17 Jun 2010
- Asia’s share of global gross domestic product (GDP) is 30% and likely to increase
- India is set to overtake China in population within 15 years
Raymond Chan, Chief Investment Officer (CIO) Asia Pacific at RCM, a company of Allianz Global Investors, comments on current and future market developments in Asia. He explains how it compares to the Western world with China and India as the main drivers of Asia’s growth.
“Asia’s share of global GDP is increasing compared to the Western world, which will find it difficult to grow because it is heavily leveraged. China and India are still the heavyweights in Asia with China’s domestic growth taking off and India seeing a significant increase in GDP of 5-6% over the past 3 years. Aside from China and India, other emerging Asian economies are performing well, for example, Indonesia’s economy is set to go through a structural change under the current government to encourage foreign investment. Hong Kong is closing in on New York and London as a major financial centre attracting Chinese, Russian and French Initial Public Offerings, and Singapore has spent US$2 billion to set up a casino as it seeks to become a leisure destination.
“China has better prospects than India in the near term because it has the superior infrastructure in place to support economic growth. GDP per capita is already US$3000 whereas India’s GDP per capita is US$1000. However, India could well overtake China in population in 15 years time and as long as its infrastructure and political system is in place, it has, in our view, the potential to reach a GDP per capita of $3000 as well.
“The world’s population is 7 billion, with 60% in Asia. If Asia continues to grow at a sustainable level, and we believe it can, it is likely to become even more powerful.
“Investing in a country means investing in its infrastructure, which creates domestic demand. It helps to grow exports and to control inflation. China and India’s savings rates are high, but this is expected to come down, as more emphasis is put upon encouraging consumer spending. For example, China’s service sector is expanding as people have the income to spend more on entertainment, such as eating out. This in turn generates a demand for more services, such as waiting staff and taxi drivers.
“China’s infrastructure is more developed and this has clearly boosted industrial production levels. Critics are concerned about its rate of production but the reality is that domestic demand exceeds supply. Taking the car industry as an example, major car manufacturers tried to grab a share of China’s automobile market and there was a worry that the market would become saturated. However, we now see Chinese automobile production lines running at full capacity, with demand so high that cars cannot be produced fast enough to satisfy demand. Clearly, there is room for Western and Eastern car manufacturers to do business in China.
“Another example is China’s property market. In the 1980s, Shanghai and Pudong received a lot of property investment and today, they are cities with flourishing property markets. While there are concerns about a property bubble in China, we should bear in mind that approximately 20-25% of transactions are cash-based rather than credit-based in China with the emphasis on down payments being made in cash, not financed by credit. High property prices do however have an impact, causing wealth disparity between the rich and the poor, which government policies will look to address.
“In contrast, India’s infrastructure is not as advanced as China’s. The Indian government have realised that they need to catch up and have set aside 6-9% of its GDP, that is 500 billion rupees, to develop it going forward. Half of the funds will likely be allocated to building power plants and toll roads with the other half, probably to be spent on ports, airports and water treatment plants.
“Industrialisation and urbanisation in China means that demand for commodities has increased. We are looking outside China at those companies which export to it, for example, companies in Australia and emerging Asian countries like Indonesia. For the more adventurous investments, we are looking at places such as Mongolia. It may become very rich simply because they have a lot of the commodities that China needs and they are well-located, just across the border from China.”
- India is set to overtake China in population within 15 years
Raymond Chan, Chief Investment Officer (CIO) Asia Pacific at RCM, a company of Allianz Global Investors, comments on current and future market developments in Asia. He explains how it compares to the Western world with China and India as the main drivers of Asia’s growth.
“Asia’s share of global GDP is increasing compared to the Western world, which will find it difficult to grow because it is heavily leveraged. China and India are still the heavyweights in Asia with China’s domestic growth taking off and India seeing a significant increase in GDP of 5-6% over the past 3 years. Aside from China and India, other emerging Asian economies are performing well, for example, Indonesia’s economy is set to go through a structural change under the current government to encourage foreign investment. Hong Kong is closing in on New York and London as a major financial centre attracting Chinese, Russian and French Initial Public Offerings, and Singapore has spent US$2 billion to set up a casino as it seeks to become a leisure destination.
“China has better prospects than India in the near term because it has the superior infrastructure in place to support economic growth. GDP per capita is already US$3000 whereas India’s GDP per capita is US$1000. However, India could well overtake China in population in 15 years time and as long as its infrastructure and political system is in place, it has, in our view, the potential to reach a GDP per capita of $3000 as well.
“The world’s population is 7 billion, with 60% in Asia. If Asia continues to grow at a sustainable level, and we believe it can, it is likely to become even more powerful.
“Investing in a country means investing in its infrastructure, which creates domestic demand. It helps to grow exports and to control inflation. China and India’s savings rates are high, but this is expected to come down, as more emphasis is put upon encouraging consumer spending. For example, China’s service sector is expanding as people have the income to spend more on entertainment, such as eating out. This in turn generates a demand for more services, such as waiting staff and taxi drivers.
“China’s infrastructure is more developed and this has clearly boosted industrial production levels. Critics are concerned about its rate of production but the reality is that domestic demand exceeds supply. Taking the car industry as an example, major car manufacturers tried to grab a share of China’s automobile market and there was a worry that the market would become saturated. However, we now see Chinese automobile production lines running at full capacity, with demand so high that cars cannot be produced fast enough to satisfy demand. Clearly, there is room for Western and Eastern car manufacturers to do business in China.
“Another example is China’s property market. In the 1980s, Shanghai and Pudong received a lot of property investment and today, they are cities with flourishing property markets. While there are concerns about a property bubble in China, we should bear in mind that approximately 20-25% of transactions are cash-based rather than credit-based in China with the emphasis on down payments being made in cash, not financed by credit. High property prices do however have an impact, causing wealth disparity between the rich and the poor, which government policies will look to address.
“In contrast, India’s infrastructure is not as advanced as China’s. The Indian government have realised that they need to catch up and have set aside 6-9% of its GDP, that is 500 billion rupees, to develop it going forward. Half of the funds will likely be allocated to building power plants and toll roads with the other half, probably to be spent on ports, airports and water treatment plants.
“Industrialisation and urbanisation in China means that demand for commodities has increased. We are looking outside China at those companies which export to it, for example, companies in Australia and emerging Asian countries like Indonesia. For the more adventurous investments, we are looking at places such as Mongolia. It may become very rich simply because they have a lot of the commodities that China needs and they are well-located, just across the border from China.”
