China and India: Globalisation and Competing in a Fast-changing World

17 Apr 2012

The ACT Annual Conference 2012 opened with a plenary discussion entitled 'Smart Globalisation in the Age of China and India'. It asked a question that many corporates in Europe and the UK have been grappling with: how is the West going to stay competitive in a fast-changing world?

The opening plenary at the Association of Corporate Treasurers (ACT) Annual Conference in Liverpool, running 16-18 April, attracted around 200 participants yesterday, discussing the effects of globalisation with a specific focus on the growing influence of China and India. Haiyan Wang, managing partner, China India Institute (CII) and adjunct professor of strategy at the INSEAD business school, gave the keynote presentation and led off with the Chinese Communist adage that “the East is red and where the sun rises”, which holds a metaphorical element of truth today.

Wang explained in numbers what the global economic restructuring presently going on looks like:

• Emerging markets (EMs) are growing at three times the rate of developed markets (DMs).
• EMs will make up 78% of global gross domestic product (GDP) growth by 2025.
• By 2020, China’s GDP will equal US’s, and this is by conservative estimates. By 2050 it will be 2.5 times that of the US.
• By 2025, India will be the third largest economy in the world.

She says that China and India are five stories in one:

1. Mega-market and mega-growth: even if they slow down, these economies will remain growth engines for the world economy.
2. Platforms for cost reduction: Wang explored the differential in wages between India, China and the West.
3. Global innovation hubs: patents granted by the US Patent and Trademark Office to Chinese and Indian companies grew by 45.9% and 23.4%, respectively, between 2005-2010.
4. Rise of new global competitors: Chinese and Indian companies now hold a number of top positions in the Fortune list.
5. Investment for resources: not only in terms of outward investment but also companies looking at Shanghai to launch an initial public offering (IPO).

Wang raised numerous challenges that face corporates, including rapid changes, early stage markets, weak or poor infrastructure, and importantly the economic, cultural and behavioural differences that must be understood to be successful. She also highlighted that there is a war for talent happening in both China and India. “Scarcity in the land of plenty” meant that recruiting, training and retention were challenging areas.

In his presentation, Hamish McRae, chief economics commentator at the Independent, argued that the shift of power to the east is inevitable and that Europe must embrace this seismic change and learn from it. His predictions for Europe were much more gloomy than Wang's outlook for China and India, saying that although the eurozone will hold together this year, the possible break up - in July 2017 he predicted - will be mismanaged and therefore the outcome will be sub-optimal.

In a roundtable discussion, which included John Grout, policy and technical director at the ACT, Wang took on the question by a corporate treasurer in the audience as to where younger treasury colleagues should look for funding in this new environment. This led Wang to expand on impact of the renminbi (RMB) internationalisation, which she believes will be fully convertible within 10 years. She predicts that within 10-15 years it will be one of the three world reserve currencies.

“There is a rapid increase in the use of the RMB in trade. Today, 10% of China’s trade is settled in RMB,” Wang says. “The People’s Bank of China [PBOC] is implementing the financial market reforms needed to push forward the internationalisation of the RMB. Allowing the RMB to float is a gradual move in this direction.”

First published on www.gtnews.com