As demand for goods made in Asia grows and the purchasing power of Asian consumers increases, the region is producing its own corporate titans.

Asia’s most dynamic economies are amassing huge cash fortunes that they can then wield to increase their power around the world. Will 2008 be the year when we truly see the balance of global power shift to the East?
As reported by Gfmag.com, in October 2003 economists Dominic Wilson and Roopa Purushothaman published a seminal report entitled ’Dreaming with BRICs: The Path to 2050,’ which predicted a new economic world order. Wilson and Purushothaman prophesied that economic power would shift to Brazil, Russia, India and China (BRIC) as their economies grew to become larger than that of the G-6 (the United States, Japan, the United Kingdom, Germany, France and Italy) in US-dollar terms. The report was particularly bullish on India and China, with India’s economy predicted to be larger than Japan’s by 2032 and China’s larger than that of the US by 2041.
But it may not take that long for economic power to shift toward the East. Some observers suggest that China and India are moving toward their long-term potential faster than anticipated and that a substantial shift in the balance of economic power to the East is already under way.
In 2006 GDP for the whole of developing Asia grew at 8.3 percent, the fastest rate of growth since 1995, according to the Asian Development Bank. India’s economy has been growing by more than 8 percent a year for the past four years, four times the growth rate of the UK and three times that of the US. China has seen annual growth increase from 7 percent in 1999 to more than 10 percent.
When it comes to industrial output, a clear shift away from the West to the East is already taking place. By 2015 there will be a significant shift toward Asia in steel, chemicals and computers, with more than 70 percent of computer output coming from Asia.
Historically, the fortunes of many Asian economies have been tightly linked to the US economy. But the old adage that ’when America coughs, the rest of the world sneezes’ is losing its relevance in Asia.
China will remain one of Asia’s fastest-growing exporters, and it will continue to gain market share, particularly in low-end and mid-level processing and assembly functions.
As Asian economies become less dependent on trade and more reliant on internal investment for growth, the region is becoming known not only for the products it exports to the rest of the world but also for its own consumption of resources, which is giving rise to a new, more powerful consumer class.
According to UBS, one of the biggest structural trends of the past five years is the recovery in Chinese rural incomes and spending, with an associated pickup in retail sales and inland growth, gains it expects will continue over the next half-decade.
As demand for goods made in Asia grows and the purchasing power of Asian consumers increases, the region is producing its own corporate titans.
In their efforts to become global brand names, well-capitalized Asian companies are also asserting themselves on the global stage. High-profile examples include Tata Steel’s acquisition of Anglo-Dutch steelmaker Corus Group for $12.2 billion and Chinese mining companies’ rumored pursuit of Anglo-Australian giant Rio Tinto.
Chinese and Korean companies are also investing in other parts of Asia, which will facilitate the development of more-liquid local capital markets.

Based on new statistical calculations of purchasing power parity (PPP) exchange rates published last month by the International Comparison Program (ICP), the IMF has revised downward its estimates for global growth by around half percentage point each year during 2002-07.
For example, the IMF’s estimate for global growth in 2007 has been revised down to 4.7 percent from 5.2 percent in the October 2007 World Economic Outlook.
The IMF will update its forecast for global growth on January 25. The update will take account of these revised PPP estimates.
The IMF uses PPP exchange rates provided by the ICP as the basis for calculating the relative sizes of economies. The ICP revisions imply a substantial reduction in the PPP rates of some key emerging market countries and an upward revision in others (including oil exporters).
The changes have implications for both aggregate global growth based on PPP exchange rates and the share of global GDP accounted for by individual countries and groups.
Downward revisions for PPP-based GDP of two of the world’s fastest-growing economies, China and India, are mainly responsible for the overall reduction of global growth estimates.
For 2007, China’s share of global output is now estimated at 10.9 percent (down from 15.8 percent) while India’s share has declined to 4.6 percent (from 6.4 percent).
Reflecting the overall reduction in GDP in PPP terms of other countries, the share of the United States in global GDP has been revised up from 19.3 percent to 21.4 percent.
Notwithstanding these changes, it remains true that emerging market countries have been the main recent driver of global growth in PPP terms--led by China, which alone contributed nearly 27 percent to global growth in 2007.
The ICP project, coordinated by the World Bank, produces PPP estimates based on statistical surveys of price data for a basket of goods and services for 100 developing countries.
The Eurostat-OECD PPP program provides estimates for another 46 countries. On December 17 last year, the ICP released preliminary PPP estimates for the 2005 benchmark year, replacing previous
benchmark PPP estimates, which date back to 1993 or earlier for most emerging market and developing countries.
Purchasing power parity rates are an alternative way of calculating the exchange rate between countries based upon the comparison of prices of similar goods and services in different countries.
The PPP rate is defined as the amount of currency that would be needed to purchase the same basket of goods and services as one unit of the reference currency, usually the US dollar.
The PPP rate can deviate by a large amount from the market exchange rate between two currencies, given the influence of trade, capital flows, and other factors on market exchange rates.
PPP exchange rates are used in estimating aggregate economic activity across the world. Because they adjust for the difference in price levels across countries, they tend to lead to a more accurate estimate of global economic activity than simply using market exchange rates.
For example, developing countries typically have relatively low prices for nontraded goods and services, and a unit of local currency thus has greater purchasing power within a developing country than it does internationally.
Whereas PPP-based GDP takes this into account, conversions based on market exchange rates typically underestimate the value of economic activity and output of a developing country relative to an advanced economy.
Even among advanced economies, PPP-based GDP estimates provide a more consistent picture of their contribution to aggregate economic activity as bilateral exchange rates can move sharply and distort individual countries’ contributions to global economic activity.
The 2003-2007 ICP round that produced the 2005 estimates represents the most extensive and thorough effort ever to measure PPP rates across countries.
New and innovative data validation tools were implemented to improve the quality of the data, which were drawn from regional surveys of prices for more than 1,000 goods and services in countries.
Furthermore, China participated in the survey program for the first time ever and India for the first time since 1985.
Nevertheless, estimates for 2007 indicate that China still ranks as the world’s second largest economy, with an almost 11 percent share of world output.
India also had a sizable downward GDP adjustment in PPP terms, but it is still the fourth largest economy with over 4Êpercent of the world total.

In all of the deals secured so far, ACP countries will be required to eliminate the tariffs they apply on at least 80 percent of imports from Europe, sparking concerns that already vulnerable economies will be damaged by a deluge of foreign goods.

When Senegal’s President Abdoulaye Wade refused to sign a free trade accord put forward by the European Union last month, he urged that an alternative “partnership deprived of paternalism and without prejudice“ be sought.
Wade cemented his position as the African leader most vocally opposed to the EU’s proposed Economic Partnership Agreements (EPAs) with Africa through a protest rally he called in Brussels on January 11.
It served as a reminder that while a December 31 deadline for reaching EPAs with nearly 80 African, Caribbean and Pacific (ACP) countries may have passed, the tensions engendered during negotiations last year are still raw. Wade had argued that the EU’s inflexible stance in the talks meant that relations between the EU and Africa were dysfunctional, Ipsnews.net reported.
So far, 35 ACP governments have accepted the EPAs, most of which have been labeled ’interim’ agreements as they are restricted to trade in goods. Discussions on extending them to liberalization of services and to cover new rules on investment are to continue.
In all of the deals secured so far, ACP countries will be required to eliminate the tariffs they apply on at least 80 percent of imports from Europe, sparking concerns that already vulnerable economies will be damaged by a deluge of foreign goods.
Like Senegal, most West African countries had asked for the end-of-year deadline to be extended. After the commission rejected that request, just two of the 16 West African countries involved in the negotiations signed EPAs: Cote d’Ivoire and Ghana.
“The struggle is never lost,“ said Rahmatou Keita, writer and filmmaker from Niger, who took part in the Brussels protest.
“We have emerged from colonization and many other things. We women carry the economies of Africa on our shoulders,“ she said. “We are in the frontline and we would be penalized more and suffer from a more fragile situation than everyone else as a result of the EPAs.“
European Union officials nonetheless claimed that an EPA would be advantageous to Senegalese exporters.
During the EPA negotiations, the EU agreed to modify the ’rules of origin’ with which manufactured goods have to comply to avail of preferential treatment when entering the union’s markets. Until now, these have been regarded as too cumbersome for poor countries as they often meant that a country could not enjoy preferences for products made in its factories that used ingredients from another country.
ACP textile manufacturers have borne the brunt of these rules as their garments frequently contain some fibers from Asia. Similar problems have been encountered by fish plants in one country which process tuna caught in waters of a separate land.
Under a revamped system, however, preferences should no longer be denied to such goods. Because the EPA negotiations have taken place with different regional configurations, the follow-on work to them is expected to proceed at different rates this year.

According to the latest Indian government data, during the first nine months of 2007-08 there has been a phenomenal 50 percent growth in the collections of personal income tax and 39.84 percent in corporate tax collections.
Together these two direct taxes are expected to cross 3,00,000 crore rupees, comfortably exceeding the budgetary target of Rs.2,67,400 crore. Direct taxes will surpass indirect taxes in their contribution to the exchequer. That again is a welcome development bringing India on a par with mature economies, reported Hindu.com.
A graded personal income tax of the type that exists in India and many other countries is based on the salutary principle of ability to pay. The record tax collections are no doubt a beneficial consequence of the high economic growth seen recently.
The GDP growth rate is once again expected to top 9 percent this year and, if the Planning Commission’s estimates hold good, that level will be sustained over the Eleventh Plan. However, among indirect taxes, the growth in excise duties has not been commensurate with economic growth.
Customs and service tax collections are expected to make up for the shortfall. Finance Minister P. Chidambaram has claimed that the tax-GDP ratio target of 11.8 percent, set in the budget, will be achieved. Promising a more tax-friendly environment in the income tax department, he has stressed voluntary compliance on the part of tax payers as the optimal way to maximize tax collections.
While the fiscal situation is comfortable, there is no case at all for reducing the income tax rates, a clamor that will become strident on the eve of the budget. The marginal tax rates in India compare favorably with those obtaining in many developed countries, including the United States, the United Kingdom, and Australia.
It would also be facile to assume that the tax-GDP ratio can always be maintained at the current level. There is obviously a case for widening the tax net, which despite some improvement, is still abysmally narrow.
Agriculture, which accounts for 19 percent of the GDP, is not taxed at all. The number of income taxpayers continues to be small, with a majority claiming incomes of Rs.2 lakh and less.
An even more ridiculously smaller number report incomes of Rs.10 lakh and more. At this juncture, the overriding concern of the finance minister should be to ensure that money is found for the massive outlays needed for the social sectors, education, healthcare, and agriculture.