Stratfor IDs 16 Post-China Winners
China’s growth engine is shifting gears, and its dominance of low-end manufacturing is fading, opening the way to a new era where a roster of some 16 countries stand to emerge from China’s shadow and lead the next wave of low-cost global manufacturing growth.
That’s the latest take on life post-China from George Friedman, head of geopolitical think tank Stratfor, who argues that China is at the limits of its 30-year low-wage, high growth phase. An economic model that allowed inefficient businesses built around low wages and bank lending to thrive for years has now become an unsustainable drag on the economy, which has slowed growth and triggered inflation as well as higher production costs.
That’s forcing China to change, and as it changes its economic model, its dominance of low-value manufacturing will give way to countries from Ethiopia to Indonesia to Peru to take its place. Those countries, which Friedman collectively calls the “Post China 16,” have even lower wage advantages than China.
To be fair, many of these countries seem like a long shot, and even Friedman will concede that point, although he makes it clear that there’s no single country that can replace China. It will take a group of nations, combined, to fill such large shoes.
Some of the post-China 16 are emerging economies, some are frontier and many are of unclassified status, according to MSCI’s country classification system.
That lack of classification means index provider MSCI doesn’t even track these economies, because they have equity markets that aren’t developed enough in terms of size and liquidity to allow for the creation of indexes, according to Sebastien Lieblich, an executive director in MSCI’s index business.
Indeed, this group is truly a diverse bunch, and includes some of the least investable markets in the world. But that’s not to say they are totally out of reach for U.S. investors; there are a number of ETFs already on the market that focus exclusively on or tap in to some of these growing markets.
“Since the industrial revolution, there have always been countries where comparative advantage in international trade has been rooted in low wages and a large work force,” Friedman said in a research note this week. “If these countries can capitalize on their advantages, they can transform themselves dramatically.”
“There is no single country that can replace China,” he added. “Its size is staggering. That means that its successors will not be one country but several countries, most at roughly the same stage of development.”
The Post-China 16
The epicenter of this brewing growth is in the Indian Ocean Basin, although the geographical dispersion of the group extends all the way to Latin America. Countries like Tanzania, Kenya, Uganda and Ethiopia, Sri Lanka, Indonesia, Myanmar and Bangladesh are in the heart of the basin, and are growing. The Philippines is another country in the nearby region that’s looking prospective, Friedman said.
In all, Friedman points to eight countries on that side of the globe, one of them emerging—Indonesia—and three frontier markets: Kenya, Bangladesh and Sri Lanka.
The remaining nations in the region are still untracked by MSCI, and they include Ethiopia, Tanzania, Uganda and Myanmar.
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