Ten Steps to Making Global Finance Work

This chapter presents some of the key opportunities, techniques, and survival strategy in the global economy, including:

» new markets in the developing world
» Europe
» accessing capital markets
» managing forex risk versus speculation
» Foreign Direct Investment (FDI) and the alternatives.

"Achieving free trade is like getting to heaven. Everyone wants to get there, but not too soon".
Anonymous

1. NEW MARKETS IN THE DEVELOPING WORLD

As we have seen, the recipe for future prosperity in the developing world is complex and controversial. Nevertheless, the globalization process has opened up certain countries, promising a substantial longterm boost to world growth and creating opportunities for companies to expand out of their own maturing markets.

OPPORTUNITY IN CHINA

Until 1979 China was a closed economy. Since then, it has modernized rapidly, largely because of its massively improved trade and investment relations with the rest of the world. By 2020, China could displace Japan to become the largest trading nation in the world after the US, potentially generating substantial growth both for itself and its trading partners.

Progress depends on factors such as joining the WTO (with a consequent further reduction in trade barriers) and sustaining foreign investment by major reforms in its financial system. In the face of problems, foreign investment can disappear as quickly as it arrives, so China's rulers face a major challenge in macroeconomic management in the medium term.

The World Bank estimates that by 2020, China's market share of the world export market for clothing will reduce as it moves up the value chain into light manufacturing and transport, machinery, and equipment. Exports from North America, Europe, and Japan to China are expected to rise by 6.5% annually until 2020, mainly in knowledge- and capital-intensive goods and services, but also in food, where North America has a comparative advantage.

China's growth, therefore, is expected to benefit the developed nations. While South-East Asian countries are fearful that China will undercut them in many industries, they are likely to enjoy net gains overall, according to the World Bank.