15 Mar 2009

Preparing for China’s Urban Billion

By McKinsey Global Institute

The McKinsey Global Institute (MGI) launched a major initiative two years ago to study the evolution of urbanization of China and to derive insights into how this process will develop. More than 20 consultants and experts have explored the global economic and social implications of the unprecedented expansion of China's cities and how national and local policy makers can shape China's urban development to 2025 and beyond. Preparing for China's Urban Billion describes the findings of our research and is available to download for free at our website www.mckinsey.com/mgi.

The views presented in this two-volume work are based on long-term macroeconomic trends in China. While the recent downturn in the global economy is bound to impact China in the short term, we believe the long-term fundamentals on which we have based our study are likely to hold out.

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15 Jun 2012

Urban World: Cities and the Rise of Consuming Class

By McKinsey Global Institute

The urbanization of the world continues apace and is one bright spot in an otherwise challenging global economic environment. The shift in economic balance toward the East and South is happening with unprecedented speed and scale. We are quite simply witnessing the biggest economic transformation the world has ever seen as the populations of cities in emerging markets expand and enjoy rising incomes - producing a game-changing new wave of consumers with considerable spending power. Meeting demand from these new consumers will necessitate an investment boom in buildings and infrastructure that will account for the lion's share of global investment in the years to 2025. It is important that cities make the investment they need in an efficient and productive way to ensure healthy returns and lock in high levels of resource productivity for decades to come...

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15 Jan 2013

Infrastructure Productivity: How to Save $1 Trillion a Year

By McKinsey Global Institute

Across the world, inadequate or poorly performing infrastructure presents major economic and social challenges that governments and businesses need to address. Without the necessary infrastructure—from transport systems to electricity grids and water pipelines—economies cannot meet their full growth potential and economic and human development suffers. Yet the imperative to invest more in infrastructure comes at a time when many governments are highly indebted and face competing calls on their scarce resources.

The size of the infrastructure gap and concerns about how to find the money to fill it are the linchpins of current debate on this issue. But this focus overshadows what we believe to be an equally compelling  imperative—to improve the planning, delivery, and operation of infrastructure to get more, higher-quality capacity for less money, and to boost infrastructure productivity. Infrastructure productivity: How to save $1 trillion a year, a new report from the McKinsey Global Institute (MGI) and the McKinsey Infrastructure Practice, is the first in a series of planned reports on infrastructure. Our research raised several questions that we have not addressed in detail in this report and that we aim to address in future. These questions include the national balance sheet and financing of infrastructure, the challenges and opportunities faced by private-sector players, how to address the capability gap, the role of new technologies, and green infrastructure…

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15 Apr 2014

Global Flows in a Digital Age: How Trade, Finance, People, and Data Connect the World Economy

By McKinsey Global Institute

The global web of economic interconnections between countries and companies is growing ever larger and more complex. Yet often the public discussion focuses on narrow metrics, such as exports, or individual flows such as cross-border financial flows or immigration. Much less research has been done to analyze the comprehensive web of cross-border interactions that increasingly characterize our world. This report contributes to addressing that gap.

In this report, the McKinsey Global Institute and the McKinsey High Tech Practice examine the evolution of global flows of goods, services, finance, people, and the data and communication flows that underlie the others. We compiled a comprehensive dataset on the inflows and outflows in each of the five categories for 195 countries from 1990–2013, drawing on both public and proprietary data sources. We focus specifically on how two major forces are shaping global flows: the shift in the weight of the global economy toward emerging economies, and the spread of digital technologies and Internet connectivity…

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Bank of China (Hong Kong) | 18 Aug 2014

Development of Hong Kong’s Offshore RMB Market and Its Prospects

I.      The characteristics of Hong Kong’s offshore RMB market: policy-driven and market oriented

Looking back at the progress over the last ten years, evidently, Hong Kong’s offshore RMB market featured being both policy-driven and market-oriented. Since the People’s Bank of China gave the green light to overseas RMB businesses in 2003, every milestone achieved in market development has been closely connected with the relaxation of relevant regulations in Mainland China: In January 2007, the People’s Bank of China began to allow qualified domestic financial institutions to issue RMB-denominated bonds in Hong Kong. Since 2009, the Ministry of Finance has been issuing RMB sovereign bonds in Hong Kong, which led to the development of the local dim sum bond market. In July 2009, the launch of cross-border RMB trade settlement ushered in a second phase of RMB businesses in Hong Kong. In August 2011, the RMB trade settlement program was expanded to cover all Chinese territories. RMB businesses in Hong Kong were also extended from individuals to corporations and institutions. In 2011, the Chinese government implemented the RQFII program, which allows qualified foreign investors to invest in the domestic securities market. Since March, 2013, all financial institutions that are registered in Hong Kong or operate mainly in Hong Kong are qualified for the RQFII program. More importantly, the RMB capital flows have shifted from one-way flow back to the Mainland to flows in both directions, which represents a major step forward in the process of RMB internationalization. Hong Kong becomes a pioneer and center for global RMB product engineering and trading.

The development of offshore RMB market is highly dependent on market demand for RMB products. The demand of RMB products and transactions has been rising in recent years and expanding globally. Hong Kong has shown its first-mover advantage in breadth and depth over other offshore RMB markets on the basis of the amount of daily transactions and the variety of product choices, creating a virtuous cycle of demand and supply that leads to further expansion. RMB trade settlement processed by Hong Kong banks jumped from 369.2 billion Yuan in 2010 to 3.841 trillion Yuan in 2013 for an increase of over 10 times. As of the end of 2013, there were nearly 4.5 million RMB deposit accounts in Hong Kong, averaging 191,400 Yuan per account. By the end of 2013, Hong Kong had amassed the largest RMB pool of 1.053 trillion Yuan outside the Mainland, 191.3 billion Yuan of which being certificates of deposits. RMB deposits in Hong Kong’s banking system account for about 60% of the global total. The outstanding amount of Dim Sum bonds rose from 55.8 billion Yuan at the end of 2010 to 310 billion Yuan at the end of 2013 for an increase of 460%, propelling Hong Kong to become the largest offshore RMB bond market.

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Hong Kong Export Credit Insurance Corporation | 30 Sep 2014

Indonesia – Economy Driven by Strong Consumer Spending

Highlights

Political	Joko Widodo, the governor of Jakarta, won in the presidential election held in July He has promised to phase out fuel subsidy and boost infrastructure investment A fragmented parliament could slow the legislative process and hinder reforms
Economic	Over the past decade, Indonesia has registered steady economic growth averaging 5.8% per year, mainly driven by private consumption Tighter monetary conditions weigh on consumer spending and investment in the short term Current account deficit has been a major concern of investors

Country Overview

Indonesia is an archipelago in Southeast Asia and Oceania. It is the fourth most populous country in the world. After the collapse of dictatorship in 1998, Indonesia has undergone reforms, transiting to democracy with greater regional autonomy. In 2004, the country’s first direct presidential election was held and political stability has since then been relatively stable. With a large domestic market, Indonesia is now the largest economy in Southeast Asia, and a member of the G-20 major economies. However, Indonesia remains a lower middle-income country as defined by the World Bank. A sizable population is still living below the poverty line.

Key Information
Capital	Jakarta
Population	250.8 million
Currency	Indonesian rupiah
Official language	Indonesian
Form of state	Republic

Major Merchandise Exports (% of total, 2013)	Major Merchandise Imports (% of total, 2013)
Mineral fuels and oils (16.5%)	Machinery (19.3%)
Fats, oils and waxes (12.8%)	Electrical equipment (12.9%)
Electrical equipment (7.0%)	Iron and steel (6.8%)
Top three export countries (% of total, 2013)	Top three import countries (% of total, 2013)
Japan (14.8%)	Mainland China (16.0%)
Mainland China (12.4%)	Singapore (13.7%)
Singapore (9.1%)	Japan (10.3%)

Source: Economist Intelligence Unit (www.eiu.com), Indonesia’s Ministry of Trade

Political Trend

In the presidential election held in July, Joko Widodo, the governor of Jakarta, defeated his only rival, former general Prabowo Subianto, by 53.15% to 46.85%. His policy agenda would be centered on fighting corruption and institutional reforms. He has also promised to phase out fuel subsidy and boost infrastructure investment.

In his five-year term beginning October, Widodo will face a fragmented parliament, however, could slow the legislative process and hinder reforms. Therefore, key to Widodo’s success will lie on whether he is able to build a strong cabinet and a cohesive coalition within the parliament.

On the world stage, Indonesia has become more prominent in recent years. It maintains close relationships with neighbors in Asia, and is a founding member of ASEAN and East Asia Summit (EAS). On the security front, separatism has long been one of the major threats in Indonesia. A process of decentralisation has been undergone, but armed resistances, albeit in lower intensity, have still been reported periodically.

Economic Trend

Economic Indicators	2011	2012	2013	2014^	2015^
Nominal GDP (USD bn)	845.9	876.7	868.3	849.6	1,006.2
Real GDP growth (%)	6.5	6.3	5.8	5.4	6.2
GDP per capita (US$)	3,440	3,530	3,460*	3,350	3,930
Inflation (%)	5.3	4.0	6.4	6.4	6.1
Budget balance (% of GDP)	-1.1	-1.8	-2.3	-2.3	-1.6
Current account balance (% of GDP)	0.2	-2.8	-3.4	-3.3	-3.0
External debt/GDP (%)	26.6	29.1	30.6*	33.0	29.8

* Estimates ^ Forecast
Source: Economist Intelligence Unit (www.eiu.com)

Over the past decade, Indonesia has registered steady economic growth averaging 5.8% per year. In the face of the global financial crisis, it has been relatively resilient thanks to conservative macroeconomic policy and low reliance on exports, which only account for about a quarter of GDP. However, concerns on the tapering of US monetary stimulus, Indonesia’s current account deficit and a dimmer growth prospect in major emerging markets have put pressure on the country’s balance of payments, pushing it into the first deficit since 2008. During the year, Indonesian Rupiah depreciated by about 21% against the US dollar.

In recent years, Indonesia current account deficit has been widening amid strong domestic demand which pushed up imports of capital goods, and of consumer goods for a burgeoning middle class. The authorities took steps to curb imports by restraining domestic demand. Indonesia’s central bank also raised its key interest rate by a total of 1.75% to 7.5% in the second half of 2013 in the wake of the currency slump and heightened inflationary pressure.

Notwithstanding the external imbalances, Indonesia’s economic growth remained robust in 2013. Private consumption was still the main driver of growth. In the short term, the effect of tighter monetary conditions would weigh on consumer spending and investment. In the first quarter of 2014, real GDP growth was 5.2%, the slowest in over four years.

Hong Kong - Indonesian Trade

ECIC Underwriting Experience

The ECIC imposes no restriction on covering Indonesian buyers. Currently, the insured buyers in Indonesia range from small and medium sized companies to manufacturing arms of foreign listed companies. For 2013, the number and amount of credit limit applications on Indonesia increased by 30.2% and decreased by 51.6% respectively, while insured business increased by 24.7%. Major insured products were watches and clocks (+421.2%), chemical products (+12.2%) and electronics (+1.2%), which represented 43.6% of ECIC’s insured business in Indonesia. The Corporation’s underwriting experience on Indonesia has been satisfactory, with one payment difficulty case of small amount reported from July 2013 to June 2014, involving cameras and optical goods.

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Hong Kong Export Credit Insurance Corporation | 30 Sep 2014

Sri Lanka – Twin Deficits Yet to be Solved

Highlights

Political	Government forces defeated the rebel Liberation Tigers of Tamil Eelam in 2009, ending a civil war which lasted almost thirty years The government prioritised economic development and national reconciliation to promote the country’s stability
Economic	Economic growth has been robust in recent years, with average annual growth of 7.5% from 2010 to 2013, supported by strong private consumption and investment Imbalances such as fiscal and current account deficits represent major challenges to macroeconomic stability

Country Overview

Sri Lanka is an island country located in the Indian Ocean in South Asia with multiple ethnicities. Tensions between the Sinhalese majority and Tamil minority in the northeast erupted into civil war. The government ended the war in 2009. Economically, Sri Lanka had been dependent on production and export of tea and rubber, while industry and services sectors combined now account for about 90% of GDP. Strong remittances from Sri Lankan workers abroad and economic development projects in areas previously suffered from civil war have contributed to the economy.

Key Data
Capital	Sri Jayewardenepura (Administrative) and Colombo (Commercial)
Population	21.1 million
Currency	Sri Lankan Rupee
Official language	Sinhala
Form of state	Republic

Major Merchandise Exports (% of total, 2013)	Major Merchandise Imports (% of total, 2013)
Textiles & garments (45.2%)	Mineral products (21.5%)
Tea (15.5%)	Machinery & transport equipment (21.2%)
Petroleum products (4.3%)	Cotton yarn and textiles (10.2%)
Top three export countries (% of total, 2013)	Top three import countries (% of total, 2013)
US (21.6%)	India (21.6%)
UK (8.3%)	China (17.7%)
India (5.3%)	Singapore (10.1%)

Source: Economist Intelligence Unit (www.eiu.com)

Political Trend

Sri Lanka is a republic governed by a presidential system. The president, Mahinda Rajapaksa of the Sri Lanka Freedom Party (SLFP), is more than halfway through his second six-year term. The United People’s Freedom Alliance, of which the SLFP is the main component, has a two-thirds majority in the parliament. Rajapaksa scrapped term limits for the presidency through a constitutional amendment in 2010, placing him a likely winner in the presidential election to be held in 2016. He has promised to focus on the economic development, in which improving business environment would be a priority. Meanwhile, the government has been pushing for national reconciliation. However, splits in Sri Lankan society are unlikely to be healed in the near term. Tensions between Sinhalese majority and Tamil minority remain a major social problem.

Economic Trend

Economic Indicators	2011	2012	2013	2014^	2015^
Nominal GDP (US$ bn)	59.2	59.4	67.2	73.8	82.1
Real GDP growth (%)	8.2	6.3	7.3	7.4	7.1
GDP per capita (US$)	2,830	2,810	3,160	3,440	3,800
Inflation (%)	6.7	7.5	6.9	4.1	5.1
Budget balance (% of GDP)	-6.9	-6.5	-5.9	-5.8	-5.7
Current account balance (% of GDP)	-7.9	-6.8	-4.0	-2.5	-2.5
External debt/GDP (%)	40.6	42.7	38.8*	36.5	34.3

* Estimates ^ Forecast
Source: Economist Intelligence Unit (www.eiu.com)

After the end of the civil war, Sri Lanka has seen robust economic growth averaged at 7.5% annually from 2010 to 2013, largely reflecting a “peace dividend”, and supported by strong private consumption and investment while public sector also contributed through infrastructure investment, including large-scale reconstruction projects in the North and Eastern provinces. In the face of US tapering, Sri Lanka has been relatively resilient. For the first quarter of 2014, real GDP annual growth remained strong at 7.6%.

Looking ahead, strong export growth aided by a recovery in advanced economies, higher investment and domestic consumption will continue to sustain a rapid economic growth.  However, Sri Lanka is still facing macroeconomic imbalances, such as the twin deficits – budget and current account deficits. Low tax revenues remains a concern. In response, the government has expanded the coverage of value-added tax and introduced further measures to expand coverage and lower the threshold for certain taxes on retail and wholesale trades in the 2014 budget.

On the bright side, Sri Lanka’s current account position has improved. Nevertheless, a sudden halt in capital inflows due to changes in foreign investors’ risk appetite or contagion after a general withdrawal of investors from emerging markets could reverse the apparently sustainable current account deficit.

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15 Oct 2014

A Blueprint for Addressing the Global Affordable Housing Challenge

By McKinsey Global Institute

Providing decent housing for citizens is a perennial challenge for nations around the world. From slum residents in the developing world to middle-income households in expensive global capitals, hundreds of millions of people struggle to find decent housing that they can afford without severe financial stress. The economic and human toll of the housing affordability gap is enormous. We estimate that 330 million households are affected around the world and, under current trends, by 2025 the number of households that occupy unsafe and inadequate housing or are financially stretched by housing costs could reach 440 million—or 1.6 billion people.

In this research we identify ways to narrow the affordable housing gap in the next decade. This will require clear aspirations by policy makers to improve housing affordability and the use of four levers that we identify to unlock land in appropriate locations, reduce construction and operations costs, and improve access to low-cost financing. Together with an integrated and city-specific delivery approach, these measures can put housing within reach of households making 50 to 80 percent of their city’s median income. The levers also can make housing more affordable and improve housing outcomes for households earning less than 50 percent of median income…

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