Barack Obama did his best to charm India during a landmark visit to the subcontinent last year. He grooved to Bollywood tunes, lavished praise on the national hero, Mahatma Gandhi, and declared India was not simply an emerging power but a ”world power”.
By the end of his three-day visit, Obama had signed trade deals worth $US10 billion ($9.7 billion). But the US President was upstaged just a month later by the Chinese Premier, Wen Jiabao, who sealed deals worth $US16 billion during a quick visit to the Indian capital.
The comparison is symbolic of a momentous shift taking place in the world’s economic geography.
For centuries international trade has centred on Western Europe and North America. There have been significant flows between developed countries and developing ones. But trade between developing countries has been much more limited.
Now Asia’s new economic giants and other emerging economies such as Brazil, Russia and South Africa are changing that.
A report by HSBC called The Southern Silk Road – Turbocharging South-South Economic Growth says trade and capital flows between emerging economies could increase 10-fold in the next 40 years.
This change will take us “back hundreds of years to when world trade was centred not on Europe and North America, but instead on Asia and Africa”, it says.
For decades, economic growth in most emerging economies has depended heavily on exports to the developed world. But now, wealthy countries are not growing nearly fast enough to sustain that approach.
Relying on trade with Western economies is unlikely to accommodate the long-term economic ambitions of developing nations. To obtain the rapid growth needed to raise living standards, they will have to trade increasingly with each other.
For some big developing countries, this is already happening. India and Brazil export more to the emerging world than they do to the developed world. While China remains heavily dependent on trade with the US, it is slowly heading in the same direction.
Stifling tariff barriers and inadequate transport infrastructure are among the many impediments that have hampered trade between developing countries.
But the transformation of China’s trade performance over the past two decades shows what can be achieved. Twenty years ago, it didn’t have any container ports in the world’s biggest 20. Now it has five of the world’s top 10.
Beijing is also making big investments in the construction and upgrading of port facilities in other parts of Asia, Africa and South America. It also has a growing overseas-aid program focused on infrastructure development, especially in transport.
Many of these investments aim to facilitate Chinese trade, especially in energy and minerals. But the port and transport improvements will allow developing countries to trade a lot more with each other.
Better linkages are developing beyond shipping, especially in telecommunications and air travel. In 1980, China and India did not figure in the 10 countries with the world’s most commercial flights. By 2008, China was second and India 10th.
The shift in the patterns of global trade will help reshape global capital markets and foster the development of financial centres, especially in Asia.
A striking feature of the most recent Global Financial Centres Index prepared by Long Finance was that the third- and fourth-ranked centres – Hong Kong and Singapore – have narrowed the gap on the top ranked pair, London and New York.
China’s financial hub, Shanghai, passed Tokyo in the index and is well ahead of Sydney, which was ranked equal 10th. When the index was first published in 2007, there were only three Asian cities in the top 20. Now there are eight. And when respondents were asked which centres were likely to become more significant in the future, the top five were all Asian: Shanghai, Singapore, Seoul, Hong Kong and Beijing.
More economic connections are being formed, bypassing nations that once dominated international trade and themovement of global capital.