by Juan Pablo Cuevas, Senior Vice President, Latin America Regional Executive,Bank of America Merrill Lynch and Fiona J. Deroo, Senior Vice President, Sales ExecutiveInternational Subsidiary Banking & Business Development, Bank of America Merrill Lynch
As companies jockey to benefit from the changing dynamics of globalisation, a handful of emerging economies are enjoying an ever-expanding sphere of influence. Brazil, Russia, India, and China — widely referred to as the BRIC countries — now carry significant clout on a global scale. Russia and Brazil can thank their resource-rich good fortune, among other reasons, while China and India have emerged as preferred locations for manufacturing and services outsourcing. All four countries have a burgeoning middle class and a rapidly growing consumer base, particularly India and China where the raw demographic numbers are simply staggering.Together, these four nations, while not formally aligned politically, have emerged as important locations for aspiring businesses in all industries. It may not be long before virtually every company will do business with the BRIC countries, either buying precious resources, outsourcing manufacturing and services, or selling their goods to an increasingly voracious consumer. Naturally, this has enormous ramifications and brings with it many new challenges from a banking perspective.
Since embarking on the path towards a free market economy some three decades ago, China is firmly established as one of the most important cogs in the global economic wheel. Fuelled by modern finance and technology, the ongoing transformation from a state-run economy, and the subsequent speed of industrialisation, has been astonishing.
China’s position as the world’s manufacturer has resulted in unprecedented urban migration and created massive employment, essential for the largest labour force in the world, which in turn is spawning a growing consumer class. Consequently, domestic consumption of goods and services is rising quickly, and with a potential middle class of several hundred million people, the opportunity for multinational companies seeking new opportunities for growth is clear. Until recently, China’s primary appeal to foreign companies was its potential for low-cost manufacturing and cost savings, but increasingly, the greater opportunity is its enormous and largely untapped domestic market for goods and services.
Chinese GDP growth exceeded 11% before the crisis, and even in 2008 and 2009, growth remained at 9% or above. With total 2009 GDP estimated at US$4.9trn, China is now the world’s third largest economy, and second in terms of oil consumption. Increasingly, the fortunes of the commodities market, such as in base metals, are losely linked to the ebb and flow of demand in China. Although projections vary, it is widely believed that China will rapidly become the world’s largest economy.