November 2, 2018 • 22 mins
It's the equivalent of an economic arms race. In the decade since the global financial crisis, China has vaulted up the ranks of nations that control the world economy and directly challenge U.S. domination. The new paradigm will shape economic governance for decades to come. At stake: whether China bends to the values espoused by Western-led liberal democratic institutions -- or ends up remolding them. Enda Curran hits the streets of Hong Kong to figure out what’s going on. After, Stephanie sits down with Tom Orlik and Andrew Browne to chew over Enda’s findings.
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Episode Transcript
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Speaker 1 (00:02):
Hello, and welcome to the New Economy. I'm Stephanie Flander's
head of Bloomberg Economics. One thing I've noticed in twenty
five years of writing and thinking about the global economy,
we spend so much time anticipating the big changes that
are coming down the track. By the time they actually happened,
they seem like old news. When it comes to the
(00:24):
rise of China, it's not old news at all. It's
happening right now, and not at all in the way
that many Western policymakers hoped in the late nineties nineties
when they were negotiating to bring China into the World
Trade Organization the w t O. Back then, I was
working for Larry Summers, then Deputy Treasury Secretary. We found
ourselves grappling with what became the Asia Financial crisis. A
(00:47):
string of countries, Thailand, Indonesia, Career all ended up letting
go of their currencies, and Chinese exporters were saying the
Chinese currency needed to fall as well to let them compete.
I remember going along with Summers in early to a
grand room in the Forbidden City in Beijing for an
audience with the man who was then steering Chinese economic
(01:08):
policy Ju Rongji. He gave a magisterial assessment of what
had happened in the region. It may have been the
jet lag, but I think even Summers felt a bit outclassed.
You made clear that when it came to the currency,
China would hold firm, and that was good news for
the region and the world. It helped stop more dominoes
from falling, at least in Asia. But there was a
(01:28):
message in that restraint. This was a country that was
willing to think long term. Fast forward to today, and
China is punching its weight in ways that confront the
so called Washington Consensus head on. Now the US presidents
doing a bit of that himself. We might get to
that later with two people who've spent probably an unhealthy
amount of their lives thinking about China, Tom Olick and
(01:51):
Andrew Brown. But first, here's end a current senior Asia
economy correspondent for Bloomberg News from the streets of Hong Kong.
In my past three years covering China and the regions
economies for Bloomberg News, I have seen a marked increase
(02:14):
in China's global influence. Until two thousand and fifteen, for example,
the only global body led by China was the International
Network for Bamboo and Britan. It now has a much
bigger say at the i m F through more voting
rights and high level representation. It has its own Global
Development Bank, the ai i B, set up to arrival
(02:35):
the World Bank, and in the face of Donald Trump's
trade policies, China's leaders are claiming to be the champions
of globalization. Here's Curtis Chin, former US Ambassador to the
Asian Development Bank under president's George W. Bush and Barack Obama,
and now the inaugural Asia Fellow at the Milkan Institute.
(02:56):
Every country, through its development systems, through its partnerships, at
the end of day of looking out after its own interests.
That's very different in China today or Europe, in the
US today or in the past. I think the real
question comes back to when a country advances its own
interests by advancing a form of global economic government in
(03:18):
US as advanced free trade and connectivity. The key question
is what countries in looking out after their own interests
harm other countries. I think that's the question today. When
I speak with officials and business people and economists, there
are usually two takes and much china Is growing influence
means for the world economy. Optimists say China offers a
vital source of financing to government's desper to build infrastructure
(03:41):
and grow their economies. Critics say the likes of the
ai I B are merely window addressing for China's spider's
web of lending channels and lack of transparency, and are
effectively an arm of the Commonist Party. Alicia Garcia Herrero
has worked in the official sector for institutions such as
i m F during the Mexico crisis. She has also
(04:01):
worked for the European Central Bank and Bank for International Settlements.
ALSIE is now based in Hong Kong as Chief Asia
Economists for French Banknetics Is. Here's how she sums up
the two pronged aspect of Chinese finance overseas. China's new
model is a two layer model. So you see what
you see. You don't see what is happening unless you
(04:22):
really look at it very carefully, and even then we
probably still don't don't know what is happening at its
full meaningful for us. Recently, a backlash has been growing
against China's expanding influence. There's the very public trades about
(04:42):
McDonald chump, but there's also ongoing disputes with Europe at
a w t O and smaller skirmishes like Malaysia's government
dropping plans for China to fund major infrastructure works and
Australia's government blocking Huawei from completing the build the nation's
five G phone network. Here's Curtis Chin again. The China's
approach to development, to lending, to assistance to its neighbors,
(05:05):
not just in Asia but also in African around the
world has had benefits, but it's also come with challenges
that countries are now really beginning to think through. The
I m F two has warned the China maybe loading
up poor nations with even more debt, and others saying
China's overall lending lack of transparency. China, of course refutes
(05:26):
those complaints. Here's a I I BE president Jin Lacun,
who recently spoke with Bloomberg Television. Contrary to some other
people's misconception, it's not a program dominated by China. It's
the program by which China works with other countries working
(05:47):
with international financial institutions multi lactal Devember banks. So it's
kind of cooperation. Unfortunately, some people miss under students as
kind of China program. China wants to to take advantage
of these to promote its own interests, which nothing could
be further from the truth. So how do we get
(06:10):
to this point? Complacency among Western leaders play the role.
Lending by the International Monetary Fund and World Bank often
carried bitter conditions that enraged nations from Indonesia to Greece,
sparking riots on the streets. The process of navigating loan
approval was also laced with politics. I spoke with Louis Cows,
(06:30):
formerly of the IMF and World Bank and now lead
Asia economists at Oxford Economics. There's no doubt about it
that China's cloud globally has been on the rise. It
has been on the rise, I think for two reasons.
One is a very obvious one. It's an economic one. Simply,
if you're if you're becoming bigger economically, you you carry
(06:52):
more cloud, you do more trade, people look more at you,
You have more money to spend on development and delton
road projects, all kind of things. Also, I would say
the global financial crisis did hurt a little bit, you know,
the image of Western style democracy and capitalism, and so
that has also played in China's favors. The global financial
(07:13):
crisis a moment that laid bare the fragilities of the
Western model and gifted China and opportunity to step up
on the global stage. However, witnessed the limitations of the
Western model as an official at the i m F
during the rescue of Mexico in the nineteen nineties. We
were late. So this is our fault to reform the
existing institutions which were not working, I would say, especially
(07:40):
for those newcomers. So that's our fault thing that we
were naive not to realize that it was not only
about you know, China in manufacturing, but it was much
more rooming already then and and we were not naive
not to be more general years with such a growing power.
(08:05):
For now, China's influence is still increasing. In September, President
She greeted African leaders in Beijing and promised over sixty
billion in financing. That was around the same time that
Donald Trump said he would skip two major so much
in Asia in November, stoking concerns about American commitment to
the region. That's an opportunity China is keen to exploit
(08:27):
through pushing its view of a future with itself at
the heart of the global economy. Here's Louis Harris. My
main worry about the future is a little bit that
collision course between these different economic models and what they
would mean for for relations globally between the US and China,
between China and other countries more generally, you know, and
(08:49):
I don't want to be too negative because you know,
China's growth is definitely a positive for the rest of
the world, and China's willingness to invest in other countries
is on a net basis a positives of the world.
But that you know, the issue of these different economic
morals is going to become an issue not with not
just with the US, but also with other countries. We
(09:10):
see that, you know, the Europeans have issues with China's model,
and I think that we see it a little bit
in India and Brazil as well. So this is you know,
we're not this is not a Dante. Just as the
architecture of global trade is being challenged, the world economies,
government structures are evolving to accommodate China's role. That was
(09:36):
in the current reporting from Hong Kong. Well, listening to
all that with me have been Andrew Brown, who's a
former columnist and bureau chief in China for the Wall
Street Journal, but now the editorial director for the New
Economy Forum at Bloomberg. And our own chief economist, Tom Ulick,
who has just moved back to Washington after eleven years
(09:57):
in Beijing. Maybe our q Andrew, if if you go
back to when China joined the w t O at
the beginning of the century, you know, how is the
reality of China's rise compared with the kind of predictions
that we were making around that time. Yeah, well, you
have you have to remember that China's entry into the
(10:17):
w t O was part of a much bigger project,
which was to bring this rising power into the global
economic financial security architecture. Was summed up by Bob Zelleck
with the phrase that China should become a responsible stakeholder
in the global system, the US led global system. And
(10:38):
it's worked pretty well in places. China is now the
biggest contributor to UN peacekeeping. Chinese ships are involved in
anti piracy off the coast of East Africa, keeping the
sea lanes open to the Persian Gulf. China has signed
up to arms control agreements as signed does not proliferate
nuclear weapons. That's been very successful. The bit that they
(10:59):
got long was on integrating China into the global economy,
in particular into the w t O, and what they
failed to consider were the implications of integrating China's massive
armies of cheap labor and its deep pools of capital
(11:20):
into the global economy. Um it was seen as a
slam duck that China's markets were closed, America's were opened,
and so when China brought down tariffs, you would get
this rush of US exports into China. In fact, what
happened was that you had this China shop. Two million,
two and a half million American workers lost their jobs.
(11:41):
Whole towns were decimated, and you can see it now
in the US rust belt. On the financial side, what
happened was that short Chinese purchases of US treasuries kept
interest rates low, and that was good for business, but
it also led to financial excess and of hose gave
rise to the two thousand and eight financial crisis. The
(12:04):
third mistake that I think they made was that they
thought the American policy makers at the time thought that
this was going to be the start of economic reforms
in China, and that once China joined the w t O,
we would see the economy progressively become more open, and
in fact it turned out to be the high watermark
(12:24):
of reform. And then right now what you're seeing is
reformed stalling and even going backwards. Tom Um. We tend
to view other people's other nation's success through the prism
of our own insecurities. I guess if you were China,
you'd say that you wouldn't be complaining about our success
(12:44):
if you hadn't been having if you didn't have all
these problems in your own backyard with with populism and
other things. Aren't they aren't we just um, shouldn't we
just focus on our own concerns rather than blame it
all on China. Well, one of the funny things, Stephanie,
is that when you sit in Beijing, as Andy and
I did for for a number of years, what you
see coming through on the Chinese propaganda and the Chinese
(13:07):
newspapers and television is a certain amount of if not glee,
at least kind of like smug self satisfaction, the evidence
of sort of social dysfunction and political dysfunction that you
see in the US and Europe. There's nothing that China
television likes better than broadcasting a riot in Greece or
a violent protest in the United States, and the implicit
(13:29):
messages look, that system is broken and our system works. UM.
Coming back to your question about whether it's sort of
unfair to blame populars blame the dysfunctions that we have, UM,
whether we'd be less dissatisfied with China if we didn't
have these dysfunctions at home. I think there's certainly an
element of truth in that. But what I would add
(13:51):
is that whilst the sources of the dysfunctions we see
in the West are complex, and they relate to social
policy failures, they relate to the rise of technology, they
relate to forces unleashed by globalization that go beyond just
the rise of China. China is part of the picture,
and it is Chinese imports, cheap Chinese imports, Chinese industrial
(14:14):
policy giving what many see as an unfair advantage to
Chinese firms, which is to blame for an element of
the problems that we see in terms of inequality and
lost wages. And one of the things that enders sort
of focusing on in that piece is the way that
China itself has taken a more muscular role in some
of these institutions, and it is creating in the case
(14:36):
of the infrastructure, by creating its own institution for having
influence on the world. When you look at what they've
done in Africa and Latin America, is this a country
that is actually trying to impose an alternative model onto
the world or is it just pursuing its core national interest.
I'm not sure we can effectively divide those two things. Um,
(14:58):
when China pursue us its national interest, it does so
in a way which is suited to and driven by,
and accommodated to its national model. So when the US
goes overseas, it goes it goes goes overseas with its
mighty private corporations and its free markets, and those are
the approaches which which benefit those corporations and also perpetuate
(15:22):
the the U S model. And when China goes overseas,
it goes overseas with its huge state owned banks and
it's huge state and enterprises and companies that want to
do business with China. Countries that want to do business
with China then have to do business with the China model.
So the pursuit of self interest and the perpetuation or
the expansion of a particular model of governance. I think
(15:44):
they go hand in hand. But are they encouraging in
these deals? Are less transparent way of doing business? Are
they pulling these countries away from the kind of things
that the West would have tried to push on them,
you know, rule of law, transparency, I mean, and the
end of talked about the optimists and the pessimist views
of of China when it comes to this, this lending
(16:06):
and development aid in other countries, what do you think?
I mean, regardless of what you think about the Belton
Road initiative, which is really the prime vehicle through which
China is providing infrastructure of the world, whether you think
that this is a geopolitical play, whether you think, like
many in India do, that this is neo colonialism with
(16:28):
China as the metropol building infrastructure, lending money to small
neighbors to bring them into its orbit and to create
dependencies are on Chinese periphery. But whether you just think
the whole thing is a big marketing scam, it's hard
not to feel positive about China building infrastructure across some
(16:51):
of the most unstable and less least developed parts of
the world, from Central Asia to the Middle East and
North Africa. I mean, it's a good thing that China
is powering up Pakistan by building power stations there. Of course,
be much better if it put in clean power stations
rather than the old model that it's um, you know,
(17:15):
knocking around in China. UM. But that I think is
is very positive. The problem is the way the Chinese
go about it. I mean, you know, Tom and I say,
living in China, we've watched this happening, and Chinese infrastructure
is is heroic in its ambition. I mean they build airports,
they build train stations, they build whole cities ahead of demand,
(17:38):
and it just sort of sits there empty, you know.
And eventually the idea is that, you know, given the
pace of urbanization in China, all of this surplus infrastructure
will eventually come in useful and often it does, um,
but very often it doesn't. And this form of of
of development is hugely wasteful. You can afford it if
(17:59):
you're tiner and you're a continental sized economy and you
have deep pools of savings. If you're a Sri Lanka
and you build a port and you haven't got done
your preparatory work and you don't know whether it's going
to turn a profit or not, and it doesn't and
you don't have any ships coming in, you can bankrupt
the country. And that's what we're seeing now across much
(18:20):
of the developing world. The rise of great powers has
almost always caused trouble, as we know when you look
through history, in fact, that the rise of the US
as a superpower was more or less the exception. In
your gut, Andy and Tom, do you think we are
on a fundamentally peaceful trajectory as China starts to really
(18:44):
punch its weight in in the world, or do you
worry at some point about where this is going to go.
Look a lot of everybody is talking now about the
fucilities trap and learned Lee quoting Thusive at Ease who
said that you know, it was the rise of Athens
and the fear that they's inspired in Sparta that made
(19:07):
war inevitable. And Graham Allison at Harvard has talked about this,
and he's looked at power transitions that have occurred through
history and mostly they end in in war. I certainly
don't think that war is inevitable. Certainly not war these
days between great powers and in a nuclear age is
(19:27):
almost unthinkable. Um. I don't think China and the US
are going to go to war. China certainly doesn't want that.
I worry more about Chinese nationalism and the particular kind
of nationalism that you have in China now, which is
a resentful type of nationalism that looks backwards to this
century of humiliation. I worry that that's combined with a
(19:48):
military build up navalism that we're seeing in China, combined
now with aggressive or expansive Chinese territorial claims, particularly in
the maritime Dome. I worry about an arms race that
this is triggering in Asia. I worried particularly about Taiwan,
whether China is going to run out of patients with
(20:09):
Taiwan and it's pro independence leanings and course nuclearization. The
nuclear arms race in Asia now, I think it's one
to be worried about. So when you started that, I
actually thought that you were going to say, but this
is all too gloomy, and you ruled out the really
catastrophic nuclear global scenario. But then your list of other
things to worry about was so long, and I'm not
(20:29):
sure I feel like I've ended up in a in
a happier place. Tom, just in your gut, Are you
as worried about the sort of regional implications, the regional
instabilities that come out of this, even if we're not
necessarily looking I hope at the end of the world. Um. So, Firstly,
I think the mention of Thucidites trap reminds me that
international relations as a discipline hasn't come up with any
(20:52):
new new new paradigm since since ancient Greece, which I
think reflects badly on international relations scholars. Um. Coming back
to the question, I think Andy, you know, hit several
nails on the head. But Um, for me, the key
point that he made in which I agree with, is
are we going to see an all out conflict between
(21:13):
China and the United States? Clearly not in the nuclear
age that would be catastrophic for all concerned. Are we
going to see more frequent conflicts over specific issues like
the South China see potentially like Taiwan, potentially around North Korea? Yes,
I think absolutely. As China rises, China's interestful increasingly clash
(21:38):
with those of the U S and its neighbors, and
those regional hot spots are going to get hotter. I
think there's there's quite a lot coming through this conversation
about what we've said about the w t O, the
decline of multilateralism that moved to a more kind of
deal based global economy and geopolitics and more nationalism. I
think that's definitely when people look at China and also
(22:00):
frankly look at the US and other parts of the world,
that feels like where we're heading is more nationalism, less
multilateralism and move away from from rule based decision making.
Plenty to be discussed, among other places, at the New
Economy Forum. I'm sure we're talking about that in Singapore.
But Tom Marlick and Andrew Brown, thank you very much,
Thank you, Thanks hester thanks for listening to The New Economy.
(22:27):
Today's episode was reported by Enda Current with editor Malcolm
Scott and produced by Magnus Hendrickson. Francesca Levy is the
head of Bloomberg Podcast. M
Hello, and welcome to the New Economy. I'm Stephanie Flander's
head of Bloomberg Economics. One thing I've noticed in twenty
five years of writing and thinking about the global economy,
we spend so much time anticipating the big changes that
are coming down the track. By the time they actually happened,
they seem like old news. When it comes to the
(00:24):
rise of China, it's not old news at all. It's
happening right now, and not at all in the way
that many Western policymakers hoped in the late nineties nineties
when they were negotiating to bring China into the World
Trade Organization the w t O. Back then, I was
working for Larry Summers, then Deputy Treasury Secretary. We found
ourselves grappling with what became the Asia Financial crisis. A
(00:47):
string of countries, Thailand, Indonesia, Career all ended up letting
go of their currencies, and Chinese exporters were saying the
Chinese currency needed to fall as well to let them compete.
I remember going along with Summers in early to a
grand room in the Forbidden City in Beijing for an
audience with the man who was then steering Chinese economic
(01:08):
policy Ju Rongji. He gave a magisterial assessment of what
had happened in the region. It may have been the
jet lag, but I think even Summers felt a bit outclassed.
You made clear that when it came to the currency,
China would hold firm, and that was good news for
the region and the world. It helped stop more dominoes
from falling, at least in Asia. But there was a
(01:28):
message in that restraint. This was a country that was
willing to think long term. Fast forward to today, and
China is punching its weight in ways that confront the
so called Washington Consensus head on. Now the US presidents
doing a bit of that himself. We might get to
that later with two people who've spent probably an unhealthy
amount of their lives thinking about China, Tom Olick and
(01:51):
Andrew Brown. But first, here's end a current senior Asia
economy correspondent for Bloomberg News from the streets of Hong Kong.
In my past three years covering China and the regions
economies for Bloomberg News, I have seen a marked increase
(02:14):
in China's global influence. Until two thousand and fifteen, for example,
the only global body led by China was the International
Network for Bamboo and Britan. It now has a much
bigger say at the i m F through more voting
rights and high level representation. It has its own Global
Development Bank, the ai i B, set up to arrival
(02:35):
the World Bank, and in the face of Donald Trump's
trade policies, China's leaders are claiming to be the champions
of globalization. Here's Curtis Chin, former US Ambassador to the
Asian Development Bank under president's George W. Bush and Barack Obama,
and now the inaugural Asia Fellow at the Milkan Institute.
(02:56):
Every country, through its development systems, through its partnerships, at
the end of day of looking out after its own interests.
That's very different in China today or Europe, in the
US today or in the past. I think the real
question comes back to when a country advances its own
interests by advancing a form of global economic government in
(03:18):
US as advanced free trade and connectivity. The key question
is what countries in looking out after their own interests
harm other countries. I think that's the question today. When
I speak with officials and business people and economists, there
are usually two takes and much china Is growing influence
means for the world economy. Optimists say China offers a
vital source of financing to government's desper to build infrastructure
(03:41):
and grow their economies. Critics say the likes of the
ai I B are merely window addressing for China's spider's
web of lending channels and lack of transparency, and are
effectively an arm of the Commonist Party. Alicia Garcia Herrero
has worked in the official sector for institutions such as
i m F during the Mexico crisis. She has also
(04:01):
worked for the European Central Bank and Bank for International Settlements.
ALSIE is now based in Hong Kong as Chief Asia
Economists for French Banknetics Is. Here's how she sums up
the two pronged aspect of Chinese finance overseas. China's new
model is a two layer model. So you see what
you see. You don't see what is happening unless you
(04:22):
really look at it very carefully, and even then we
probably still don't don't know what is happening at its
full meaningful for us. Recently, a backlash has been growing
against China's expanding influence. There's the very public trades about
(04:42):
McDonald chump, but there's also ongoing disputes with Europe at
a w t O and smaller skirmishes like Malaysia's government
dropping plans for China to fund major infrastructure works and
Australia's government blocking Huawei from completing the build the nation's
five G phone network. Here's Curtis Chin again. The China's
approach to development, to lending, to assistance to its neighbors,
(05:05):
not just in Asia but also in African around the
world has had benefits, but it's also come with challenges
that countries are now really beginning to think through. The
I m F two has warned the China maybe loading
up poor nations with even more debt, and others saying
China's overall lending lack of transparency. China, of course refutes
(05:26):
those complaints. Here's a I I BE president Jin Lacun,
who recently spoke with Bloomberg Television. Contrary to some other
people's misconception, it's not a program dominated by China. It's
the program by which China works with other countries working
(05:47):
with international financial institutions multi lactal Devember banks. So it's
kind of cooperation. Unfortunately, some people miss under students as
kind of China program. China wants to to take advantage
of these to promote its own interests, which nothing could
be further from the truth. So how do we get
(06:10):
to this point? Complacency among Western leaders play the role.
Lending by the International Monetary Fund and World Bank often
carried bitter conditions that enraged nations from Indonesia to Greece,
sparking riots on the streets. The process of navigating loan
approval was also laced with politics. I spoke with Louis Cows,
(06:30):
formerly of the IMF and World Bank and now lead
Asia economists at Oxford Economics. There's no doubt about it
that China's cloud globally has been on the rise. It
has been on the rise, I think for two reasons.
One is a very obvious one. It's an economic one. Simply,
if you're if you're becoming bigger economically, you you carry
(06:52):
more cloud, you do more trade, people look more at you,
You have more money to spend on development and delton
road projects, all kind of things. Also, I would say
the global financial crisis did hurt a little bit, you know,
the image of Western style democracy and capitalism, and so
that has also played in China's favors. The global financial
(07:13):
crisis a moment that laid bare the fragilities of the
Western model and gifted China and opportunity to step up
on the global stage. However, witnessed the limitations of the
Western model as an official at the i m F
during the rescue of Mexico in the nineteen nineties. We
were late. So this is our fault to reform the
existing institutions which were not working, I would say, especially
(07:40):
for those newcomers. So that's our fault thing that we
were naive not to realize that it was not only
about you know, China in manufacturing, but it was much
more rooming already then and and we were not naive
not to be more general years with such a growing power.
(08:05):
For now, China's influence is still increasing. In September, President
She greeted African leaders in Beijing and promised over sixty
billion in financing. That was around the same time that
Donald Trump said he would skip two major so much
in Asia in November, stoking concerns about American commitment to
the region. That's an opportunity China is keen to exploit
(08:27):
through pushing its view of a future with itself at
the heart of the global economy. Here's Louis Harris. My
main worry about the future is a little bit that
collision course between these different economic models and what they
would mean for for relations globally between the US and China,
between China and other countries more generally, you know, and
(08:49):
I don't want to be too negative because you know,
China's growth is definitely a positive for the rest of
the world, and China's willingness to invest in other countries
is on a net basis a positives of the world.
But that you know, the issue of these different economic
morals is going to become an issue not with not
just with the US, but also with other countries. We
(09:10):
see that, you know, the Europeans have issues with China's model,
and I think that we see it a little bit
in India and Brazil as well. So this is you know,
we're not this is not a Dante. Just as the
architecture of global trade is being challenged, the world economies,
government structures are evolving to accommodate China's role. That was
(09:36):
in the current reporting from Hong Kong. Well, listening to
all that with me have been Andrew Brown, who's a
former columnist and bureau chief in China for the Wall
Street Journal, but now the editorial director for the New
Economy Forum at Bloomberg. And our own chief economist, Tom Ulick,
who has just moved back to Washington after eleven years
(09:57):
in Beijing. Maybe our q Andrew, if if you go
back to when China joined the w t O at
the beginning of the century, you know, how is the
reality of China's rise compared with the kind of predictions
that we were making around that time. Yeah, well, you
have you have to remember that China's entry into the
(10:17):
w t O was part of a much bigger project,
which was to bring this rising power into the global
economic financial security architecture. Was summed up by Bob Zelleck
with the phrase that China should become a responsible stakeholder
in the global system, the US led global system. And
(10:38):
it's worked pretty well in places. China is now the
biggest contributor to UN peacekeeping. Chinese ships are involved in
anti piracy off the coast of East Africa, keeping the
sea lanes open to the Persian Gulf. China has signed
up to arms control agreements as signed does not proliferate
nuclear weapons. That's been very successful. The bit that they
(10:59):
got long was on integrating China into the global economy,
in particular into the w t O, and what they
failed to consider were the implications of integrating China's massive
armies of cheap labor and its deep pools of capital
(11:20):
into the global economy. Um it was seen as a
slam duck that China's markets were closed, America's were opened,
and so when China brought down tariffs, you would get
this rush of US exports into China. In fact, what
happened was that you had this China shop. Two million,
two and a half million American workers lost their jobs.
(11:41):
Whole towns were decimated, and you can see it now
in the US rust belt. On the financial side, what
happened was that short Chinese purchases of US treasuries kept
interest rates low, and that was good for business, but
it also led to financial excess and of hose gave
rise to the two thousand and eight financial crisis. The
(12:04):
third mistake that I think they made was that they
thought the American policy makers at the time thought that
this was going to be the start of economic reforms
in China, and that once China joined the w t O,
we would see the economy progressively become more open, and
in fact it turned out to be the high watermark
(12:24):
of reform. And then right now what you're seeing is
reformed stalling and even going backwards. Tom Um. We tend
to view other people's other nation's success through the prism
of our own insecurities. I guess if you were China,
you'd say that you wouldn't be complaining about our success
(12:44):
if you hadn't been having if you didn't have all
these problems in your own backyard with with populism and
other things. Aren't they aren't we just um, shouldn't we
just focus on our own concerns rather than blame it
all on China. Well, one of the funny things, Stephanie,
is that when you sit in Beijing, as Andy and
I did for for a number of years, what you
see coming through on the Chinese propaganda and the Chinese
(13:07):
newspapers and television is a certain amount of if not glee,
at least kind of like smug self satisfaction, the evidence
of sort of social dysfunction and political dysfunction that you
see in the US and Europe. There's nothing that China
television likes better than broadcasting a riot in Greece or
a violent protest in the United States, and the implicit
(13:29):
messages look, that system is broken and our system works. UM.
Coming back to your question about whether it's sort of
unfair to blame populars blame the dysfunctions that we have, UM,
whether we'd be less dissatisfied with China if we didn't
have these dysfunctions at home. I think there's certainly an
element of truth in that. But what I would add
(13:51):
is that whilst the sources of the dysfunctions we see
in the West are complex, and they relate to social
policy failures, they relate to the rise of technology, they
relate to forces unleashed by globalization that go beyond just
the rise of China. China is part of the picture,
and it is Chinese imports, cheap Chinese imports, Chinese industrial
(14:14):
policy giving what many see as an unfair advantage to
Chinese firms, which is to blame for an element of
the problems that we see in terms of inequality and
lost wages. And one of the things that enders sort
of focusing on in that piece is the way that
China itself has taken a more muscular role in some
of these institutions, and it is creating in the case
(14:36):
of the infrastructure, by creating its own institution for having
influence on the world. When you look at what they've
done in Africa and Latin America, is this a country
that is actually trying to impose an alternative model onto
the world or is it just pursuing its core national interest.
I'm not sure we can effectively divide those two things. Um,
(14:58):
when China pursue us its national interest, it does so
in a way which is suited to and driven by,
and accommodated to its national model. So when the US
goes overseas, it goes it goes goes overseas with its
mighty private corporations and its free markets, and those are
the approaches which which benefit those corporations and also perpetuate
(15:22):
the the U S model. And when China goes overseas,
it goes overseas with its huge state owned banks and
it's huge state and enterprises and companies that want to
do business with China. Countries that want to do business
with China then have to do business with the China model.
So the pursuit of self interest and the perpetuation or
the expansion of a particular model of governance. I think
(15:44):
they go hand in hand. But are they encouraging in
these deals? Are less transparent way of doing business? Are
they pulling these countries away from the kind of things
that the West would have tried to push on them,
you know, rule of law, transparency, I mean, and the
end of talked about the optimists and the pessimist views
of of China when it comes to this, this lending
(16:06):
and development aid in other countries, what do you think?
I mean, regardless of what you think about the Belton
Road initiative, which is really the prime vehicle through which
China is providing infrastructure of the world, whether you think
that this is a geopolitical play, whether you think, like
many in India do, that this is neo colonialism with
(16:28):
China as the metropol building infrastructure, lending money to small
neighbors to bring them into its orbit and to create
dependencies are on Chinese periphery. But whether you just think
the whole thing is a big marketing scam, it's hard
not to feel positive about China building infrastructure across some
(16:51):
of the most unstable and less least developed parts of
the world, from Central Asia to the Middle East and
North Africa. I mean, it's a good thing that China
is powering up Pakistan by building power stations there. Of course,
be much better if it put in clean power stations
rather than the old model that it's um, you know,
(17:15):
knocking around in China. UM. But that I think is
is very positive. The problem is the way the Chinese
go about it. I mean, you know, Tom and I say,
living in China, we've watched this happening, and Chinese infrastructure
is is heroic in its ambition. I mean they build airports,
they build train stations, they build whole cities ahead of demand,
(17:38):
and it just sort of sits there empty, you know.
And eventually the idea is that, you know, given the
pace of urbanization in China, all of this surplus infrastructure
will eventually come in useful and often it does, um,
but very often it doesn't. And this form of of
of development is hugely wasteful. You can afford it if
(17:59):
you're tiner and you're a continental sized economy and you
have deep pools of savings. If you're a Sri Lanka
and you build a port and you haven't got done
your preparatory work and you don't know whether it's going
to turn a profit or not, and it doesn't and
you don't have any ships coming in, you can bankrupt
the country. And that's what we're seeing now across much
(18:20):
of the developing world. The rise of great powers has
almost always caused trouble, as we know when you look
through history, in fact, that the rise of the US
as a superpower was more or less the exception. In
your gut, Andy and Tom, do you think we are
on a fundamentally peaceful trajectory as China starts to really
(18:44):
punch its weight in in the world, or do you
worry at some point about where this is going to go.
Look a lot of everybody is talking now about the
fucilities trap and learned Lee quoting Thusive at Ease who
said that you know, it was the rise of Athens
and the fear that they's inspired in Sparta that made
(19:07):
war inevitable. And Graham Allison at Harvard has talked about this,
and he's looked at power transitions that have occurred through
history and mostly they end in in war. I certainly
don't think that war is inevitable. Certainly not war these
days between great powers and in a nuclear age is
(19:27):
almost unthinkable. Um. I don't think China and the US
are going to go to war. China certainly doesn't want that.
I worry more about Chinese nationalism and the particular kind
of nationalism that you have in China now, which is
a resentful type of nationalism that looks backwards to this
century of humiliation. I worry that that's combined with a
(19:48):
military build up navalism that we're seeing in China, combined
now with aggressive or expansive Chinese territorial claims, particularly in
the maritime Dome. I worry about an arms race that
this is triggering in Asia. I worried particularly about Taiwan,
whether China is going to run out of patients with
(20:09):
Taiwan and it's pro independence leanings and course nuclearization. The
nuclear arms race in Asia now, I think it's one
to be worried about. So when you started that, I
actually thought that you were going to say, but this
is all too gloomy, and you ruled out the really
catastrophic nuclear global scenario. But then your list of other
things to worry about was so long, and I'm not
(20:29):
sure I feel like I've ended up in a in
a happier place. Tom, just in your gut, Are you
as worried about the sort of regional implications, the regional
instabilities that come out of this, even if we're not
necessarily looking I hope at the end of the world. Um. So, Firstly,
I think the mention of Thucidites trap reminds me that
international relations as a discipline hasn't come up with any
(20:52):
new new new paradigm since since ancient Greece, which I
think reflects badly on international relations scholars. Um. Coming back
to the question, I think Andy, you know, hit several
nails on the head. But Um, for me, the key
point that he made in which I agree with, is
are we going to see an all out conflict between
(21:13):
China and the United States? Clearly not in the nuclear
age that would be catastrophic for all concerned. Are we
going to see more frequent conflicts over specific issues like
the South China see potentially like Taiwan, potentially around North Korea? Yes,
I think absolutely. As China rises, China's interestful increasingly clash
(21:38):
with those of the U S and its neighbors, and
those regional hot spots are going to get hotter. I
think there's there's quite a lot coming through this conversation
about what we've said about the w t O, the
decline of multilateralism that moved to a more kind of
deal based global economy and geopolitics and more nationalism. I
think that's definitely when people look at China and also
(22:00):
frankly look at the US and other parts of the world,
that feels like where we're heading is more nationalism, less
multilateralism and move away from from rule based decision making.
Plenty to be discussed, among other places, at the New
Economy Forum. I'm sure we're talking about that in Singapore.
But Tom Marlick and Andrew Brown, thank you very much,
Thank you, Thanks hester thanks for listening to The New Economy.
(22:27):
Today's episode was reported by Enda Current with editor Malcolm
Scott and produced by Magnus Hendrickson. Francesca Levy is the
head of Bloomberg Podcast. M
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