US should age gracefully: HSBC's Stephen King

Excerpts from Your World at 10 on CNBC-TV18 Watch the full show »

Q: Tough period or as you put in your book, "The new reality of the Western world is years of austerity, with enhanced financial market volatility". But the truth is that even if the West is in decline and the East is on the rise, it is such an inter-connected world that we cannot escape the ill-effects of a West being in decline. What do you think of that? How do you assess the impact or the toll that this will take on global growth?

A: My book is about relative changes and not absolute changes. If the West is in relative decline, then someone else must be in relative ascendancy. I think the key issue here is that when you look at the relative performance of economies around the world over the last 20-30 years, the West has not done particularly well. It's done alright but nothing particularly fantastic.

Some nations in the developed world have stagnated over the last 20 year period. For instance, Japan. But the other nations in the emerging world have gone from strength to strength. The reason why are they going from strength to strength is much more to do with the fact that they are seeing a supply side improvement. It's not just the result of US or European consumers buying Chinese or Indian products. It has got lot more to do with the fact that we are seeing tremendous increases coming through in supply performance.

It's effectively education, healthcare and improving productivity in the emerging nations which is improving variables to produce things. The consequence of this is that you end up with their share of global GDP and world trade continuously rising.

The point about you cannot have relative outperformance in some parts of the world and relative underperformance in others in the book, in one sense is to argue that we are seeing new connections developing across the emerging world. When you have a cyclical downswing in one part of the world, there is going to be a cyclical downswing elsewhere as well. We have learned that over the course of the last two-three years. What is interesting about this period is that the resilience of many of the emerging nations is proved to be far greater than the resilience of the West. One reason for that is the West is covered with very larger amount of debt whereas as far as the emerging nations are concerned, they are fairly debt free.

Q: Many of us in the emerging world do understand and appreciate this shift in power. Do you see policymakers in the West cognisant of this trend and do you see them doing the right things to ensure that this shift in power is not a destabilizing one but as you put in your book of ageing gracefully?

A: The West has a choice to accept that the kind of backbone of economic success has been passed to the other parts of the world. Ageing gracefully is the right choice . The big danger of course is that the West resists this process. There is no doubt of that when you look at what happened to income and the quality in the West, for instance the rising of unemployment levels in the US.

The West to a certain degree feels threatened by trends like the rise of state capitalism in the emerging world. The big danger is the West becomes increasingly protectionist, trying to protect the old ways rather than to embrace the new ways. If it moves on the protectionist route, life would become extremely difficult.

What we are seeing at the moment in terms of debates in Congress is to what should be done about the Chinese renminbi and how relationships should develop between China in the future. These things need to be watched very carefully because ultimately if we end up with a situation where protectionism rises, you got the risk of depression, you got risk of all sorts of nasty economic consequences and also nasty political consequences as well.