Two Asian Single Markets Are Accelerating

There is understandably an increased focus on how negatively the US trade restrictions affect various sectors in China. A special focus is naturally on the manufacturing sector, as export companies are mostly in danger of being affected by Trump’s trade war.

The monthly PMI figures (expectations to the future among the corporations) are awaited for each month with a particular tension.

Last week, Caixin announced their monthly survey, showing an index of 50.2 for the manufacturing sector; i.e., still in the expansive territory, as it’s above 50, though not much.

However, in my opinion, it is essential that the manufacturing sector manages to remain above 50, and the figure was even slightly better than expected. I still assess that the short to the mid-term economic outlook for China continues to be fair, and certainly not disastrous, though there is no doubt that China GDP growth is fading, which isn’t a surprise.

Fundamentally, the American trade war forces China to develop its internal market even faster than initially imagined. It is gratifying for the global economy that China’s consumer economy grows even more, but it becomes highly domestic-oriented, which by the way, will be the next challenge for Trump.

In 2018 the private consumption accounted for 76 pct. of the economic growth, although the share dropped to 65 pct. in the first quarter of this year, it is still a considerable share.

The Chinese consumers are actually behaving in the same way as Western consumers, even when it comes to shopping online, where the same proportion of retail sales is done via the internet, as in most online shopping loving western countries.

The highest growth rates in private consumption China currently experiences is in the so-called tier three and four cities.  That also exceeds a million inhabitants each, just not as many millions of people as the very big metropolitan areas in China. But it illustrates well how the purchasing power quickly moves further into China, and thus China’s internal market also grows in an organic way.

In India, the ruling Prime Minister Narendra Modi’s party won the BJP in a landslide victory at the recent parliamentary elections. It was expected that the BJP would win, but that the victory ended-up being so overwhelming is nevertheless remarkable.

During his first government period, Modi succeeded in implementing reforms that deserve praise, in particular, the VAT tax reform, which introduced one common VAT tax rate throughout India. It is these types of reforms that make the economy more efficient, which is important for the country’s further growth. But neither the VAT tax reform nor a few other minor reforms have converted into an immediate higher GDP growth rate. Actually, the GDP growth has not been lower since 2014, which can mushroom to a huge problem for Prime Minister Modi.

A number of economists argue that the GDP growth should be above ten pct. to keep pace with the people who enter the labor market, though the current GDP growth rate hovers around six pct., which highlights just how big that challenge is.

For the same reason, several Indian business organizations, so shortly after the elections, are putting enormous pressure on Modi’s new government and calling for real reforms to be launched very soon.

This applies to all basic conditions in the Indian economy such as the capital market, land reforms, and the labor market. It will be extremely exciting to follow how Modi and his government cope with the many outstanding reforms that are needed in India, but my assessment is that India will focus on strengthening the domestic economy and demand.

The VAT tax reform was a quantum jump towards making India a single market, and the way ahead for India is to focus on domestic growth, as the country is not a strong exporter.

China, on the other hand, was, and remains, a strong exporter where the domestic growth naturally followed-through. But the American trade war and the global economic conditions have speeded up the domestic turnaround, even during the past months.

It means that two dominant single markets, though of a very different character, are emerging faster than expected.

The US unemployment rate in percent since 1970:

The US Labour force participation rate in percent since 1970

Have you read?

# Fascinating Breakfast Destinations around the World.
# Top 5 Self Help Books To Read During Graduation.
# The Mastermind Group of the Future: What Will Change by Leo Bottary.
# Woke. It’s the Real Thing: An Optimistic Outlook on Authentic Diversity in Advertising by Dominic (Heintz) Friend.
# How avoiding speaking opportunities could hurt your leadership career by Shane Michael Hatton.