WORLD: ANALYSIS - Analysts see new world order if Asia fulfils growth potential

With China leading the way, 2004 could herald market change, Lucy Aitken writes.

To anyone who didn't spend 2003 snoozing under a stone, there was no mistaking that China has officially become the world's most exciting country. A report by Leo Burnett Asia-Pacific, 20 20 Vision, shows that, while Japan was steadily on its way to becoming the world's second-largest economy during the 80s, the noughties belong to China.

This huge market, buzzing with more than one billion consumers, has never looked so appealing to global businesses wanting to access a new stream of consumers.

To give an idea of China's astonishing potential, a Goldman Sachs report entitled Dreaming with BRICs: The Path to 2050 ambitiously speculates that China will be the world's second-largest economy by 2016 and will overtake the US as the world's largest economic power by 2041. The BRICs (Brazil, Russia, India and China), according to Goldman Sachs, will account for more than half the size of the G6 economies (the US, Japan, Germany, the UK, France and Italy) by 2025.

The impact that this seismic shift will have on the world's advertising community is off the scale. What's more significant in the short term, though, is how a whole new world economic order is emerging, pioneered by the rapid growth in Asia's key markets.

The way we see the world is changing. Referring to China, Adam Smith, the head of knowledge management at ZenithOptimedia, says: "Whatever we may think of China's political complexion, you'd have to offer an explanation as to why you're not in Greater China now, whether you're building a brand or an agency network."

This can come down to sheer numbers, however. Smith points out that China's affluent middle classes alone account for half a billion people, roughly equivalent to the size of the European Union. Yet, population aside, growth is steered by other factors. Productivity is one while political stability is another. Smith points out that the hype over China's economic future must be framed realistically when it comes to advertising growth: "In China, everything is state-owned. Westerners are nibbling at the edges, but without proper competition you'll never get pricing wars or a proper market emerging."

And despite its magnitude, China could be dogged by problems in the coming months. It is predicted that the Sars virus will return to the region and there are fears the economy will overheat.

What's more, in terms of advertising, China does not have the creative cachet synonymous with other Asian markets. As Richard Pinder, the managing director of Leo Burnett Asia-Pacific, points out: "Creatively, China has a few hotspots but no-one has yet captured a Chinese voice in advertising like they have in Thailand, Brazil and India."

He adds: "2004 will be India's year. Out of 92 offices, Leo Burnett India was awarded internally with the network's office of the year title. This year we will also see the first Indian president of the Cannes jury (Piyush Pandey, Ogilvy & Mather India's group president and national creative director)."

Michael Maedel, the worldwide president of J. Walter Thompson, agrees that the Tiger economies offer the most potential: "China and India, which have the biggest GDP growth in Asia, offer huge opportunities. There is an emerging middle class in India and China with increasing amounts of disposable income and there is also a high standard of education in those countries." He adds: "The attitude is very much 'can-do' and entrepreneurial."

In terms of long-term growth, however, Brazil and Russia are also on the agenda. Yet Maedel doubts the contribution from the non-Tiger economies.

"I'm certainly not contradicting Goldman Sachs, but I'm sceptical about Brazil. For all this upswing to be sustainable, it has to be rooted in countries with strong education systems."

Brazil is traditionally a prop for the rest of Latin America. Now that Mexico is enjoying growth, Argentina is in recovery and it's Venezuela's turn to undergo turmoil, so it will take time for Brazil to stabilise.

As Dominic Wilson, a senior global economist at Goldman Sachs, says: "Brazil is the largest economy in Latin America, but its growth has been stop-start; it needs to get to the finish line before growth can be sustained."

Russia, despite growth in its advertising market looking set to continue, is hampered by the fact that most of the country's media is still controlled by the state. As Smith says, this can be detrimental to long-term growth: "State-owned media is antithetic to free markets as it puts them at a disadvantage."

So how will 2004 pan out for the rest of the world? Many agree that 2004 will not be as dire as 2003. Initiative Futures, for example, forecasts accelerating real growth in global advertising expenditure: 5.8 per cent for 2004 versus 2003 compared with 4.8 per cent for 2003 versus 2002.

Yet caution will still be the over-riding theme.

Sue Moseley, the managing director of Initiative Futures, says: "In real terms, taking account of economic inflation, 2004 expenditure will still fall short of the peak expenditure year of 2000. Effectively we are still recovering from the major global decline in 2001 and the effect of adverse economic conditions in many of the world's key markets."

Compared with the global picture, the performance of the BRICs in 2004, and particularly China and India, will be well worth monitoring, providing bright spots in the depressed global picture. As Pinder says: "Local voices have proved just how powerful and compelling they can be."

BRICs real GDP growth: five-year period averages

Year Brazil (%) Russia (%) India (%) China (%)

2000-05 2.7 5.9 5.3 8.0

2005-10 4.2 4.8 6.1 7.2

2010-15 4.1 3.8 5.9 5.9

2015-20 3.8 3.4 5.7 5.0

2020-25 3.7 3.4 5.7 4.6

2025-30 3.8 3.5 5.9 4.1

2030-35 3.9 3.1 6.1 3.9

2035-40 3.8 2.6 6.0 3.9

2040-45 3.6 2.2 5.6 3.5

2045-50 3.4 1.9 5.2 2.9

GS BRICs Model Projections.

Source: Goldman Sachs.

BRICs: adspend growth

03/02 04/03

Brazil +4.6% +7.0%

Russia +20.0% +16.0%

India +12.9% +18.2%

China +14.9% +15.0%

Source: Initiative (% change at nominal prices).