There has been a lot of debate about the sustainability of the South East Asian boom. Two London Business School alumni, running Asian businesses, discuss China and India. This was first published in AlumniNews, Issue 129, December 2012. Find out more about our alumni community at http://www.london.edu/alumni

1. The numbers that say
the Asian Century is at hand
There has been great debate about the sustainability of the South East Asian boom as
growth rates in markets such as China and India fall to their lowest rates in years as
contagion from the broken economies of the West infects those in the East.
But alumni of London Business School actually running Asian companies, such as thought
leader and start-up consultant Savio Kwan MSc09(1976) in Hong Kong and private
banker Manish Chokhani MBA29(1990) in Mumbai, share a sentiment that might be best
described as tempered optimism.
Here Savio – who describes his time at the School as “a life-changing experience” – gives
his view from a Chinese perspective, while Manish talks about India.

2. CHINA
“What goes up must come down,” says Savio Kwan, a Partner
and Chief Executive Officer of A&K Consulting. “And no country
could grow forever at the breakneck pace China has done for
the past 20 years. Now China, like any other nation, must set
priorities and direction for her growth.
“It’s clear that the value-added model of being ‘the factory of the
world’ has served its purpose. China is in the process of
changing to the higher value-added model of an ‘innovation and
service industry’. This will need time and patience [to do] as it
involves rethinking and retooling vast industry sectors, and
policy changes.”
Savio’s view is in line with a growing consensus in Asian
countries generally, where the slowdown is explained in terms of
a process of ‘rebalancing growth’ to make it ‘more sustainable’.
And, while growth continues to outstrip that seen in Western
economies, he reckons it is too early to talk of a shift in global
power from the West to East.
Growth may have slowed in the Western world but Asian GDP
per capita, Savio points out, is still way behind the developed
world’s. He does acknowledge, however, an incredible
atmosphere of change.

3. “What is unique about this round of development opportunity
is that many ‘once-in-a-lifetime’ sea-changes are all
happening at the same time,” he explains. “All you have to
do is look at China, where hundreds of millions of people’s
daily habits, in business and in personal lives,
have been changed forever by ‘start-ups’ – in the internet, in
telecommunications, in retail, entertainment, travel,
payment, social networks, trading, logistics, the
environment, education, etc. The speed and reach of such
changes are phenomenal and totally unprecedented.”
New dawn: Hong Kong
Savio is well-placed to comment. A&K, the company he
founded with Malcolm Au in 2005, has now helped more
than 100 Chinese start-ups with advice and seed funding.
That lends weight to what he sees as China’s most radical
change of all: the evolution of a new kind of business
model for itself.
The imperative to adapt applies to Hong Kong too, he warns. As
the gateway to mainland China, with millions of Chinese
nationals passing through every year, Hong Kong has already
experienced all of China’s social and financial tremors, yet the
fearful return to Chinese sovereignty in 1997
seems if anything to have boosted business.
The Economist reports that office rents in Hong Kong, at
US$160 a square foot, are the world’s highest, and average
residential prices have increased by 50% since 2009. On hedge
funds, in 2001 there were just 14 in China; now there are
reportedly almost 100, and 1,500 throughout Asia. Nervous
Chinese investors still call them ‘big crocodiles’, and dislike
paying fund managers their traditionally high fees. But the funds
constitute a US$1.7 trillion global industry that can no longer be
ignored.

4. Conspicuous consumption, then, is awash in Hong Kong
and China. Yet, according to Savio, a growing sense of
inequality threatens stability: “If you are amongst the
‘haves’, Hong Kong is heaven on earth. But if you are
amongst the have-nots, that is entirely a different story.”
In July, a mass demonstration at the swearing in of Hong
Kong’s new Chief Executive, Leung Chun-ying, demanded
political reform and better state pensions. But Hong Kong’s
key issue, says Savio, is social and income polarisation,
“with the middle class caught literally in the middle.
The Hong Kong Government has been perceived by the
masses to have favoured the haves. So people now put all
of their effort into protesting against everything they think is
not fair – which is plenty.”
Bright future: Mumbai
INDIA
The politics of India are even thornier than those of China. Its
government, a vacillating coalition led by the Congress party,
presides over a chaotic tangle of graft, oppressive bureaucracy,
bad bank debts, caste identity, unruly state governments and
high rates of poverty and inflation (now the highest among
industrialised or BRIC nations).
At the moment, admits Manish Chokhani MBA29(1990), the
fractured political mandate in parliament, as well as a strict
‘governance’ initiative, is paralysing policy-making, weakening
the rupee and dramatically slowing domestic and foreign
investment.
But India, whose 1.2 billion people form the world’s largest
democracy, has a genius for muddling through, and Manish, a
philosophical and spiritual individual, remains positive in the face
of what he describes as “severe headwinds” exaggerated by the
global economy. Discussing India’s endemic problems, he says:
“You can ascribe this to the pangs of a nation growing up –
socially, politically, economically. It’s a nice, messy democracy,
with all the attendant problems and prospects. Think
of the US in the late 1800s and early 1900s.”
Manish is the MD and CEO of Axis Capital that was formed
through a merger of investment bank Enam Securities with
Axis Bank, India’s third largest private sector bank. Private
sector companies are one of India’s great successes. The
market share of newish banks such as Axis and HDFC, he says,
has grown to 25% at the expense of state-owned banks, even in
India’s harsher environment.

5. They have been instrumental in revitalising India; it’s now ranked eighth, for instance, in Forbes magazine’s global annual list of
countries with the most profitable companies.
Explaining this transformation, Manish says that when India liberalised its economy after the bailout crisis of 1991, it chose to
open up each industry to the private sector rather than privatise state-owned monopolies and hand them over to ‘oligarchs’. Two
other pluses, in his view, are the conservatively minded Reserve Bank of India, which,
controversially, has kept interest rates steady as growth has crumbled, and India’s “noisy and vigilant” Fourth Estate. “We,
therefore, see much more coming to the surface in India than in the rest of the world,” Manish says. “The
reality, thankfully, is not as harsh as the media reports.”
There is cause, indeed, for his optimism. Although India and the rest of southern Asia have the world’s most poor and
undernourished, they are also home to its largest working-age population and a quarter of global middle-class consumers. Over
the next 20 years, these developing
countries will reap what’s been called the ‘demographic dividend’ as savings rise with the population bulge. Then, truly, we may
call it the Asian Century.
This was first published in AlumniNews, Issue 129 | December 2012