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Future of Globalisation: China?

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[Image above by Rob Smith, a British photographer www.flickr.com/people/robshanghai/]

“American allies are freaked out about this in Asia. The Chinese are licking their lips — they’re very happy about it.”

This is what Ian Bremmer, the geo-political strategist wrote soon after he landed in Beijing this last week. Since Donald Trump was elected to the White House, there has been much talk about the future of globalisation. Now the path of  two leaders of globalisation – the UK and the USA – seem to be unclear.

Perhaps later today Donald Trump will announce Wilbur Ross as his new commerce secretary. And like many of the Trump economic team he has not been a fan of the unfettered trade deals.

Apparently he told New York magazine more than 10 years ago that the US has for too long been “exporting its standard of living and importing its unemployment.”

If you look at articles coming out of the media and the think tanks, you’ll increasingly see articles suggesting that if the Americans don’t take the lead on this then the Chinese will.  An Australian newspaper even suggested that the Chinese might step in to lead the TPP if the US does pull out. And  the World Economic Forum this week wrote  an article called “Why China Could Lead the Next Phase of Globalisation.”

As many have done, they highlight China’s potential weight going forwards by citing predictions for China’s economy in 2030.

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https://www.weforum.org/agenda/2016/11/china-lead-globalization-after-united-states/

They also go to highlight the Chinese leaderships understanding of connectivity, an essential component of globalisation:

“Something China understands very well is the importance of connectivity – and hence transport infrastructure – for economic growth and development. Its major development framework is the One Belt One Road initiative with its two pillars, the Silk Road Economic Belt and the 21st Century Maritime Silk Road. This development project involves a territory equal to 55% of global GDP, 70% of the global population and 75% of its known energy reserves. “The investments will involve about 300 projects extending from Singapore to Turkmenistan,” reports Reuters.

One building block of One Belt One Road – also known as OBOR – is the Regional Comprehensive Economic Partnership (RCEP). This China-driven alliance will comprise Australia, New Zealand, China, India, Japan and South Korea – as well as the ASEAN region. In 2014, ASEAN was the seventh-largest economic power in the world. It was also the third-largest economy in Asia, with a combined GDP of US$2.6 trillion – higher than all of India.

….With the New Development Bank (NDB), the Silk Road Fund and the Asia Infrastructure Investment Bank (AIIB), China has prepared itself for responses to major financing needs – within and beyond the Belt and Road area. This shows some similarity with the Marshall Plan, the US support plan that helped to rebuild western Europe after the end of the Second World War.”

Certainly China would seem to be one champion of globalisation. However,  I think that it might be tricky for China to replace the US and it seems that Martin Wolf of the Financial Times agrees, recently admitting:

“Yet there are limits to how far China might replace the US, let alone the west, in world trade. If we look at shares of global gross domestic product at market prices, a crude measure of actual purchasing power, China’s share jumped from 4 per cent in 2000 to 15 per cent in 2016. The share of Asia (including Japan) is 31 per cent. Meanwhile, the US and the EU together account for 47 per cent of global GDP. Similarly, despite growing rapidly, China’s share in global imports was only 12 per cent in 2015, while that of Asia was 36 per cent. The US and EU (excluding intra-EU trade) still accounted for 31 per cent of world imports.”

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I also have question markets about the forecasts of these investment banks and leading think tanks vis-a-vis China’s composition of global GDP in the future.   Remember in 1990 they were all gushing praises for Japan and forecast that it would soon overtake the US.   However, I certainly recognise China’s importance, and it is another reason why I will continue to maintain an office there. And the whole New Silk Road is very compelling.

There are still other champions out there such as Germany’s Merkel amongst others. Other global leaders in Europe will also push globalisation unless their nations too fall to anti-globalisation revolutions that we have witnessed in the UK and US.

I think that part of this China narrative is a way to get Trump to shift course a little and become more ‘pragmatic’ as he has been doing on other issues. But given that he has announced that on day one he will reject TPP I think we will find that he isn’t going to water down his views so much.

The issue of globalisation is perhaps the biggest ideological war on the planet today. The fault lines are becoming more intense. Its an issue I will be writing about a lot in the future I am guessing.

 

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