[ccebook.cn]The World in 2010

Finance
People power
Nov 13th 2009
Financial institutions able to think globally will benefit as the world economy shifts east and south,
argues Stephen Green, chairman of HSBC
By 2010, the working-age population of the developing world will exceed 3
billion. Thereafter, the total will continue to grow, reaching 4 billion within
30 years or so. Malthus would have been horrified. But there is good
reason to take a more positive view of these demographics: 2010 will be a
watershed year for the developing world, marking the beginning of a
“demographic window” when its working-age population will be
proportionally highest, and the potential for economic growth will
consequently be at its peak.
Of course, to what extent these demographic changes result in economic
growth depends on the complex interplay of a number of factors, from
government policy to global economic conditions. The challenges are
considerable: rapid economic growth will be needed to deliver employment,
while social, political and environmental issues will have to be skilfully
managed.
The consequences for financial markets will be wide-reaching. During the
demographic window, the dependency ratio (the proportion of non-working
to working population) is low and so the potential for consumption and
savings is at its highest.
As they start to benefit from a regular income, millions of the “unbanked”
will join the formal banking system. As they save and prepare for their
retirement, workers will demand pensions, insurance and asset-management products.
Governments will seek to expand welfare systems and a better financial infrastructure will be required. The
need for microfinance will also soar—a segment in which demand, according to some estimates, is already ten
times greater than supply.
During this time of great change, fresh thinking, international co-operation and the sharing of expertise
between industry, governments and society will all be required to build sustainable financial markets. In the
wake of the global crisis, the financial-services industry now has another chance to prove that it can make a
valuable contribution to social and economic development.
Today, 90% of trade transactions involve some form of credit, insurance or guarantee. Demand from
businesses in developing markets for these products will grow and, as economies become larger and more
sophisticated, they will also require access to fully functioning capital markets to ensure the efficient allocation
of capital—including well-developed bond and equity markets. At the same time, global patterns of trade are
shifting. Emerging economies are doing more business with each other and with the rest of the world, and the
global recession has accelerated this trend. China is already overtaking Germany, ahead of schedule, not only
as the world’s largest exporter but also as the second-largest importer.
Banks will continue to play an important role in the financing of these new trade
patterns, and those global providers able to deliver international connectivity for their
customers will be tomorrow’s winners. With their balance-sheets less damaged by
the financial crisis, institutions in emerging markets may be best placed to benefit.
By the end of 2008, China’s five largest banks had a total of 78 overseas financial
institutions under their direct control. As the economy improves we will see a further
wave of international expansion, new listings and cross-border investments by emerging-market banks.
Multiple centres
Green
Millions of the
“unbanked” will
join the formal
banking system
Today, London and New York are the world’s only two genuinely global financial centres. Nevertheless, as the
developed world struggles with anaemic growth, other centres will encroach on their market share.
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