Oct 18, 2017 - and a preferred FDI destination with total FDI in. 2015 US $120 billion. SOUTHEAST ASIA. Americanization 2.0 â Future U.S. outlook towards ...
The Clash of Geo-Economic Titans The 19th Party Congress: Selecting a New Party Leadership and Gauging Xi’s Power On October 18, the Chinese Communist Party (CCP) will convene its twice-a-decade Party Congress. The Congress is the most important political event in China that will select a new set of Party leaders and lay out the trajectory of China’s policy direction for the next half-decade. Xi Jinping will be appointed to a second five-year term as general secretary and will emerge from the Congress more powerful than any Chinese leader in decades. The Party committees of the State Council, National People’s Congress, and Chinese People Political Consultative Conference – the three most essential components of central state apparatus — all met this week to discuss potential outcomes of the Seventh Plenum. All three meetings came to the same conclusion: uphold the Party and with it Xi Jinping’s leadership.
Setting the Course for the Next Five Years However, the biggest concern for this year’s Congress is China’s economic direction. Either Li Keqiang or Wang Qishan will take up the role as Premier. Wang taking up the premiership would be positive for future economic management as he is a tenacious leader. The top policy issues China will be addressing are: • Supply-side structural reforms in the five commodities: steel, aluminum, coal, oil, agriculture • Structure of the Financial Stability & Development Commission: better Central Bank coordination • High interest rates, housing market, and the choice between deleveraging and managing financial risk • Debt, hitting GDP growth targets, and potentially loosening tight financial regulations • Introducing more Market-oriented reform • Upstream prices and elevating China’s industrial capacity
Jeffrey Craig 18 October 2017
Reinvigorating a New U.S. Economic Strategy in Asia Emerging from the Party Congress, the United States is expecting a revamped China and a reinvigorated Xi Jinping. China will continue to assert its model of globalization through trade and outbound Chinese investment, however the nation’s internal economic concerns such as increased fiscal and monetary interventions, industrial overcapacity, and industrial policies will result in more protectionist measures internally. This will make market entry an increasingly difficult process for the United States, a non win-win situation for both economic powerhouses. As a result, Chinese state-backed funds will continue to seek ways to acquire strategic assets in, and entry-points to, international markets. Economically, China is expected to invest more heavily abroad through various new initiatives such as the Belt and Road Initiative (B&R), the creation of parallel institutions like the Asian Infrastructure Investment Bank (AIIB), as well as continued inflows of foreign direct investment (FDI) into various countries. While increased Chinese investment could lead to tensions and enable Beijing to use its economic strength to influence the countries it invests in, we believe that these countries are aware of this and will continue to attempt to strike a balance. For instance, fears of becoming over-reliant on Chinese investment have led Laos to seek other sources of investment from its neighbours such as Thailand and Vietnam. In this new competitive paradigm of gaining access to the world’s burgeoning markets, the United States must also be proactive in its international economic relations. The diagram below illustrates the current and future commercial and investment networks the United States will need to capture in order to maintain its global position in hard, soft, and economic power. On the next page I will delve into analyzing the US strategy for the niche economies and micro markets in Africa, Southeast Asia, and most importantly, China.
Americanization 2.0 – Future U.S. outlook towards China China-US relations have been rather positive since US President Donald Trump took office in January 2017, despite his campaign promises to adopt protectionist measures against China. That being said, the two nations have surprisingly made positive steps in our economic relationship, but following China’s grand political event we may have reasons to suspect that the China-US relationship may begin to deteriorate as President Trump steps up his protectionist trade rhetoric in 2018 and adopts more targeted measures against China. Furthermore, Sino-US relations may also come under greater strain if the US takes actions that trigger a new conflict with North Korea. In the event of conflict, China could come to the North’s defence or be drawn into a proxy war with the US. It is also unclear if Trump may use support for Taiwan as a means to pressure China. Meanwhile, the amendments to the NAFTA deal will likely be settled by the end of 2018, which suggests that Washington will have greater capacity to focus on China. Moreover, Trump may adopt a tougher stance in an effort to secure more votes for Republicans in the US mid-term election to be held on November 6, 2018 - especially considering that he will likely under-deliver in his first year of office. Economically, the United States is in its best position in years, and according to the newest IMF report, the global economy is on an upswing, gaining momentum, and is making a firming recovery. For the United States now is the time to make further progress in our international economic relations. Concerning China’s push for globalization through its Belt and Road Initiative and AIIB, the US will also take initiative. The following infographic will display the US’s areas of interest, useful economies of specialization, and vast market opportunities.
CHINA
America’s largest source of FDI and #1 trading partner with a trade value of 663 billion dollars, largest and most valuable market of the future, US & Chinese companies have had a profitable business relationship, growing middle-class and youthful population, 513 million netizens (world’s largest online community), major consumer of luxury goods and world’s largest e-commerce consumer base
SOUTHEAST ASIA Retail E-Commerce Hub, ASEAN Economic Community is highly integrated with total ASEAN trade in 2015 US 2.3 trillion, Average annual growth rate 5.2% from 2007-2015, A dynamic community with the 3rd largest population in the world, with over 50% of the population below 30 years old, and a preferred FDI destination with total FDI in 2015 US $120 billion
INDIA
Fastest growing major economy in the world, predicted to be the largest by 2030, Internet Technology, green energy, & Solutions hub, global innovation center, by 2025 India’s construction urban infrastructure market will be 3rd largest in the world
AFRICA/ARABIA 1 billion African population, world’s fastest growing middle class, 20% compound growth in FDI projects, 7 of the 10 world’s fastest growing economies are in Africa, democratization hub for US influence, African oil and gas drives sustainable development
U.S. Domestic Economy & Growth Outlook Currently US economic data remains positive but largely unremarkable, and despite significant disruption to the economy from hurricanes in August and September, many of the nation’s forecasts remain unchanged. The prospect of tax reform in early 2018, as well as already-strong leading indicators for business investment, point to fixed capital formation being a bright spot over the next several quarters. BMI Research forecasts investment to pick up in spit of real GDP growth remaining slightly above the long-term 1.9% potential trend due to the positive role fixed investment will play. We forecast private fixed investment growth of 3.4% in 2017 and 4.0% in 2018, with the latter figure the highest since the height of the oil investment boom in 2014. Part of this positive outlook reflects our expectation for federal tax reform and business tax rate cuts to be passed and implemented in H118.
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In the United States, which already has close to full employment, fiscal policy measures designed to gradually enhance productive capacity along with demand, anchored in a medium-term fiscal consolidation plan to reverse the rising ratio of public debt to GDP, would result in more sustained growth and help contain external imbalances. Domestic factors still dominate the outlook for the US, which is the world’s largest economy. Private consumption represents the lion’s share of GDP, at 69% of total GDP in 2016, despite large movements in other components of the economy associated with commodity price fluctuations and recession. The US is among the world’s leaders in technology and high-value manufacturing, and innovation remains a key driver of growth. We expect that private consumption will remain the principal engine of US demand in the coming decade. In terms of government expenditure and net exports, both sectors have negatively contributed to overall real GDP growth annually since 2014, thereby we expect government officials will continue to relax spending constraints and exports with Trump administration’s stated intent to reduce the trade deficit (BMI Research).
