Archive for October, 2014


Understanding India’s economic geography | McKinsey & Company

India’s rapid growth in the decade to 2012 saw it emerge as one of Asia’s most promising markets. But the recent slowdown made growth and profitability increasingly elusive, forcing companies to think harder about the way they allocate resources. As growth picks up, and rapid shifts in India’s urban and rural economic landscapes occur, marketers will need to make strategic market choices to maximize returns. Understanding the growth drivers and identifying high-potential markets at a granular level are critical priorities for businesses looking to benefit significantly from this returning tide of growth.

Taking into account their existing footprints, product mixes and extensions, and long-term aspirations, companies could consider three approaches to dissect the Indian market and decipher its heterogeneity: states, clusters, and cities. The research underpinning McKinsey’s latest report—India’s economic geography in 2025: States, clusters, and cities—combines a robust understanding of macroeconomic issues at a national level with microlevel insights on the economic and income potential of states, districts, and cities.1 By building a granular view, based on several different economic scenarios, of where growth and market opportunities will emerge, the report shows that businesses can tailor investment decisions to capture a disproportionate share of the pie in India’s ever-changing economic geography.2

Our research focuses on distinct geographic slivers of opportunity at each level of granularity.


India’s 29 states and seven union territories are at different stages of demographic and economic evolution. The per capita gross domestic product of states, a marker of their inhabitants’ affluence or deprivation, reasonably depicts the variation in living standards and market potential across India. We have classified states into four broad groups based on their relative 2012 per capita GDP: very high performing, high performing, performing, and low performing. This approach helps companies understand which states will probably contribute most to India’s growth and the potential size of households in different income segments in each state. That in turn makes it possible to estimate future market demand for specific categories of goods and services.3

We find that eight high-performing states will account for some 52 percent of India’s incremental GDP growth from 2012 to 2025. Along with four very high-performing city-states, these eight will have 57 percent of India’s consuming-class households in 2025.4 Rapid urbanization and the associated income growth will propel the high-performing states to per capita income levels similar to those of today’s middle-income nations. In 2025, for instance, Maharashtra’s 128 million residents will have a purchasing-power parity similar to Brazil’s today. Goa’s and Chandigarh’s 2025 purchasing-power parity will mirror that of Spain today (Exhibit 1).

Exhibit 1

By 2025, the standard of living in ‘very high’ and ‘high-performing’ states will mirror that of high- and middle-income nations today.

Metropolitan clusters

Companies considering a granular pan-India play could target metropolitan clusters. We expect that just 49 of them (some 183 districts) will account for about 77 percent of India’s incremental GDP, 72 percent of its consuming-class households, and 73 percent of its income pool from 2012 to 2025.5 Top-ranked metropolitan districts constitute the nucleus of these clusters, and the surrounding high-potential districts make them serviceable markets with similar psychographics (Exhibit 2).6 The clusters are also at least at par with India as a whole on core development parameters, such as access within the household to basic urban services like water supply, sanitation, and electricity. They are therefore appropriate for companies looking to expand into areas where access to basic infrastructure does not pose a binding constraint.

Exhibit 2

Forty-nine high-potential metropolitan clusters will account for about 77 percent of India’s incremental GDP from 2012 to 2025.


Within the urban areas, the report focuses on the top 100 cities, distinguishing between metropolitan areas and others in this group. For example, in 2012 India had 54 metropolitan cities, which together with their hinterlands (65 districts) accounted for 40 percent of GDP and 45 percent of consuming-class households. We estimate that in 2025, India will have 69 metropolitan cities, which, together with their hinterlands (79 districts), will account for 54 percent of the country’s incremental GDP from 2012 to 2025 and for 50 percent of its total income in the terminal year. In short, focusing on these 79 districts would provide companies with access to a market potential similar to that offered by the eight high-performing states (Exhibit 3).

Exhibit 3

Seventy-nine metropolitan clusters in India provide the same market size as eight high-performing states.

To get the most from this granular approach, companies need to develop customized strategies for each geographic sliver. To do so, they must map priority geographic segments to product categories and extensions. Doing so will help them reallocate their resources significantly and provide the bedrock to develop a tangible implementation road map, including the development of new competencies required for the full business (marketing, sales, and operations) to target these markets effectively. By focusing on tomorrow’s high-potential markets and tailoring strategies and allocating resources accordingly, companies can gain a significant competitive advantage.

via Understanding India’s economic geography | McKinsey & Company.

Tags: ,

180 economic fugitives back in China to face trial[1]|

Authorities in China have succeeded in getting extradited or persuading 180 economic fugitives to return to China and face trial since launching a campaign called “Fox Hunt” in July.

180 economic fugitives back in China to face trial

US, Canada, Australia top spots for fugitive Chinese officials

Australia to help in returning fugitives

The number of the fugitives being repatriated during the first 100 days of the “Fox Hunt” is more than that of the whole year of 2013. The returned suspects include many alleged corrupt officials who fled to more than 40 countries and regions, including the US, Canada, Australia and Southeast Asian nations.

Among the fugitives, 104 were hunted down by the police and 76 were persuaded to return. Forty four are suspected to be involved with ill-gotten assets over 10 million yuan ($1.6 million).

China’s Public Security Ministry initiated a six-month operation called “Fox Hunt” to target economic fugitives, especially corrupt officials, who fled abroad with their illicit assets. A special unit was set up by the ministry to oversee the operation. It comprises experienced police officers from the Economic Crimes Investigation Bureau and local public security departments.

According to the ministry, some corrupt Chinese officials have fled to the US, Canada, Australia and Southeast Asian countries in recent years, transferring assets worth many billions of dollars overseas through money laundering and underground sources.

Police in Australia and China recently pledged to cooperate on the extradition of Chinese economic fugitives, including many corrupt officials, in an effort to tackle the difficulties over the return of suspects due to a lack of bilateral extradition treaties.

Four of China’s top governmental departments released a statement this month urging fugitive economic criminals to surrender themselves to justice.

The announcement is another move to reinforce the “Fox Hunt 2014” campaign.

via 180 economic fugitives back in China to face trial[1]|


Burger King Brings Beef-Free Whoppers to India – India Real Time – WSJ

When Burger King BKW +0.41% brings its crown to India next month, diners will be the first in the world to bite into a new version of its signature Whopper sandwich: a beef-free one.

The world’s second-largest burger chain, behind McDonald’s MCD +0.14%,  has dropped beef and pork from its menu in India, keeping in mind religious practices of Hindus and Muslims who make for most of the country’s population.

“GREAT NEWS — The WHOPPER IS COMING SOON TO INDIA!” Burger King India’s official Facebook page announced late Wednesday. Minutes later, though, another post followed. “We do not have beef on our menu but our options will certainly delight you.”

So what’s being served on Burger King’s Indian menu? A Chicken Whopper. A Mutton Whopper. And a Vegetable Whopper.

The news didn’t go down too well with at least a few of India’s younger fast-food lovers, whose changing tastes have whipped up a market for restaurants serving beef and bacon.

“Whopper as chicken is unacceptable,” one Facebook user wrote. “That sir is not a Whopper. It looks more like a chicken sandwich trying to be cool,” another posted below a picture of Burger King’s beef-free inventions. “No beef in the menu. Seems like another sad imitation of a global franchise,” a third user posted.

Miami-based Burger King seemed unfazed by the criticism and instead sought to teach its newest customers how to correctly pronounce its flagship hamburger. (“Whaw-per” in case you’re wondering.)

It is unclear when, or how many outlets, the U.S. fast-food chain plans to open in India. Burger King declined to comment ahead of the launch.

Local media reports say the company plans to open at least 12 outlets over next three months in cities including Bangalore, Pune and Chennai. A first outlet is due in New Delhi, according to Burger King’s Indian partner, Everstone Capital Advisors. But an Everstone spokeswoman chose to remain tight-lipped about the exact location.

A photo of a neon-lit Burger King restaurant circulated online late Wednesday, along with rumors that a first store would appear in the capital city’s Select City Walk Mall. Another rumored location doing the rounds online is Connaught Place, a colonial-era marketplace in the heart of New Delhi, where Dunkin Brands Inc. and Starbucks Corp.SBUX -0.66% opened stores in 2012.

Burger King comes to India a few months after Fatburger Inc. and nearly two decades after its arch-rival McDonalds, which offers the McAloo Tikki burger (a potato-burger, basically), as well as the Maharaja Mac, its beef-free take on the Big Mac. Last year, McDonalds opened a vegetarian-only outlet in northern India — a world-wide first — in an attempt to cater to the country’s vast vegetarian population. Fast-food chains like Dominos and Subway have also tailored their menu to serve spicier, and plenty of vegetarian, options.

India’s burgeoning fast-food market — home to 299 KFCs, more than 300 Pizza Hut outlets and four Taco Bells — is expected to grow to $78 billion by 2018, according to Technopak Advisors. The Gurgaon-based market-research firm values the current market at $48 billion.

The Asia Pacific region is Burger King’s smallest market, with approximately 1,100 restaurants. The U.S. and Canada continue to remain its largest, with more than 7,400 restaurants out its 13,667 globally.

via Burger King Brings Beef-Free Whoppers to India – India Real Time – WSJ.


United States praises China’s growing role in Afghanistan | Reuters

The United States welcomed China’s growing role in trying to ensure Afghanistan’s stability on Thursday, saying a Beijing conference of foreign ministers on Afghan reconstruction this week shows its commitment to the region as Western troops pull out.

Chinese President Xi Jinping (R) and Afghan President Ashraf Ghani Ahmadzai attend a signing ceremony at the Great Hall of the People in Beijing October 28, 2014. REUTERS/Lintao Zhang/Pool

The comments, made by a senior State Department official, are rare U.S. praise for Beijing, which this week hosts Afghan President Ashraf Ghani on his first visit abroad since assuming office in September.

Washington and Beijing, which have typically contentious relations on geopolitical issues from Iran to the South China Sea, have both said they see Afghanistan as a point where their security interests converge.

On Tuesday, China pledged to give Afghanistan $327 million in aid through 2017, more than the $250 million contribution it has so far offered since the fall of the hardline Islamist Taliban regime in 2001.

“China’s view of engaging in Afghanistan over the course of these past few years has really changed significantly, and in our view, in a very positive direction,” the official told reporters during a telephone briefing.

On Friday, foreign ministers from Asian and Central Asian countries will gather in Beijing for a fourth round “Istanbul Process” conference on Afghanistan, which China hopes will help boost development and security there. White House counsellor John Podesta will attend the meeting.

“It’s a real demonstration of China’s commitment to Afghanistan, to its role in the region and one that we greatly welcome,” the official said.

via United States praises China’s growing role in Afghanistan | Reuters.


China to free clearing market for bank cards | Reuters

China will open up its market for clearing domestic bank card transactions, the cabinet said on Wednesday, in a move that could benefit companies such as Visa Inc (V.N) and Mastercard (MA.N), in a booming market worth over $1 trillion (0.62 trillion pounds) a year.

Access for foreign firms to China’s fast-growing electronic payments market is a controversial issue.

China promised to reform and free its electronic payments market after the World Trade Organisation (WTO) said in 2012 that its behaviour discriminated against U.S. firms.

Wednesday’s announcement by the State Council followed a weekly meeting. Foreign firms that meet its criteria could set up their own clearing companies, it added, but gave no further details.

It was not immediately clear if the move would allow foreign firms to process credit and debit card payments made in yuan in China.

Visa, the world’s largest credit and debit card company, welcomed the move.

via China to free clearing market for bank cards | Reuters.


China Tries to Track the Corrupt Officials Fleeing Abroad – Businessweek

China’s government estimates that the number of corrupt officials who have moved abroad to sidestep the law and safeguard personal fortunes ranges from 4,000 to 18,000 people. The government charged with corruption nearly 7,000 officials whom it suspected were plotting to flee the country from 2008 to 2013,  according to Cao Jianming, vice president of the Supreme People’s Court.

Cao, the People's Republic of China's top prosecutor and investigator

Government data in an online report from the People’s Daily names the U.S. and Canada as the top destinations–dubbed “corrupt paradises”–for emigrating officials. Records from authorities in Toronto and Vancouver show that Canadian customs officials seized $13 million in undeclared cash from arriving Chinese emigrants and tourists from April 2011 to June 2012.

In July, meanwhile, China launched “Operation Fox Hunt” in an effort to locate and prosecute corrupt officials who have moved abroad. Beijing does not have an extradition treaty with Washington. “We face practical difficulties in getting fugitives who fled to the U.S. back to face trial, due to the lack of an extradition treaty and the complex and lengthy legal procedures,” Liao Jinrong, an official at China’s Ministry of Public Security, earlier told China Daily.

via China Tries to Track the Corrupt Officials Fleeing Abroad – Businessweek.


Suspect Export-Import Numbers Undermine China’s Economic Data – Businessweek

The numbers don’t match. In September, China exported $37.6 billion to Hong Kong, according to government data compiled by Bloomberg. For the same month, Hong Kong’s government  says imports from the mainland amounted to only $24.1 billion. That’s this year’s biggest gap between Chinese and Hong Kong figures.

The Kwai Tsing Container Terminals in Hong Kong on April 28

Where did all those billions of dollars go? Julian Evans-Pritchard, Capital Economics’ China economist, called the results “very suspicious,” especially since the discrepancies are largely related to the trade of precious metals and stones. “It seems the Chinese customs are basically overvaluing these gems [and] these precious metals,” he told Bloomberg Television on Tuesday. Meanwhile, “Hong Kong customs are valuing them more accurately.”

The China-Hong Kong discrepancy is just one example. Evans-Pritchard points to similar discrepancies regarding Chinese imports from South Korea. “What appears to be happening [is] we have some round-tripping,” he said. Companies may be claiming to import the stones from Korea at a certain price and then export them to Hong Kong at a higher price, pocketing the difference. That helps companies evade Chinese government currency controls at a time when there’s renewed pressure to strengthen the yuan. With such conditions, “it makes a lot of sense” for Chinese companies to borrow money cheaply abroad and find ways to get that money into the country.

The Chinese government is not blind to the problem. China has found almost $10 billion in fraudulent trades nationwide since April of last year ,and companies have “faked, forged, and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, told reporters in Beijing in September.

The faked invoices are additional reasons not to take at face value the economic statistics coming from China. “This is definitely another important piece of evidence of over-invoicing exports to Hong Kong to facilitate money inflow into China,” Shen Jiangugan, chief economist at Mizuho Securities Asia, told Bloomberg News. “So we shouldn’t be too optimistic about recent export data from China.”

via Suspect Export-Import Numbers Undermine China’s Economic Data – Businessweek.


Pollution in Delhi Prompts U.S. Embassy Warning – India Real Time – WSJ

If you have children in New Delhi, you might not want to let them play outside today. The U.S. Embassy in the Indian capital said air quality – as measured at a monitoring station in the embassy compound – had reached “very unhealthy” levels on Wednesday morning.

On Wednesday at 10 a.m., the embassy said its air-quality index was 255 – a measure based on the amount of fine particulate, or PM 2.5, in the air. Such small particulates can enter the lungs and blood stream. They have been linked to severe health problems such as lung cancer.

The U.S. Embassy’s website said that an air-quality index reading between 201 and 300 can cause “significant aggravation of heart or lung disease” and a “significant increase in respiratory effects in general population.”

“Older adults and children should avoid all physical activity outdoors,” it said. “Everyone else should avoid prolonged or heavy exertion.”

The message though hadn’t got through to the American Embassy School in Delhi on Wednesday morning. Kailash Sharma, a staff member at the school, which is located across the road from the embassy, said by telephone that “kids were playing outside.”

The U.S. embassy in Beijing, China, also monitors air pollution.

Delhi’s air quality often deteriorates in winter, particularly in the days after the festival of Diwali when residue from fireworks displays adds to pollution levels.

India’s Ministry of Earth Sciences on Wednesday said its air-quality index was 121, a level described as “poor.”

via Pollution in Delhi Prompts U.S. Embassy Warning – India Real Time – WSJ.


China’s Jobs Picture Not As Rosy As It Looks – China Real Time Report – WSJ

China’s Premier, Li Keqiang, has said repeatedly how happy he is with the strength of the country’s job market, despite a slowing economy. That’s the main reason he sees little need to ease policy aggressively to spur growth, he says.

Officials attribute low unemployment to a drop in the working-age population, along with the development of the service sector, which is more labor-intensive than manufacturing.

But a deeper look into the government’s jobs data shows that the current employment situation is more worrisome than it appears. Across China’s cities, 10.82 million new jobs were created over the first nine months of the year, up 1.5% from the same period of 2013, according to official data released on Friday. That’s slowest rise in five years.

Migrant workers are normally the first to take the brunt of an economic slowdown, since more than one fifth of them work in the construction sector, which is highly sensitive to economic cycles. Employers also tend fire migrant workers first if business is bad rather than laying off urbanites with permanent resident status, economists have said.

“Over the past few years, especially after 2009, the government stepped up investment in infrastructure and property market. That has created many job opportunities for migrant workers,” said Li Shi, an economics professor at Beijing Normal University. “But now a sluggish property market has affected migrant workers.”

The global financial crisis cut China’s economic growth from double-digit rates to 6.6% in early 2009, and left some 200 million migrant laborers facing unemployment and a fraying safety net.

The government responded with a four trillion yuan ($650 billion) stimulus package that helped China rebound rapidly from the global downturn, but also resulted in a series of problems such as industrial overcapacity and environmental pollution.

This time around the economic situation is less dire, and the reaction has been more restrained. Since economic growth started to falter earlier this year, policy makers have contented themselves with a series of targeted easing measures like accelerated spending on infrastructure and special lending programs from the central bank. They have also brought in measures to spur mortgage lending and reduce financing costs and tax burdens for small firms.

via China’s Jobs Picture Not As Rosy As It Looks – China Real Time Report – WSJ.


Banyan: The enablers | The Economist

NOT since Indira Gandhi has a prime minister of India been as dominant as Narendra Modi. His clout comes from the big electoral victory in May of his Bharatiya Janata Party (BJP) after a remarkably personalised campaign; from a hyperactive prime minister’s office that makes Mr Modi look presidential; and from an opposition Congress party in tatters. But even the mightiest cannot rule alone, and Mr Modi relies on two old allies, both crucial. One, Amit Shah, engineers the electoral victories that give Mr Modi his authority. The other, Arun Jaitley, must take that authority and out of it craft policies and decisions that will launch the economic recovery which Mr Modi has promised and by which he will be judged. These two men are Mr Modi’s enablers.

Now the BJP’s president, Mr Shah is a master of the dark political arts—indeed, his hooded eyes give him the air of a pantomime villain. He has served Mr Modi for nearly three decades. The pair collaborated in the state of Gujarat, where Mr Modi won three elections and ruled for a dozen years. Mr Shah had charge of ten state ministries, including home affairs.

Long an outsider in the urbane circles of Delhi’s national-level politics, Mr Shah is uncomfortable in English and rarely gives interviews. When he makes an exception, as he did after state-assembly elections this month in which the BJP seized control of Maharashtra and Haryana, he mostly uses the time to extol his boss. Of himself, he says merely: “Sometimes you get more credit than you deserve.” Mr Shah is too modest. He ran both state campaigns, just as he crafted the BJP general-election success in India’s most populous state, Uttar Pradesh (UP). That victory was at the heart of Mr Modi’s national triumph in May.

Mr Modi stirs voters, but the alchemy of Mr Shah, who turned 50 this week, is to convert popularity into power. In UP the BJP’s share of the vote was 42%, compared with Congress’s 7.5%. That translated into 71 out of 80 of the national seats from the vast state, a golden return. Imbalances between vote share and seats are normal in first-past-the-post electoral systems, but achieving victory in India takes more skill and stamina than elsewhere. Mr Shah makes minute analyses of millions-strong constituencies, imposing candidates and recruiting volunteers early, often from the Hindu-nationalist RSS organisation, where he and Mr Modi were once leaders. He tailors messages according to the audience. He has, variously, presented Mr Modi as a bringer of good economic times, a Hindu strongman and a figure of humble caste. Mr Shah has turned Hindus against Muslims (notoriously, he told Hindu Jats in UP to take electoral “revenge” following communal riots in late 2013). But he has also taken advantage of Shia Muslim antipathy towards Sunnis (in Lucknow, UP’s capital). Mr Modi’s campaigning certainly helps. He led 38 rallies in the recent state elections. Congress’s Rahul Gandhi showed up for only ten.

via Banyan: The enablers | The Economist.

Law of Unintended Consequences

continuously updated blog about China & India

ChiaHou's Book Reviews

continuously updated blog about China & India

What's wrong with the world; and its economy

continuously updated blog about China & India