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“If you’re not in Asia, you’ll become irrelevant”
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15 September 2009
Dominic Barton, Worldwide Managing Director, McKinsey & Company |
Financial innovation must be harnessed to drive Asian consumer spending
“If you do not have a footprint in Asia, or at least some kind of anchor, you will become an irrelevant institution within 10 years,” Dominic Barton, Worldwide Managing Director, McKinsey & Company, told delegates at yesterday’s big issue debate. The rising wealth of Asian populations, coinciding with a collapse in consumer spending in the US and Europe, is already changing the landscape, noted Barton, McKinsey’s chairman of Asia between 2004 and 2009.
“There’s going to be 900 million middle- class consumers in Asia by 2015,” he said. “It’s not going to make up for the loss of the US consumer and it’s not going to solve the problems of the world. But Asia’s governments are now much more focused on domestic growth. And we’ll see Asia’s sovereign wealth funds shifting more their portfolios back into the region. We’re entering a very different world.”
“If we cannot boost consumer demand, the sustainability of growth will be checked.”
Huiman Yi, Vice President, Industrial and Commercial Bank of China |
China will embrace financial innovation to drive consumer spending to the levels needed to maintain its recent period of outstanding economic growth, said Huiman Yi, Vice President, Industrial and Commercial Bank of China. “If we cannot boost consumer demand, the sustainability of growth will be checked,” said Yi.
Given the size of the population, Yi suggested that a 1% increase in the urban population would have a substantial impact. “Just think how that would change property and vehicle demand,” he said. “The only answer is to reduce the rural population.”
Huiman Yi, Vice President, Industrial and Commercial Bank of China |
Yi expressed his confidence that Chinese banks’ risk management practices, developed over an extended period of rapid economic growth, would help the country’s financial system avoid the excesses and subsequent implosion experienced in the West. “We have attached great importance to handling the growth in our credit business and in risk management,” he said. “On the whole, I believe risk is controllable.”
Tetsuya Kubo, Senior Managing Director of Japan’s Sumitomo Mitsui Bank, agreed with Yi that financial innovation is still important in meeting the needs of Asian banks’ diverse client base. “People are tired of the near zero-interest-rate products,” he said, “and are asking financial institutions to provide structured products that can give higher returns. Banks have to meet those customers’ financial needs, but we should not forget the lessons learned from this financial crisis.”
Stable economic fundamentals in many Asian countries, said Ranee Jayamaha, Adviser to the President of Sri Lanka on Banking, should allow banks “breathing space” to develop innovative services to support consumer demand. “Regulatory guidelines should not kill the industry, rather they should prevent bubbles that could cause problems.”
Is there a role for western banks in Asia in the Asian century? Apparently so. “If you’re a western player, you have to be in the region,” insisted Barton. “What can they bring? There are a number of wholesale capabilities, plus deep strengths in fixed income. They also have a desire to get into the retail markets, but they’re going to have to learn more about how each country works.” .
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