jacques-attali-repositioning asia after the crisis

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Repositionning Asia after the crisis

Dr. Jacques AttaliJanuary 2011

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Repositionning Asia?

Before crisis

After crisis

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Summary

So far, everything seems very good in Asia - except Japan

However, Asia growth could be limited by short and long termfactors

Ecological Financial Political

The path to a sustainable growth in Asia is social and political peacein order to attract and retain world elites

An economic and political integration should be the main regional

objective

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So far, everything seems very good in Asia - except Japan

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Growth and external balances: the unique position of Asia

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But major differences within Asia during the crisis…

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… and higher homogeneity in the post-crisis outlook

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Growing regional trade integration among developing nationsof Asia…

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…with a critical role played by China

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Fiscal positions have deteriorated, but to a limited extent

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A proof of Asian dynamism: patent fillings

R&D wages in China are up to 20 times less in China compared toEurope… allowing numerical teams to fill patents.

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However, Asia growth could be limited by short and long termfactors

Ecological

FinancialPolitical

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Asia Forecoming ecological risks

Water

Electricity

Agriculture

Rare earth elements

Carbon emissions

Oil & gas prices rises

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Focus on Carbon emmissions: the G2 is everywhere

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Asia Forecoming financial risks

Inflation

Asset bubbles

Excessive investment

'Overheating'

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Stronger price pressure all over Asia

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Critical prices pressures: the case of food prices in India

In december 2010, Indianfood prices have hit their highest level in more than ayear, rising at an annualrate of 18 per cent

A worrying sign: Surging commodity prices ishitting the broader economy

Food-related riots Poverty

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Rising oil prices theaten the economic dynamism in Asia

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Asia Forecoming financial risks

Inflation

Asset bubbles

Excessive investment

'Overheating'

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Asia potential asset bubbles

Leverage is gradually starting to build, and the narrative that Asia's rise ismaking things "different this time" is sneaking up on investors.

The risk of asset bubbles is well known. As long as the cost of funds is keptartificially low, it's hard to tell where a healthy rally ends and the bubble

begins. Bubbles never grow the same way. Regulator can only chase the obviousbubbles...

Indian stock market is the most expensive in the world, average PER is18,8x 2010 earnings. Shanghai Stock exchange average is 16x.

In the first 10 months of 2010, India attracted $78bn in Foreign directinvestments, twice as much as in 2009.

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Asia Forecoming financial risks

Inflation

Asset bubbles

Excessive investment

'Overheating'

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Asia Forecoming financial risks : excessive investments

Excessive investment fuelled by low interest rates : initially, of course, this is the intended effect of monetary loosening.

If rates are kept low too far into the recovery, investment will keeprising at an unreasonable pace. Asia appears especially vulnerableto this : for each USD printed by the Fed, 0,40 cents goes directly toChina.

In Asia, low interest rates doesn't boost consumption butencourages local firms to build empires and governments to racetheir countries towards the future.

Excessive investment, however, eventually undermines returns andcan shake the financial foundation of an economy. This happens inthe private as well as in the public sector.

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Asia Forecoming financial risks

Inflation

Asset bubbles

Excessive investment

'Overheating'

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Asia: signs of overheating

China december exports rose 22% y-o-y in december 2010: As long as we can't trade with martian, an export rise correspond to a negativetrade balance eslewhere, mainly in the US and Europe : for the time being, Asiais vulnerable to those countries.

Asia represent in 2010 50% of worldwide commerce going throughsea, in a constant rise since 1980

Output in Q4 2010 is up, again.

Input price inflation surges

Supply chain delays persist

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Political risks

Corruption

Intellectual property protection and countertheift

Lack of financial regulation

Domestic Consumption Household consumption makes up a small percentage of Asia GDP, with mostestimates between 35 to 40%. In contrast, consumption contributes to 65% of the GDP in the United States.

Aspiration to consume. Salaries rises > 20% in average in China. Construction of a new economic paradigm.

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The path to a sustainable growth in Asia is social and politicalpeace in order to attract and retain world elites

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Is there an Asiatic developement model?

Is Asia on it's way to Occident?

In terms of GDP per capita: China is today where Japan was in 1965, and Korea in mid-1980. India is today where Japan was in 1950, and Korea in early 1970.

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Asia economic growth and wages

Economic growth does not solve the povertry issue in Asia

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Asia is still one of the most conflictual region in the world

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An economic and political integration should be the mainregional objective

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The Noodle Bowl of preferential trade agreements in Asia

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Monetary cooperation: focus on Chaing-Mai agreements

A currency swap signed in december 2009, based on a currencyfund of more than 120 billon USD, aimed at containing "currencywars". The agreement became "multilateral" in 2010.

A first reflexion on this agreement took place after the 1997 crisis, inorder to avoid new occurence. The 2008 crisis legitimated theagreement.

The members are 10 ASEAN members (Brunei, Cambodia,Indonesia, Laos, Malaisia, Myanmar, Philippins, Singapore, Thailandand Vietnam), plus China (including Hong-Kong), Japan and southKorea.

A first step. However, the amount of the fund is low if a global crisisarise. Beside, most of Asian currencies are anchored to the USDollar, rather than to Renminbi or Yen. A regional currency unitwould be a great progress for regional exchanges.

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Conclusion: The call for an Asian Union

An Asian Union should be the 2020regional objective.

Without this Regional union, the key risks to addresswould be:• an (armed) conflicts between asian Nations (Korea)• A G2 between China and USA, excluding the rest of Asia and Europe

In order to complete this objective, Asian governementshould:• Establishing talks between Asia and Europe: you havea lot to learn from our past experience• Asia should stand in favor of a worldwide government

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Thank you for your attention.Comments and views arewelcomed :

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