Whats Next for Asia?

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SINGAPORE – My bet is on China, one expert opined, making this is a great moment for Western producers to supply the country’s growing demand for high efficiency machines, fuels and lubricants.

Hong Kong based Daniel de Blocq van Scheltinga, managing partner of consultancy Polarwide Ltd., gave the keynote Asian economic overview at the ICIS Asian Base Oils & Lubricants Conference here June 26.

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The global economy is slowly mending, and people are more optimistic, Scheltinga said. The European debt crisis is still there, but its no longer a doomsday scenario. Chinas slump is over. But many risks remain.

In 2013, people in advanced economies are more pessimistic compared to 2007. Projected annual growth in emerging markets of 5.7 percent through 2014 far exceeds that in advanced economies, where it averages just 2.2 percent. The U.S. faces a tsunami of red ink, and catastrophe in Europe is less likely, but its economies are still contracting, he went on. Its come to Asia to take the lead in global economic recovery.

Asia is showing the strongest recovery from the global economic trough. In advanced Asia (Japan, Korea, Australia, Taiwan, Hong Kong, Singapore and New Zealand), Scheltinga predicted real annual GDP growth of close to 6 percent through 2014, and in developing Asia (India, China and the ASEAN five nations) it will top 7 percent.

Asias inflation is expected to remain moderate, reaching about 4.2 percent in 2013.

China, said Scheltinga, is the worlds second largest economy after the United States; its the worlds fastest growing major economy, with average annual growth of about 10 percent over the past 30 years. And China is the worlds largest exporter and second largest importer of goods.

Under Chinas current leadership, less developed interior regions expect to see significant industrialization. They are offering large investment potential, availability of cheaper labor, and tax discounts to attract capital. Thanks to Chinas high and growing energy demand, it passed the United States to become the worlds largest energy consumer in 2009.

China is actively looking for new sources of energy, said Scheltinga, and demand for base oil and lubricants will rise.

However, Chinas one-child policy, begun in the 1970s, has created new challenges. A huge labor shortage is expected by 2050, he said. China is already seeing a decline in the number of young, cheap factory workers. Losing its reputation as manufacturing hub for the world, China will see foreign investment move to Thailand, Vietnam and Bangladesh in search of cheaper manpower.

The environment poses another set of challenges in China, where a third of the population does not have clean drinking water and 70 percent of the rivers and lakes are polluted. Dam building and excessive cultivation have resulted in ecological damage. Reliance on coal has increased greenhouse gas emissions.

Todays new regime is tackling these issue, Scheltinga said. Vice Premier Zhang Gaoli is calling for technological development and transformation in the economy, to ensure stable GDP growth, food safety and environmental protection. He is calling for development of resource-rich Western China, improvement of living standards and economic reform.

Chinese Premier Li Keqiang said China will reduce intervention in the financial markets, continued Scheltinga, creating more investment opportunity for foreigners in sectors such as finance, logistics and health care. And the government plans to loosen foreign exchange control to allow the market to determine the value of Chinese currency.

Im more optimistic today, said Scheltinga. Within the next decade, China will surpass the U.S. in GDP. China is developing from a world factory with cheap labor and low technology to an intellectual economy, with high tech manufacturing. Its people are more educated. Heavy industries that pollute and rely on mass manpower will gradually be eliminated in decades to come.

The implication for your companies, Scheltinga told the ICIS gathering, is that China offers strong market demand for high tech machinery and fuel efficiency. China is less advantageous for low cost manufacturing than some other places now. This is a big change, but its what the Chinese government wants, he concluded.

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