The world economy is arguably at a historical watershed. Think of an accelerated industrial revolution, rapidly developing new technology and a big shift in economic power from West to East. These trends are widely accepted, although their magnitude and speed may not be. Naturally, governments and corporates are redirecting their policies and strategies accordingly – and, in the case of corporates, the treasurer is set to play an important enabling role.

    By 2030, China will be the world’s largest economy and India the third largest, according to HSBC research.1 The paper forecasts that between now and then, emerging markets will make up about 70 per cent of global economic growth, compared to its 50/50 split with developed markets over the past decade. Demographically, Africa will have a larger working-age population than China.

    This major shift is entwined with the fast development of new technologies that are set to speed the growth of emerging markets. Governments are actively positioning their countries to gain, in a kind of economic nationalism. Those in emerging markets scent opportunity. Those in the developed world are acting both opportunistically and defensively. They want to be at the forefront of new technology and to export high-value technologies – but they’re acting to protect their citizens from being victims of globalisation.

    Some governments are looking to diversify; others to pivot into other sectors. The highest profile example of a national economic initiative is “Made in China 2025”, which is designed to foster an evolution from being the world’s factory to being a high-value manufacturer, leading in industries of the future such as energy saving, information technology, biotech and new materials.2 Also in Asia, India is seeking to pivot into manufacturing through its “Make in India” strategy, which aims to encourage international companies to manufacture there.3

    Meanwhile, the developed world is acting more defensively. The United States has imposed tariffs of more than USD250 billion on China,4 complaining of unfair trade practices as it seeks to bring lower wage manufacturing jobs back home.

    In Europe, the UK is seeking to replace trade likely to be lost in Europe after Brexit, as even a favourable trade agreement with the European Union is likely to result in more barriers to commerce than was previously the case. The country is now seeking to diversify its trading relationships by building those with partners in Asia and other emerging markets.

    The global economy’s tectonic plates are shifting. This will have profound implications for businesses, opening new opportunities just as old ones close. Manufacturers in China’s low-carbon economy may thrive, for example, while those in low-tech manufacturing might find themselves shut off from the US market and have to migrate to countries such as Vietnam and India or further afield in Africa. The shapes of supply chains may shift, with more being sourced from these lower-wage countries, as well as some repatriation of manufacturing in the US and post-Brexit Europe.

    While the eventual consequences of these policy initiatives are not yet predictable, clearly they will result in new business models, revenue streams and ways of working. This will have major implications for cash management – treasurers will need versatility, the ability to adopt local practices in new markets and the digital technology to adapt payment methods to get close to the consumer.

    This paper will examine three things:

    1. How economies are being diversified or pivoted
    2. The resulting commercial opportunities
    3. Implications for treasury management.

    In this time of accelerating economic change, the treasurer has an active role to play in facilitating entry into new markets.

    Diversifying and pivoting

    As much as at any other time in history, governments across the globe are seeking competitive advantage by reorienting their economies, as well as their trading relationships. The highest-profile examples of this trend are the world’s two larrgest economies – the United States and China. Both are seeking to improve their citizens’ prosperity, the former through a pivot to protectionist policies and the latter through diversifying into higher-value sectors, including those associated with a low carbon economy.

    In Asia, economic pivoting and diversification is most evident. India’s reformist government is improving infrastructure while introducing reforms to land, labour and financial markets laws, seeking to reduce bureaucracy and compliance burdens.5 Meanwhile, Hong Kong aims to be the financing hub for China’s green energy ambitions,6 and Singapore wants to be the smartest of nations,7 with its smart city initiatives.

    Turning to Europe, there is less evidence of government intervention, although the UK is seeking to diversify trading relationships by boosting trade with countries with younger populations. Germany and France among others are gaining some of the services business that will leave the UK after Brexit, including banks, brokers and insurers.8 Goldman Sachs, Citi, JPMorgan and Barclays have all reportedly chosen to move staff to Frankfurt.9

    Below follows a fuller description of the economic changes taking place:


    Unveiled in 2015, China’s “Made in China 2025” strategic plan aims to transform the country from low-cost manufacturer to high-tech powerhouse. It sets out ten sectors – including robotics, semiconductors, aerospace and clean-energy cars – where companies are expected to dominate in China and compete globally.10 In each sector, the plan sets out specific targets to be met by 2020 and 2025. For example, China wants its home-grown firms to control 90 per cent of the global market for electric cars and hybrid vehicles by 2025. The manufacturing centres of the Pearl River Delta – with a GDP of USD 1.2 trn,11 making it one of the world’s largest economies in its own right – lie at the centre of China’s transition. Once dubbed the “factory floor” of the world, it is fast becoming a hi-tech and innovation hub. Fostering this from an infrastructure perspective, a new 36km bridge will link Hong Kong and Macau with the city of Zhuhai in mainland China. A new rail link will plug them into neighbouring urban areas, including the megacities of Shenzhen and Guangzhou, to fashion a Greater Bay Area to rival San Francisco, New York, London and Tokyo as a dynamo of innovation.

    Several of the sectors prioritised by the 2025 plan are in the clean energy sector, underlining China’s ambitions for clean-energy technologies – especially batteries and electric vehicles. The International Energy Agency reports that China overtook the United States to become the world leader for non-hydro renewables-based electricity generation in 2017. The new solar photovoltaic (PV) capacity added in China in 2017 alone is equivalent to the total solar PV capacity of France and Germany combined.12 Already the scale of China’s solar panel industry is helping to drive down prices.13 Should it establish a leadership position in the world’s transition to a low carbon economy, this would provide a new motor for the country’s economic growth.

    As the United Kingdom prepares to leave the EU in March 2019, it is looking to boost ties with fast-growing trading partners from further afield in Asia and Africa, as well as the United States, to replace trade that could be lost in Europe. Prime Minister Theresa May’s whirlwind tour of Africa in August 2018 makes clear that the UK government sees this young continent as an export destination. The UK Secretary for International Trade, has also been globetrotting to priority destinations for future UK trade. Among the many countries he has visited are Southeast Asia’s Indonesia, Malaysia and the Philippines, as well as China and Brazil. Fox has high hopes for new trading relationships with these high-growth economies – he is targeting exports reaching 35 per cent of UK GDP, up from 30 per cent today.14

    Middle East
    Across the Middle East, governments have been seeking to diversify their economies away from hydrocarbons to make their growth more sustainable. None more so than Saudi Arabia, the largest of the Gulf states. Adopted in 2016, its ‘Vision 2030’ plan has ambitious plans for the country’s economy.15 Vision 2030 announced plans to cut the size of Saudi Arabia’s public sector while investing in industries of the future such as electric vehicles and ride-sharing, ahead of a time when global demand for oil may peak as consumers turn to cleaner sources of energy. Although some aspects of the strategy have encountered headwinds, the Public Investment Fund (PIF) sovereign wealth fund is being deployed as an agent of change and has made investments in Softbank’s Vision Fund, Tesla and Uber, which it hopes will sow the seeds of a Saudi knowledge economy.


    Americas As the world’s largest economy, the United States is also the broadest and most diversified. As such, there are few sectors it is not present in – however, the current administration could be said to be seeking to pivot towards having a greater manufacturing industry, replacing jobs that have been lost to low-cost emerging countries. At the time of writing, it has imposed tariffs on imports of more than USD250 billion, about half of China’s total exports to the US. Echoing President Trump’s ‘Make America Great Again’ slogan from his successful 2016 election campaign, the tariffs are designed both to reduce China’s trade surplus with the US and to force multinationals to relocate supply chains in the US. They may lead some multinationals to relocate manufacturing plants in the US, or locate new ones there, rather than in China or other lowercost countries.

    Bordering the US, Mexico could be a beneficiary if the US/ China trade dispute escalates into an enduring trade war. The US, Mexico and Canada reached a new trilateral North American free trade agreement in early October 2018. Importantly, this included car exports to the US, enabling the

    country to continue operating as a manufacturing centre for cars sold in the US. The agreement could, for example, lead to an opportunity to increase exports in electrical machinery – a broad category that includes products hit by Trump’s China tariffs. Indeed, there is reportedly speculation that investing in Mexico might offer Chinese firms a way to circumvent US tariffs.16 For López Obrador, who won a landslide presidential election victory in July 2018 on a platform for change, this is welcome. One of his core pledges was to boost growth. Despite controlled inflation, low deficits and high exports, real GDP per person has increased by an annual average of 1.2 per cent between 1995 and 2015 – lower than any other Latin American country (excluding Venezuela). The blame for this disappointment has been laid on tax and social security rules that discourage larger, more productive enterprises. It is too early to say whether the economy will pivot any of its sectors under Obrador’s administration, although all the signs are that it will continue to focus on the advantages of low-cost manufacturing.

    India launched its “Make in India” campaign in 2014, with the aim of establishing India as a global manufacturing hub. The campaign prioritised 25 sectors, including automotive, IT and business process management, defence and pharmaceuticals.17 It aimed to raise manufacturing to 25 per cent of the country’s GDP by 2025, up from 16 per cent at the time. Reforms enacted to achieve this include reductions in regulation, which resulted in India rising to rank 100 in the World Bank’s Doing Business 2018 ranking, up from 130 the year before. There have been some successes, such as Samsung Electronics opening what was called “the world’s largest mobile phone factory” just outside New Delhi in July 2018, seeking to sell into the booming smartphone market in the world’s second most populous country.18 However, commentators have criticised the slow pace of infrastructure development for not relieving transport bottlenecks that are perceived to be limiting the country’s attractions as a manufacturing centre.

    Hong Kong is seeking to establish itself as the hub for financing China’s ambitions to become a green economy. In September 2018, it launched a Green Finance Association, aimed at promoting sustainable investment, just a few months after unveiling a green finance certification scheme, which would verify green projects’ standards and disclosure. China’s green bond market has been estimated to have the potential of reaching yuan 1 to 2 trillion (USD158 to USD316 billion), over an unspecified time frame.19 The Hong Kong government has also revealed plans to issue green bonds worth HKD 100 billion (USD13 billion).

    In the ASEAN association of 10 Southeast Asian nations,20 Singapore and Malaysia are both seeking to pivot in their own ways. Turning to Singapore, already a regional financial hub, the government’s “Smart Nation” programme aims to transform the country through technology.21 Not only is it fostering a smart city, defined as a digitally connected, intelligent city, but also it is supporting private sector technology innovation, seeking to foster an environment where this thrives. Already a regional centre for FX trading, wealth management, treasury and wealth management, it is pushing to strengthen its position in all these areas, while also becoming a leader in FinTech.

    Meanwhile, Malaysia is seeking to pivot businesses in sectors including manufacturing and services into the digital economy. In the World Bank’s opinion, unlocking the potential of the digital economy is the key to Malaysia’s transition to a middle-income economy. Digital adoption among its people and government is high in comparison to other markets in the region, however Malaysia’s businesses lag in digital adoption.22 Only 62 per cent are connected to the internet, and only 28 per cent have an online presence. To improve business’s digital connectivity, Malaysia is reviewing policies to improve broadband services, increase competition in the broadband market, and enforce the infrastructure regulatory framework.

    Within ten years, it is likely that many of these government initiatives will foster major new opportunities for companies.

    Opportunities for companies

    The shifting of the global economy’s tectonic plates and the remarkable rise of Asia is happening quickly. Over a little more than 10 years, China looks set to become the world’s largest economy and India the third largest. As emerging markets capture most of the world’s growth, so there will be opportunities to tap into that growth. But, at the same time, there will be a reorienting of supply chains, which looks likely to create winners and losers.

    Accessing Asia’s bigger growing markets
    Exporting to Asia’s rising economies is likely to be the outstanding opportunity for businesses from a range of sectors – for example, retail, energy, materials, aerospace or finance. Many of the world’s large businesses are already present in China, but the markets of countries such as India, Indonesia and the Philippines are hugely populous and quickly becoming more prosperous.

    With a fast-growing population of 1.3 billion, India looks set to overtake China soon and become the most populous nation on Earth. Meanwhile, Indonesia’s population is over 260 million and the Philippines’ over 100 million. For comparison, the entire European Union’s population is just a little over 500 million. As the middle classes in these Asian countries become more prosperous in the coming years, so they o“er large new markets.

    Notably, as these countries become richer, they will consume more energy.23 But with the world facing the enormous challenge of reducing carbon emissions to limit climate change to manageable levels, it is likely that renewable energy will become a major source of energy – in fact, the International Energy Agency forecasts that renewables will generate 40 per cent of power by 2040.24 Nevertheless, energy companies have a huge opportunity to supply electricity to consumers in these countries that is generated in a sustainable way.

    Entering these markets may also involve setting up substantial local operations such as Samsung’s Indian mobile phone factory just outside New Delhi. Indeed, Airbus is an example of a major European company that is positioning to take advantage of India’s burgeoning aerospace market by basing engineering, innovation and supply chain activities there.25

    But reaching consumers in these countries will require adopting local practices, especially as some of them might follow China towards becoming virtually cashless societies.

    It is also possible that these markets will be at the vanguard of new business models. The energy industry is an example, where electricity could be paid for digitally on a weekly basis. Similarly, there are predictions that by 2030, one in 10 cars may be a shared vehicle.26 Business model innovation appears to be happening fast in China, where Alibaba Group and Ford Motor Co unveiled a five-storey high vending machine for cars in the southern city of Guangzhou in March 2018. The cars could be bought through Alibaba’s Taobao mobile app.

    Leveraging Asia’s service economies
    In Hong Kong and Singapore, government ambitions to promote sub-sets of their finance and services economies are gaining momentum, again creating opportunity for business.

    Hong Kong’s intention to bridge the gap between China’s need for green finance and the global investment community’s desire to fund green assets was highlighted by the launch of the Green Finance Association. Developing green finance is a national Chinese strategy, featured in President Xi Jinping’s report to the 19th National Congress of the Communist Party of China in 2017. It is estimated that Mainland China will need an annual green investment of RMB 3-4 trillion (USD 480 – 640 billion).27 Domestic investment alone is not enough to meet this demand.

    In Singapore, ambitions to bolster its position as a regional trading, wealth management and FinTech hub appear likely to bear fruit. For example, the Monetary Authority of Singapore has announced several initiatives to foster the small country’s position as a FinTech hub, through such measures as signing a network of cooperation agreements with other governments, making compliance processes less laborious and encouraging digitalisation in areas such as blockchain for trade finance.

    For banks and asset managers, both Hong Kong and Singapore o“er opportunities in some of the faster-growing areas of finance.

    Remaking global supply chains
    Turning to the redrawing of supply chains, there are major opportunities. How far this reorganisation progresses depends on whether the US/China trade war escalates still further and, to a lesser extent, on the shape of the final Brexit agreement. Already, some Chinese manufacturers of goods such as clothes and shoes have been moving to countries such as Vietnam and Myanmar to escape wage inflation. For those considering doing so, the trade dispute may push them into making a decision.28 However, it is not a small decision as it is expensive and complicated to open a factory in a new location. There is also a possibility that Mexico may gain from Chinese production being located there to access the US market.

    In Europe, Brexit threatens supply chains operating into the UK on a just-in-time basis. Much depends on the shape of the final deal negotiated between Prime Minister Theresa May’s government and the European Commission. Aviation and car manufacturers have already highlighted the possibility of reducing their commitment to the UK if a hard Brexit undermines their competitiveness. Speaking on the BBC Radio 4 Today programme in June, for example, the Airbus Chief Operating Offcer said that the aircraft manufacturer was considering quitting the UK to protect the company, its customers and shareholders. Again, if any of the manufacturing operations based in the UK move to continental Europe, then this migration would create opportunity for new suppliers. However, the reverse is also true to some degree – UK manufacturers could repatriate supply chains from continental Europe.

    Around the world, as trading relationships shift, many companies are seeking to diversify and protect supply chains by sourcing products and components from a wider range of quality suppliers and manufacturers.

    There are already signs that new opportunities are emerging rapidly, which may require entering new geographies and even adopting new business models.

    Treasury management: the future belongs to the flexible

    As corporates plan their strategies to adapt to the forthcoming changes in world economies and trading systems, treasurers have an important part to play. Entering new markets means complying with local cash management and payments regulations, adapting to local practices in terms of how people buy things and pay for them – which may in themselves be changing. The result for a company entering several new markets might be a jigsaw puzzle of cash management and payments systems, all of which must be established, maintained and monitored.

    It’s the treasurer’s job to support expansion into new markets by facilitating financial flows. How can payments be made? How can cash be repatriated? How should liquidity be managed? These can be complex questions.

    We believe that there are three issues for a treasurer to bear in mind:

    1. Adapting to local markets. When entering into local markets, it is crucial to operate in line with local practices without compromising global standards. Taking Vietnam as an example, the company must observe Vietnamese business practices, as well as regulations and tax litigation. But does that comply with what a regional treasury or a global treasury has set as standards? Often there will be different ways of executing a transaction; by examining a range of options, it could be possible to align local country requirements with the corporate’s risk appetite, controls and governance model. The company will also need to observe anti-money laundering or anti-bribery policies, which local practice may make hard to achieve. Then there is the question of how to repatriate cash within the context of local regulations. How automated can a company’s cash sweeps be? What kind of structuring can be done to make sure that cash is not trapped in the country?

    2. Anticipating changing payments practices. China and India are rapidly becoming mobile-first societies, and the uptake of e-commerce is only going to increase. Similarly, consumerism in Indonesia is likely to rely on the mobile phone, which offers a digital infrastructure that can span the country’s more than 15,000 islands where often the physical infrastructure is unreliable. Similarly, as energy and vehicle usage rises not only in Asia but also in other emerging markets such as Africa, it may be paid for chiefly through digital payments. So, for example, retailers and energy companies will need to collect payments from customers using popular digital wallets such as Alipay, WeChat Pay, Apple Pay and UnionPay. As expectations for payments go both real-time and ever more micro, firms will need to adapt and adopt solutions that enable them to respond.

    3. Partnering with a committed global bank. To support the corporate’s strategy and access local markets, the treasurer needs a bank that has in-depth knowledge of local business practices and regulations, and is committed to the countries in question. Only a bank that is fully committed will be able to make the investments necessary as local regulations change. For example, if a relatively small country were suddenly to introduce a faster payments system, it is likely that only a bank that was fully committed to the country would be able to justify the investment in new systems. Similarly, the treasurer needs a banking partner that is committed to making the technology investments necessary to adapt to the regulatory changes happening all over the world and connecting them together in a cohesive treasury management system.


    Like other watersheds in the history of the global economy, this one is likely to have significant implications. New markets will rise, older ones may shrink. Technology will play a huge part in the changes that take place.

    But the difference is likely to be the speed at which it happens. In the industrial revolution at the beginning of the 20th Century, the Model T Ford replaced horse-drawn carriages on the streets of New York in just 20 years. The first car rolled off the production line in 1908 – by 1930 the equestrian age was to all intents and purposes over.

    Today, the changes are more far-reaching than then and are happening faster. As we have described in this paper, the centre of gravity for economic growth is shifting east. Huge new markets are emerging. At the same time, a new kind of economic nationalism is likely to force changes in supply chains. Added to all of this, new technology is accelerating the pace of change.

    The danger for corporates and treasurers is that they fail to position themselves in tomorrow’s markets fast enough. Doing so will determine their future competitiveness. And the treasurer has an important part to play in making sure the corporate is sufficiently adaptable. Financial connectivity and flexibility will be key to long-term success in a diversifying, pivoting and converging world.

    1 The World in 2030 HSBC Global Research September 2018.
    2 China is Betting Big on These 10 Industries May 27, 2015.
    4 Donald Trump imposes tariffs on USD200bn of Chinese goods FT September 18, 2018.
    5 India’s Growth Story World Bank’ March 2018.
    6 How Hong Kong can be the bridge to the world for mainland China’s green bond
    market South China Morning Post March 12, 2018.
    8 UK finance gears up for post-Brexit moves to Europe FT October 1, 2018.
    9 Frankfurt is leading city for banks moving ahead of Brexit FT September 24, 2018.
    10 China sets its sights on dominating sunrise industriesŠ Economist September 23, 2017.
    11 What China can learn from the Pearl river delta Economist April 8th, 2017.
    12 Global Energy & CO2 Status Report 2017 International Energy Agency.
    13 Can the solar industry survive without subsidies Economist June 14, 2018.
    14 Liam Fox to raise UK export target after Brexit FT August 20, 2018.
    15 Saudi Arabia’s sovereign fund builds USD2bn Tesla stake FT August 7, 2018.
    16 Mexico boosted by US-Canada agreement on revamped Nafta deal FT October 3, 2018.
    18 Samsung inaugurates world’s largest mobile phone factory in India Samsung Newsroom India July 09, 2018.
    19 How Hong Kong can be the bridge to the world for mainland China’s green bond market South China Morning Post March 12, 2018.
    20 ASEAN member states are: Brunei, Cambodia, Indonesia, Lao, Malaysia, Myanmar, Philippines, Singapore, Thailand and Vietnam.
    22 Malaysia Economic Monitor World Bank Group June 2018.
    23 Global Energy & CO2 Status Report 2017 International Energy Agency.
    24 World Energy Outlook 2017 International Energy Agency.
    26 Automotive revolution – perspective towards 2030. McKinsey & Co 2016.
    27 The International Institute of Green Finance and the United Nations Environment ProgrammeŠ Establishing China’s Green Financial System: Progress Report 2017.
    28 China’s factories eye southeast Asia to avoid tariff threat FT July 20, 2018.


    More, collapsed
    Sustainability Guidebook for Treasurers
    Beyond Finance
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