Changes In The Structure Of The Global Economy

By M. Isi Eromosele

There is a variety of emerging economies and they abound in diverse attractiveness as markets. A comparative review of emerging markets based on various indices shows that, at this moment, countries in the Middle East are ranking high in GDP per capita on the basis of purchasing power, and countries such as China, Mexico and Russia are ranking high as exporting partners.

In particular, the value of China’s imports rank third in the world, following the U.S. and Germany, and exceeding that of Japan.

Resource-Rich Countries Rich In Funds

From among emerging economies, Russia, China, Mexico, the United Arab Emirates, etc. are rich in natural resources such as crude oil and natural gases and rank high in production of primary energy.

Emerging economies that possess natural resources have increased their foreign reserves, reflecting the soaring resource prices which continued until last summer.

In addition, with regard to SWFs (sovereign wealth funds) that are established for purposes such as investment of surplus funds yielded from resource exports and the aim of accumulating fund reserves for the future, the equity holding ratio therein per country or region shows the prominent presence of top-ranked crude oil and natural gas producing countries, such as countries in the Middle East.

Global Trade Restructuring

Viewing from the medium- to long-term standpoint, the world’s resource demand will continue to rise. World Energy White Paper published by IEA envisions a scenario in which the crude oil price will rise to a level not less than $122/bbl on a substantial basis, or $206/bbl on a nominal basis by 2030.

Moreover, the price of natural gas is connected to the crude oil price and is on an upward trend, which would be a positive factor for the economies of resource-rich emerging economies.

The most attractive country or region for business expansion from a medium-term perspective (approximately three years), is China, while India rank second and Vietnam rank third. From among the developed countries, the U.S. came in seventh, but it is obvious that many multi-national companies, in general find emerging economies as targets which are more attractive than developed countries.

Such results suggest that ties between multi-nationals and emerging economies will continue to strengthen.

Looking at the respective import status of India and Brazil, which are in the midst of sharp economic growth, India increased the value of its imports from around the world by 4.1 times in the past five years and Brazil increased such imports by 3.6 times.

Meanwhile, it is China which has come to show its prominent presence in these emerging markets. The value of India’s imports from China is now 8.6 times as much it was in 2003, and the value of Brazil’s imports from China is now 9.3 times as much as it was in 2003.

This may be due to the facts that many multi-national corporations utilize China as their production and exporting hub, and in addition to this, that exports from Chinese companies are thriving. In addition to China, resource-rich emerging economies also have come to show their strong presence in markets

The Global Trade Influence Of ASEAN Countries

From among emerging economies, Asian countries such as China and ASEAN countries have accelerated the division of labor process, and established a production network within the region, based on which they have been actively carrying out intraregional intermediate products trading and exporting final products worldwide to regions including Europe and the U.S., and thereby they have affirmed their position as the “world’s factory.”

Asian countries, which have achieved economic growth through the processing trade but now face the economic recession in Europe and the Unites States, have begun to shift their visions to growth through expansion of their domestic market.

Changes In Production And Trade Structures In Asia

Since the beginning of 2000, Asian countries, including China and ASEAN countries, have accelerated expansion in their triangular trade by utilizing a production network, wherein they import intermediate products from within the region, and process such products into final products to be exported to other regions, including Europe and the U.S.

Looking at the transition in the international trade of parts and consumer goods between Asia and the U.S. and between Asia and EU for the purpose of verification of this expansion, one can see that the value of intra-Asian exports of parts tripled in the past decade and that a production network has been developing within Asia.

On the other hand, with regard to consumer goods, intra-Asian trade has been increased by only 1.5 times. However, exports of consumer goods to the European Union and the United States showed an increase larger than that, which indicates that production network in Asia has come to be heavily dependent on exports of consumer goods to Europe and the U.S.

The composition of exports by Asian countries also shows change in the structure of production and trade in Asia. The proportion of exports to China has grown in Japan, ASEAN countries and South Korea and these countries have expanded their functions as supplier of intermediate goods, including parts, to Asia and China.

As for China, it is not only the proportion of exports to the EU that has increased; the exports to all other regions are also gaining weight, which shows China’s expansion in function as a supplier of final goods worldwide in addition to Europe and the U.S.

Global Transitional Change

In Asia, the trade of intermediate products has expanded and final products processed in the region are primarily exported from China to Europe and the U.S. However, imports by Europe and the U.S. have been sharply reduced since the global financial crisis began in 2008.

Asian countries have actively committed to luring foreign capital to improve their industrial clusters as production and exporting hubs, but the global financial and economic crisis has given rise to the necessity to set a new strategy for targeting wide-range emerging markets, including Asia and other regions, in addition to the markets of developed countries such as Japan, the U.S. and Europe.

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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