CIBAM Director Dr Christos Pitelis chaired the opening panel on BRICs. He introduced the first speaker, Mr Stephen King, Group Chief Economist & Global Head of Economics and Asset Allocation Research, HSBC, who spoke about the impact of the BRICs on the West. His talk drew insights from his 2010 book, Losing Control, which explains 'why the West's economic prosperity can no longer be taken for granted' and discusses the emerging threats to Western prosperity.

 

Mr King began by looking at the significant shift in relative prices. He showed the changes in oil prices between January 2008 and January 2011, observing that overall oil prices are much higher than all oil companies expected seven or eight years ago, and although one might argue that it has to do with the uprisings in the Middle East or other events, Mr King's data showed that even before those events there was an upward movement, with regular increases in the price of oil. Moreover, metal prices have risen dramatically, and food prices are also a lot higher since 2008. Mr King found the rise of commodity prices puzzling, because normally commodity prices tend to rise at the very end of an economic crisis, whereas this time they have risen in the beginning. He explained that this is due to structural change, the tilt towards the emerging world, associated with rapid growth rates, and resource scarcity driving commodity prices higher.

 

Mr King then turned his attention to the broader aspect of the story - why emerging nations have done so well. According to the HSBC Group Chief Economist, part of the answer lies in the transformation of ease of movement of capital markets, the flow of information, and political change, which unleashed tremendous growth in the emerging world. He discussed the rate of change in the emerging countries, observing that China is delivering 50 years of US progress every 10 years, and India is achieving 30 years of US progress every 10 years. He also noted the impact of urbanisation, which creates big domestic markets. Rapid urbanisation, an infrastructure revolution, and changes in the political and financial landscape support the formation of new trade and capital market connections between countries in Asia and the Southern hemisphere. Mr King emphasised the importance of trade of emerging countries with each other.

 

In this context, Mr King referred to a recent (June 2011) HSBC report entitled The Southern Silk Road: Turbocharging 'South-South' Economic Growth, which argues that we are witnessing the creation of a Southern Silk Road - that is a network of 'South-South' trading routes connecting Asia, the Middle East, Africa and Latin America, which will revolutionise the global economy and transform world trade. According to the HSBC report, the volume of trade and capital flows (which are still relatively low) between the emerging world could increase tenfold in the next forty years. The impact of this "turbocharged" trade growth between the emerging nations is expected to be significant, as it becomes increasingly possible for goods designed primarily for a domestic customer base to be sold all over the emerging world. Mr King provided the example of car production, contrasting the smaller cars in the emerging world to larger, heavier American vehicles, suggesting that Chinese or Indian cars will increasingly appeal to and be sold across the emerging world, as they are cheaper, lighter and simpler than their Western counterparts. Furthermore, the increase of South-South capital flows may undermine the US dollar's reserve currency status and foster the development of major new financial centres, notably in Asia.

 

In his concluding remarks, Mr King said that the Western world has some serious challenges associated with the factors discussed in the presentation, but the emerging world also faces challenges of how to use their advantages.

 

Speaker Bio

Stephen King is HSBC's group chief economist and the Bank's global head of economics and asset allocation research. He is directly responsible for HSBC's global economic coverage and co-ordinates the research of HSBC economists all over the world.

 

Since 2001, Stephen has been writing a weekly column for The Independent, one of the UK's leading newspapers. He appears regularly on both television and radio. He has given written and oral evidence on the economic effects of globalisation to the House of Commons Treasury Committee and the House of Lords Economic Affairs Committee. He has also given oral evidence to the House of Lords Committee on UK monetary policy. Between 2007-2009, he was a member of the European Central Bank Shadow Council, and most recently became a member of the Financial Times Economist's Forum.

 

Stephen's first book, Losing Control, is now available from Yale University Press. The book examines the impact of the emerging nations on western economic prosperity.

 

Stephen studied economics and philosophy at the University of Oxford.