The enormous European and American debt problems we fret about today are just an early signal of what’s inevitable — the end of Western dominance.
While we may assume such an event will happen in the distant future, a recent report from Citi Investment Research actually shows how this giant shift is already upon us today.
The bottom line: By 2015, America will lose its place as the GDP king to Emerging Asia.
So, brace yourself, because complaining is futile. These mega trends aren’t the kind that anyone can change any time soon, if ever:
10 Mega Themes Signaling An End To Western Dominance >
Charts and excerpts sourced via Citi Investment Research, 10 Asia Themes For The New Decade, Johanna Chua, 2 February 2010.
Forget the BRICs, just think emerging Asia.
'Moreover, the EM growth story is overwhelmingly an EM Asia story -- in the coming two years, we estimate EM Asia will account for 35-38% of global GDP growth vs. Latam and CEEMEA (mostly due to Latam) combined accounting for 8-9%.'
'According to the UNCTAD World Investment Prospects Survey 2009-2011, Asia already receives the largest FDI among the developing regions, and is set to become the most preferred location worldwide for FDI in the next three years. Five Asian countries - China, India, Indonesia, Vietnam and Thailand ranked amongst the 15 most attractive FDI destinations in the survey.'
The U.S. dollar, the euro, and the yen will become less relevant over time. Meanwhile, the yuan's share of the foreign exchange market will soar from almost nothing to 5% in just 10 years.
'If by 2020 assuming China's nominal GDP share in the world would reach 16% and the renminbi could be traded as active as the average level of emerging currencies in 2007, i.e., 31% as measured by the FX market turnover intensity, the renminbi's share in global FX market turnover could reach 5%. If true, the renminbi could become the world's fifth most active currency after the US dollar, euro, yen and pound sterling.'
'EM Asia's prospects for narrowing the productivity/technological gap with developed markets look the most promising, especially for China, Korea, India, Taiwan and Singapore.'
'While the US still leads the world in R&D spending, some countries in EM Asia are exhibiting the fastest growth, with EM Asia's global share on R&D, dominated by China, rising significantly to 28% share in 2008 from 17% in 2007. Battelle and R&D magazine forecast global R&D spending will rise 4% in 2010F, with China and India leading the way to drive Asia's R&D spending at 7.5% growth while the US and Europe lagging at 3.2% and 0.5%, respectively.'
7. 'Advanced' economies have trapped themselves in a straight jacket of debt. Emerging markets are free to sprint.
'General government debt ratios across EM have been on a declining trend in recent years, with the steepest declining trajectory found in Latin America.'
'Investors have long been concerned over China's debt and fiscal situation, especially after the credit boom of last year. However, we think fiscal sustainability concerns remains limited, even considering local government and contingent liabilities, given tremendous government resources, and China's debt ratios are still better than most of the developed world. First, the Chinese central government's public debt is about 20% of GDP in 2009, subtracting deposits would get a net debt ratio of only around 13%.'
The dependency ratio is the number of people who aren't working divided by the number of people who are. Obviously, economies are in trouble when too few workers are supporting to many dependents.
Most advanced nations will experience soaring dependency ratios going forward. This would take decades to change.
Luckily, on this front the U.S. should be fine thanks to robust immigration.
While China has huge demographic problem ahead due to the One Child policy, this is still a few decades away.
9. Asian banks are better positioned to deal with volatile markets due to their higher financial reserves.
'In Asia, capital levels are higher to start with, liquidity is generally strong given low loan/deposit ratios and reliance on deposit funding (as opposed to wholesale funding), and business mix is predominantly in basic banking without much complex derivative, structured, off-balance sheet activities.'
'We expect trade integration will deepen as four new members of
ASEAN are expected to significantly lower or eliminate tariffs to 0 -- 5% by
2013 for Vietnam; 2015 for Laos and Myanmar and 2017 for Cambodia.'
'China's rising economic power has also been accompanied by the accelerating economic integration of the Greater China region, which covers China, Taiwan, Hong Kong, and Macau.'