(Reuters) - With the British economy flat on its back, the Jaguar Land Rover (JLR) factory in Birmingham, the second largest city in England, is doing something unusual: hiring. The company is doing well. With exports to China and other big emerging economies rising strongly, Britain’s largest automotive manufacturer recently said it would hire another thousand workers and build a new engine plant, creating a further 750 fifty jobs.
The Jaguar plant, which manufactured Spitfire fighter aircraft and Lancaster bombers during World War II, is an amalgam of state-of-the-art robots and old-fashioned craftsmen intent on their work. Electric carts laden with parts buzz across the factory floor, passing beneath big screens that flash the number of cars completed that shift. It takes 48 hours to process the top-of-the-line XJ model. As sedans roll off the assembly line, each customer’s specifications are given a final check, and the cars are driven away to be shipped everywhere from Australia and Azerbaijan to the United States and China. The company, bought by India’s Tata Motors from Ford Motor in 2008, exports 75 percent of its output. Britain and the United States remain JLR’s biggest markets, but China has sped into the third spot and now accounts for 14 percent of the company’s sales, which reached 232,704 vehicles last year.
That the luxury tastes of newly rich Chinese are generating employment in the birthplace of the industrial revolution is a powerful expression of Asia’s rising clout and a reminder that the West’s protracted debt crisis has not sucked all life out of the global economy. JLR’s sales to China have risen by more than 750 percent in the past five years. “Nearly everybody’s cutting back because of the recession, but China is still an expanding market,” said Jim Kearns, an experienced assembly-line worker at JLR’s Castle Bromwich plant in Birmingham. “They’ve got their heads screwed on over there.”
Europe’s debt malaise is prompting talk of a lost decade for the economy, like Japan in the 1990s. In the United States, deadlocked debt reduction talks, high unemployment, and long-stagnant incomes are sapping confidence. But many less affluent countries, though not immune to the West’s woes, have displayed remarkable resilience. While advanced economies are likely to expand just 1.6 percent this year, emerging and developing countries should notch up growth of 6.4 percent, according to the International Monetary Fund. For the past five years, developing countries have contributed as much as 65 percent of world growth and 70 percent of the growth in global imports, the World Bank estimates. Nor is this growth purely a function of final demand in the West. South-South trade - for instance between China and India or Brazil and Africa - now makes up 45 percent of developing country imports, up from about 23 percent in the early 1990s.
The BRIC countries are in the vanguard of this reordering of the world economy. Brazil, Russia, India, and China accounted for just 8.5 percent of global GDP at market exchange rates in the period between 2000 and 2004, according to the IMF. Between 2005 and 2009 that share rose to 13.1 percent, and by 2015 it will have overtaken that of the euro zone to reach 20.7 percent, just shy of the United States at 21.1 percent. “We’re in the early days of the rise of the BRICs,” said Jim O‘Neill, the Goldman Sachs economist who coined the concept a decade ago. Trade tells a similar story. Over the past two decades, the share of world exports among the BRIC countries has nearly tripled, while their share of global imports has nearly doubled. At the same time, the gulf in productivity between industrial and developing economies - what economists call the “convergence gap” - remains very large. Hundreds of millions of people have been lifted out of dire poverty thanks to the 10 percent annual growth China has enjoyed since the late 1970s, but an estimated 300 million Chinese still do not have access to clean water. Measured at purchasing power parity, annual income per head in China is just 16 percent of that in the United States. In India, the figure is just 7 percent. It’s this catch-up potential that has businesses salivating.
“I‘m still optimistic. We will continue to see hyper growth in these markets,” said Yang Yuanqing, the chairman of Lenovo, the world’s number two personal computer maker. In China, for example, many people in the biggest cities already own a computer, Yang said, but the penetration rate in smaller cities and townships remains very low. His confidence is broadly shared by the man in the street in China even if there is resentment towards officials suspected of having acquired their wealth through connections or corruption. Zhu Lijun, a postgraduate student in Beijing, said he was satisfied with his standard of living. “As a college student, I feel optimistic about my future,” Zhu said. “What matters is not whether other people get wealthy faster than me, but the way they get wealthy.”
Economic growth in China is slowing but incomes are still rising fast; the government is committed to boosting household consumption’s share of the economy so that growth relies less on investment and exports. HSBC reckons 40 percent of China’s urban households now fall into the middle-class category, with annual income of 60,000 yuan to 500,000 yuan ($9,450 to $78,600). Five years ago, the proportion was just 10 percent. “This group has both the capacity and the desire to buy branded products and more expensive consumer durables as well as spend money on travel and culture,” said HSBC’s chief China economist, Qu Hongbin. That’s good news not only for Jaguar Land Rover, Lenovo, and the thousands of other companies currently flogging their wares in China, it also bodes well for other companies, and entire countries, that would like to feed China’s voracious demand for components, energy, and minerals.
Australia owes much of its long economic expansion to sound policy-making, but credit is due as well to China’s hunger for iron ore, coal, and other natural resources. China accounted for 27 percent of Australia’s exports in the first nine months of 2011, up from just 5 percent in 2000. Because the price of natural resources has soared while the cost of manufactured goods has fallen, a shipload of iron ore from Australia in 2010 could buy about 22,000 flat-screen television sets, 10 times more than just five years earlier.
The commodity boom is also helping Africa. Excluding countries with fewer than 10 million people, six of the 10 fastest growing economies in the world between 2001 and 2010 were in Africa. Between 2010 and 2015, seven of the top 10 countries, the IMF reckons, will be African. One of them will be Zambia, the continent’s largest producer of copper. The $13 billion economy has grown at more than 6 percent annually over the last five years, and the benefits are slowly starting to trickle down. Kemmy Chaande, a reserved, soft-spoken man in his forties, has received a 3.2 billion kwacha ($625,000) government loan to expand his roofing sheet plant in Kabwe, about 140 kilometers north of the capital, Lusaka. With the government planning to spend more on construction in 2012, Chaande is eyeing a bigger market and hopes gradually to increase his workforce to 150 from 28 today. “The future looks very bright,” he said. “It is companies like this one which employ people, and if we can be supported then even poverty levels will come down.” Foreign direct investment, especially from China, has also been a powerful driver of Africa’s growth, contributing an additional one half of a percentage point or more to GDP growth, according to Aaron Weisbrod and John Whalley of the University of Western Ontario. In the case of Zambia, which drew more Chinese investment relative to the size of its economy than any other country the researchers studied, the extra growth came to 1.9 percentage points in the years 2003 to 2009.
Research by IMF economists corroborates the notion that the BRICs are acting as a locomotive for poorer nations such as Zambia. Issouf Samake and Yongzheng Yang estimate that a 1 percentage point increase in BRIC demand and productivity leads to a cumulative 0.7 percentage point increase in low-income countries’ output over three years. And that has translated, they argue, into a surprising economic resilience in the face of the worst recession for developed nations since World War II.
Not everyone in Zambia is prospering, of course. “It’s just hand to mouth,” said Gertrude Tembo, a 38-year-old mother of five who sells vegetables on the streets of Lusaka. “I’ve been selling on this street for the past 10 years and I am still here the way I started.” What is enthusing Africa optimists, though, is that governance is generally improving too. The number of conflicts has fallen and power is increasingly changing hands peacefully through the ballot box, as it did in Zambia in September. “Since the new government has introduced pro-poor policies, such as the decision to reduce taxes for thousands of workers, a lot of people should feel the benefit of Zambia’s positive economic growth,” said Gervas Malibata, a rural development worker.
The picture is roughly the same in Peru. A commodity boom fueled by demand from Asia has laid the foundations for a surge in domestic consumption. Per capita income more than doubled from $2,000 in 2000 to $5,000 in 2010 and it is set to reach $6,700 in 2015, the IMF says. Peru has come a long way from the hyper-inflation and violence of leftist Shining Path insurgents that scarred the 1990s. “There are job opportunities now and, above all, there is stability,” said Magra Trujillo, a 50-year-old nurse outside a middle-class shopping mall in Lima, the capital. “I know there will be opportunities for my children and grandchildren.” Many poor Peruvians who propelled the leftist former army officer Ollanta Humala to victory in elections last June are still waiting for growth to trickle down from the construction, shopping, and real estate bonanza under way in Lima. Still, optimism prevails. “It’s an incredible turnaround from 10 years ago, and lots of Peruvians are moving back home,” said Javier Ugarte, a restaurant owner who was visiting his native Lima from San Diego. “The American dream actually seems to be more real in Peru now.”
This rosy picture of demand from China and other emerging powerhouses extending across the globe invites an obvious question: How long can these countries’ strong demand last? Maria Pinelli, global vice chair of strategic growth markets at consultants Ernst & Young, expects that the global middle class - people with daily per capita incomes between $10 and $100, expressed at purchasing power parity - will expand from around 2 billion now to 5 billion by 2030. Annual spending in this group will leap to $56 trillion from $21 trillion, offering juicy opportunities to multinational companies if they can outrace fast-moving local rivals on their home turf. “Speed to market will be absolutely essential because people in those countries are too entrepreneurial to let an opportunity pass. They’ll figure it out before the multinationals do,” she said. “That’s a fundamental change.”
Not everyone is so optimistic. Dani Rodrik, a professor of international political economy at Harvard University, is skeptical of assumptions that developing countries will maintain very high growth rates as they catch up with the West. Widespread convergence is a relatively recent phenomenon, he argues. “It would be nice if governments simply had to stabilize, liberalize and open up and markets would do the rest,” Rodrik wrote in a paper. “Alas, that is not how sustained convergence was achieved in the past.” Continued rapid expansion will require the kind of policies that advanced economies harnessed on the way to becoming rich, such as keeping currencies undervalued, controlling the financial sector, and favoring selected industries - in short, the Chinese recipe for growth. A Western backlash against the Beijing model, sparked perhaps by austerity fatigue, is a real risk. For now, though, people inside and outside China are making the most of the country’s economic rise.
“In China there are plenty of opportunities for everyone to increase their standard of living,” said David Zhang, who was born into a farming family and is now chief financial officer of a company listed in Hong Kong. “The Chinese will have cars and luxuries they haven’t dared to dream about for centuries,” said Zhang, who owns two BMWs.
Back in Birmingham, taxi driver Mohammed Iktias said the news that JLR’s profits were up and the firm was taking on more workers had put a smile on his face. “When I heard that, it made me genuinely feel happy. It was good news for a change,” Iktias said. “It didn’t bring a tear to my eye, but it was close.”