Hi members,

May you like to read this speech? Do not smell any religion, politics and propaganda.I received this mail, liked it and paste it here.

Speech by STEPHEN K GREEN, Group Chief Executive, HSBC HOLDINGS PLC on 9 FEB'2005 at the NASSCOM Conference, Mumbai titled
"REBALANCING OF THE WORLD ECONOMY"

(The following is a reformatted version of a press release issued by HSBC Holdings Plc and received via electronic mail. The release was not confirmed by the sender.)

Good morning, and thank you for inviting me to speak to you today. It's a great honour to be asked to address the Nasscom conference, the size of which is one indicator of the success of an industry that India has made its own.

I would like to start by saying a few words about the devastation caused by the Sumatra earthquake and consequent tsunami which struck parts of Asia only six weeks ago. Although the cameras have largely moved on, in the UK at least, the human cost is still being counted in India, Indonesia, Sri Lanka and Thailand, which bore the brunt of the destruction. Over 220,000 people lost their lives, and many more survivors have lost their
family, friends, homes and livelihoods.

HSBC has offices in each of the affected countries, and although we have been lucky that none of our staff were directly affected by the tsunami, the desire of colleagues both in the region and elsewhere in the world to help with the long task of reconstruction has been tremendous.

Here in India, for example, colleagues have contributed a day's salary to the relief effort, with donations matched by HSBC.

Some have raised money by running in the seven kilometre run at the Mumbai Marathon last month and further funds were raised through a recent auction of sporting memorabilia to which some of our key customers contributed generously. Others still have volunteered to work with affected communities through a special five-day tsunami leave that we are making available in India.

The human cost of the tsunami has been only too visible for all to see, but there has been relatively little said of the economic impact of the tragedy. For the communities affected, the economic outlook will be very challenging indeed, with traditional livelihoods and tourism badly disrupted, in addition to the catastrophic loss of life. But the macro-economic cost - the impact on GDP in the countries affected, for example - will be relatively small. These facts tell their own tragic tale - that there are still large numbers of people living at the economic margin of subsistence. It is this poverty that is one of the key issues countries like India and Indonesia have to address in the years and decades ahead.

Looking ahead, I believe that the overall economic prospects for Asia are bright and, with the right mix of policies and the avoidance of external shocks the recent strides in the reduction in poverty will continue at an even faster pace.

The rise of Asian economies will also bring about a fundamental rebalancing of the world economy. Indeed, this is a process that is already well underway.

Today the region, home to over half the world's population, is also one of the world's most economically vibrant areas. The Asian economic miracle allowed places like Hong Kong, Korea, Singapore and Taiwan to become prosperous, productive economies, which rival western countries in their economic sophistication and standards of living.


Today, Hong Kong is one of the world's leading international financial centres. Korea is home to leading edge electronics companies such as Samsung. Taiwan is a leading player in the semiconductor market. And Singapore is carving itself a niche in nanotechnology and microbiology.

The question now is whether Asia's, and indeed the world's, two largest countries, will achieve a similar transformation.

China and India.
Today, India and China together have over a third of the world's people, but account for just 5.5 per cent of world GDP. By contrast, America has less than 5 per cent of the world's population and produces nearly a third of its GDP. In the long term, the gap is unsustainable. And will narrow rapidly.

At HSBC we expect half of global growth over the next quarter century to come from what we today call `emerging markets'. There is a tendency to forget that some of these so- called emerging markets were major economies less than 200 years ago. In 1820, Asia excluding Japan accounted for 56 per cent of world GDP, with India's contribution standing at 16 per cent. So perhaps we should see the rise of India and China more as a
return to their former success.

Not that industrialised nations will lose out to emerging economies; it is more that the emerging nations will catch up with the industrialised world.

Economic growth is not a zero-sum game. However, the changing balance of the world economy will profoundly affect people's lives, wherever they live, for the next quarter century.

The second half of the twentieth century was characterised by liberalisation of markets and the lowering of barriers to global trade. Some people refer to this as `unprecedented', but other economic historians argue that the late 19th century was the period that saw the biggest decline ever in intercontinental barriers to trade. Arguably, the liberalisation of the second half of the twentieth century has been largely about undoing the
damage to global integration caused by two world wars and the inward-looking protectionism they brought with them.

I'd like to look a little more closely at China and India.
The two countries have some similarities, not least their size. Perhaps it is only the leaders of these two nations who truly comprehend the enormous task of governing a country of over a billion people.

I am sure that when China's Premier Wen Jiabao visits India next month, Prime Minister Singh will be able to sympathise with his recent remarks that "any small individual shortage multiplied by 1.3 billion becomes a big, big problem and a considerable amount of financial and material resources divided by 1.3 billion becomes really small."

However, they have many differences, so if I may, I willlook at these two economies separately.

Turning to China first. Ever since China embarked on economic reform some 25 years ago, its success has been nothing short of astonishing. It is already the world's seventh largest economy - or if you look at it on a purchasing power parity basis, the second largest, after the US.

Its success has been achieved through a gradual transformation from a centrally planned economy towards a market driven one. China was also one of the first countries to take advantage of the growing stock of FDI - which more than doubled as a proportion of world GDP in the decade to 2001, to 21.5 per cent.

And although the bulk of FDI still flows to developed countries, China has been the single biggest recipient of FDI to developing economies.

China has focussed relentlessly on manufacturing, which now forms the core of China's economy, accounting for over half of GDP. In the same period, the contribution of agriculture to the Chinese economy has almost halved to under 15 per cent of GDP.

China is the world's largest producer of steel, coal, cement, fertilisers. And of course, China is the world's largest producer of a wide range of consumer products. Indeed, last year China became the world's third largest trader of manufactured goods. Two thirds of all photocopiers, microwave ovens, DVD players and shoes and over half of all digital cameras in the world carry a `Made in China' label.

Most importantly for the Chinese people, growth has reduced poverty by an extraordinary degree.

According to the UN, since 1979 the % of Chinese living in absolute poverty has dropped from 25 percent to around 2 percent of the population.

As people have moved from subsistence living to working in productive industries, they are also beginning to have a higher disposable income. And as incomes rise, China is beginning to emerge as a consumer market. So China's future growth will depend not just on exports, but on meeting local consumer demand.

And of course, a burgeoning consumer market brings opportunities for local and international companies alike, which some are already exploiting.

At the same time, Chinese companies have ambitions to become global players, as was clearly illustrated at the end of last year, with the acquisition of IBM's PC business by China's Lenovo - the largest foreign acquisition by a Chinese technology company to date.

China's successes to date are not in doubt. But there are still challenges ahead.

Strengthening the rule of law, building a social security system, dealing with corruption, the supply of energy, establishing standards of corporate governance, the strengthening of the financial system and tackling inequality. All these are significant challenges, and there is still a tremendous amount to do. But looking back on what has been achieved to date, we at HSBC are optimistic for the future.

We have a similar optimism about India's future.
Indeed, in my view no investor can afford to ignore the potential of India. The success of the Indian diaspora - doctors, engineers, scientists, businesspeople - has long illustrated the potential of India's home-grown talent. The global technology boom removed any lingering doubts.

India is already the world's fourth largest economy on a purchasing power parity basis. It is also one of the top three Asian countries in its GDP growth rate - which, at around 6 per cent in 2004, is far higher than an industrialised economy could hope to achieve.

Economic growth has meant that India's real GDP per head more than doubled between 1980 and 2000, thanks largely to two revolutions. The green revolution, which transformed agricultural productivity, and is often overlooked by foreign commentators, who ignore the fact agriculture still provides more than half of India's employment, although it contributes only about a quarter of GDP.

The second revolution was in liberalisation. Although tentative moves towards liberalisation were made in the 1980s, it was the 1991 crisis that was the real catalyst for the liberalisation of trade and investment regulation that has contributed to India's growth in the last decade.

On top of this, India has a number of the attributes that are commonly associated with successful economies. Sound government - I need remind no-one here that India is the world's largest democracy; a free press; the rule of law and property rights.

India has other advantages too. It has an excellent tertiary education system, producing a large pool of qualified professionals. India has over 24 million university-educated people, an increase of 60 per cent in just over a decade. To put this in context, this is the same size as the entire population of Malaysia. India has over a thousand engineering colleges where the medium of instruction is English, and some 350,000 students are enrolled each year. In addition to this, there is a very large pool of English-speakers.

The combination of an educated, English-speaking workforce,available at a lower cost than in the UK or the US, add up to a compelling competitive advantage.

And they have been the major driving force behind the recent surge in the business process outsourcing and IT services industries, which are the subject of this conference. Today, it is estimated that over half of the Fortune 500 companies outsource some of their IT-related work to India. The number of people employed by the IT and related sectors has increased nearly three-fold from 1999-2000 to over 800,000 today.

As you know, HSBC has been delighted to capitalise on the talented working population in India, to build our operations here. We have around 12,500 employees in India, two thirds of whom work either in our global resourcing centres or in software development. That is to say, much of the work we are doing in India is being done on behalf of subsidiaries overseas.

Where offshoring work was initially confined to back office processing, companies are now undertaking high-value work such as software development, medical diagnostics and financial research.

Perhaps the only cloud on this particular horizon is that the speed at which the industry has developed, which has been such a triumph for India, and indeed for its industry association, Nasscom, has led to an unwelcome and unjustified backlash against offshoring in some countries, which fear the loss of jobs to places like India. Every cloud has a silver lining: the Economist predicted recently that Western nations will soon stop seeing the movement of jobs as a problem, and begin to see it as a solution to their own declining workforces. Let's hope this proves to be the case.

China's manufacturing success, coupled with India's leading role in IT services provision, has led many commentators to conclude that China is the world's manufacturer, and India the world's service provider. While there is some truth in this, I think it is too simplistic a description of the complexity of India's economy and its potential for growth.

The IT services industry has been an outstanding success for India, of that there is no doubt. But even on the most optimistic forecasts, the industry is expected to employ only around 4 million people. In a country with a working population of 400 million, with 10 million new workers joining the workforce each year, it is equally clear that IT services cannot provide all of India's future growth.

Both services and manufacturing will need to create jobs, and agriculture will continue to be important. Elsewhere in the economy, there are positive indicators.

FDI is increasing. Last year, India attracted over US$3 billion in FDI and, although this is often compared unfavourably to China's figures, AT Kearney's latest FDI Confidence Index ranked India as the third most attractive FDI destination in the world, behind China and the US. Two years ago, it was only ranked 15th.

History has shown that FDI works where it is welcome, and provided the regulatory environment permits. And also that it is the most stable form of investment. The survey I have just quoted also cited India alongside China as the most attractive short and medium term destinations, so there is an opportunity to be grasped here if India wants it.

Studies by various sources indicate that investment by top corporates in the next three years will double that of the past three years. The sectors attracting most of this extra investment are power, oil and gas, metals, telecoms, roads,ports and shipping, autos and petrochemicals.

The infrastructure required to support manufacturing is improving, thanks to continued investment. As you know, the Golden Quadrilateral road project connecting India's four main metropolitan areas is about three-quarters complete, and the 7,000 km North-South East-West corridor project is due to be completed in 2007.

The economic impact of these improvements is starting to manifest itself. Besides the obvious increase in demand for construction materials and services, the automobile and tourism sectors are indirect beneficiaries.

Another cause for optimism about India's long-term prospects is simple demographics. As most of you know, half of India's population is under the age of 25 - all of us in this room are in the older half of the population. India's population will continue to grow in the next 50 years, and the proportion of working age people will also increase for at least the next two decades.

Finding employment for new generations of workers is a challenge, but it is also an opportunity that may allow India to outperform developed and developing countries alike. The increasing mobility of labour, as demonstrated by your industry, may give impetus to this growth. Work that was previously fixed in a certain location can now be done anywhere in the world, thanks to the revolutionary technologies of the PC, internet and
mobile phone.

Economic growth of itself brings new opportunities. Rising incomes are creating a new consumer market. The proportion of households with an income over 60,000 rupees is forecast to rise from around 20 per cent a decade ago, to almost 50 per cent next year. Private consumption is growing rapidly, with purchases of non-essential items representing a greater share of consumption. To take just one example, last year the market for mobile phones grew by a quarter.

Overall, it is clear that reforms and liberalisation are creating an environment in which the talents and ingenuity of India's growing number of world-class companies can thrive.

Further evidence of this was provided by S&P, which upgraded India's credit rating to BB+ only last week, citing India's good medium term growth prospects, the improvement in the external debt ratio and good export growth as contributing factors to the upgrade.

Obviously there are challenges ahead, and these should not be underestimated. But we at HSBC are optimistic for the future, and we certainly hope that we can make a positive contribution to India's development. As a long-term investor - after all we have been in India for 150 years, and we are proud of our long- term heritage in this country; as an employer, creating jobs; and as a conduit for finance, to aid business development.

I'd like to touch on one final theme this morning. And that is the implications for the world's capital markets and for governments' fiscal policies of the rise of consumer markets in Asia, notably China and India.

Today, America's fiscal and current account deficits are being funded mainly, and relatively cheaply, by Asian savings.

The central question is this: will the two trillion dollars of central bank reserves in Asia continue to be invested primarily in US government treasuries in the long-term?

I think it unlikely. More importantly, so does Alan Greenspan. He was recently quoted in The Economist saying: "Given the size of the current account deficit, a diminished appetite for adding to dollar balances must occur at some point."

China, famously, has a savings rate of over 40 per cent, and India has been increasing its savings rate - to 28 per cent last year. As these economies grow, their high savings' rates will inevitably mean the creation of ever-larger pools of investible domestic capital, alongside the FDI flows and a strong reserve position.

The challenge here is for this pool of savings to be recycled and invested efficiently. In the next few years, we expect to see the emergence of more sophisticated capital markets in Asia to handle the process of intermediation efficiently. In time, we expect Asian savings to be recycled in Asia rather than in New York or London.

We envisage Asia having its own huge capital markets.

Ladies and gentlemen, let me draw some conclusions. If China and India continue their present economic growth, they will have a major effect on the balance of influence in international relations. I would go further and say that the economic modernisation of Asia is the most significant consequence yet of the globalisation of human commerce.

As the balance of influence becomes more evenly shared, the world will move from an era of economic domination by a small group of wealthy nations mostly in the West, to one where power is more evenly shared. We will move from a world which is unipolar or bipolar today, to one that is multipolar and interconnected as the East takes its place on the world stage.
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Vikram Dayal
Chief Executive
Sporting Excellence
Tel: +91 22 5699 8104
Fax:+91 22 5699 8103
Mobile: +91 98204 03394
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Live and Let Live. Together we can make a difference.

DP JAIN, CPA, CGA, CPA (US), CA(I), LL.B.(I)
416-305-0080
(Loans, Mortgage, Tax, Accounting, Investments)

Jainsaheb its really good article.

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Ashvin

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Orginally posted by ashvin_1

Jainsaheb its really good article.

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Live and Let Live. Together we can make a difference.

DP JAIN, CPA, CGA, CPA (US), CA(I), LL.B.(I)
416-305-0080
(Loans, Mortgage, Tax, Accounting, Investments)