On Wednesday, HSBC
(NYSE:HBC) hosted the final discussion in its four-part series Changing the Game: Asia's Emerging Markets
at the Asia Society in New York City. The tone of the evening reflected a proverbial "sea change" for Asia and the United States, as well as for a global economy currently being molded by a combination of the eurozone crisis and Chinese caution.
Irene Dorner, President and CEO of HSBC USA, who recently topped the list of American Banker
’s 25 Most Powerful Women in Banking
, introduced the night's panel with the following remarks on the world’s economic quandary:
It’s a world where a pause in activity from China can have untold rippling effects. Though China long ago emerged as an economic giant with advantages in manufacturing due to its vast pool of lower cost labor and foreign investment activities, rising transportation cost [and] higher labor wages are now working against China’s comparative advantages. At the same time, you have many of the South East Asian countries like Vietnam, Malaysia...and Indonesia all gearing up to take advantage of their low costs and abundant labor supply. But even when you consider these shifting variables, by 2016, it’s still likely that China will actually overtake the US as the largest trading nation in the world. That’s according to HSBC’s Benchmark Global Connections Trade Forecast. There has also been a steady growth in South-South trade that has led to developments like China’s strongly increased trade with Brazil...What started as mainly commodity exports from Brazil to China has right now led to high levels of foreign direct investment from China in a wide range of sectors in Brazil. In fact, our research has shown that China is the biggest investor in Brazil. Now, a key piece of research HSBC has come out with, The World in 2050, projects that the emerging world will grow five-fold by 2050, and will in fact be larger than what we today call the developed world.
A panel following Dorner was moderated by Clyde Prestowitz, Founder and President of the Economic Strategy Institute, and included Murray Hiebert, Deputy Director of the Center for Strategic and International Studies, and Marc Mealy, Vice President of Policy at the ASEAN Business Council.
The Association of Southeast Asian Nations (ASEAN), whose members include Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, remained a central topic over the course of the evening. ASEAN+6 -- which adds six more countries in the region to the trade group, including China, India, Japan, South Korea, Australia, and New Zealand -- is expected to launch the world’s largest free trade market, the Regional Comprehensive Economic Partnership (RCEP), in November.
Of particular interest was the role of the group’s most politically unstable member, Myanmar, which, by the independent suggestion of each panel member, was addressed with urgency at the end of the night’s discussion.
As pointed out
by The Economist
, Myanmar was seen as having good "development prospects" when compared to other recently-independent countries in the region following World War II. But it fell to social and economic oppression, as well as isolationism, when accused human rights violator Ne Win rose to power after a 1962 military coup d’etat, and implemented a disastrous economic plan, the Burmese Way to Socialism. In 1988, after nearly 3000 people were killed in protests, the United States issued a long list
of sanctions against Burma, which essentially cut off all trade between the two countries.
In 2011, the United States began a process of opening relations with Myanmar, after former Prime Minister and notable moderate Thein Sein was elected president. Sein is unprecedented in his willingness to open talks with the country’s biggest opposition leader Aung San Suu Kyi, as well as to push to see Myanmar chair the ASEAN summit in 2014. On Wednesday night, Hiebert explained what the changes currently taking place in Myanmar mean for America.
"The political transformation process that has started [in Myanmar] and has folks very optimistic removes a major constraint for America’s engagement with ASEAN as a region,” Hiebert said. “And for those of us who work in Southeast Asia, where countries want to obviously be engaged bilaterally, but clearly there has been a growing competition among major trading nations in the world to begin to engage the ASEAN nations as a region, as a reflection of the fact that ASEAN is in the process of a regional economic integration agenda [RCEP] to form an ASEAN economic community, the process unfolding in Myanmar does open up some new opportunities for the United States, to not only to continue engaging the region individually, but perhaps now to really compete with Europe, which has started a free trade agreement with ASEAN right now, and with China, Japan, and Korea [as well], which already have preferential trade agreements with ASEAN."
Mealy compares the opening of Myanmar to the not-too-long ago opening of another once-isolated country in the region.
I was based as a reporter in the early '90s in Vietnam when the US was about to lift the sanctions against that country. We are seeing the same sort of stampede mentality: US companies -- particularly in consumer products, food and beverages, financial services, and the big equipment manufacturers -- are all plowing in there to look. Right now, it's mostly window shopping, preparing themselves for the future. Myanmar was the one closed market in the region, other than North Korea. Nobody wants to be left out when this place suddenly takes off. It has a lot of potential. It has lot of oil and gas, particularly gas, copper, and other minerals. It has a population of over 60 million people that will eventually become consumers, who are very poor right now, who have a very low standard of living. It’s almost shocking to realize that at the end of World War II, Myanmar and the Philippines were the two richest countries in the region. Myanmar has certainly fallen off the wagon in the meantime thanks to some horrible political leadership. To get the country going is going to take a quite a bit. The infrastructure is really hammered. Roads are terrible. Ports are over extended.... Only about 25% of the country is electrified.
Mealy says Myanmar has a lot of advantages for US companies like GE
(NYSE:CAT), and Procter & Gamble
Mealy goes on to tie China back into his final point: “Adding to one of the reasons this is so interesting... Myanmar, because of the sanctions put in place by the United States -- basically, the only people that could sell to them were the Chinese. The country [Myanmar] felt slightly overwhelmed by China’s dominant presence, and that’s at least one of the factors that motivated people to launch political reforms to open the country.”
No positions in stocks mentioned.
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