Arrow Capital Partners (Hong Kong): Looking Out And Forward

May 14, 2013 - PRLog -- Arrow Capital Partners' Senior Asian Economist Kwan Qui'en provides a review of economic conditions and prospects for China in the Year of the Snake.  In addition Hartush Gobar Chief India Economist and James Bailey, a Senior Client Advisor at Arrow Capital Partners provide a review of the economic outlook for India in 2013-14:

SOME INSIGHTS FROM KWAN QUI’EN – SENIOR ASIAN ECONOMIST

•  Moving from their aggressive tightening, towards a more normalized overall economic policy during 2012-2013, the Chinese government will lessen the cyclical stresses helping to reduce the risk hard landing of the economy.
• China faces a number of challenges with its economy, including rebalancing the economy's growth away from investment and exports and more towards domestic consumption. China also needs to focus on improving support for private enterprises and on phasing out the dominance of state-owned enterprises (SOEs).

• A common misconception is that investment and consumption are competing agendas. In fact, a certain level of investment helps to stimulate and support consumption in the longer run. An example of this is social housing construction, which is a form of investment and an essential social safety net for many Chinese consumers.

• China's mass market consumers, approximately 400-500 million people in number, are crucial to the government's goal of increasing domestic consumption. This group has vast untapped spending potential. Social safety nets such as social housing, health care, unemployment benefits, and education that are provided to these consumers are intended to help them feel comfortable spending more and saving less.

• For China's economy to maintain a relatively high pace of growth over the next decade, it is important that gains in productivity are achieved. Studies indicate that a significant gain in economic productivity becomes possible when workers relocate from rural to urban areas. China's objective, therefore, is to move approximately 200 million rural residents to urban centers over the next 10-20 years, a feat that requires significant planning and investment.

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INDIA – FAST MOVING CONSUMABLES?

SOME THOUGHTS FROM HARTUSH GOBAR, ARROW CAPITAL PARTNERS CHIEF INDIA ECONOMIST IN OUR GLOBAL INVESTMENT RESEARCH DIVISION.

Additional Insights on India from JAMES BAILEY – Senior Client Advisor, Arrow Capital Partners

• India’s economic growth over the last decade has been quite remarkable: real GDP growth was approximately 8% annually over that period, driven by a combination of rising investment as well as consumption demand and greater productivity growth.

• India will play an increasing role in the global economy as demand from a growing working-age population will continue to drive consumption demand. We estimate that over the next decade as this population earns, consumes and saves more, these factors could contribute about 4% annually to India's GDP.

• The country's demographic dividend will be substantial over the next couple of decades. India will add about 110 million workers to its labor force over that time, which is more than the U.S., China, Russia and Japan will add combined.

• Governance is going to be a critical challenge and has been over the past few years, and the way India resolves it would also affect its potential growthrates. A lot is being done, but it remains to be seen whether these changes will have a material impact on the economy's growth over time.

• Compared with the U.S., U.K., Germany (http://topics.bloomberg.com/germany/) and even China, India leads the pack in terms of business start-up costs and is only topped by China in the time it takes to establish a business. According to the World Bank, India ranked 132nd out of 185 countries in a study on the ease of doing business, behind Russia (112th) and Brazil (130th); China was 91st

• Many enterprises reduce the cost of bureaucracy and taxes by operating off the books. A landmark study in the mid-1950s found that the underground economy accounted for 4-5 per cent of Indian gross domestic product. That share rose to 40 per cent in 1996, and to 50 per cent a decade later.

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