TIME China

Anyone Expecting a Rebound in Chinese Growth Won’t Like the New GDP Figures

Construction sites and vacant streets in Xiangluo Bay.
Construction sites and vacant streets in Tianjin, China. The new central business district, under construction in Tianjin, was touted as another Manhattan, but is now a ghost city. The nation's slowing economy is putting the project into jeopardy Zhang Peng—LightRocket/Getty Images

Say hello to China’s new normal

Those who remain hopeful about the future of the Chinese economy got some extra evidence to bolster their case today. On Tuesday, the government announced that GDP in the third quarter rose by a slightly better-than-expected 7.3%.

But don’t get too excited. That 7.3% is the slowest quarterly pace in five years — since the depths of the recession after the 2008 Wall Street financial crisis. And it was pushed higher likely by exports. In other words, external demand, not investment or consumption in the domestic economy.

There is really nothing surprising about these figures. This is China’s new normal. The double-digit pace the global business community has come to expect is very likely a thing of the past. More and more economists are predicting that China’s growth rates will continue to slow over time. The International Monetary Fund, for instance, sees growth dropping from 7.4% this year to 6.8% in 2016 and 6.3% in 2019.

There are too many factors at work slowing down the Chinese growth machine. First of all, no economy can grow 10% a year forever, not even China’s. The country is no longer the impoverished backwater it was in the early 1980s, when Beijing’s market reforms first sparked its growth miracle. It is now the second largest economy in the world, and the bigger China gets, the harder it becomes to post such large annual GDP increases. There are also structural forces at work. China’s population of more than 1.3 billion is aging rapidly, thanks in part to Beijing’s restrictive one-child policy, and that will act as a long-term drag on growth. The workforce is already shrinking.

The only question is: How slow will China go? The answer depends on how optimistic you are that China’s current leaders can fix the very serious problems plaguing the economy.

Aspects of the growth model that have driven China’s exceptional performance — state-directed investment, easy credit — have now come to spawn all sorts of new risks. Debt levels at Chinese companies have risen precipitously, money has been wasted on excess capacity and unnecessary construction, and bad loans at Chinese banks have been rising as a result. The economy is paying the price.

A big reason behind the country’s slowdown today is the deteriorating property market, brought low by irrational exuberance and excessive building. Official data shows that the amount of unsold real estate has doubled over the past two years, and that has caused prices to fall and investment in new developments to dry up. The central bank recently loosened restrictions on mortgage lending to boost sluggish demand, but most economists don’t expect such moves will stimulate a rebound anytime soon. There are even concerns that China is following a pattern similar to Japan’s when the latter Asian giant had its financial crisis in the early 1990s.

The long-term solution to these problems requires nothing less than overhauling the way in which the economy works. The country’s leaders realize this, too, and have pledged to undertake a thorough reshaping of the economy to give the private sector more influence. Policymakers intend to make the economy more market-oriented by liberalizing finance and capital flows and withdrawing the control of the state. Such steps would probably lead to enhanced productivity, better allocation of finance and stronger innovation — all things China needs badly as its costs rise with its wealth.

So far, though, there has been little progress. A free-trade zone in Shanghai, launched a year ago to experiment with freer capital flows in and out of the country, has never got off the ground. A series of investigations into the business practices of multinationals operating in China has raised questions about Beijing’s willingness to open up the economy further to foreign competition.

Of course, the liberalization Beijing has promised will take a long time to implement. But if the effort doesn’t progress, growth will likely suffer. The Conference Board in a recent report predicted that growth would slow to 4% a year after 2020, in part because its economists believe China’s leaders won’t go far enough in reforming the economy.

What this all means for businessmen and investors around the world is that China may not play the same role in upholding global growth in coming years as it has in the past. The new normal may not lift the gloomy spirits dominating global markets these days, either. But we’ll all have to get used to it.

TIME Markets

Stock Markets Are Waking Up to Economic Reality

An investor holds a child in front of an electronic screen showing stock information at a brokerage house in Shenyang
An investor holds a child in front of an electronic screen showing stock information at a brokerage house in Shenyang, Liaoning province, Oct. 16, 2014. Sheng Li—Reuters

Misguided policy is undermining growth and creating new risks

Stock markets are supposed to be indicators of where economies are headed. The recent sell-off in global equities, however, shows investors are just catching up with the headlines. Wall Street had powered through the gloomy news emanating from much of the global economy for most of the year, with indices scoring one record after the next. But now investors seem to have finally woken up to the world’s woes, causing the bulls to stampede. On Wednesday, the Dow Jones Industrial Average plunged by as much as 2.8%, and even though it later recovered, it has still fallen by 5% in five days. That followed a terrible day on European bourses, with the German and French markets suffering large losses. The trouble continued Thursday in Asia, with losses in Tokyo and Hong Kong.

Financial markets are reacting to what should have been obvious to investors for some time — growth is stumbling in just about every corner of the planet. And we can blame some pretty gutless policymaking for it. From Beijing to Brussels to Brasilia, governments are failing to implement the reforms we need to finally lift the global economy out of the protracted slump tipped off by the 2008 financial crisis.

The situation is most infuriating in Europe. The International Monetary Fund recently cut its forecast for euro zone GDP growth to a mere 0.8% this year. Germany, the largest and supposedly strongest economy in the zone, is projected to expand only 1.4%, while Italy, the zone’s third-largest economy, will likely contract again in 2014. Unemployment remains stubbornly high at 11.5%. Meanwhile, the leaders of Europe seem unconcerned and have done little to encourage growth or job creation. At a European level, the process of forging greater integration and bringing down remaining barriers to cross-border business has stalled, while the record of individual governments in liberalizing markets and fixing broken labor systems is at best mixed. Mario Draghi, the president of the European Central Bank, has fallen behind the curve in preventing prices from falling to dangerously low levels, raising fears of deflation, which would suppress consumption and investment even further. No wonder more analysts are worried Europe is facing “Japanification” — a potentially destructive, long-term malaise similar to what has been experienced in Japan.

Speaking of Japan, the program of Prime Minister Shinzo Abe — dubbed “Abenomics” — is being exposed as a failure. Massive monetary stimulus from the Bank of Japan has not jumpstarted growth, while Abe, with government finances increasingly under strain, has had to hike taxes, dampening consumption and denting growth even further. The promised structural reforms that could raise the economy’s potential, from loosening up labor markets to opening protected sectors, have barely gotten off the ground. The IMF sees Japan’s GDP expanding a meager 0.9% in 2014.

The story in emerging markets isn’t much better. Once high fliers have crashed down to earth. Brazil’s economy will likely grow a pathetic 0.3% this year, while Russia, plagued by sanctions, will be lucky to avoid a recession. Even China is struggling. Though growth remains above 7% — at least officially — economists are just now starting to realize such rates are probably the country’s “new normal.” Facing a property slump and excessive debt, the economy will continue to slow down in coming years. Beijing’s policymakers have promised a lot of the liberalizing reforms that could fix China’s growth model, but they have implemented almost none of that program. A free-trade zone that was to be a critical experiment in more open capital flows, launched with great fanfare in Shanghai a year ago, has languished as policymakers drag their feet on implementation.

There are occasional bright spots, though. It looks like India is rebounding, while growth in some other developing nations, such as the Philippines, remains healthy. But that won’t be enough to stir prospects globally. And while the U.S. is better off than most other advanced economies, the inability of Washington to confront problems like income inequality or sagging infrastructure is holding the economy back.

What we are witnessing around the world is a slowdown created to a large degree by bad policymaking and political inaction. In fact, you could make the argument that what steps have been taken have only made matters worse. The long-running easy money policies of the Federal Reserve probably helped to propel the prices of stocks and other assets upward, detaching them from the underlying fundamentals of the global economy and making them vulnerable to sudden shocks and shifts in sentiment.

Perhaps what we’re seeing in global stock markets is a temporary correction or short-term adjustment. Or perhaps markets are telling us things will be much worse than we expect in coming quarters. Either way, it seems like investors are finally swallowing a dose of economic reality.

TIME russia

An Aeroflot Nightmare: How I Got Placed Under Virtual Arrest in Moscow

Russian Airlines OAO Aeroflot Operations
A passenger jet operated by OAO Aeroflot takes off from Sheremetyevo airport in Moscow, Russia, on Thursday, Sept. 4, 2014. Bloomberg—Bloomberg via Getty Images

Old practices are dying hard in Russia, including at its national airline

Russia at one point seemed to be embracing the West, and the transformation that came as a natural result. After the unraveling of the Soviet Union in 1991, politics became democratic and the economy capitalist. The Cold War was relegated to history books and outdated spy movies. Separated by ideology and fear no more, the economies of Russia and Europe became closely intertwined. The G7 turned into the G8.

But these days, Russia seems to be reversing course. Politics have slipped back into near-authoritarianism under President Vladimir Putin. Moscow is striving to reassert the influence it once held over its neighborhood during Soviet days. Sanctions and ill-will are again isolating the Russian economy from the West. I recently bought a T-shirt in Moscow sporting a picture of Vladimir Putin karate-kicking Barack Obama. The ideas and attitudes of the USSR have proven hard to change.

That seems to be the case at Aeroflot, the nation’s main airline, as well. During Soviet times, the name Aeroflot was synonymous with gruff flight attendants and dilapidated aircraft. But the airline has mustered ambitions to become a major international carrier, and has made tremendous progress upgrading its fleet and modernizing its services. It joined the SkyTeam alliance, which includes Delta and Korean Air.

But as my wife and I found out, Russia’s national carrier, much like the nation itself, is apparently having some trouble shaking off its past.

A week ago, we arrived at Moscow’s Sheremetyevo airport to check into our flight back home to Beijing only to be told that we no longer had seats on the plane. The flight was overbooked and we had been bumped off. We are seasoned travelers, and in our experience, when flights are overbooked the airline usually asks for volunteers to surrender their seats, sweetening the request with some nominal financial benefit. If Aeroflot went through such a process, we weren’t involved, and when we raised the possibility of seeking volunteers, we were ignored. Apparently, the staff had determined who lost their seats in advance, and that was that.

Aeroflot’s decision, however, put us in a tight spot. Not only did we both have to be at work the next morning, but our visas were also expiring that night, so the delay would cause us to remain in the country too long. We explained our predicament to the Aeroflot staff, but nevertheless, they booked us onto another flight the next day. Then they demanded we sign documents agreeing to the change. When we continued to protest, one of the Aeroflot staffers told my wife we had 15 minutes to accept the new tickets or else he would call the police, have us thrown in jail for a visa violation and abandon us to deal with the consequences without the aid of the airline.

Left with the stark choice of prison or a delayed departure, we signed the papers and took our replacement tickets. However, what we weren’t told by Aeroflot is that we would not be able to move freely in the city, the airport or even a hotel until the boarding time of our new flight. The airline placed us in a special section of a Novotel hotel with a guard posted outside the door.

We were not allowed to leave the immediate area of our room, even to go to the hotel coffee shop, nor to order our own food. Breakfast boasted bread and spoiled yogurt but no coffee. Basically, we were locked away as if we had overstayed our visas, when we had not. The airline forced us into a situation in which we were treated as criminals.

We got a pretty good idea of how Edward Snowden must have lived during his first days in Russia. After arriving at the same Moscow airport, Snowden, too, was held in this travelers’ no-man’s land in a hotel not far from our own.

When I asked Aeroflot’s press officers about our case, they responded that “the procedure was completed in full compliance with the company’s rules and regulations.” The press managers added that “there were no offending words or any intimidations at your address [sic]” and that the Aeroflot staff employed “the persuasion approach” to resolve the problem.

As to the conditions at the hotel, they wrote that “there were no negative feedbacks received about the quality of service provided.” In addition, Aeroflot said that “we have taken the decision to organize additional training sessions for our ground personnel which will include the imitations of similar situations [sic].”

That might help. But if Aeroflot intends to shed its old reputation, it might want to ditch its Soviet practices along with its Soviet planes.

TIME ebola

The Economic Costs of Ebola Are Rising Too

BELGIUM-LIBERIA-AVIATION-HEALTH-EBOLA
Picture taken on Aug. 28, 2014, inside a plane of the Brussels Airlines bound for Monrovia, Liberia, one of the West African countries hit by the Ebola outbreak Dominique Faget—AFP/Getty Images

The longer the outbreak lasts and the farther the disease travels, the harder it will hit global growth

A few days ago I was about to board a flight from Beijing to Moscow and I called my mother in New Jersey to tell her I was going on the road. “Be very careful!” she exclaimed, with more angst in her voice than usual. I told her that even though relations between the U.S. and Russia were strained that I’d be perfectly fine in Moscow. But that’s not what she was worried about. “Be careful of Ebola!” she said.

I was, of course, traveling nowhere near any Ebola-hit region — the disease has so far been generally confined to far-off West Africa. Her fear, though, is very real, and to a certain extent, rational. When an epidemic of a disease as deadly as Ebola infects the world’s headlines, it is only natural for people to consider curtailing their travel and other usually normal activities in an attempt to avoid the virus. As the disease spreads, people will become more likely to postpone business trips or cancel family vacations.

And that ultimately could have serious economic consequences. Nothing of course is more tragic than the human cost of the Ebola outbreak. But as the crisis persists, economists are beginning to look at what the toll might be for the global economy as well. In a world still climbing out of the financial meltdown of six years ago, we can hardly afford any new disruptions to investment and consumer spending that could further drag down growth.

That, however, is exactly what a sustained Ebola epidemic could do. We can get a pretty good idea of what can happen from looking at the impact of SARS in East Asia in 2003. Wherever the disease went, people stopped doing what they would normally do, in order to protect themselves, and that had an immediate effect on demand. Restaurants that would usually be jam-packed in central Hong Kong appeared abandoned; flights almost always crammed took off nearly empty; hotels emptied. Though the overall economic damage from SARS was in the end minimal, since it was contained relatively quickly, if the disease had spread more widely or become more entrenched, the cost would have risen precipitously.

We can already see that happening in West Africa. A recent World Bank study estimated that if the epidemic is not contained quickly, it would cost Liberia 12% of its GDP by the end of 2015, and Sierra Leone 8.9% — a loss these poor nations can ill afford. If the outbreak spreads more widely to neighboring countries with larger populations and economies, the World Bank figures the two-year financial cost could reach $32.6 billion. Travel to the region has already plummeted. John Grant, executive vice president of aviation-information provider OAG, recently calculated that the number of scheduled flights out of the worst-hit countries have dropped by 64% since May. Major carriers including British Airways and Delta Air Lines have suspended flights. The president of Dubai-based Emirates noted that the Ebola outbreak has dampened demand in Asia for flights to Africa.

What makes these losses even more unfortunate is that Africa has been in the middle of a major economic revival. For much of the past half-century, poor governance, bad policy and recurring conflict kept Africa on the sidelines of a major surge in growth and wealth throughout much of the developing world, especially in Asia. But in recent years Africa has finally joined the growth party. The International Monetary Fund expects the GDP of sub-Saharan Africa to jump 5.1% in 2014 — faster than any other region of the developing world except for emerging Asia. For now, the IMF sees the impact of Ebola on Africa overall as limited. But if the disease spreads, it could derail what was becoming one of the most encouraging stories in the emerging world.

From a purely economic standpoint, the fact that the countries with the most severe Ebola outbreaks (Liberia, Sierra Leone and Guinea) are small and play a relatively minor role in world trade has minimized the impact the disease has had on the global economy. That, however, would change dramatically if Ebola spreads to larger economies that are more integrated into global finance and manufacturing. Imagine the chaos that could ensue if the empty restaurants and airplanes experienced in the SARS outbreak are repeated in New York City or London for any significant period of time and you’ll get an inkling of the damage Ebola could inflict on the world economy. That’s why the Ebola deaths recorded in the U.S. and Spain are of great economic significance.

“A sustained outbreak of a high mortality disease like Ebola in any large or important economy in the global supply chain would imply significantly larger impact than SARS caused,” Barclays analyst Marvin Barth wrote in a recent report. Such a situation, he added, “remains a tail risk, but has jumped in probability to one that can no longer be ignored.”

Predicting where Ebola might spread and how long the outbreak could last is, of course, impossible, and so is gauging its potential economic impact. What is clear, however, is that containing the disease is not just a humanitarian necessity but an economic imperative.

TIME Hong Kong

Hong Kong’s Protesters Are Fighting for Their Economic Future

Thousands of protesters attend a rally outside the government headquarters in Hong Kong as riot police stand guard
Thousands of protesters attend a rally outside the government headquarters in Hong Kong as riot police stand guard on Sept. 27, 2014 Tyrone Siu— Reuters

The city can't remain a global financial center without its own political process

The conventional wisdom about Hong Kong’s pro-democracy protests is that they are bad for business. Hong Kong has become one of the world’s three premier financial centers (along with New York City and London) because the city has been a bastion of stability in an ever changing region, the thinking goes, and therefore the tens of thousands of protesters who paralyzed downtown Hong Kong on Monday are a threat to its economic success. The Global Times, a state-run Chinese newspaper, used just such an argument to try to persuade the protesters to clear the streets. “These activists are jeopardizing the global image of Hong Kong, and presenting the world with the turbulent face of the city,” it said in an editorial on Monday.

That worry isn’t merely Beijing propaganda. Andrew Colquhoun, head of Asia-Pacific sovereign ratings at Fitch, said one of the big questions facing Hong Kong over the long term is “whether the political standoff eventually impacts domestic and foreign perceptions of Hong Kong’s stability and attractiveness as an investment destination.” The fallout for Hong Kong’s financial sector from the Occupy Central movement was immediate. The stock market dropped, banks closed branches, and the Hong Kong Monetary Authority, the de facto central bank, had to reassure the investor community that it would “inject liquidity into the banking system as and when necessary” to overcome any possible disruptions.

But the real reason why Hong Kong has been so successful is that it is not China. When Hong Kong was handed back to Beijing by Great Britain in 1997, the terms of the deal ensured that the former colony, ­now called a “special administrative region,” or SAR, of China ­would maintain the civil liberties it had under British rule. That separated Hong Kong from the Chinese mainland in key ways. In China, people cannot speak or assemble freely, and the press and courts are under the thumb of the state. But Hong Kongers continued to enjoy a free press and freedom of speech and well-defined rule of law. The formula is called “one country, two systems.”

That held true in the world of economics and finance as well. On the Chinese side of the border, capital flows are restricted, the banking sector is controlled by the state, and regulatory systems are weak and arbitrary. Meanwhile, in Hong Kong, financial regulation is top-notch, capital flows are among the freest in the world, and rule of law is enshrined in a stubbornly independent judicial system. Those attributes have given Hong Kong an insurmountable advantage as an international business hub. Banks from all over the world flocked to Hong Kong, while its nimble sourcing firms orchestrated a global network of supply and production that became known as “borderless manufacturing.” While there has been much talk of Shanghai overtaking Hong Kong as Asia’s premier financial center, the Chinese metropolis simply cannot compete with Hong Kong’s stellar institutions, regulatory regime and laissez-faire economic outlook.

What happens if Hong Kong loses this edge? In other words, what happens if Beijing changes Hong Kong in ways that make its governance and business environment more like China’s? Hong Kong would be finished. The fact is that Hong Kong’s economic success, the nature of its institutions and the civil liberties enjoyed by Hong Kongers are all inexorably entwined. If Beijing knocks one of those pillars away, ­if it suppresses people’s freedoms or tampers with its judiciary, ­Hong Kong would become just another Chinese city, unable to fend off the challenge from Shanghai. Foreign financial institutions would be forced to decamp for a more trustworthy investment climate.

That’s why the Occupy Central movement is so critical for Hong Kong’s future. So far, Beijing has generally abided by its agreement with London and left Hong Kong’s economic system more or less unchanged. But when China’s leaders made clear last month that Hong Kongers would be able to choose their top official, known as the Chief Executive, from 2017 onward only from candidates who have the approval of Beijing, it became obvious that Hong Kong was going to face tighter control by China’s communists over time. That raises the specter that Beijing will at some point dismantle “one country, two systems” and along with it the foundation of the Hong Kong economy.

By fighting for their democratic rights, the activists in Hong Kong are fighting for an independence of administration and governance that will perpetuate their city’s economic advantages. Beijing should realize that ultimately a vibrant Hong Kong is in its own interests. China has benefited tremendously from Hong Kong over the past 30 years. It was Hong Kong manufacturers that were among the first to bravely open factories in a newly opened China, thus sparking the mainland’s amazing economic miracle. Chinese firms have been able to capitalize on Hong Kong’s stellar international reputation to raise funds and list shares on the city’s well-respected stock exchange. Even now, China continues to upgrade its economy by seeking Hong Kong’s expertise. The stock markets in Hong Kong and Shanghai are in the process of being linked to allow easier cross-border investment.

Of course, Hong Kong’s economy is far from perfect, and here, too, the importance of Hong Kong’s democracy movement can be found. The SAR suffers from a highly distorted property market and one of the widest income gaps in the world. Such ills have bred more resentment in the city toward Beijing. Yet right now many of the people of Hong Kong simply don’t trust their Beijing-chosen leaders to resolve these issues. Hong Kong requires a popular administration that commands the support of the people in order to implement the reforms necessary to tackle these critical problems. Thus the battle unfolding on the streets of central Hong Kong is a contest for the city’s very survival. Perhaps Hong Kong’s pro-democracy activists will disrupt the usually sedate financial district for a few days. But that’s a tiny sacrifice compared to the long-term damage Hong Kong faces if its citizens do nothing.

Schuman reported from Beijing.

TIME China

Meet Alibaba’s Jack Ma

The man leading China’s online shopping giant to America

Ma’s Alibaba, China’s online-shopping giant, completed the largest initial public offering in history–$25 billion–on the New York Stock Exchange. The shares started trading on Sept. 19, and the value of the company exceeded that of Facebook, Coca-Cola or IBM.

• CLAIMS TO FAME

Fifteen years ago, Ma, a former English teacher, started Alibaba in an apartment in the Chinese city of Hangzhou. Today Alibaba is the undisputed champion of online retailing, handling twice as much merchandise as Amazon. An indifferent student, Ma built his empire without the top diploma or political connections usually needed to succeed in China.

• BIGGEST CHALLENGES

Ma will be under pressure from his new investors to deliver ever larger profits. He must expand outside his home market while also fighting off opponents at home. Chinese Internet giants Baidu and Tencent and property group Wanda recently joined forces to start a rival e-commerce firm.

• BIGGEST THREAT

China’s authoritarian rulers still wield tremendous control over business. A big wild card in Alibaba’s future will be Ma’s ability to stay in the good graces of the Communist Party while building trust with consumers in the West.

• BIGGEST CRITIC

The investor Peter Thiel passed on Alibaba’s IPO, arguing that a bet on the company was ultimately a bet on Beijing–with the political uncertainty that implied.

• CAN HE DO IT?

Ma has a proven track record of competing with global e-commerce titans–and winning. He’s shoved aside eBay and Amazon in China. And with his post-IPO war chest, Ma has the financial muscle to invest heavily and acquire other firms. The question is, Will he shop wisely?

–MICHAEL SCHUMAN

TIME stocks

4 Things Alibaba’s IPO Tells Us About a Changing World Economy

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province
An employee is seen behind a glass wall at Alibaba's headquarters on the outskirts of Hangzhou, China, on April 23, 2014 Chance Chan—Reuters

The Chinese e-commerce giant launches one of the largest stock-market debuts in history — and points the way to our economic future

The story of Alibaba has already become legend. Fifteen years ago, Jack Ma, a former English teacher, and his co-founders set up their Internet company in an apartment in the Chinese city of Hangzhou, not far from Shanghai. Today, Alibaba’s online shopping sites in China — mainly Taobao and Tmall — handle twice as much merchandise as Amazon. The company’s initial public offering on the New York Stock Exchange will bring in a haul of some $21.8 billion — bigger than Facebook’s — and values Alibaba at $168 billion — four times more than Yahoo.

When Alibaba’s shares start trading Friday, history will be made. And not just in the world of tech or stock markets. Alibaba’s IPO represents some much bigger trends shaping the world economy. Here are four things the IPO tells us about our economic future:

1. More and more of the world’s most prominent companies will be from the developing world.
We still have this image of China as one big factory floor where millions of poor people slog away on assembly lines churning out cut-rate toys, clothes and electronics. Sure, there are still factories like that, but ever more that low-cost manufacturing center guise is becoming the Old China. The world’s most populous nation is developing so rapidly that it is already producing companies that are major players in all sorts of industries. Lenovo is now the largest PC maker in the world, while Huawei is challenging the best of the West in telecom equipment.

Alibaba takes this trend to an entirely new level — out of manufacturing and into the realm of technology and services. Ma and his executive team have created a company that can be named in the same sentence as tech titans like Facebook and eBay. And Alibaba is not unique. Shenzhen-based Tencent, which operates the popular WeChat messaging service, is yet another Chinese Internet firm with global potential. The fact is the most powerful companies in the U.S. and Europe will increasingly have to contend with Chinese companies exploding onto the world stage. And China may be in the lead among the world’s emerging economies in this trend, but it is not alone. India has produced some IT firms that can compete with the world’s best, such as TCS and Infosys.

2. Emerging markets are creating blue chips.
Ever since the idea of investing in the developing world became popular in the early 1990s, there has been a line drawn between these “emerging markets” and the more established bourses of the U.S., Europe and Japan. Emerging markets were supposed to be riskier, where only the bolder of investors would dare tread, compared with the supposedly more trustworthy and less volatile options in New York City and London. The Alibaba IPO shows how that great wall is breaking down. That a company based in a town like Hangzhou can raise more money in its IPO than one based in Menlo Park, Calif., (Facebook) shows that investors are starting to treat firms from the developing world on par with those in the developed world. Of course, the stigma staining companies from China and elsewhere won’t go away overnight — Chinese companies that have listed in New York City have had a sad history of accounting disasters. But going forward, your stock portfolio is going to hold more companies with addresses in Shanghai, Mumbai, Istanbul and São Paulo.

3. Consumers in the developing world will rule the world.
The story of the global economy since the end of World War II has gone something like this: capitalizing on better transport and communications technology, world production shifted en masse to poor countries from rich countries like the U.S. Factories replaced rice paddies in South Korea, China, Indonesia and elsewhere, which then shipped the mobile phones, computers and sneakers manufactured there to store shelves in the U.S. and Europe. The billions of people in these poorer nations couldn’t afford much of the stuff they made.

Now the global economy is “rebalancing.” Consumption in the U.S. and Europe is constrained by weaker job prospects and stagnant wages, while disposable income in China and other developing nations is increasing in leaps and bounds. That is making consumers in these countries the new engine of global economic growth. If the U.S. consumer dominated the 20th century, the Chinese and Indian consumer will control the 21st.

Alibaba is a prime example of the power of these new, emerging consumers. In 2013, Chinese shoppers bought $248 billion of stuff on Alibaba’s retailing websites. Compare that to an estimated $110 billion worth of good purchased on Amazon — globally. Increasingly, it will be companies that sell to households in Beijing, New Delhi and Jakarta that will dominate global consumer industries.

4. Your next job may be at a Chinese or Indian company.
Jack Ma has said that he plans to use some of his multibillion haul from the IPO to expand Alibaba’s presence in the U.S. and Europe. This, too, is part of a trend. Companies from developing markets are becoming more important investors around the world. According to the American Enterprise Institute, Chinese companies have invested more than $500 billion around the world since 2005 — with the U.S. the top destination.

And as companies from China, India and other emerging economies become ever bigger and bigger global investors, they will become bigger and bigger global employers. Firms like Lenovo, Huawei, carmakers Geely and Tata, appliance maker Haier and a host of others already employ thousands between them around the world. Going forward, you might just find your best job opportunity is at a company like Alibaba, based in China, rather than a firm in New York City, Paris or Frankfurt.

TIME India

Why the World’s Most Powerful Leaders Really Love India

Xi Jinping, Narendra Modi
Indian Prime Minister Narendra Modi and visiting Chinese President Xi Jinping walk for a meeting in New Delhi, India, Thursday, Sept. 18, 2014. Manish Swarup—AP

Chinese President Xi Jinping’s visit to India highlights the geopolitical contest reshaping Asia

Some of the world’s most important people are wooing India’s new Prime Minister Narendra Modi like teenage boys drooling over the homecoming queen. Less than a month ago, Modi was feted in Japan on his five-day official visit, during which he even received an unexpected hug from usually stiff Japanese Prime Minister Shinzo Abe. This week, Modi is hosting China’s President Xi Jinping, who upon his arrival in the country on Wednesday, proclaimed that Beijing wishes “to forge a closer development partnership and jointly realize our great dreams of building strong and prosperous nations.”

Why has Modi become so popular? The reason can be found in how Asia is changing, politically and economically. Ever since China’s paramount leader Deng Xiaoping launched his country’s remarkable economic miracle in the early 1980s, the old Cold War divisions in the region melted away amid increasing economic integration. According to the Asian Development Bank, trade between Asian countries accounted for 50% of their total trade in 2013, up from 30% in 1985. But with China flexing the political and military muscles it has acquired from growing wealth, Asia is becoming split into two camps once again – one centered on China, the other on the U.S. and its allies, including Japan, South Korea and the Philippines. Each side is looking to bolster its support in the region in order to gain leverage on the other. Tokyo, embroiled in a tense stand-off with Beijing over disputed islands in the East China Sea, is looking to build a network of allies to “contain” a rising China. Meanwhile, Beijing is aiming to create a power bloc of its own in the region to counteract U.S. influence.

India has become a key wild card in this new geopolitical power game. As a rising power in its own right, and a huge potential source of new business in everything from espressos to expressways, whichever side manages to lure New Delhi into its orbit will tilt the scales in its favor.

Both camps are making their best pitch. Japan’s Abe took the unusual step of traveling from Tokyo to the historic city of Kyoto to personally welcome Modi to the country. Xi ventured all the way to Modi’s home state of Gujarat on this visit, even donning an Indian-style vest. Abe sent off Modi with a promise of $33 billion of new investment. Xi is reportedly planning to top that during his India visit, dangling an even bigger package of $100 billion.

On purely economic grounds, you’d think Xi has an advantage in his quest for Modi’s favor. Trade between the two has exploded, to nearly $66 billion in 2013 from a mere $1.2 billion in 1996. Their economic links will likely continue to strengthen as Chinese companies become more and more important global investors and Chinese consumers more and more important customers. The world’s two most-populous nations would appear to have many economic interests in common as well. Their companies, accustomed to operating in an emerging economy and selling to emerging consumers, are attracted to the potential of each other’s markets. China’s Xiaomi, for instance, has successfully lured Indian customers to its cut-rate smartphones as it has in China. Wouldn’t Modi be wise to hitch his country to the world’s rising power, rather than Japan, a declining one? That would bring to life the economic power of what’s been termed “Chindia.”

But China-India relations are more complicated than that. After India’s independence in 1947, Prime Minister Jawaharlal Nehru thought his new nation would find a friend in newly communist China. The spirit of the times was captured in the phrase Hindi Chini bhai-bhai, or “Indians and Chinese are brothers.” That hope was dashed, however. India has incensed China by allowing Tibet’s Dalai Lama, who Beijing considers a dangerous separatist, to reside in exile in India. Modi, in fact, invited Tibet’s prime minister-in-exile to his inauguration in May. Relations are also continually roiled by border disputes. In 1962, the two fought a nasty border war, and the causes of that conflict linger to this day. The two countries contest land along their border in India’s far north in Ladakh, while China claims India’s eastern province of Arunachal Pradesh. China perennially irritates India over these unresolved issues. Just last week, only days before Xi’s much-heralded visit, India charged that Chinese troops are building a road in the contested territory in Ladakh. In talks with Xi on Thursday, Modi urged the Chinese President to finally resolve their border disagreements.

Such tensions are clearly weighing on Modi’s mind. He has apparently embarked on a mission to upgrade India’s military capabilities and relationships. Abe and Modi during their recent summit agreed to strengthen military ties, and in August, New Delhi and Washington pledged to do the same during U.S. Defense Secretary Chuck Hagel’s visit to India. One of the first economic reforms Modi announced after becoming Prime Minister was easing restrictions on foreign investment into India’s defense sector, a move aimed at bolstering its technology and production capacities. It is an open secret who is the target of all these military moves. While in Japan, Modi took a swipe at an assertive China when he told business leaders in Tokyo that “everywhere around us, we see an 18th century expansionist mind-set: encroaching on another country, intruding in others’ waters, invading other countries and capturing territory.”

Modi, then, is attempting to have his halwa and eat it, too — playing off both sides to win as many goodies as he can. In his quest to restart India’s economic miracle by building much-needed infrastructure and boosting manufacturing, Modi will need all the money he can get — from China, the U.S., Japan and anyone else who is offering. India has always been wary of trying itself too tightly into any one political camp — during the Cold War Nehru was the leading figure behind what was known as the “nonaligned movement.” The question is how long Modi can play one side off the other. We may find out soon enough. Later this month, Modi will travel to Washington to meet with President Barack Obama. Let’s see what goodies he picks up there.

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