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China and the World by 2030

Heralding his forthcoming book ("China 2030, Springler, June 2012") in a presentation on 9 May 2012 to the Oxford China and World Economy Forum, Hu Angang of the Institute for Contemporary Chinese Studies, Tsinghua University, oulines how China's economy would regain its one-third share of the global economy by 2030, similar to the position it held in 1820.

With a GDP per capita over half but a total size more than double of the United States (in PPP terms), coupled with advances in science and technology, human capital, innovation and a greener and more equitable economy, China would be experiencing a kind of Renaissance reminiscent of the country's glorious past.

Download Hu Angang - China and the World by 2030 

Sobriety needed in shale energy exuberance

There is global shale gas euphoria, particularly in the United States, which has the world's second largest shale gas reserve with ready fracking technology to extract this abundant energy resource. It seems a god-sent answer to America's prayer for total energy independence, cheap and "greener" fuel, creation of millions of jobs, and boosting a lack-lustre economy. There is increasing expectation that America will be able to export its excess energy, earning more profits and global influence, notwithstanding sharpening debate. There is even renewed optimism of a new American Century.

The reality is often hidden beneath the surface. In "Fracking Hell: The Untold Story", a LinkTV documentary on YouTube exposes the alarming risks of ground and surface water pollution and the threats to local environment and civilian lives as a result of a sudden skyrocketing jump in fracking activities across America.

China has the world's largest shale gas reserve, which is however located inside much more technically-difficult topography. See the collection of reports and data in The Golden Age of Gas

China's fracking technology is not as advanced but the United States has indicated willingness to share it. If so, the vast opportunities for an energy-hungry and energy-security-obsessed China seem only too good to miss.

But it seems that the fracking technology is not as ecologically safe as it is made out to be. If the environmental and health fall-out from fracking is allowed to multiply, the expected shale gas bonanza could well turn into a mind-boggling nightmare that could eventually spell an ecological if not socio-political "Collapse". 

In his eponymous work (Penguin Books, 2006) on the disappearance of past civilizations including that on Easter Island, Jared Diamond provides an apt warning that the shale gas exuberance needs a strong dose of sobriety. The alluring music of energy abundance could well turn out to be the songs of Sirens to ecological doom.

Apart from ecology, there is also a sharp warning from Shalebubble.org, "the joint effort of Post Carbon Institute, Energy Policy Forum, and Earthworks, with the goal of providing critical analysis — using industry and government data — to counter the false claims that domestic supplies of shale gas and shale oil (tight oil) will ensure energy security and significant long-term economic benefits to the US".

According to a summary on their website, the current  shale oil and gas frenzy is "nothing more than a bubble" with diminishing returns, a "drilling treadmill" of a "frentic pace of drilling to offset declines", and "Wall Street (promoting) the drilling frenzy in order to profit from mergers & acquisitions, resulting in prices lower than the cost of production".
 
If Shalebubble.org's analysis is true, the current shale oil and gas euphoria may well morph into a huge bubble that is going to burst in a ecological disaster of epic proportions with tears from environmentalists and investors alike.

What is the M & A outlook in Asia?

Live interview on Worldwide Exchange with CNBC on 15 February, 2013

Click here

Europe - death or re-emergence?

With almost monthly, if not weekly, twists and turns in the prognosis on the future of a Europe struggling to cope with a looming sovereign debt crisis and the challenges for long-term economic viability, pundits could be forgiven for being uncertain as to which way the Eurozone and the rest of Europe would be heading.

A YouTube slide presentation by Stefan Molyneux on Freedomain Radio, purportedly the largest and most popular philosophy show on the web, paints a general picture of impending demise.  Click here

Molyneux's presentational style is persuasive, backed up by slides full of instrucstive data, although not many people are convinced by his subtle refrain that it's all the fault of "statism"(and he is referring to the West!). It seems that, according to him, if all state interventions and regulations are lifted, all would be well.

In any event, it seems fair to say that notwithstanding some signs of improvement, Europe is by no means out of the woods. Indeed, according to Bob Janjuah at Nomura reported on Business Insider. Europe may well be heading for another global market clash by about 25 - 50%. Click here

A much more authoritative, indepth and insightful analysis is offered by Professor Klaus Schwab, Founder and Executive Chairman of the renowed World Economic Forum, in his thought-provoking e-book "The Re-emergence of Europe" released on 14 December, 2012.

Download Professor Klaus Schwab, WEF - Re-emergence of Europe, December, 2012

Looking back on the recent history of Europe, Professor Schwab argues that the importance of the European project extends far beyond economic integration. It underpins the long-term peace of the continent, as exemplified by the award to Europe of the Nobel Peace Prize 2012.

Professor Schwab points out that nothing less than a trajectory to greater banking and fiscal union, if not political union, would support long-term viability of the Eurozone.

Exit for devalution, however, would create much larger problems that it is purported to solve, according to Professor Schwab. "An overwhelming number of economists, international civil servants and plicy-makers argue that a fragmentation of the eurozone would cause a new depression and massive wealth destruction around the world and would also end the period of economic integration that has characterized world politics since the end of the Second World War."

Notwithstanding huge social reactions and nationalistic divisions, as of October 2012 there has recently been some noticeable movements towards greater convergence. A process of "internal devaluation" of debtor countries in the form of contraction of relative domestic demand has seen significant shrinking of budget deficits and a greater balance between income and expenditure, with sharply falling unit labour costs.

"Consequently, countries such as Ireland, Portugal and Spain have experienced a generally strong performance in exports and are now registering a current-account surplus .... Amazingly, Irish, Portuguese and Spanish export growth has not only kept pace with Germany's in recent years but have out-performed the UK's", Professor Schwab explains.

Contrary to binary thinking - either austerity or growth - Professor Schwab believes that a mixed approach is feasible, including structural reforms particularly in the labour markets, product regulation and a mix of government spending in a growth agenda.

Professor Schwab's prudent prognosis is that "Europe will survive and its currency - the euro - will remain intact, even in a truncated form (if just one country were to exit, for example). After a crisis of several years (possibly up to ten), Euorpean momentum will begin to grow again and will even surprise us positively ..." His relative optimism is based on Europe's unique and valuable assets - generally high-quality human capital and good governance, especially as regards sustainability, and quality and dignity of life. 

Many painful and arduous reforms remain to be tackled, to be sure, including creative destruction of a system of excessive welfare entitlements to improve long-term productivity and competitiveness. However, there is no immutable reason why some of the weaker states could not "take the bull by the horns" in emulating Germany's earlier succcessful economic and social reforms.

Many risks and obstacles remain on the way, according to Professor Schwab. He groups them into three broad categories: (1) Political and societal backlash (2) Policy miscalculations and (3) Capital flight and bank runs.

In terms of the social acceptability of reforms, Professor Schwab believes that a turning point has been passed and "from now on .... there are likely to be more surprises in Europe in general, and the Eurozone in particular, on the upside rather than on the downside."

If Professor Schwab's optimism proves to be prescient, as the world's largest economy up to now, a better and more viable Europe, which is "still founded on the same social values and freedoms as before", would have a profound impact on the future world order, and "ultimately for mankind as a whole".

Global risks 2013

The World Economic Forum produces an Insight Report "Global Risks 2013" which offers a comprehensive overview of global risks in various categories.

Download WEF Global Risks Report 2013

The top five most likely global risks are -
 
1. Severe income disparity
2. Chronic fiscal imbalances
3. Rising greenhouse gas emissions
4. Water supply crises
5. Mismanagement of population aging

A detailed Risk Landscape of 50 Global Risks is presented as follows -
 
Economic Risks

1. Chronic fiscal imbalances
2. Chronic labour market imbalances
3. Extreme volatility in energy and agricultural prices
4. Hard landing of an emerging economy
5. Major systemic fincial failure
6. Prolonged infrastructure neglect
7. Recurring liquidity crises
8. Severe income disparity
9. Unforeseen negative consequences of regulation
10. Unmanageable inflation or deflation

Environmental Risks

1. Anti-biotic resistant bacteria
2. Failure of climate change adaptation
3. Irredeemable pollution
4. Land and waterway use mismanagement
5. Mismanaged urbanization
6. Persistent extreme weather
7. Rising greenhouse gas emissions
8. Species over-exploitation
9. Unprecedented geophysical destruction
10. Vulnerability to geomagnetic storms

Geopolitical Risks

1. Critical fragile states
2. Diffusion of weapons of mass destruction
3. Entrenched organized crime
4. Failure of diplomatic conflicdt resolution
5. Global governance failure
6. Militarization of space
7. Pervasive entrenched corruption
8. Terrorism
9. Unlilateral resource nationalization
10. Widespread illicit trade

Societal Risks

1. Backlash against globalization
2. Food shortage crises
3. Ineffective illicit drug policies
4. Mismanagement of population aging
5. Rising rates of chronic diseases
6. Rising religious fanaticism
7. Unmanaged migration
8. Unsustainable population growth
9. Vulnerability to pandemics
10. Water supply crises

Technological Risks

1. Critical systems failure
2. Cyber attacks
3. Failure of intellectual property regime
4. Massive digital misinformation
5. Massive incident of data fraud/theft
6. Mineral resource supply vulnerability
7. Poliferation of orbital debris
8. Unforeseen consequences of climate change mitigation
9. Unforeseen consequences of nanotechnology
10. Unforeseen consequences of new life science technologies

A similar, and perhaps more precise, global risks assessment is provided in the Chartered Institute of Insurance (CII)'s Centenary Future Risk Series Report 6 - Insuring for a stronger world (2012) - Future Risks mind map (p.7).

Download CII Centenary Future Risk Series - Report 6 - Insuring for a stronger world

Economic Risks

1. US economic decline
2. Asian threat to Western competitiveness
3. Currency War
4. Eurozone collapse
5. Fall of Bretton Woods - return to protectionism
6. Chinese financial crisis
7. Rising economic uncertainty
8. Stagnation

Political Risks

1. Political unrests across emerging markets
2. Rising geopolitical uncertainty
3. Chinese social unrest
4. US political paralysis
5. National/international terrorism
6. Breakdown in public trust of state institutions

Investment in technology

1. Slowdown of investment in new tech
2. Reduced use of technology in business
3. Reduced understanding of technology

Technological "Black Swans"

1. Cyber crime
2. Failure of largescale IT systems
3. Widespread data loss or corruption
4. Global spread of disease through international travel

Technology and Risk management

1. Out-of-date computational models
2. Failure to understand model limitations
3. Failure to horizon scan

Adaptation to climate risks

1. Poor local infrastructures
2. Town planning in hazardous areas

Global warming

1. Extreme weather events
2. Crossing tipping points
3. Rising sea levela
4. Water shortages

Energy risks

1. Geopolitical tension over scarce resources
2. Exploation for new energy sources

Aging population

1. Cost of age-related spending to public purse
2. Intergenerational fairness
3. Falling economic productivity
4. Rising liabilities of pension funds
5. Adequacy of pension income
6. Increased chronic disease

Poverty trap: high fertility and low life expectancy

1. Violent internal conflict and social unrest
2. Increased antagonism towards developed countries

Global population growth

1. Fears of overcrowding
2. Concerns about immigration
3. Increased risk of pandemic

By means of a fictional "Special Report - The Remarkable Rebound 6 February 2030", in which the world looks back on how some of the major risks have been contained or overcome, the CII proposes the following preventive measures against a disastrous outcome -

1.  Reform to the international economy - global economic imbalances; EU fiscal and political union; sustainable international trading system
2. A vibrant private sector - effective financial services including insurers and banks
3  Private sector-led growth through partnership between research centres, entrepreneurs and business leaders
4. Climate Change mitigation and adaptation, involving insurers and risk managers
5. Improving healthcare and pensioner security - extended working lives and cost-effective use of telecare
6. Greater private savings
7. Dynamic technological change improves lives; avoidance of "black swans" through enhanced risk management

Apart from a whiff of self-interest in some of the recomendations, few would doubt their validity, but not too many are likely to be convinced that they will be sufficient or will all be delivered. However, the test of the pudding is in the eating. There is still some time for the Remarkable Rebound of 6 February 2030 to become a reality. 

China's water risks

According to China Water Risks, a Hong Kong -based non-profit think-tank on the subject, water moved from the sidelines into the spotlight in China 2012 and is expected to stay in 2013.

In an online report "2012 Review and 5 Trends in 2013"of 4 February 2013, the NGO says, "In China the tipping point has come. Li Keqiang, China’s next Premier-to-be in March, said that China’s limited water resources have become serious economic and social development constraints; saving water and improving water-use efficiency are priorities".

The 2012 Review highlights the following -

(1) Water remains a top priority for the Chinese government;
(2) More floods & droughts;
(3) Low levels of water in lakes and rivers and potential  diversions;
(4) Reputation at risk with more pressure from naming-&-shaming campaigns & public protests;
(5) Investors & Companies continue to play catch up

The 5 Trends in 2013 are -

(1) A pro-water government;
(2) Multi-pronged approach in managing water for agriculture;
(3) Energy security – no choice but to plow ahead with hydropower & fracking but tech could save us;
(4) Supply chains continue to be under fire; and
(5) More corporate action and financial institutions incorporating water risks into valuations.

According to World Economic Forum's Global Risks 2013 Report, Water Risk continues to stay in the top five global risks by Likelihood and Impact.

So the world water crisis looks critical, especially China. A stern warning is sounded in a report dated September 2012 by HSBC Global Research on Climate Change - "No water, no power - Is there enough water to fuel China’s power expansion?" Click here

Nevertheless, it appears from the Water Risk assessments that there is now a glimpse of hope as China's leadership, China's own NGOs and the private sector are all beginning to seize the moment.

The very active role China's NGOs are playing in addressing the country's water risks also testifies to the rapid development of China's civl society.

Re-shoring is on the rise - does it herald the end of outsourcing?

According to a report in The Economist (19 January, 2013), there is now a movement of bringing outsourced productions in China and elsewhere back home to the United States. The report says, "GE’s line has now reversed. Jeff Immelt, Mr Welch’s successor, calls outsourcing “yesterday’s model”. He has returned production of fridges, washing machines and heaters from China back to Kentucky. Having shipped much of its IT work outside America, the conglomerate is now shifting it back and taking on hundreds of IT engineers at a new centre in Michigan".

And GE is not alone, according to the Special Report of The Economist.

The reasons are that China's labour costs have risen rapidly. The country has a target of 13% annual increase in its minimum wage to 2015, by which time aggregate outsourcing costs of production in China would almost equate production costs back home. The second reason is technological, as advanced manufacturing technologies such as robotics and 3-D printing are making labour intensive operations less competitive overall. The third reason is proximity to home research facilities and markets, translating into greater efficiency in market response. The fourth reason is socio-political as bringing jobs back home wins popular cudos.

All, however, is not yet lost for out-sourcing as most "outsourced" production in China still chooses to stay for the massive, expanding China market which such production is well-placed to exploit.

In any case, there has been much less re-shoring back to Europe as there was less outsourced European production in the first place, because of labour inflexibility.

Moreover, with seven million graduates added every year, China is forecast to have some 200 million university graduates by 2015, bigger than the entire workforce of the United States. With China becoming the world's top patent filer, Click here  some foreign companies are expanding their R & D facilities in China, especially to serve the Chinese market.

So, it is not surprisng that a blog in the Financial Times features "Re-shoring: Five reasons why China will remain the world's factory"

Howewver, robotics is a definite game-changer as a video of 60 Minutes shows. Indeed, we are likely to be only at the doorstep of a major paradigm shift in the global business of how and where manufacturing is to be organised. With 3-D printing and de-modularized applications that can exist in the electronic cloud, a fixed factory floor seems to be losing relevance. Could a flottila of floating ships calling on various ports for resource inputs and off-loading "just-in-time" products for different markets be the answer, as one of my professional Linked-In groups opines? 

However, while all this exciting technological vision may well become reality, one big elephant in the room is how to generate sufficient gainful employment for the masses, especially the vast proportion of humanity in the developing world grappling with poverty or aspiring to a better life and higher standards of liviing.

The past two industrial revolutions have turned the factory into a cradle for the globe's rising middle-class. Although the emerging middle class is now in a ""fast- track" mode, according to a BBVA research report, it begs the question how most of their jobs, or their economic and social trajectory, can lie on the oceans or in the cloud.