The New CIA - China, India & America

John N. Doggett, JD, MBA, Senior Lecturer

Global Management, Entrepreneurship & Sustainability and Energy

McCombs School of Business

Senior Research Fellow, IC2 Institute

University of Texas at Austin

john.doggett@mccombs.utexas.edu

March 25 2010

We Are In The Eye of a S.I.P.

S.I.P.’s Are Scary

“A strategic inflection point is a time in

the life of a business [or country]

when its fundamentals are about to

change. That change can mean an

opportunity to rise to new heights. But

it may just as likely signal the

beginning of the end.”

Andy Grove, Only the Paranoid Survive

At the End of WW II

Europe and Asia had suffered

unimaginable death and destruction.

Most factories of our industrialized

competitors had been destroyed.

For a brief period, American

manufacturing firms were the only

game in town.

We assumed that Third World

Countries would always be dirt poor

colonies.

We assumed that Third World

Countries would never be able to

produce innovative products that could

compete with our products.

We Were Wrong On Both Counts.

Assume is a Very Dangerous Word

Be Careful What You Wish For

We told the world that our way of life

was better than Communism or

Socialism.

CNN and Hollywood showed the world

an irresistible vision of American Life.

Then the Unthinkable happened. On November 9, 1989, the Berlin Wall Fell

On Christmas Day, 1991, the USSR ceased to exist.

We had won the Cold War.

And most people in the world wanted to

live like US.

Birth of the BRICs

In 2001, as the Internet Bubble was

collapsing and the stock market was

imploding, Goldman Sachs predicted

that four countries would dominate

global economic activity in the 21st

Century.

Brazil

Russia

India

China

The Axis of the Future

Are These Guys Crazy?

6,100% Annual Inflation (1994)

Shock Therapy and the Oligarchs (1990s)

Two Weeks of Foreign Reserves (1991)

The Cultural Revolution (1966-1976)

Largest Countries By Population1. China 1,338,612,968 (slightly smaller than the US)

2. India 1,166,079,217 (slightly more than one-third the size of the US)

3. United States 307,212,123 (6.25% of the earth’s land mass = 424,378,888)

4. Indonesia 240,271,522 (slightly less than three times the size of Texas)

5. Brazil 198,739,269 (slightly smaller than the US)

6. Pakistan 176,242,949 (slightly less than twice the size of California)

7. Bangladesh 156,050,883 (slightly smaller than Iowa)

8. Nigeria 149,229,090 (slightly more than twice the size of California)

9. Russia 140,041,247 (approximately 1.8 times the size of the US )

10.Japan 127,078,679 (slightly smaller than California)

11.Mexico 111,211,789 (slightly less than three times the size of Texas)

12.Philippines 97,976,603 (slightly larger than Arizona)

13.Vietnam 86,967,524 (slightly larger than New Mexico)

CIA World Factbook - March, 2010

Elephants Emerging from the Mist Total World Population = 6,790,062,216

BRIC Population = 2,843,472,701 (41.9%)

Total World Land Area = 174,814,000 sq. km. (- oceans)

BRIC Land Area = 38,471,715(22%)

Total World Gross Domestic Product = $57.53 Trillion

Total World Gross Domestic Product = $70.24 Trillion

(Purchasing Power Parity) (p.p.p.)

BRIC Gross Domestic Product (p.p.p.) = $ 16.4

Trillion (23.4%)

Source: CIA World Factbook – March 2010

Today, The BRICs Have Arrived

BRICs Economies collectively are now

23.4% of global GDP, which is $1.9 trillion

larger than America’s GDP.

China is the second largest economy in

the world. Today!

India is the fourth largest economy in the

world. Today!

CIA World FactBook, Goldman Sachs and Professor Doggett Analysis

National GDP in 2009 (purchasing power parity)

Country GDP 2009 Growth %

1. United States $ 14,520,000,000,000 -2.4%

2. China $ 8,768,000,000,000 8.4%

3. Japan $ 4,141,000,000,000 -5.7%

4. India $ 3,548,000,000,000 6.1%

5. Germany $ 2,812,000,000,000 -5.00%

6. United Kingdom $ 2,165,000,000,000 -4.3%

7. France $ 2,113,000,000,000 -2.1%

8. Russia $ 2,103,000,000,000 -8.5%

9. Brazil $ 2,024,000,000,000 0.1%

10. Italy $ 1,756,000,000,000 -5.0%

11. Mexico $ 1,473,000,000,000 -7.1%

12. Spain $ 1,367,000,000,000 -3.7%

13. South Korea $ 1,343,000,000,000 -0.8%

14. Canada $ 1,287,000,000,000 -2.4%

CIA World Factbook – March, 2010

China is On the Move

Goldman Sachs says that China can

become the largest economy in the

world by 2035 by growing by 5% a year.

What does the world look like when

China’s economy is 9x bigger than it is

today?

What opportunities does this represent

for American entrepreneurs?

India is Rising

Goldman Sachs says that India can

challenge the US for #2 by 2040 by

growing by 6% a year.

What does the world look like when the

Indian economy is 12x bigger than it is

now?

What opportunities does this represent

for American entrepreneurs?

Here Comes The BRIC Middle Class

Goldman Sachs predicts that the BRIC Middle Class could grow 4x in the next decade

Never before have we seen the addition of 750 million new members of the middle class in one decade.

Goldman says that the BRIC Middle Class could grow from 250 million in 2005 to 3.5 billion by 2050*

Jim O'Neill, Managing Director & Head of Global Economic Research, Goldman Sachs, 5/06

How Far The BRICs Have Come

In 2006 the G7 (US, Japan, Germany, France, Britain, Italy & Canada) held $1,253,900,000,000 in FOREX

By the end of 2007 China’s FOREX reserves had passed $1,500,000,000,000

China spent $65 billion for the Olympics. 5x the cost of the Athens Olympics.

China’s China Investment Corporation is a $300 billion State VC Fund

Today, China has $2,400,000,000,000 in FOREX reserves.Professor P. Konana, McCombs School of Business, University of Texas at Austin & Goldman Sachs

Go Where the Market Is

756 million Mobile Phone Users in

China (January, 2010)

Only 56.3% of China’s population

550 million Mobile Phone Users in India

19,000,000 Indians signed up for cell phone

service in January, 2010 . . . for the first time ever

612,903 new subscribers every day of the month

All of Motorola’s mobile phone ads are

developed and designed in Beijing

They outsource to the US and Europe for

“localization”

China Drawing High-Tech Research

Mark Pinto, Chief Technology Officer of

Applied Materials moved to Beijing in

January

Applied Materials is building its newest

and largest research labs in China

Applied held its annual shareholder’s

meeting in Xi’an, China.

Applied’s global headquarters are in Santa Clara,

California

Applied’s New Xi’an R&D Plant

This Will Be China’s Century

When Xie Lina, a 26-year-old Applied

Materials engineer here, was asked

recently whether China would play a

big role in clean energy in the future,

she was surprised by the question.

“Most of the graduate students in

China are chasing this area,” she said.

“Of course, China will lead everything.” New York Times, March 17, 2010

Who. is. Your. Daddy?

Who is Worried About IP?

Thermal Power Research Institute is

China’s world-leading laboratory on

cleaner coal, has just licensed its latest

design to Future Fuels in the US.

Future Fuels will pay about $100 million to import

from China a 130-foot-high maze of equipment

that turns coal into a gas before burning it. This

method reduces toxic pollution and makes it

easier to capture and sequester gases like

carbon dioxide under ground.

Future Fuels will ship the equipment to

Pennsylvania and have Chinese engineers teach

American workers how to assemble and operate it.

Who Owns Our Debt? (Billion US$)

May 2008

China = $506.8

Japan= $575.3

Caribbean Banking

Centers = $104.5

Oil Exporters = $164.2

UK = $271.2

Brazil = $151.4

Russia = $63.7

Luxembourg = $75.2

Hong Kong = $61.4

Taiwan = $38.9

January 2010

China = $889.0

Japan = $765.4

Oil Exporters = $218.4

UK = $206.0

Brazil = $169.1

Hong Kong = $146.6

Caribbean Banking

Centers = $143.5

Russia = $124.2

Taiwan = $119.6

Switzerland = $84.4 http://www.treas.gov/tic/mfh.txt

Who is Our Banker?

In May, 2008, we owed China, Inc.

$607.1 billion.

By December, 2009, this number had

grown to $1.16 trillion

We borrowed an additional $552.9

billion in 1 ½ years.

This is a 91.07% increase in their “line of credit”

to US

What Are They Buying Now?

Majority Share of GM China & GM India

Hummer from GM (Not anymore)

Volvo from Ford

15% of the Cleveland Cavaliers

20% of Fisher & Pavkel (New Zealand)

Oz Minerals (Australia) for $1.4 billion

Addax Petroleum (Swiss oil company)

for $7 billion

Access to Kurdish & Nigerian oil fields

9.9% of Morgan Stanley & Citibank

The New World Order in 2050? (GDP in Trillion US$)

China $70

USA $39

India $38

Brazil $11

Mexico $10

Russia $9

Indonesia $8

Japan $7

UK $5

Germany $5

Nigeria $5

France $5

Korea $4

Turkey $3

Vietnam $3

Canada $3

Philippines $2

Italy $2

Iran $2

Egypt $2

Pakistan $1

Bangladesh $1

Goldman Sachs BRIC Book (2007) - Page 154

Are We Losing Our Touch?

“God bless the Chinese,” one senior

American diplomat in Brazzaville put it

bluntly. “They build roads and dams,

and quite frankly we don’t have what it

takes to do those things anymore. All

we can do is give English classes and

try to sell our technology.”

China Safari: On the Trail of Beijing’s

Expansion in Africa, Serge Michel and

Michel Beuret, Nation Books, 2009

Who Would Have Thought?

Dr. P. Konana, McCombs Business School, University of Texas at Austin

A Swarm of Inflection Points

India - Total Trade

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WSJ - June 25, 2007, Page A1

California Dreaming?

Welcome to the New China

copyright - John N. Doggett, 2008

34

Growth at Warp Speed

The People’s Republic of Communist China?

www.lenbracken.com/images/china31

Shenzhen in 1979

30,000 people lived here in 1983

Source: http://en.wikipedia.org/wiki/Image:57440.jpg

Boji Christmas tree factory

Chinese New Year Train Station

China’s Exploding Middle Class

In 2007, China had 80 million

middle class consumers 6% of China’s population

By 2020, China will have 700

million middle class consumers.

30% of China’s population

Source: McKinsey & Company

Millionaires’ Fair 2007, Shanghai

How Long Will They Wait For Theirs?

What is Your Image of India?

www.woophy.com

Competing With Bright Minds

Infosys

Infosys

Infosys

Indigo Airlines

India = Brainpower, Inc.

Students who are rejected by one of the

IIT branches go to MIT as their backup

school

India is home to over 100 R&D Facilities

for Fortune 500 Firms

Since 2003, Indian firms were 10 of the

17 winners of the Deming Application

Award for Quality

Nearly 250 Indian centers teach

courses on Japanese language and

culture

Mr. Steel

Competing With M&A

Mittal Steel acquires Arcelor

ArcelorMittal is the #1 Steel Company in the

World with 310,000 employees in 60 Countries

Tata Motors People’s Car

Tata Motors’ Newest Ride

Tata Motors’ Newest Ride

Dr. P. Konana, McCombs Business School,

University of Texas at Austin

Energy per Capita Rising with Incomes

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1,000

2,000

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5,000

6,000

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9,000

- 5,000 10,000 15,000 20,000 25,000 30,000

Energy Consumption and GDP per Capita: 2002

Energy usage per capita (oil equivalent litres per person per year)

GDP per capita (1990 US dollars per person per year)

India

South Korea

China

Japan

UK

Australia

US

Source: GGDC, BP, GSJBW

Source: Roopa Purushothaman, Goldman

Sachs, BRICs Report 2003

Japan

UK

South Korea

Unprecedented Energy Growth

China became the World’s Largest Emitter

of energy-related CO2 in 2008.

China will become the World’s Largest

Consumer of Energy in 2010.

From 2007 and 2030, China will install

more new electricity generating capacity

than exists in the United States in 2007

World Energy needs in 2030 will be 55%

higher than in 2006

China and India will = 45% of this new

demand

World Energy Outlook - 2007

China’s Exploding Energy Demand

China’s Primary Energy demand will more than double from 1,742 million toe in 2005 to 3,819 million toe in 2030 ( 3.2% annual growth rate)

In 2005, the United States used 1/3 more energy than China

By 2010, China will use more energy than the United States

China’s primary energy demand will grow by 5.1% until 2015

World Energy Outlook - 2007

China’s Generation Growth Curve

New York Times - May 11, 2009

China Is Innovating

New York Times - May 11, 2009

China, India and Coal

Coal produces 80% of China’s power.

China uses more coal than the US, Europe and Japan . . . Combined.

China is the leading builder of supercritical and ultra-supercritical coal plants.

Indian and Chinese companies have been

buying coal assets abroad, especially in

Africa.

India's National Aluminum Co. wants to buy a

coal asset in Indonesia with at least 200

million metric tons of reserves.

New York Times - May 11, 2009, WSJ & Professor Doggett Analysis

Progress Comes at a Steep Price

Source: New York Times, 8/25/2007

The Chinese People Hate Dirty Air

They Hate Dirty Water

The Clock is Ticking

The Guardian - June 20, 2007 Peter Parks/AFP

This “Air” Doesn’t Stay in China

WSJ - Science Journal - July 7, 2007

Global Air Currents

“On some days, almost a third of the air over Los Angeles and San Francisco can be traced directly to Asia. With it comes up to three-quarters of the black carbon particulate pollution that reaches the West Coast.”

We are #2!

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1 China, Choking On Growth – Part I. New York Times, 26 Aug 2007.

2 International Energy Outlook – Table A10, U.S. Energy Information Administration (EIA)

China Is Moving Fast

China has doubled its total wind energy capacity in each of the past four years.

China will pass the US this year to become the largest market for wind turbines in the world.

China will build more new nuclear power plants than any country for the next two decades.

HSBC predicts that China will spend more on renewable and nukes than coal and oil electricity generating plants.

New York Times, July 2, 2009 and Professor Doggett Analysis

Growing at the Speed of Wind

2008 target = 5,000 megawatts by 2010

March 2009 target = 10,000 megawatts

by 2010

July 2009 target = 30,000 megawatts by

2010

This was the target for 2020 three years ago

Dunhuang – China’s Green Desert

Becoming a Renewable Energy Giant

China is building six massive wind

farms across the country.

Each has the generating capacity of 16 large

coal-fired plants

Each of the six projects “totally dwarfs

anything else, anywhere else in the

world,” Steve Sawyer, the secretary general of the Global

Wind Energy Council, an industry group in Brussels.

Lone Star, Meet Red Star

China inks $1.5 Billion Wind-Power

Deal in Texas (WSJ 10/29/09)

Largest U.S.-China Joint Investment in American

Renewable Energy to Date

First U.S.-China Joint Venture in Utility-Scale

Wind Power Project

Chinese banks will finance the deal

Year old Chinese wind turbine

company will make the wind turbines

China has received $1 billion in UN

Climate Subsidies

WHAT THE HECK DO WE DO?

Anyone Still Question Whether We are in the midst of a S.I.P.?

Drain Brains! Immigrants started 25% of U.S. public companies

that were venture-backed.

The market capitalization of publicly traded

immigrant-founded venture-backed companies in

the U. S. exceeds $500 billion.

40% of U.S. publicly traded venture-backed high-

technology manufacturing companies were

started by immigrants.

50%+ of the employment generated by U.S. public

venture-backed high-tech manufacturers has

come from immigrant-founded companies.

Innovate! The iPhone and iPad

The Amazon Kindle DX

Carbon Free Fresh Water

French Tidal Power Plant Online in 1967

http://en.wikipedia.org/wiki/Image:Rance_tidal_power_plant.JPG

Real Products; Not Just Dreams

300 in NYC’s East Rive by 2013

Algae to Oil

Small Reactors to the Rescue?

Baby Nuke Self Contained Design

Tennessee Valley Authority, First Energy

Corp. and Oglethorpe Power Corp., on

2/17/10 signed an agreement with McDermott

International Inc.'s Babcock & Wilcox

subsidiary, committing to get the new reactor

approved for commercial use in the U.S.

Made in plants in Indiana, Ohio or Virginia.

125 to 150 MW

1/10 the cost of big nukes = $750 million

Built with all of the fuel needed to run it for

60 years.

All waste stored in plant for 60 years.WSJ - 2/18/2010

240 MW on a Truck

(c) - General Atomics - WSJ -

2/22/2010

Pocket Nuclear Reactor 240 MW reactor that will be built in factors

and shipped to sites on trucks or trains.

Helium cooled reactor would use operate at temperatures as high as 850 degrees Centigrade. This makes it an attractive “combined cycle” energy

source for desalinization of water and other industrial uses.

Fuel source is spent nuclear fuel from large conventional nuclear plants. “spent fuel” contains more than 90% of its original

energy

Enough nuclear waste to build 3,000 of these reactors

12 year development timeline

WSJ - 2/22/2010