Share of employment by SOEs: >60%
Ranking by Nominal GDP: 11th (1990 est)
Economy in China in 2012:
Average age of worker: 37
Real annual growth rate in Q2 of 2012: 7.6%
Share of employment by SOEs: <20%
Ranking by nominal GDP: 2nd

5. The China Story Economy is being re-balanced
Shift from over-dependence on export driven and cheap manufacturing to consumer driven economy
China is aging with 180 million people older than 60 now, and estimated to reach 248 million in 8 years (source: China State Council)
Workforce is getting more expensive; shifting policies to benefit the local labor pool
Minimum wage increasing in most provinces
Social welfare costs for businesses increasing
Evolving middle class about 247 million, 18.2% of population (source: WSJ)
Middle Class growing rapidly, estimated to be over 600 million by 2020 (source: WSJ)
Demand for better quality and more choices
Cheap manufacturing relocating to other areas of Asia

6. China’s Growth part 1 Growth Moving Inland 2012 H1 Results:
Top 5 Cities
H1 GDP Growth
Tianjin
14.1%
Xining
Chongqing
14.0%
Lanzhou
13.4%
Xiangyang
13.2%

7. Growth now coming from the 4th, 5th, and 6th Tier Cities.
China’s Growth part 2
Growth now coming from the 4th, 5th, and 6th Tier Cities.
Chinese City
Population
US equivalent
European equivalent
Mianyang
782,000
San Francisco
Munich
Neijiang
696,000
Detroit
Athens
Luzhou
668,000
Memphis
Frankfurt
Nanchong
621,000
Boston
Bern
Zigong
601,000
Seattle
Genoa
Panzhihua
562,000
Oklahoma City
Copenhagen
Leshan
459,000
Kansas City
Gothenberg
Suining
428,000
Atlanta
Sheffield
Yibin
350,000
Cleveland
Tampere
Luxembourg
Growth in China is now coming from the 4th, 5th and 6th Tier Cities
Upgrading not to LV and Porsche, but to better quality groceries, electronics, and from cheap domestic brands to more
upmarket items such as Nike, Starbucks, McDonalds, and items from WalMart, Carrefore etc.
Estimated number of 4-6 tier cities = 500
China’s slowdown is east coast only and real growth is now inland.
China is now becoming a consumer driven society
Estimated number of 4-6th tier cities is around 500.
KFC China now has more than 3,000 stores in nearly 700 cities.
Upgrading from cheap domestic brands to up-market items (i.e. Adidas, Starbucks, Imported Wines, shopping at Carrefour etc)

8. The China Story Takeaways
The 1st and 2nd tier cities are becoming aligned with Western standards.
The growth has shifted inland to the 3rd to 6th tier cities.
China’s “slowdown” of 7% GDP is on eastern coast
Central and western China grew at 9.2% in 2011.
China’s domestic demand is evolving and blossoming.
It is a diverse market that requires localized detail
Cheap manufacturing is moving within
China and across Asia.

10. The India Story Average age of Indian worker today: 23
Predicted to embark on a similar growth trajectory that China did 20 years ago, with one big difference: India’s already has a middle class consumer market of million.
Consumer market to grow at 5% to 10% annually.
GDP growth rate is at 6% (2011), and set to increase to 8% in 2013.
Able to provide labor intensive manufacturing, as well as domestic consumption.

11. Will see a partial shift from “Made in China“ to “Made in India”
Understanding India in the China context
Similar Population size
China: 1,343,239,932 (July 2012 est.)
India: 1,205,073, 612 (July 2012 est.) source:
Similar size middle class of around 250 million
India’s growth dynamics are still in 1st to 2nd tier cities
Infrastructure is the opportunity, with government incentives
FDI reform occurring, markets being liberalized
Will see a partial shift from “Made in China“ to “Made in India”

12. India vs. China
The two economies revolve around two, completely separate political ideologies.
Indian Democracy
Free and Noisy Media
Lively Debate
Independent from business
Entrepreneurial
Chinese Communism
Censorship
Gov’t Imposition
Involvement in business
Political
Both work, but in very different ways.
India is less bureaucratic than perceived vs. China is more political than perceived.
Not one or the other, but both.

13. The India Story Takeaways
Infrastructure is the Opportunity
Not as poor or as derelict as perceived.
Growth improving and set to be 8% plus from 2015
Consumer Middle Class same size as Chinas’
Indias’domestic demand is evolving and blossoming.
It is a diverse market that requires localized detail
Cheap manufacturing and services
are moving to India.

14. ASEAN – Association of Southeast Asian Nations
Comprises of 10 Asian Countries: Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
Free Trade Zone of 600 million people, with zero tariffs on all products and services by 2015.
GDP: USD 1.8Trillion (2011 est.)

15. ASEAN’s impact upon China and India
EU is negotiating individually with ASEAN members
EU has 1985 agreement with China, slowly being upgraded
EU possibly to sign FTA with India end of this month
China has a FTA with ASEAN on 7,000 products
India has a FTA with ASEAN on 4,000 products
ASEAN has signed FTAs with China, Australia, New Zealand, Japan and S. Korea.
New RCEP Agreement including China being negotiated
Asia’s regional focus with shift to Singapore
TPP kicking in affects Vietnam in particular
ASEAN FTA by 2015, creates a market in total of 3.8 billion consumers, including 700 million of middle class standard.

17. Asian Investment Strategy
China - manufacturing for local markets, increasing opportunities for sale of products
India- manufacturing for local and export markets, increasing opportunities for sales of products
Vietnam, Indonesia, Thailand - manufacturing for export markets across ASEAN FTA nations (RCEP) and beyond

18. Suggested Regional Structure for China, ASEAN, and India
Subsidiaries in China and/or India for local markets
Domicile Regional Office in Singapore (services & tax)
Manufacturing in ASEAN for export markets, including free trade with China, India, Japan, S. Korea and Australiasia.

19. UOB Bank Singapore
“Intra-Asian Trade Flows to Help Global Economy Top US$100 Trillion by 2020”
Fastest growing bilateral trade corridors:
China-India
China-Asia
China-Africa
China-EU
China-U.S.
Singapore is in the centre of this trade & supply chain.

20. Asia Briefing Ltd.
Our subsidiary Asia Briefing Ltd. has published legal, tax and investment information since 1999 about doing business in China, India, Vietnam, Hong Kong, and Russia.

21. Welcome to Emerging Asia Welcome to Dezan Shira & Associates
Q&A
Welcome to Emerging Asia Welcome to Dezan Shira & Associates
For inquiries:
Chris Devonshire-Ellis