1. Global Demand after the Crisis

2. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE STRATEGIES
CRISIS MODELS

3. Chimerica : no independent ‘rise of the rest’.
Accounts for over 60% of the world’s cumulative growth for the past 5 years.
Emerging periphery relied
on final demand in the G3.
CORE Accumulated earnings were
recycled back to the core.
Financial innovation
channeled the credit supply
to residential investment,
fueling a housing asset
boom which boosted
consumption.
Export-led growth allowed
PERIPHERY for rapid industrialization
and urbanization in
emerging Asia, prompting
large spikes in commodity
prices.

4. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE STRATEGIES
CRISIS MODELS

5. The current crisis: Chimerica has temporarily collapsed.
There are four major uncertainties leading from the crisis. Each uncertainty may have
legacy effects that can move the world permanently away from Chimerica.
Changes in
composition of final
consumption
behavior

6. Legacy effect one: rising public debt
Sustained financing of this debt may break down.
Raises
probability of
country default.
Move from LT to
ST debt.

7. Legacy effect two: increased government intervention
Intervention may stifle innovation and future growth.
The greater
regulatory oversight
and tighter lending
standards may stunt
future growth in
startups and cause
technological
innovation to slow.
In the long run, this
may induce a severe
rollback in private
consumption
demand as long-run
growth slows with
declining innovation.

8. Legacy effect three: persistent protectionism
“Buy America” and beggar thy neighbor exchange rate policies may spark a
trade war.
The enactment of the
Smoot Hawley Act in the
1930s sparked a rapid
downward spiral in global
trade.
Competitive devaluation
and non-tariff barriers may
trigger retaliatory action.

9. Legacy effect four: G3 consumption changes
G3 consumers are saving more in response to a downturn.
US consumers
accounts for 70%
of US GDP.
Failure of the US
stimulus package
could lead to
sustained
negative growth
and bleak long-
term employment
prospects in the
US. This may, in
turn, entrench
savings habits.
Source: US Council of Economic Advisors

10. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE STRATEGIES
CRISIS MODELS

11. Post-crisis: three demand models
Snakes and Ladders transition. The dice is rolling …Where will we end up?
MODEL C
MENAGERIE
PRE-CRISIS
CHIMERICA
MODEL A
WOUNDED
BEAST
MODEL B
CHASM

12. WOUNDED
BEAST
WB No fundamental shift from
Chimerica occurs.
Developed countries
continue to power growth.
15 SEPT. 2008 at THE G3
Emerging Asia continues to
fund G3.
PERSISTENT GOVT DEBT
FRAGILE BALANCE SHEETS However this is not a return
to the status quo. This is a
FUTURE ASSET BUBBLES
transitory model.
RESOURCE VOLATILITY
The world is plagued by
more volatility as
imbalances are
exacerbated.
Wounded
Beast Each subsequent crisis
weakens this model.
High cost, High growth,
High volatility.
Key message: Resilience

13. CROSSING
THE CHASM
The world sees a
sustained shortfall in G3
demand.
Rising Asia looks inward
towards domestic
demand, but this may not
be fast enough to restore
world growth to previous
levels.
The period of adjustment
could be painful and might
take decades.
How can we grow in this
model?
High cost, low growth, low
volatility.
Key message: Survival

14. Chasm: consumption in emerging Asia
How fast can Asian consumers become a source of final demand?
The middle class is
projected to surge –
particularly in developing
countries and Asia.
But it may take decades for
37 Years consumption in emerging
Asia to drive global
2.1%
demand.
Consumption* in 2007
If…
China and India could be
• World GDP grows at 4%,
beset with political and
• China’s GDP grows at 9%,
social unrest.
• China’s consumption share
of its GDP grows at 1% 17.5%
Consumption in 2007
*as a percentage of world GDP

15. $1,400
MENAGERIE
43
bil $4,500
mil
$200bil
$500bil bil
36
$110bil
4mil
mil
This is the emergence of
100
mega-city regions in Asia as
46 mil
mil
sophisticated, self-sufficient
centers of final demand.
Automobiles
electronics
66 mil
Regions could grow by
$130bil $430bil
Highly innovative High tech innovation, mfg,
complementing each other,
companies, finance, design
electronics, 18
or through inward-looking
telecoms, flat mil
120 mil
panel displays
development.
$220bil
45 mil
How can we be
$50bil
irreplaceable in Asia’s
future?
$130bil
72 mil
High cost, High growth, low
20mil
Semiconductor
volatility.
$100bil
production facilities
19 mil
$50bil
*The orange bar is Light Regional Product,
62 mil
using satellite data of the light emitted at
night. Higher concentration of light is
$60bil correlated with stronger economic production.
Data on regional economic production is not
$100bil
comprehensive, so this proxy is useful for
6mil
comparison.
R Florida’s “Who’s your City?”
Disk drive, niche in S&T, top Western Universities,
creative center, high culture and street culture, top
Key message: Relevance
destination for all lifestyles

16. Menagerie: Pearl River Delta snapshot
How fast can they shift gears from servicing exports to their domestic market?
PRD excluding HK, Macau (2007 figures)
¥711 bn
GDP pp RMB 53,820, or 2.8 times national average
10 mil
3.6% China’s population but 8.8% of national retail sales
3.8 mil
¥60 bn
Trade, MICE
Mfg in auto parts ..
¥361 bn 7 mil ¥315 bn
F&B products
6 mil 4 mil
¥111 bn
Mfg in industrial ceramics… Mfg in laser diodes, electronics…
Mfg in electronics …
¥681 bn
8.6 mil
2.5 mil ¥123 bn ¥2,002 bn
Mfg in lighting, motorcycles… Logistics, Financial Center
Mfg in electronics, computers..
¥90 bn
4.5 mil ¥111 bn 7 mil
1.5 mil
Port
¥110 bn
Petrochemicals, Machinery 0.5 mil Financial, MICE, Business Svc, Port, Intl airport Center…
Entertainment, MICE Center

17. WHAT IS CHIMERICA?
FOUR UNCERTAINTIES
WHAT MIGHT GLOBAL DEMAND
LOOK LIKE AFTER THE CRISIS?
THREE POST-
FIVE STRATEGIES
CRISIS MODELS

18. Five strategies: preparing for the shift away from Chimerica
Some suggestions …
Strategy Most important for
WOUNDED BEAST
Coping with increased
volatility and resource
scarcity Food
Energy Metals Water Scalable
&Minerals
Ensure resource security Infrastructure
Tapping on emerging
CROSSING THE CHASM
Asia’s sub-economies
Diversify from G3 final demand
Urban Public sector
Rural
Consumption investment
Consumption
Generating through flow MENAGERIE
of consumers
Tap on foreign consumption
Finishing school
Youth culture
Fertility Treatment Film, TV, anime
Baby Education Manga culture
MENAGERIE
Building niche capabilities
Irreplaceable in Asia’s future
New agriculture New aquaculture
Building our hinterland MENAGERIE
Tap into hinterland final demand
Integrate with immediate region
with transport infrastructure.

19. http://futuresgroup.wordpress.com