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As a general rule the most successful man in life is
the man who has the best information
“How soon will the Chinese natural resource
demand decrease? The Chinese population is significantly larger than every
individual country’s population in the world (except India).” Is China the New North? Assessing the Impact of Chinese Trade with
Latin America, Brookings Institution
“In terms of long-term structural trends, demand
is now driven by an urbanization process that is far more structural than
consensus generally believes. On our analysis, China is only 20 to 25 per
cent along the path towards being a mature materials market and it may take
at least six to nine years before demand intensity peaks.” Andrew Keen, Thorsten Zimmermann and Lourina
Pretorius, analysts at HSBC
BCG Consulting says China is expected to become the
world's second largest consumer market by 2015 and by 2020 China’s
consumer consumption nation-wide will amount to 22 percent of total global
consumption, behind only the U.S. at 35 percent. The expected transition from
an investment led economy to a more consumer focused model will bring about
continued growth.
The McKinsey Global Institute projects that India's
middle class will grow to 583 million people in the next two decades. At the
same time, the country will advance from the world's 12th largest consumer
market to the fifth largest.
Africans, on a per capita basis, are richer than
Indians and a full dozen African states have higher gross national income per
capita than China.
Today Africa has 14% of the world’s population
and by 2050 one in every four people on the planet will be African - by 2027
Africa will have more people than does China or India.
The New Silk Road
Over the last few years the economic cycles of
developed economies have become disconnected from the cycles of the
developing world. A crisis in the US or Europe does not hurt development in
Africa, India or China as much as many believe. That’s because
there’s been a shift in global trade taking place with developing
countries increasingly interacting with each other instead of their old
trading partners, the developed nations.
“A network of new “South-South”
trading routes connecting Asia, the Middle East, Africa and Latin America are
set to revolutionize the global economy. Trade and capital flows between
emerging areas of the world could increase tenfold in the next forty years.
In the same way that trade between the developed nations exploded in the
1950s and 1960s, we expect the 21st Century to see turbocharged trade growth
between the emerging nations."
HSBC Global Research
“In all trade corridors in which China
participates, strong growth is anticipated. So strong in fact that it is no
exaggeration to highlight this as the emergence of a new world trade order;
by 2030, China will effectively be fulfilling the
central trade role occupied by the US and the EU today. Having said that, the
importance of India should not be underestimated – particularly for
trading partners in MENA, the Association of Southeast Asian Nations (ASEAN)
and Africa.” The Super-Cycle Report, Standard Chartered
Research 2010
Today the:
- BRIC
countries; Brazil, Russia, India and China
- CHIME
group of countries; China, India, Middle East
- MENA
group; Middle East and North Africa
- GCC, the
Gulf Co-operation Council; Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain
and Oman
- ASEAN, The
Association of Southeast Asian Nations is a geo-political and economic
organization of ten countries located in Southeast Asia - Indonesia,
Malaysia, the Philippines, Singapore and Thailand, Brunei, Burma
(Myanmar), Cambodia, Laos, and Vietnam.
Are defining world trade.
Indonesia will soon be added to the CHIME group.
India
After reaching $60 billion in 2010, bilateral trade
with China is expected to reach $70 billion in 2011 and up to $100 billion by
2015.
“The report also confirms the shift in
India’s trade patterns that we have been witnessing. Trade with the
West Asia corridor, China and a few Latin American countries is expected to
be higher than India’s traditional large trading partners the US and
Europe.” Bhriguraj
Singh, HSBC India, talking about the HSBC trade forecast survey
A just concluded trade deal between India and
Pakistan has been called historic. India has also been trying to engage its
other neighbors in the region, Afghanistan, Nepal, Bangladesh, Myanmar and
Sri Lanka on a commercial basis.
Currently intra-region trade, at $5 billion,
accounts for just five percent of the goods trade total. A World Bank report,
published last year, estimated intra-region trade could grow to $20 billion.
A Free Trade Agreement (FTA), signed in August 2009
with 11 ASEAN member countries became operational in 2010 and will lift
import tariffs on more than 80 percent of traded products between 2013 and
2016,.
"FTA has opened up more opportunities for
Indian industries in terms of greater market access for their products in the
ASEAN region." Federation of Indian Chambers of Commerce
and Industry (FICCI) survey
Africa
Africa's top trading partners, in terms of bilateral
trade volume, are China,
India, Brazil, South Korea and Turkey.
Africa's trade with emerging countries has doubled
to 40% of its total trade volume. In 2009, China overtook the United States
as Africa's top trading partner.
Manufactured goods represent a growing portion of
the products emerging countries import from Africa.
ASEAN
ASEAN is the third-largest trading partner of China
and China-ASEAN imports and exports totaled USD 171.09 billion in the first
half of 2011, up 25.5% from the end of the first half of 2010.
With a GDP of $1.7 trillion and 591 million people,
ASEAN has concluded free trade agreements (FTA) with China, India, Korea,
Australia and New Zealand. The ASEAN group has also completed a Trade and
Investment Framework Arrangement with the US and is negotiating other trade
and investment agreements.
The ASEAN-China FTA represents an estimated 1.9
billion consumers.
Arab League
China's trade with Arab countries is growing by 30
percent annually - over the past five years trade between China and Arab
states has increased from US$65 billion to $145 billion.
"The United Arab Emirates (UAE) will emerge as
India’s largest trading partner with trade volumes estimated at $103.6
billion overtaking China, which was largest trading partner in 2010." HSBC trade forecast survey
Iran
When the current Iranian calendar year ends annual
trade between Iran and China will be worth $45 billion. The Iran-China trade
was worth $30 billion in the last Iranian year. China is Iran’s biggest
oil buyer.
India and Iran have agreed to set up a payment
mechanism to facilitate bilateral trade and resolve the payment crisis for
oil imports as well as exports. Iran is India’s second largest oil
supplier supplying 12 per cent of India’s needs.
Turkey
HSBC’s Trade Connections report says “Turkey is one of the
world’s fastest growing economies and trade is forecast to grow 109
percent by 2025.”
Turkish-Russian trade will increase by 123 percent
and Turkish-Chinese trade by 125 percent
in the same period, taking the volume of exchanged goods to USD 541.3
billion by 2025, up from its 2010 level of USD 266.1 billion.”
Trade with India will rise 7.09 percent.
Korea
China is South Korea’s biggest trading partner
and bilateral trade between the two countries has increased at an average
annual rate of 22 percent. In the first half of 2011, China accounted for 22
percent of South Korea’s total foreign trade, compared with a record
low nine percent for the US.
South Korea saw a combined trade surplus of $18.8
billion last year with Chile, Singapore, the European Free Trade Association
(EFTA), India and the Association of Southeast Asian Nations (ASEAN).
Russia
Trade between Russia and China could reach $70
billion in 2011 and $200 billion by 2020 according Russian Prime Minister
Vladimir Putin.
Russia is close to sealing an energy supply
agreement with China worth one trillion dollars for up to 68 billion cubic meters
of gas every year.
China and Russia recently opened an oil pipeline
from Daqing in northeast China to Skovorodino in eastern Russia. The line is 1,000
kilometers (621 miles) long and yearly capacity is 15 million tonnes.
The volume of Russian-Indian trade, in 2010,
increased by 14.4% compared with 2009 and amounted to $8.5 billion.
In 2010, India was 18th among foreign trade partners
of Russia, while Russia was listed 29th among foreign trade partners of
India.
Latin America
China's trade with Latin America is growing twice as
fast as U.S. trade with the region.
In 2007, Latin America's trade with China topped 100
billion U.S. dollars for the first time, just three years later trade was
worth 183 billion dollars.
India's bilateral trade with Latin America was $23
billion in 2010, a ten-fold increase from 2000. Indian-Latin American trade
involves not only commodities but manufactured goods as well.
Indonesia
According to the Indonesian Ambassador to India, Ani M Ghalib, bilateral trade
between India and Indonesia will reach $25 billion by 2015, trade between the
two countries today amounts to $12.7 billion.
By the end of the current fiscal year Indonesia will
be the second largest trading partner of India in the ASEAN region.
Indonesia’s Industry Minister Mohamad Hidayat said Indonesia
and China aim to double two-way trade to $80 billion by 2015.
Disconnect
There has been a revolution in world trade - a new
pattern of trade is flowing, connecting Asia, the Middle East, Africa and
Latin America. Trade between China and South Asia is growing, China's trade
with Africa is expected to double by 2015, Africa's top trading partners, in
terms of bilateral trade volume, are China and India, over 50 per cent of
India's trade is now with other Asian countries while only 32 per cent is
with the United States and Europe. China's trade with Arab countries is
growing by 30 percent annually and India’s is expected to grow even
quicker. China's trade with Latin America is growing twice as fast as U.S.
trade with the region and India’s trade within the region has increased
10 fold in a decade.
The First Industrial Revolution started with
technological innovation driving the slow industrialization of the United
Kingdom in the 18th century which merged into the Second Industrial
Revolution around 1850. The start of the second industrial revolution was
marked by a transition of technological leadership from Britain to the United
States and Germany.
What is happening today is not being driven by
technological innovation or technological leadership, what’s driving
emerging economies today are urbanization,
population growth and consumerism. The US is still, by far, the leader in
technological innovation - emerging economies are simply playing catch-up
with the west. They want a better life for their families; schools, running
water, electricity, better sanitation, transportation and shelter. They want
increased consumerism, the flat screen TV’s and other electronic
devices that go along with a modern society and their increasing disposable
income - all of this is driving a commodities super-cycle.
Infrastructure spending and increased discretionary
spending by consumers are the key factors driving this rising demand - as
more and more people in emerging markets move from rural areas to the cities,
consumption will increase putting massive upward pressure on commodities -
per capita consumption of commodities in developing countries is still only a
fraction of the level it is in developed countries.
"By 2030, income per head in China - using
market exchange rates, which include our view of a stronger CNY - could have
risen from USD 4,166 in 2010 to USD 21,420. China, currently a big but poor
economy, would become a middle-income economy - but on a vastly larger
scale...Income changes elsewhere are no less impressive. India, for instance,
is projected to go from USD 1,164 in 2010 to USD 7,380 by 2030, Latin America
from USD 7,114 to USD 14,608, and Sub-Saharan Africa from USD 1,075 to USD
2,780." Gerald Lyons, chief economist
Standard Chartered
In 2000, developing countries were home to 56% of
the global middle class, by 2030 that figure is expected to reach 93%.
The current commodities super-cycle will see China,
India and the ASEAN group emerge as economic powerhouses - much like Great Britain
and the United States did but without emerging economies obtaining
technological leadership.
The world economy will grow from $62 trillion in
2010 to a projected $308 trillion by 2030, with emerging economies accounting
for 68 percent of that growth, according to Standard Chartered.
Growing trade between emerging markets helps explain
why they now account for about 30 percent of global final consumption, about
the same as the U.S. and up from 10 percent in 1990.
Ascending Yuan
Emerging markets are increasingly starting to
denominate trade contracts in currencies other than dollars.
"Western central banks use quantitative easing
and government backup plans to deal with fundamental problems in their
economies. But it is not sustainable. Those developed countries used to
interfere with the development of developing countries. I believe it is about
time for China and ASEAN to unite to protect their own
interests. The Chinese yuan is the best choice for
an intermediate currency in trade. I hope China could facilitate a trade
mechanism by providing yuan convertibility and
develop its settlement mechanism which is easy and simple to implement." Yum Sui Sang, CEO of Union Commercial Bank of Cambodia.
Because of its international aspirations and the
fast growth of business conducted in the Yuan, in March of this year, the
Industrial and Commercial Bank of China (ICBC) set up its first overseas Yuan
processing center in Singapore. In June 28, ICBC set up a China-ASEAN Yuan
clearance and settlement center in Nanning while at the same time launching a
pilot program for the exchange between the Yuan and Vietnamese dong.
The world’s first offshore Yuan denominated
spot gold contract recently started trading in Hong Kong.
“Occasionally we read in various columns of mainstream
journalists that the Chinese have shot themselves in the foot when they (in
violence of Friedmanite precepts) failed to revalue
their currency upwards. The world will retaliate by imposing punitive
tariffs, creating horrible unemployment in China and causing civil unrest.
These journalists should be careful to make wishes, because they may just get
what they’ve wished for. One of these days China may open its Mint to
gold and silver, setting the example to Asia and the Muslim world and, possibly,
to South America. Other countries may follow suit.” Antal E. Fekete
It was “a
push by Chinese authorities for a more international role for its currency
and as an alternate reserve currency to the embattled dollar and euro.”
GoldCore Analysts
The Chinese Yuan or Renminbi
(RMB) currently cannot be used as a reserve currency for two reasons:
- The
Chinese government maintains capital controls on the conversion of its
currency
- China’s
currency is not attractive to central banks for holding, they need to
develop a strong open bond market
While China's currency will be increasingly used to
settle trade between emerging nations China is not YET ready to turn the
Yuan/Renminbi into a Global reserve currency on par
with the Euro and Dollar…but the first steps are being taken.
Baosteel, the state-owned Chinese steelmaker, is going to issue Rmb6.5bn
($1bn) worth of renminbi denominated bonds. This is
a landmark move as Baosteel will be the first
Chinese company, other than a bank, to sell renminbi
bonds directly to international investors.
“The regulatory approval shows that China is
supporting the growth of the offshore bond market in Hong Kong, they want the
market to increase and to be more liquid.” Dariusz Kowalczyk, Hong
Kong-based strategist at Crédit Agricole
Conclusion
A commodities super-cycle is based on the assumptions that 1. population
growth will lead to industrialization, urbanization and infrastructure
build-out and 2. higher living standards leads to
increased consumerism and higher protein diets. This supports long-term demand and higher prices for industrial and
agricultural commodities.
The developing countries of China, India, Russia,
the Arab League, ASEAN including Indonesia, Latin America and many countries
in Africa represent a huge percentage of the world’s population and its
natural resources.
The global shift in trade, the Chinese Yuan becoming
the developing world’s, currency of choice for trade and Chinese baby
steps to make their currency at least a regional reserve currency, with
future, much higher aspirations, should be on everyone’s radar screen.
Is it on yours?
If not, maybe it should be.
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