In an article "Rise of the TIMBIs""in Foreign Policy (December 2, 2011), Jack A Goldstone cautioned "Forget the BRICs. The real economies that will shake up the world over the next few decades need a new acronym." Click here
There is a global power shift towards the emerging world which has begun to seize the lion's share of global markets, according to the Economist. Click here
The Economist also shows that the emerging economies now have greater heft on many measures than developed ones. Click here
Amongst the emerging economies, there is no doubt that the so-called TIMBI countries are on the rise. To this grouping, one may add South Africa (already part of the new BRICS acronym) and South Korea (according to Goldman Sachs). Both are dynamic, rising economies, the former because of its leverage of a rising Africa and the latter, owing to its innovative and technological skills rivalling if not already surpassing Japan in many areas.
But it seems a little premature to demolish the BRICS grouping by dismissing China along with Russia. Even the Foreign Policy article (penultimate paragraph) admits that China’s GDP is roughly equal to the sum total of the so-called TIMBIs.
Brazil, the poster child of this newly-invented grouping, is slated to become the world’s fourth largest economy by 2025, trailing behind the US, China and Japan.
Notwithstanding this projected catch-up, China’s growth, assumed to be slowing to only 5% per year with aging demographics, would still manage to attain the world’s top position with the United States after 2050.
In advancing the TIMBIs, the article seems to be downplaying the following aspects as regards China –
(a) According to the Economist (31 December, 2011), “the year when the Chinese economy will truly eclipse America’s is in sight”. Measured by a variety of economic indicators, that year may come as early as 2018. Click here
(b) Reference is made of China’s aging population profile due to China’s One Child Policy. But the Policy is already being modified for families made up of both single-child spouses. The Policy is not cast in stone and may be totally scrapped during China’s economic trajectory.
Moreover, according to the CIA World Fact Book, China’s literacy rate of 92.2% is one of the highest in the world, ahead of any of the TIMBIs, and according to the Foreign Policy article, China may have a surfeit of university graduates. This stands in stark contrast with India where the literacy rate of 61% is the lowest of the grouping. So, while a young population can definitely be a demographic dividend, that may not be guaranteed if illiteracy and youth unemployment remain high, as in the case of India.
(c) According to an article dated 15 January, 2012 in The Telegraph, figures compiled by Thomson Reuters for the Financial Times showed that the number of peer-reviewed papers published by Chinese researchers rose 64-fold over the past 30 years. China is now second only to the US in terms of academic papers published, and will take first place by 2020 if current trends continue. Click here
Another Thomson Reuters research report dated 21 December 2011 showed that China became the world's top patent filer in 2011, surpassing the United States and Japan as it steps up innovation to improve its intellectual property rights track record. Click here
Although these numbers may belie the number of genuine breakthrough innovative ideas, it still appears a little early to belittle China’s capacity for innovation.
(d) Under an about-turn in the new Five Year Plan (2011-15), China is changing decisively towards a less export-dependent and more consumption-oriented economy. Although consumption is only 37% of China’s economy, this is set to rise by at least one percent per year in the coming decades, according to Stephen Roach, Chairman of Morgan Stanley Asia and author of "The Next Asia", John Wiley and Sons, Inc., 2009.
According to the McKinsey Quarterly (2006 Special Edition), 79.2% of households will be in the lower and upper middle classes income range of RMB 40,001 to 100,000 ) by 2015. The “mass affluent” with annual household income of RMB100,001 to 200,000 ($80,000 adjusted for purchasing power parity) will jump from 9.8% of total in 2005 to 36.4% by 2025.
Anecdotally, at the lower end of the consumption scale, Yum! Brands opened 500 new restaurants in China in 2010 including one new KFC every single day. At the high end, according to World Luxury Association's 2010-2011 annual report, China now accounts for 27 % of the global luxury market, ahead of US at 14 % and right behind Japan at 29 %. The report says China will be the world's largest luxury market in 2012.
(e) China's service sector is still below 50% of the economy. But it is growing steadily. In the new Five Year Plan (2011-15), service sector value-added output is to be boosted to 47 % of GDP, up 4 percentage points over the period. This, together with a rapidly rising consumer economy should generate more jobs to offset the lower job numbers demanded by a smaller and more technology-intensive manufacturing sector, while the latter in turn is set to offer more job and entrepreneurial opportunities to a rising university-trained workforce.
(f) According to the McKinsey Global Institute, by 2025, China will be building 221 new cities each with a population over one million, compared with 35 such cities in Europe, adding an extra 350 million urbanites. Click here
China will be 50% urban by 2015, according to a report in the People’s Daily Online dated 30 March 2010. Click here Even if the growth rate of China’s urbanization may not be the world’s highest, its sheer size will by far be the world’s largest by 2015.
(g) Significantly, China has become the centre of the world’s production and supply chain as materials and components as well as diverse knowledge and skills across the globe are interwoven into the largest, most efficient and most cost-competitive Factory of the World honed over the years to comply with international standards. This highly efficient and globalized complex is unlikely to be displaced by the TIMBIs anytime soon.
(h) The Foreign Policy article refers to democracy several times. While there is no doubt that democracy helps to spurn innovative ideas, it is no hard and fast barrier against innovation especially in a dynamic, state-capitalist economy like China’s.
Indeed, according to a comparative empirical study by Randall Peerenboom, "China Modernizes – Threat to the West or Model for the Rest", Oxford University Press, 2007, China outperformed many other democratic developing countries according to most United Nations development indices. This is no apology for China’s slow or lack of progress towards democracy but merely serves to illustrate the fact that lack of democracy, at least in the Western sense, is not necessarily a hindrance to dynamic economic growth at certain stages of a country’s development.
Rather than dismissing “non-democratic” countries from a grouping, perhaps a more inclusive and wider grouping of the more dynamic nations of the “emerging world” may tell a better story.
According to Goldman Sachs, by 2050 the top ten economies in the world will be, in descending order, China ($70 trillion), US (about $38 trillion), India (about the same as the US), Brazil (barely over $10 trillion), Mexico (just under $10 trillion), Russia, Indonesia, Japan, United Kingdom, and, lastly, Germany (about $5 trillion).
Only four of the G7 would thus remain on this list. Except the US, the other three G7 countries, Japan, UK, and Germany, would fall to the bottom.
The combined economic weight of the six so-called Emerging and Growth-leading Economies (EAGLE), what may be called the E6, would be over two and half times more than the remaining G4.
Although it is a bold prediction and many a black swan may appear, by 2050 the E6 will have soared well above the G7 to rule the world’s economy. Welcome to a brave new Emerging World Economic Order some may think could only exist on another planet. Indeed, this may happen sooner than many people think.