Big and getting bigger

It is difficult for the West to comprehend the scale of Asia Pacific’s potential development. China is not just one country; it consists of more than 30 provinces, with so many languages and dialects that Mao Tse Tung needed an interpreter. The population may well be closer to 1.5 billion rather than 1.3 billion. The Chinese government consistently seems to underestimate its statistics, like those for GDP growth, but it is still equivalent to four or five Americas. Likewise, India’s 1.2 billion plus population covers 27 states.

It is also true maybe that only 200-300 million Chinese can currently afford the goods and services we are marketing to them. However, this is already equivalent to almost an America and is a dynamic situation, one that will change rapidly in the coming years. Already there are 650 million mobile phone subscribers in China. Of those, 460 million subscribe to one company, China Mobile (one of the top 10 most valuable world brands) – equivalent to one-half more than the total population of the US.

Furthermore, India, itself equivalent to three to four Americas, seems to have been stimulated into more rapid growth, driven perhaps by neighbourhood envy and the Chinese model of state-directed capitalism – although India bills itself as the world’s fastest-growing democracy.

Look at the dogfight for the Indian phone operator Hutchison Essar, which Vodafone won in a market growing by more than five million subscribers a month, just like China – 250 million, growing to 500 million in a few years time.

This really is back to the future. In 1820, China and India generated around 49% of worldwide GDP. But by the early 19th century, Meissen and Wedgwood were undermining the high-quality, high-price Chinese porcelain industry with similar quality, but low-priced products. It is the exact reverse today. China and India are forecast to be headed for the same share of world GDP in 2025 that they had in the 18th century, having bottomed out at 8% in 1973.

China’s development has been rapid and will continue, but not without bumps. The government is conscious of overheating and an imbalance in rates of development between the coast and the hinterland. There has, it is true, been a slowdown in 2008 and the prospects for 2009 are more challenging, but the government has set targets of growth for GNP at 8%. Fears of social unrest will push the government to implement more fiscal stimulus if necessary.

If there was one single clear demonstration of China’s arrival it was last year’s Olympics and Gordon Brown’s seemingly stunningly successful G20 summit. Few self-respecting multinational companies bent on expanding into China or national company seeking to grow inside or outside China missed out on the branding opportunity presented by Beijing 2008. The Chinese government committed $45 billion of investment around the Games, in contrast to London’s $14 billion for 2012. Beijing was a whopper and it will not end there. The Municipality of Shanghai will be investing $3 billion in Expo 2010 and there will be the Asian Games, in Guangzhou, again in 2010.

Watch out for increasingly subtle Chinese military and economic influence, too. Take the recent economic contact with Fidel Castro in Cuba to counterbalance Taiwanese tensions. Or Chinese investment in Galileo’s GPS systems, which drew a coruscating response from the Pentagon. Equally, Beijing will not be prepared to rely on America to defend its vital and growing energy supply interests in the Middle East and Russia, as its recent energy deal with Russia showed. It is busily building trade bridges throughout the oil- and energy-producing regions of the world, particularly Latin America and Africa.

Beijing is changing the political dynamics of Africa in particular, with more than 800,000 Chinese participating in projects there. Increasingly, Africa is the continent of opportunity, rather than war, disease and poverty. President Gadaffi’s volte face has energised north Africa and Egypt, and China’s focus has drawn the attention of Western governments seeking to curry favour, too. We at WPP have recently invested in Smollan and The Jupiter Drawing Room in South Africa and Scangroup in Central and North Africa.

GDP growth in Africa %

GDP growth in Africa %
Source: IMF; Republic of Uganda, United Republic of Tanzania; Republic of Tanzania; Republic of Zambia; National Bank of Rowanda
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Forecast

The other challenge to American dominance may well come from the Muslim world. Already, Muslims number 1.6 billion people or a quarter of the world’s population. By 2020, they will account for 2.1 billion or 30% of the world’s projected population. The recent struggles in Afghanistan and Iraq, and continued tension with Iran, really only continue the 1950s Suez conflict, the oil price increases of the 1970s and the invasion of Kuwait in the 1990s. Westerners have made little attempt to understand the Islamic mind and assume wrongly that Muslims share their value systems. They are different and it will be increasingly necessary to make a serious and sincere attempt to understand them – something President Obama’s administration clearly grasps.