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12/10/2010

Book Review: Uprising


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Uprising: Will Emerging Markets Shape or Shake the World EconomyCurrently money is flowing to the emerging markets. Many see China and India as the future, America and Europe as the past. A thoughtful and sophisticated look at these popular conclusions is presented by George Magnus in his new book, Uprising: Will Emerging Markets Shape or Shake the World Economy. He is well positioned for this analysis as a senior economic adviser at UBS Investment Bank London, having previously served as chief economist at UBS.

The author warns against the extrapolation of current trends, which is creating a “euphoria about emerging markets” and the widespread expectation of a “shift of power from the West to the Orient.” The number one country in such a shift would be China, which is a major focus of this book. The author sees the future ability of China to adapt as being dependent on the goals of the Communist Party. Unlike the US and Europe, China's legal system is not independent of the government, and thus is not a stable and fixed framework. Because of the one-child policy, the population will inevitably reach a point in which it ages quickly, followed by a decline in low-cost labor. Government debt is much higher than officially stated, much of which is at the local government level. Magnus questions whether China's political and economic institutions will restrict its market's ability to catch up to the US in technology. A revaluation of the Renminbi would result in huge losses at the central bank, with its dollar assets. In addition there is the country's well-known dependence on exports, despite the rapid increase in the consumer economy.

The ultimate question is: Who will inherit the Earth? At the moment, many see as China as the heir apparent. In addition to its challenges, China's strengths are obvious, as is its ability to adapt to the future. The final answer to the question will take many years to answer. Meanwhile, financial professionals should read and ponder Uprising.

–Bill Hayes

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