I’ve been spending some time thinking about the longer term changes to our industry which are based on the rise of the emerging markets to a position of dominance in the global economy and in our industry.
I wrote in our Macro Macchiato about how the BRICs are still relevant to shipping. But they are not alone. A decade ago I would talk in conferences about the BRITVICS – Brazil, Russia, India, Turkey, Vietnam, Indonesia, China and South Africa – as the regions that would drive the shipping industry into the 21st Century. With the benefit of hindsight, a handy nine letter acronym doesn’t always hold water as a forecast. But the gist was that access to energy and positive demographics would drive economic growth and trade as it always has, and that these countries (let’s swap Sub-Saharan Africa for just South Africa) would lead the way.
More and more, we hear not about the BRITVICS but about the Asian Century that is unfolding in front of us. Parag Khanna’s book “The Future is Asian” published earlier this year is the latest in a growing canon of nowcasting literature that takes a positive view of the changing global landscape. Khanna introduces his topic thus: “When we look back from 2100 at the date on which the cornerstone of an Asian-led world order began, it will be in 2017. In May of that year, sixty-eight countries representing two thirds of the world’s population and half its GDP gathered in Beijing for the first Belt and Road Initiative (BRI) summit. This gathering of Asian, European, and African leaders symbolized the launch of the largest coordinated infrastructure investment plan in human history.”
The grandiose style settles down after a bit but you get the gist. Asia will lead the global economy for the next hundred years. The US will be a Pacific power but not a global power. China, Khanna notes, has taken over from Japan and Korea in recent years but its stagnating population means that 3.5 Bn non-Chinese Asians will take an increasingly important role in economic and political affairs in the future.
Khanna presents data to show that Asia and Europe form the most significant axis of global trade, with USD 1.6 Tn of trade between the two compared to USD 1.4 Tn between Asia and the Americas and USD 1.1 Tn (all estimates for 2017). I’ve already written about how the overland rail link from China to Europe is taking tens of thousands of shipping containers off ships, cutting demand for liner companies operating on the world’s main headhaul Asia-Europe route.
The intermediate countries of Central Asia (the ‘stans’ as some call them) are subject to an interesting economic experiment. Let’s say that the Chinese government understands that stagnating population growth at home will affect the consumer market for its manufactured goods. However, the near-neighbour markets of Central Asia lack the financial fire power to step up as buyers of Chinese goods. The BRI invests in those countries to artificially stimulate their economies to the point where they do become significant buyers of Chinese goods, which now have direct access to market through the BRI itself. And, through the Made in China 2025 programme, China’s dominance of 21st century technologies outcompetes any local upstart in those neighbouring economies. This experiment now reaches all the way to Italy, whose government believes it will be shafted by the EU, so it may as well take the Chinese money instead and push difficult reform decisions down the line.
The Take Away
This is too big a topic to cover in one edition of one little newsletter. But here’s one tentative conclusion (to which I have also referred in the past – see my old Linkedin articles). Within 10 years the RMB will be fully convertible and will be on a par soon afterwards with the US dollar as a global reserve currency. At that point, China, which already today pays for some of its imports of energy and commodities in RMB, will insist on paying for freight in its own currency. And then, whether or not we like it, we are all in the Belt and Road Initiative.