| Asian Business Leaders Summit |
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| Features | |
| Wednesday, 20 October 2010 | |
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Since the economic reform of the 90s, China has experienced an economic miracle, progressing from a typical developing economy to an important global player with a dazzling annual growth rate of approximately 10%. It is therefore not surprising that when the UK-based non-profit organisation Asia House organises the first Asian Business Leaders Summit, much of the discussion is centred upon China. Accompanying Asia’s economic growth are tremendous business opportunities in the financial and consumer markets, but at the same time Asia still faces challenges in environmental issues, education, energy consumption and international relations. A conference that brings together experts to discuss these opportunities and challenges is therefore exciting and important.
Asia’s economic outlook
Presentations made by experts in Britain’s financial and academic fields paint a coherent picture of prosperity for Asia. Dr Gerard Lyons, Chief Economist and Group Head of Global Research at Standard Chartered, said that the majority of Asian countries have rebounded after the 2008 financial crisis, and 42% of global growth in the first half of this year is achieved by Asia. China has rebounded particularly fast, partly due to the large domestic stimulus package its government has implemented. The volatility of China’s GDP growth is also much less than other Asian countries.
Asia’s rebound in exports is also optimistic. Whereas most western countries’ trade levels have recovered back to 90% of their pre-crisis levels, many Asian countries’ trade exceeded pre-crisis levels, creating a new global trade balance.
Related to the topic of trade is the global pressure on the appreciation of the renminbi, addressed by several panellists. In June 2010, just before the Group of 20 meeting, the RMB was taken off a peg to the US dollar, but the US is still putting considerable pressure on China to appreciate its currency more. Dr Lyon believes that the way to solve the problem is for the West to save more, the East to spend more and for the exchange rate to adjust. Otherwise inflation will be the biggest challenge for China. Professor Lord Desai, Founder of LSE Global Governance, also said that China’s exchange rate policy is under-confident and overcautious, creating a financially dysfunctional system.
Interestingly, Liu Xiaoming, the Chinese Ambassador in UK, visited the conference and offered his views on why the Chinese currency does not need to appreciate. He said that the RMB is not the cause of global economic imbalances, because “an important factor in the imbalances is the excessive spending and inadequate savings in some major economies.” He said that adjusting the exchange rate is not an effective way to create a global trade balance, because China has trade surpluses and deficits with different countries. Ambassador Liu also cited the fact that the 22% renminbi appreciation since July 2005 did not help US trade deficit as evidence that the renminbi’s appreciation will not reduce US deficit.
He warned that a currency or trade war is in no one's interest and that it is inappropriate to label China as a currency manipulator. But China’s recent rise in inflation has alarmed many experts. Appreciating the renminbi gradually would attract too much hot money inflow, causing more inflation, therefore some have speculated that Beijing would implement a large one-off appreciation.
As the global debate on renminbi appreciation continues, Ambassador Liu’s public announcement that a “one-off appreciation of 25 to 40%” would not happen bears much significance.
Energy Consumption in Asia
As Asia undergoes rapid economic development, its energy demand is rising. At the same time, technological advancements are also allowing Asia to increasingly supply more energy, creating many business opportunities.
One reason that energy supply has grown significantly in Asia is many Asian countries' fast process of granting planning permission. Hari Chandra, Director of Bank of America Merrill Lynch Equity, said that innovation is followed by regulation encouragement, and that the increasing number of Initial Public Offerings of Asian businesses signify a growth in Asia’s energy sector. He believes that there are many investment opportunities, especially in China and India and those countries with growths tied to the two.
Simon Henry, CFO of Royal Dutch Shell PLC, identified gas as the energy source able to satisfy much future energy demands in coming years. Technological advances are opening up new markets in gas, increasing its efficiency and making it more affordable. In particular, he believes that Asia has the potential to exceed US as the leading supplier of liquefied natural gas.
In discussing the potential risks associated with the Asian energy sector, Henry said that the key challenge is the environmental problems caused by the production and consumption of energy, because environmental awareness is still weak in Asia. Chandra said that geopolitics will be an area of intensive discussion as that we are seeing increasing disputes arising from interaction between countries. Venkatesh Shantaram, Partner of McKinsey and Company, identified the lack of talent at the senior management level of top global energy companies as a challenge. Takashi Hatchoji, Executive Vice President of Hatachi Group, believes that the biggest challenge is to encourage energy providers in different countries to join force for the supply of energy when demand exceeds the capacity of any single supplier in the future.
Photo: Chinese ambassador Liu Xiaoming Entrepreneurship, private equity and investment opportunities
The global demand to raise capital to meet the financing needs of growing Asian companies provides abundant opportunities for cross boarder M&A transactions, investment and private equity funds. Simon Davies, Firmwide Managing Partner at Linklaters, said that a large amount of Foreign Direct Investment is currently targeting at China and Hong Kong, especially in the financial sector.
Victor Chu, Chairman of First Eastern Investment Group, said that the financial sector in China needs to be tapped into with new models of partnerships. He said that the financial market in Asia is very different. Because there is little restriction for companies applying for IPO, it is not easy for any individual applications to be noticed in the pile. It is therefore crucial for companies to fulfil the most important criteria that authorities favour, but even these criteria are changing over time. Whereas capital was the most important criterion in the past, now the ability for companies to transfer technological expertise to China and their ability to support regional development are crucial criteria.
Despite the optimism, there are concerns from the audience that the Asian market is still discriminating against Western investors. The panellists agreed that some Asian markets still need time to develop a global awareness, but certainly companies that employ and educate young people in the markets that they go into will be rewarded.
Contemporary Asian culture and global consumer brands
The development of the Asian economy is inseparable from social phenomenon such as the growth of young and mobile population, the rise of wealthy middle class and urbanisation. All these factors are fuelling a big market for consumer products, which can most effectively be tapped into by companies that understand the Asian culture and exercise a cultural sensitivity in their marketing.
Nazia Hussain, Director of Cultural Strategy at Ogilvy & Mather, said that Asia is a young continent, with countries like India having 70% of their populations under 30. These young consumers are better educated and are more familiar with technology, but their patriotism is not much less than their parents and grandparents. Consequently, their ways of defining success differ from their Western contemporaries. Whereas Western leaders often celebrate individual success, Asian leaders define success as making a difference while preserving cultural tradition.
Hussain said that community and belonging are still pillars of the Asian society, and CSR is not an add-on. Chinese youths, for instance, have strong patriotism and the mentality of “let us make the most of our numbers”. One million youths volunteered in Beijing for the Olympic Games. After the Sichuan earthquake, there were more people willing to donate their blood than there were hospitals to accept them. An example of an advert that she believes has well captured this collective Asian mentality is made by Johnnie Walker. The advert emphasised Johnnie Walker’s heritage by featuring a young Chinese architect turning down a profitable deal because the project would demolish traditional buildings in China. Advertising in Asia is about expressing the individual but also stirring national pride.
The emergency of Asian brands is still rather limited as that Asia has up till now competed only with the advantage of cost effective manufacturing. Nirmalya Kumar, Professor of Marketing at London Business School, said that the next emerging trend is Asia competing on innovation. Several months ago, the number of Google searches for Bollywood exceeded Hollywood, which Kumar said is due to the “slum dog effect”. Other examples of Asian consumer trends influencing the world include SingStar and the Chinese pianist Lang Lang. Asian faces are increasingly appearing on adverts. Ermenegildo Zegna is a company that adopted this strategy early and became success in the Asian market consequently. “Asia is not just a market but also a source of inspiration. Companies should mine it for market purposes and the building of brands,” Kumar said.
One concern with the Asian consumer market is counterfeit goods. The panellists acknowledged the problem and said that this problem will only be short term because as markets mature, consumers will increasingly want to distinguish between fake and real. It is also the task of companies to cultivate brand awareness. Rolex and Burberry are two brands that have once suffered from the problem of counterfeit goods. Both companies have engaged in achievement campaigns emphasising their products’ substance, and these campaigns have helped to reduce consumers' demand for fake products significantly.
Conclusion
The summit concluded with a speech from Sir Andrew Cahn, Chief Executive of UK Trade & Investment. Sir Cahn gave his support for the integration between Britain and Asian countries through trade. He acknowledged that Asia has many business opportunities for the West but at the same time hoped that Asia will be able to pay more attention to environmental awareness. He also expressed his hope to see that the UK will not fear Asia’s rise but be excited by opportunities that this rise brings.
Many members of the audience left the summit feeling more pessimistic about the West and more optimistic about Asia. The panellists have repeatedly emphasised that the West will inevitably benefit from the rise of the East, provided there is sufficient meaningful engagement. Only the Chinese ambassador Liu Xiaoming was brave enough to bluntly state this new world order by quoting the ancient Chinese saying "It is sunny in the east while rainy in the west” at the beginning of his speech. International tension arising from Asia’s rapid growth in recent years can only be reduced by constructive discussions amongst experts in all fields. The platform for such discussions provided by the Asian Business Leaders Summit will gain increasing importance in the years to come.
Cecily Liu
Photo; Asia House Asian Business Leaders Summit
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