exports from greater china - milken...

Exports from Greater China

Percent change a year ago

FEBJANDECNOVOCT20092008

150

100

50

0

-50

Percent change, a year ago

Hong Kong ChinaTaiwan

Source: Datastream

Exports from South and Southeast Asia


FEBJANDECNOVOCTSEP20092008

30

20

10

0

-10

-20

-30

-40

-50


Thailand MalaysiaSingapore India

Source: Datastream

Exports from Northeast Asia


FEBJANDECNOVOCT20092008

10

0

-10

-20

-30

-40

-50


Japan Korea

Source: Datastream

China’s economic stimulus package

Total amount $586 billion, or RMB $4 trillion

Central government

30%

Municipal government - to

be funded10%

Private sector39%

Municipal government - self-funded

16%

Municipal government -

funded via bond issuance

5%

Transport and power

infrastructure38%

Public housing10%

Environmental improvement

5%

Rural infrastructure

9%

Earthquake reconstruction

25%

Healthcare and education

4%

Research and development

9%

Programs Sources of funding

Sources: National Development and Reform Commission, Caijing, China Development Bank, Milken Institute.

China’s stimulus package leads to higher government expenditure

17 17 1614 13

12 11 11 1213

1516

1718 18 18 19 19 19

21

24

0

5

10

15

20

25

1989 1993 1997 2001 2005 2009

Government expenditure, percent of GDP

Estimated budget deficit in 2009: $143 billion, or 3% of GDP

Sources: National Development and Reform Commission, World Bank, Milken Institute. (est.)

Bank lending soared after China announced

its stimulus package in November 2008

0.60.4 0.4 0.4

0.20.5

0.2 0.3 0.30.1 0.1 0.0

0.8

0.2 0.30.5

0.3 0.3 0.40.3

0.40.2

0.5

0.8

1.6

1.1

0.0

0.3

0.6

0.9

1.2

1.5

1.8

Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09

RMB trillions

Political instability index

Source: Economist Intelligence Unit.

Gross domestic savings

U.S., China and Singapore, 1960 to 2006

Sources: World Development Indicators, Bureau of Economic Analysis, and Guidolin

and Jeunesse, 2007

20052000199519901985198019751970

60

50

40

30

20

10

0

-10

Percent of GDP

Grey bars indicate recessions

U.S. SingaporeChina

Gross domestic savings

U.S., Japan and Malaysia, 1960 to 2006

20052000199519901985198019751970

50

40

30

20

10

0

-10

Percent of GDP


U.S. JapanMalaysia

Sources: World Development Indicators, Bureau of Economic Analysis, and Guidolin

and Jeunesse, 2007

Singapore’s budget 2009

Jobs Credit Companies to receive 12% cash credit against employee salaries

(up to S$2,500)

Skills Upgrading and Resilience Government to pay 90% of retraining fees

Workfare Income Supplement Wage supplements for low income earners to be increased by 50%

Corporate Tax adjustment Main rate is dropped to 17%

Personal tax rebate 20%

Property tax rebate 40%

Expenditure on infrastructure, health and education improvements

S$4.4b

Source: http://www.economywatch.com/economy-business-and-finance-news/singapore-budget-2009-resilience-package-is-economic-stimulus.html

Currency exchange rate per U.S. dollar

China, Taiwan, Singapore, Indexed growth 1970 to 2008

Source:

FOREX

20052000199519901985198019751970

110

100

90

80

70

60

50

40

400

300

200

100

0

Indexed growth, 1970 = 100 Indexed growth, 1970 = 100


Singapore (L) Taiwan (L)China (R)

Private health expenditure

As percentage of total health expenditure, 1995 to 2006

200620052004200320022001200019991998199719961995

70

65

60

55

50

45

Percent of total health expenditures

U.S. ChinaSingapore

Source:

World Health Organization

Per capita total health expenditure (PPP Int. $) 2006

$1,228

$342

$6,714

Growth in health expenditure per capita

Indexed growth, 1995 to 2006

200620052004200320022001200019991998199719961995

500

400

300

200

100

0

Indexed growth, 1995 = 100

U.S. ChinaSingapore

Source:


China’s health expenditure and income per capita

Indexed growth, 1995

200620052004200320022001200019991998199719961995

500

400

300

200

100

0


China's health expenditure per capitaChina's income per capita

Source:


Singapore’s health expenditure and income per capita


Source:


200620052004200320022001200019991998199719961995

200

150

100

50

0


Singapore's health expenditure per capitaSingapore's income per capita

Malaysia’s health expenditure and income per capita


200620052004200320022001200019991998199719961995

200

150

100

50

0


Malaysia's health expenditure per capitaMalaysia's income per capita

Source:


Japan’s health expenditure and income per capita


200620052004200320022001200019991998199719961995

150

140

130

120

110

100

90

80

70

Indexed growth, 1995 = 100Japan's health expenditure per capitaJapan's income per capita

Source:


Global Economic Crisis: Perspectives on Asia

William MeaneyApril 2009

Most Asian economies will see anemic growth in 2009

Sources: Asian Development Bank Asian Development Outlook 2009

2009 (forecast)2006-2008 (average)

Overall outlook among Asian business executives has become more pessimistic•

Pessimistic about business conditions in Asia—75% of the respondents felt that business conditions in Asia will worsen

•

In 2007, 28% felt that the economic conditions would get worse; in 2006, only 4% of respondents thought the economy would worsen

•

Only 6% of respondents felt that economic conditions will improve, whereas in 2007, 32% felt the economy would improve

Source: Asia Business Council Annual Survey 2008

6%

32%44%

75%28% 4%

19%

40%52%

0%

20%

40%

60%

80%

100%

2008 2007 2006

How Do You Feel About Overall Business Conditions

In the Next 12 Months?

Improved/Will ImproveWorsened/Will WorsenWill Remain/Remained about The Same

Slowing export growth will hurt most trade-dependent Asian economies

Sources: World Trade Organization, Asian Development Bank

Current account deficits in advanced economies will likely

be adjusted through reduced consumption and export demand

Source: International Monetary Fund World Economic Outlook 2008

China

NIE-4

ASEAN-5

G7

Surplus

Deficit

China’s economy surpassed the U.S.’s economy to become the most important overall economic and geo-political issue. 70% of respondents rated it as very important (66% in 2007), compared to 67% for the U.S. economy (75% in 2007). An increased proportion of respondents considered China’s economy to be very important to their businesses (69% compared to 63% in 2007)

The proportion of respondents rating China-U.S. relations as very important dropped from 60% in 2006 to 55% in 2007 and further to 39% in 2008

70%

67%

50%

39%

33%

33%

29%

28%

26%

23%

22%

17%

13%

13%

11%

11%

6%

2%

30%

31%

41%

59%

57%

48%

58%

50%

50%

57%

54%

36%

59%

63%

44%

41%

40%

43%

17%

13%

22%

24%

21%

24%

43%

28%

24%

37%

41%

47%

53%

0% 20% 40% 60% 80% 100%

China's EconomyU.S. Economy

U.S. Foreign PolicyChina-USA Relations

China's Foreign PolicyIndia's Economy

Bilateral/Regional Trade AgreementsChina-Taiwan Relations

Japan's EconomyWTO

Middle East Conf lictSoutheast Asia Integration

China-Japan RelationsEurope's Economy

India-Pakistan RelationsNorth Korea

Japan's Foreign PolicyEurope's Foreign Policy

Very Important Important Of Little Importance Not Important at All

China’s economy is perceived to be more

important relative to the U.S. economy

Source: Asia Business Council Annual Survey 2008

How important is this issue for business in Asia?

China’s falling import growth will hurt those who

have seen rapid growth in trade with the country

Sources: World Trade Organization, Asian Development Bank, Asia Business Council analysis

20072000

Asian economies have rolled out sizable fiscal

stimulus plans to combat the economic crisis

Sources: Asian Development Bank, Oxford Economics, news reports, national government data

Size of stimulus (US$ billions) % of GDPAsiaChina 586 13.3 Japan 122 2.0 Korea 51.2 7.5 Malaysia 18.5 9.3 Taiwan 14.7 3.7 India 13.7 1.1 Singapore 13.6 8.0 Indonesia 6.3 1.3 Philippines 3.6 1.8 Thailand 3.6 1.1 OtherUS 787 5.5 Germany 110 3.3

Size of stimulus (US$ billions) % of GDPAsiaChina 586 13.3 Japan 122 2.0 Korea 51.2 7.5 Malaysia 18.5 9.3 Taiwan 14.7 3.7 India 13.7 1.1 Singapore 13.6 8.0 Indonesia 6.3 1.3 Philippines 3.6 1.8 Thailand 3.6 1.1 OtherUS 787 5.5 Germany 110 3.3

Fiscal Stimulus Plans for Selected Economies, 2009 (US$ billions)

Banks are in healthier shape than in 1997, reducing the risk of liquidity and funding stress

Sources: International Monetary Fund, CEIC

Indonesia

China

Philippines

Korea

Thailand

Malaysia

Singapore

Loan-to-Deposit Ratios for Selected Economies (%)

Despite rapid economic growth in Asia, private

consumption for major economies has not risen

Source: World Bank World Development Report 2009

200720041990

Household savings and income growth

are lagging, with the exception of India

Sources: World Bank, Economist Intelligence Unit, Asia Business Council analysis

India

China

Philippines

Korea

ThailandIndia

China

PhilippinesKorea

Thailand

Asians are currently the world’s top remittance-senders–

slower economic growth in host economies may affect remittance flows

Sources: World Bank, U.S. Census Bureau, Wikipedia, national government data

Top Remittance-Sending Economies, 2007 (US$ millions)

Philippines China India

United States 4,000,000 3,900,000 3,000,000

Europe 570,000 852,000 707,000

Gulf States 2,800,000 NA 4,200,000

Total Overseas 11,000,000 40,000,000 25,000,000

Philippines China India

United States 4,000,000 3,900,000 3,000,000

Europe 570,000 852,000 707,000

Gulf States 2,800,000 NA 4,200,000

Total Overseas 11,000,000 40,000,000 25,000,000

Overseas Populations by Sending and Host Economies, 2008

Labor-poor economies need to develop technology-driven

industries, while labor-rich economies need to employ large workforces

Sources: United Nations Population Division World Population Prospects 2008, Asia Business Council calculations

4 trillion Yuan (585.5 billion USD) The money will go to seven key areas:

--

1.5 trillion yuan

for infrastructure,

--

1 trillion yuan

for reconstructing the areas damaged by earthquake

--

400 billion yuan

for affordable-housing projects

--

370 billion yuan

on improving rural living standards

--

370 billion yuan

for technology upgrades,

--

210 billion yuan

for energy-saving efforts --

150 billion yuan

for health and education.

China’s Stimulus Plan

NPC Report

In Addition to Stimulus Plan

•

Tax exemption for 500 billion yuan

•

Medical reform spending of 850 billion yuan

in next 3 years

•

Improving salary and compensation for teachers and farmers

•

Help solving shelter for 7.5 million households in 3 years

How Stimulus Plan Worked –

First Quarter Results

2009

•

China’s GDP up 6.1%•

China’s March CPI falls 1.2%•

China’s PPI down 4.6%•

China’s Industrial Output up 5.1%•

China’s Retail Sales up 15%•

China’s fixed assets investment up 28.8%

How Stimulus Plan Worked –

Other Data

•

China's exports fell for the 5th

month in a row to 90.29 billion USD in March, down 17.1 % from a year earlier,

•

China‘s foreign exchange reserves rose 16% year-on-year to 1.9537 trillion USD by the end of March

•

Housing prices in China's major cities drop in March for 4th month •

China's fiscal revenue fell 0.3% from a year earlier to 440.22 billion yuan

(64.43 billion USD) in March.

•

Foreign direct investment in China declines 20.6% in Q1 •

China power use contraction slows in March on economic recovery signs •

China's domestic car sales up 5% in March to record 1.11 million

REINVENTING ASIA’S GROWTH MIRACLE

Ambassador ONG Keng

Yong

Director, Institute of Policy Studies

Singapore

12th

Milken Institute Global Conference

Effects on Asia

Impact on Asia

•

Multiple channels of impactTrade Impact Impact on Asia1. Direct trade Less reliant on US, EU, Japan

But reliance on exports up

2. Indirect trade ADB: 66% of exports to G33. Income from trade

sectorReduced: “domestic demand” hurt

Trade Impact Impact on Asia1. Direct trade Less reliant on US, EU, Japan

But reliance on exports up

2. Indirect trade ADB: 66% of exports to G33. Income from trade

sectorReduced: “domestic demand” hurt

Trade Effect on Asia

•

Rising export/GDP ratiosE xp or t/G D P R a tio

0

50

100

150

200

250

Chi

na

Hon

g Ko

ng

Indi

a

Indo

nesi

a

Kore

a

Mal

aysi

a

Phi

lippi

nes

Sin

gapo

re

Taiw

an

Thai

land

199020002007

Source: Centennial Asia Advisors

Impact on Asia

Mechanism ImpactFinancial conditions Tightening credit supply

Serious: Korea, Indonesia, IndiaSingapore: major projects delayed

Asset markets Real estate prices must fall everywhere

FDI Slowing: MNCs will defer/cancel

Confidence Falling: all available surveys

Mechanism ImpactFinancial conditions Tightening credit supply

Serious: Korea, Indonesia, IndiaSingapore: major projects delayed

Asset markets Real estate prices must fall everywhere

FDI Slowing: MNCs will defer/cancel

Confidence Falling: all available surveys

Impact on Asia

Mechanism ImpactRemittances Down from US, OECD;

M-East: emerging problemsOil prices Will fall more, ex-political risk

Negative for MalaysiaOther commodity prices Rubber: Thailand, Indon, Mal

Base metals: Indon, PhilsFood: rice, CPO, wheat down

Mechanism ImpactRemittances Down from US, OECD;

M-East: emerging problemsOil prices Will fall more, ex-political risk

Negative for MalaysiaOther commodity prices Rubber: Thailand, Indon, Mal

Base metals: Indon, PhilsFood: rice, CPO, wheat down

Impact on Asia

Mechanism ImpactFX changes Global: huge volatility in 2009

China: RMB weakeningVAT rebates = export

subsidiesRest of Asia: under pressure

Tourism Down. Price cutting/discounts profits down even if volume

holdsProtectionism More trade barriers certain

China most at risk

Mechanism ImpactFX changes Global: huge volatility in 2009

China: RMB weakeningVAT rebates = export

subsidiesRest of Asia: under pressure

Tourism Down. Price cutting/discounts profits down even if volume

holdsProtectionism More trade barriers certain

China most at risk

Post-Crisis Trends

Post-Crisis World

Big Change in Economic EnvironmentGrowth: lower, starker differenceso

G3, E Europe –

structural dragso

Asia, some EMs

–

strong growth Changes in competitive structureo

China up value chain, vacates low-endo

Indian manufacturing more competitiveo

Brazil, Turkey, Vietnam

Post-Crisis World

Changes in investment environmentLiquidity generation: less easyo

No more shadow banking systemo

Financial sys more regulated/controlledSource of investment flowso

Less hedge funds, more traditionalo

SWFs, private equity stronger roleo

Growth of EM national savings institutions

Post-Crisis World

Changing business trendProduction moves closer to marketso Higher transport costso

Asians forced appreciate currencieso

Re-industrialisation

of US, UK, …o

Major implications for Asian model

Longer Term: Asia Rising

Asia’s slowdown – cyclical not structuralGlobal growth recovers in late 2010o

Asia rebounds very stronglyChina, India continue to boomo

China: slower but higher quality growtho

India: major acceleration post-2010Other Asians also risingo

Taiwan resurging, Vietnam booming, …


Asia can seize opportunitiesBuild new domestic engineso

Infrastructure spending boomo

Social safety netso

Domestic financial institutions boostedIncreased regional integrationo

Expanded Chiang Mai Initiative a start


Corporate sector opportunitiesMove up the value chaino

As China moves up, others will followFinance sectoro

Western banks cutting, selling outo

Intra-Asian capital flowsEmergence of ASEAN MNCso

With more integration, more M&A etc

Asian OutlookCountry 2008 2009 2010 2011-15China 9.5 7.5 9.6 8-10Hong Kong 3.2 -0.5 4.3 4-5India 7.6 6.0 7.0 9-10Indonesia 6.1 4.3 6.3 6.5-7.5Korea 4.0 -1.8 3.8 4-5Malaysia 5.3 -0.5 6.0 5-6Philippines 4.3 2.8 4.8 4-5Singapore 1.7 -3.8 4.0 4-5Taiwan 2.6 -1.4 3.5 5.5-6.5Thailand 4.3 2.2 5.5 6-7

Country 2008 2009 2010 2011-15China 9.5 7.5 9.6 8-10Hong Kong 3.2 -0.5 4.3 4-5India 7.6 6.0 7.0 9-10Indonesia 6.1 4.3 6.3 6.5-7.5Korea 4.0 -1.8 3.8 4-5Malaysia 5.3 -0.5 6.0 5-6Philippines 4.3 2.8 4.8 4-5Singapore 1.7 -3.8 4.0 4-5Taiwan 2.6 -1.4 3.5 5.5-6.5Thailand 4.3 2.2 5.5 6-7

Source: Centennial Asia Advisors*All figures reflected are in percentages

Fiscal Stimulus Packages

Source: UNESCAP Annual Report, Economic and Social Survey of Asia and the Pacific 2009, and other media reports

Country Size Salient FeaturesChina US$584 billion

- 13% GDPFocus on infrastructure investments, scientific and technical innovation and upgrades, as well as improvements to health care

Japan US$125 billion – 2% GDP

Assistance to people’s daily lives, assistance to small and medium-sized enterprises, efforts to revive local areas/economy

Korea US$100 billion – 4% GDP

Aimed at promoting fiscal expenditure, tax reduction and job creation – “Green New Deal Job Creation”

India US$60 billion-9% GDP

Tax rebates and subsidies for exporters, interest rates and petrol rate cuts, technology upgrades

Australia US$26 billion – 3.6% GDP

Nation-building and jobs plan – improve infrastructure and give additional support to small businesses (on top of economic security strategy put in place in Oct 2008)

Country Size Salient FeaturesChina US$584 billion

- 13% GDPFocus on infrastructure investments, scientific and technical innovation and upgrades, as well as improvements to health care

Japan US$125 billion – 2% GDP

Assistance to people’s daily lives, assistance to small and medium-sized enterprises, efforts to revive local areas/economy

Korea US$100 billion – 4% GDP

Aimed at promoting fiscal expenditure, tax reduction and job creation – “Green New Deal Job Creation”

India US$60 billion-9% GDP

Tax rebates and subsidies for exporters, interest rates and petrol rate cuts, technology upgrades

Australia US$26 billion – 3.6% GDP

Nation-building and jobs plan – improve infrastructure and give additional support to small businesses (on top of economic security strategy put in place in Oct 2008)

Fiscal Stimulus PackagesCountry Size Salient FeaturesIndonesia US$6.1 billion

– 1.4% GDPTax breaks, waiver of import duties and taxes, infrastructure spending, diesel subsidy and rural development

Malaysia US$16.26 billion – 9% GDP

Investment funds, affordable housing, education and skills training, upgrading of public transport and military facilities, aid directed at the private sector

Philippines US$6.5 billion – 4.6% GDP

Increase expenditure on infrastructure, affordable housing, tax relief and reduction of corporate income tax, waiver of penalties on loans from social security institutions

Singapore US$13.7 billion – 11.8% GDP

Job credit programme, special risk sharing initiative, cut in corporate tax rate, personal income tax rebates

Thailand US$3.3 billion – 1.2% GDP

One time distribution of B 2,000 in cash to people earning less than B 15,000, support for social security, free education programmes, job creation and low-interest loans to farmers

Viet Nam US$1 billion – 1.2% GDP

Subsidized loans to farmers, subsidies on interest rates paid by enterprises, credit for small businesses

Country Size Salient FeaturesIndonesia US$6.1 billion

– 1.4% GDPTax breaks, waiver of import duties and taxes, infrastructure spending, diesel subsidy and rural development

Malaysia US$16.26 billion – 9% GDP

Investment funds, affordable housing, education and skills training, upgrading of public transport and military facilities, aid directed at the private sector

Philippines US$6.5 billion – 4.6% GDP

Increase expenditure on infrastructure, affordable housing, tax relief and reduction of corporate income tax, waiver of penalties on loans from social security institutions

Singapore US$13.7 billion – 11.8% GDP

Job credit programme, special risk sharing initiative, cut in corporate tax rate, personal income tax rebates

Thailand US$3.3 billion – 1.2% GDP

One time distribution of B 2,000 in cash to people earning less than B 15,000, support for social security, free education programmes, job creation and low-interest loans to farmers

Viet Nam US$1 billion – 1.2% GDP

Subsidized loans to farmers, subsidies on interest rates paid by enterprises, credit for small businesses

Source: UNESCAP Annual Report, Economic and Social Survey of Asia and the Pacific 2009, and other media reports

Importance of Trade

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