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Tech war exposes urgent need for talent

Trade war involves science, tech strength: Huawei founder

Chinese students have increasingly become interested in participating in math contests organized by elite US institutions. Photo: IC

The escalating China-US trade war, which has become a new cold war in technology, has made attracting talent an urgent task.

The recent call by the founder of China's Huawei to enhance the country's fundamental education system was echoed across Chinese society, while observers emphasized the importance of science and math.

In a recent interview with China Central Television aired over the weekend, Huawei founder and CEO Ren Zhengfei, whose company is now in the middle of the China-US trade battle, reiterated the importance of fundamental education and research instead of spending too much time talking about his company's future.

The 75-year-old entrepreneur said that he cares about education the most because he cares about the country. "If we don't attach importance to education, we'll actually return to poverty," he remarked.

Huawei's founder Ren Zhengfei meets the media in Shenzhen, South China's Guangdong Province, earlier this month. Photo: Courtesy of Huawei

The country's development relies on culture, philosophy and education, which are fundamental, Ren said. And the escalating China-US trade war involves strength in science and technology, which comes down to the level of education.

His remarks put the focus on basic education.

Wang Lixin, vice mayor of Shenzhen, a city that is often seen as the new Silicon Valley as it gathers hundreds and thousands of high-tech firms, said at a recent conference that fundamental research is important to not only Shenzhen but the whole country.

"In the 1980s, we often said if you learn math, physics and chemistry well, you will achieve anywhere. Then we had doubts, as working in finance, economy or design would earn you more money. Considering the current situation, it's time to bring up that slogan again," Wang was quoted as saying in media reports on Sunday.

As part of broader efforts to strengthen science and technology, Shenzhen, which is now at the forefront of the China-US tech battle, where tech firms such as Huawei and DJI being targeted by the Trump administration are located, has vowed to invest one-third of its science and research funding to fundamental research, to the tune of over 4 billion yuan ($580 million), reports said.

On China's Twitter-like Weibo, net users praised Ren's call and considered improving the country's education system as the most urgent task. "High-tech growth cannot be supported only by a huge amount of money. Only with continuous efforts in fundamental education can the goal be achieved," a netizen said.

A mother surnamed Song, who lives in western Beijing's Haidian district, said she has always insisted that fundamental education should not become a heavy burden for children. However, the escalating trade war, especially the Huawei incident, has made it more urgent to enhance the country's overall STEM education, she believed.

STEM stands for science, technology, engineering, and mathematics, and these academic disciplines are often seen as fundamentals for a country in a race for high-tech supremacy.

"I'm thinking about sending her to an afterschool training course on mathematics this summer," she told the Global Times on Monday, referring to her 7-year-old daughter, who is now living at an increasingly competitive environment.

Fundamental research

As the world's two largest economies spar over tech, Chinese industry representatives are considering enhancing fundamental education, including science and math, as a major task, especially after many Chinese parents have been complaining in recent months about the current dogmatic policies of stifling rising talent.

The authorities' latest move to ease the schoolwork burden on primary and middle school students also weakened science and math education, and the ban on extracurricular coaching for Olympiad-style contests issued in 2018 will seriously affect the cultivation of talented students in STEM, analysts said.

"This one-size-fits-all approach will hurt fundamental education in the country and make our children fall behind their American counterparts in the future, which needs to be corrected," Mei Xinyu, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times.

The Ministry of Education issued a guideline in December 2018 to ease academic burden in primary and middle schools. The guideline says primary and high schools are forbidden from hosting math Olympiads to recruit students. The move follows a change in policy on stopping the awarding of extra points to students who have won academic Olympiads or science and technology competitions.

But parents also applauded the government's efforts to ease the children's burden, while some advocated a happy-elementary-education approach.

Ren said he attaches great importance to fundamental research, and the country should invest more in developing mathematicians, physicists and chemists instead of just pouring money into industries.

The US clampdown on Huawei, as part of the China-US tech battle, will stimulate technological self-reliance while boosting scientific research and innovation, as US sanctions also exposed the country's high-tech Achilles' heel due to Huawei's reliance on American technologies and core components reflecting the overall shortcoming in the sector.

It's becoming more urgent for Chinese tech companies to attract talent, as the tech war will eventually become a battle for more talent, analysts said.

"Our country has to have an awareness of crisis, and to clearly see the real gap between China and the US in education," Chu Zhaohui, a research fellow at the National Institute of Education Sciences based in Beijing, told the Global Times on Monday.

For instance, American students have a deeper understanding of natural sciences and mathematics, as they learn by following their own interests, he noted. "How to arouse the interest of Chinese students in science and technology, which will lead to better fundamental research, remains a challenge," he said.

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The Sino-US trade dispute is not only a game between representatives of the two countries at the negotiating table, but also a contest between the two sides in the field of international public opinion. In this dispute, which may evolve into a protracted confrontation, China has no choice but to take international justice and law as the criterion. While striving to safeguard its own core interests, China is also committed to international morality.

Over the past year and more, the tactics used by China and the US in the trade war have drawn a sharp contrast, highlighting the new trend of the strategic game between emerging powers and already existing powers in the new era.

China is actively opening to the outside world to reduce trade restrictions, while the US frequently imposes tariffs on other countries. China never threatens other countries, but seeks common interests through negotiations. The US frequently resorts to a maximum pressure approach. China respects the international system and acts in accordance with the principles of justice. The US does not obey rules, and uses what is appropriate and discards what is not. China respects each other's concerns about economic interests, while the US only considers its own interests. China has resolutely defended and safeguarded the basic principles of the WTO and put forward a reform plan. The US threatened to withdraw from the WTO to act according to its will. 

Welcome to America Illustration: Liu Rui/GT

Uncle Sam, which prides itself on international justice, has arrogantly put "America First" above international justice and law. Closing the door for selfish gain, Washington is slipping from the moral high ground. China adheres to principles, is calm and rational, pursues fairness and justice, opens the door to common prosperity and cooperation, and presents itself as a responsible major country. 

Theodore Roosevelt once said, "If we are to be a really great people, we must strive in good faith to play a great part in the world." The use of unilateralism to force opponents to surrender has caused the biggest blow to the international free trade system since the end of the Cold War.

At this time, it has become the common responsibility of the international community to work together to consolidate and improve the existing international economic and trade system so that it is fairer and more reasonable and not hijacked by the US.

It appears that the US is decoupling with China, in fact, the US is decoupling with the world. As the largest developing country and the world's No. 2 economy, China has the responsibility and wisdom to play a bigger role in promoting globalization.

The conflict between China and the US tests the level of political governance, the potential of economic development, the unity of the people and the global influence of the two sides. The future depends more on who can be a positive force for world peace and development.

China's economic and trade links with the rest of the world have never been so extensive and deep as they are today. The further development of globalization and the progress of the world political and economic governance system need China's contribution.

China is an emerging power. The rise of any big country in history will not be smooth. A great power that can truly stand firm on the world stage may start out lonely, but in the end, it becomes more and more cohesive. The trade war has put China through the test that a rising power must endure. It has strengthened our confidence to firmly occupy the international moral high ground.

China's past success lies in its ability to accurately grasp the convergence between China's "potential" and the world's "potential." China's sustainable development in the future depends on how we take advantage of the trend of world development to develop ourselves, and use our own reform and opening-up to promote world development.

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China-US trade truce set to benefit world

Illustration: Peter C. Espina/GT

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Chinese President Xi Jinping and his US counterpart Donald Trump's meeting in Argentina on Saturday yielded results that boosted the confidence of both countries and the world. The US agreed to hold off on raising tariffs on $200 billion of Chinese goods to 25 percent and the two countries decided to start a new round of negotiations in the next three months. The meeting has prevented bilateral relations from going into a nosedive, showing how rewarding diplomacy between heads of state can be.

The meeting lasted an hour longer than expected, created a cordial atmosphere for talks and ended with a spontaneous group photo. A White House statement released on Saturday said the meeting was "highly successful."

These details are very indicative. After US Vice President Mike Pence delivered a stinging speech on its China policy at the Hudson Institute in the beginning of October, many worried that a new Cold War between the two countries was looming. But now, the Xi-Trump meeting on the sidelines of the G20 summit has shown that Beijing and Washington have the wisdom and ability to avoid the shadow of the Cold War shroud the world once again.

The compromise between China and the US is a wise decision to deal with their respective domestic challenges. The intensified trade war in the past few months upset farmers, enterprises and financial institutions of both countries. US farmers planted 89.1 million acres of soybeans this year, some were reportedly letting their crops rot as they were unable to sell them to their biggest buyer and the storage costs rose amid the trade conflict with China.

In addition, US companies involved in the international economy are suffering because of a worsening global economic environment. Although the US economy has maintained relatively rapid growth thanks to tax cuts and increased federal expenditure, the economies of Europe, China and Japan have all contracted.

Just as IMF Chief Christine Lagarde recently warned, the headwinds of trade friction, notably between China and the US, "could have slowed momentum even more than we had expected." She also said that if Trump follows through on this threat to impose steep tariffs on auto imports, it would result in retaliation from trading partners on US exports and could cut a large chunk out of the world economy.

An escalation in trade disputes worldwide will inevitably bring more pressure on both Chinese and American companies. According to a statement by the WTO on November 22, countries belonging to the G20 group of the world's biggest economies applied 40 new trade restrictive measures between mid-May and mid-October, covering around $481 billion of trade. Trimming its outlook for the global economy, the OECD calculated that a full-blown trade war and the resulting economic uncertainty could knock as much as 0.8 percent off global gross domestic product by 2021.

In this context, the efforts made by China and the US in Argentina to ease trade tensions are valuable to save the global economy. How to take the next step is of course full of challenges. Reaching an agreement on a number of sensitive issues within the next three months will be a big test for both countries.

The Trump government should not overestimate its bargaining chips. It should review the fundamental role healthy and balanced globalization can play in helping the US economy maintain sustainable growth. Trump recently asked General Motors to stop making cars in China and open a new plant in Ohio. As General Motors is highly dependent on the Chinese market, such requirements appear to run counter to common sense and reason.

Besides, the Trump government threatened to impose export controls on new technologies like robotics, hoping to weaken China's position in the global supply chain and win an upper hand in technological competition with China. Such an approach has been opposed by sane minds in Silicon Valley who argue that it will only benefit companies in Europe and Japan.

China needs to accelerate the implementation of the new round of reform and opening-up policy in the following three months. The Chinese government in the past few months rolled out more policies to support private companies, which is necessary, but more importantly, it should hasten steps to establish a more mature market economy.

If China can reform its own development model based on its own plan under the pressure of a trade spat, it will be the biggest winner and the whole world will also benefit from it.

By Zhao Minghao Source:Global Times

The author is a senior research fellow with The Charhar Institute and an adjunct fellow at the Chongyang Institute for Financial Studies at Renmin University of China. opinion@globaltimes.com.cn

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BUENOS AIRES (Reuters) - China and the United States agreed to a ceasefire in their bitter trade war on Saturday after high-stakes talks in Argentina between U.S. President Donald Trump and Chinese President Xi Jinping, including no escalated tariffs on Jan. 1.

Trump will leave tariffs on $200 billion worth of Chinese imports at 10 percent at the beginning of the new year, agreeing to not raise them to 25 percent "at this time", the White House said in a statement.

"China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries," it said.

"China has agreed to start purchasing agricultural product from our farmers immediately."

The two leaders also agreed to immediately start talks on structural changes with respect to forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture, the White House said.

Both countries agreed they will try to have this "transaction" completed within the next 90 days, but if this does not happen then the 10 percent tariffs will be raised to 25 percent, it added.

The Chinese government's top diplomat, State Councillor Wang Yi, said the negotiations were conducted in a "friendly and candid atmosphere".

"The two presidents agreed that the two sides can and must get bilateral relations right," Wang told reporters, adding they agreed to further exchanges at appropriate times.

"Discussion on economic and trade issues was very positive and constructive. The two heads of state reached consensus to halt the mutual increase of new tariffs," Wang said.

"China is willing to increase imports in accordance with the needs of its domestic market and the people's needs, including marketable products from the United States, to gradually ease the imbalance in two-way trade."

"The two sides agreed to mutually open their markets, and as China advances a new round of reforms, the United States' legitimate concerns can be progressively resolved."

The two sides would "step up negotiations" towards full elimination of all additional tariffs, Wang said.

The announcements came after Trump and Xi sat down with their aides for a working dinner at the end of a two-day gathering of world leaders in Buenos Aires, their dispute having unnerved global financial markets and weighed on the world economy.

After the 2-1/2 hour meeting, White House chief economist Larry Kudlow told reporters the talks went "very well," but offered no specifics as he boarded Air Force One headed home to Washington with Trump.

China's goal was to persuade Trump to abandon plans to raise tariffs on $200 billion of Chinese goods to 25 percent in January, from 10 percent at present. Trump had threatened to do that, and possibly add tariffs on $267 billion of imports, if there was no progress in the talks.

With the United States and China clashing over commerce, financial markets will take their lead from the results of the talks, widely seen as the most important meeting of U.S. and Chinese leaders in years.

The encounter came shortly after the Group of 20 industrialized nations backed an overhaul of the World Trade Organization (WTO), which regulates international trade disputes, marking a victory for Trump, a sharp critic of the organisation. Trump told Xi at the start of their meeting he hoped they would achieve "something great" on trade for both countries. He struck a positive note as he sat across from Xi, despite the U.S. president's earlier threats to impose new tariffs on Chinese imports as early as the next year.

He suggested that the "incredible relationship" he and Xi had established would be "the very primary reason" they could make progress on trade.

Xi told Trump that only through cooperation could the United States and China serve the interest of peace and prosperity. Washington and Beijing have also increasingly been at odds over security in the Asia-Pacific region.

At the same time, Trump again raised with Xi his concern about the synthetic opioid fentanyl being sent from China to the United States, urging the Chinese leader to place it in a "restricted category" of drugs that would criminalize it.

The White House said Xi, "in a wonderful humanitarian gesture", had agreed to designate fentanyl a controlled substance.

Xi also said that he was open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him, the White House added.

"This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honour to be working with President Xi," Trump said in the statement.

WTO REFORMS

Earlier on Saturday, the leaders of the world's top economies called for WTO reform in their final summit statement.

Officials expressed relief that agreement on the communique was reached after negotiators worked through the night to overcome differences over language on climate change.

The final text recognised trade as an important engine of global growth but made only a passing reference to "the current trade issues" after the U.S. delegation won a battle to keep any mention of protectionism out of the statement.

Trump has long railed against China's trade surplus with the United States, and Washington accuses Beijing of not playing fairly on trade. China calls the United States protectionist and has resisted what it views as attempts to intimidate it.

The two countries are also at odds over China's extensive claims in the South China Sea and U.S. warship movements through the highly sensitive Taiwan Strait.

In addition to tariffs on Chinese goods, Trump has imposed tariffs on steel and aluminum imports into the United States this year. Numerous countries have filed litigation at the WTO to contest the levies.

The United States is unhappy with what it says is the WTO's failure to hold China to account for not opening up its economy as envisioned when China joined the body in 2001. The European Union is also pushing for sweeping changes to how the WTO operates.

G20 delegates said negotiations on the summit statement proceeded more smoothly than at a meeting of Asia-Pacific leaders two weeks ago, where disagreement on protectionism and unfair trading practices prevented a consensus.

European officials said a reference to refugees and migration - a sensitive issue for Trump's administration - was excised to ensure consensus.

On climate change, the United States once again marked its differences with the rest of the G20 by reiterating in the statement its decision to withdraw from the Paris Agreement and its commitment to using all kinds of energy sources.

The other members of the group reaffirmed their commitment to implement the Paris deal and tackle climate change.

International Monetary Fund (IMF) Managing Director Christine Lagarde said high levels of debt accumulated by emerging market nations was a pressing concern.

U.S. officials said a call by G20 leaders for the IMF and World Bank to improve monitoring debt levels was aimed at ensuring that developing economies did not become to heavily indebted to China in return for infrastructure projects.

U.S. officials have warned about China's increasing influence across swaths of the developing world, including Latin America. G20 summit host Argentina is expected to sign a series of deals with China on Sunday during a one-day state visit by Xi.

Apart from trade and climate change, Russia's seizure of Ukrainian vessels drew condemnation from other G20 members, while the presence of Crown Prince Mohammed bin Salman at the summit raised an awkward dilemma for leaders.

Saudi Arabia's de facto ruler arrived amid controversy over the killing of Saudi journalist Jamal Khashoggi, though Saudi officials have said the prince had no prior knowledge of the murder.

The leader of the OPEC heavyweight had a series of bilateral meetings at the summit, including a closely watched encounter with Russian President Vladimir Putin.

(Reporting by Roberta Rampton, Michael Martina, Matt Spetalnick, Maximilian Heath, Scott Squires, Cassandra Garrison, Daniel Flynn and Kylie Maclellan in Buenos Aires; Dave Shepardson and Humeyra Pamuk in Washington, Ben Blanchard in Beijing and John Ruwitch in Shanghai; writing by Matt Spetalnick and Daniel Flynn; editing by Ross Colvin, Alistair Bell, Jonathan Oatis and Will Dunham)

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Sino-US agreement an important step forward
In talks on Saturday at Buenos Aires in Argentina, Chinese President Xi Jinping and US President Donald Trump reached an important consensus on stabilizing trade relations between China and the US. The two countries will step up negotiations toward elimination of all additional tariffs and address issues of mutual concern.

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Trump's tariffs won't restore U.S. jobs

The sewing lines at Bernhard Furniture Company which where skilled craft jobs are growing without the help of tariffs, and company officials

  https://youtu.be/OCk4VkAKKFc

Trump's tariffs won't restore U.S. furniture jobs : https://www.reuters.tv/v/PvWi/2018/09/27/trump-s-tariffs-won-t-restore-u-s-furniture-jobs

In a town where a 30-feet tall chair is the chief landmark, and which is synonymous with a U.S. furniture industry decimated over the years by imports from China, many greet the possibility of tariffs on Chinese goods with a shrug.

No wonder. Of three once bustling Thomasville furniture plants in the city limits, one is being demolished and cleared for parkland, another may become the site of a new police station, and a third is being converted into apartments.

President Donald Trump is threatening to levy tariffs of up to 25 percent on $500 billion of goods imported from China each year, including roughly $20 billion of furniture, as a way to bring back hundreds of thousands of manufacturing jobs lost to China and other low-cost competitors.

Yet, the transformation of U.S. industries since China’s emergence as the world’s low-cost producer almost two decades ago means many no longer directly compete with Chinese imports, so tariffs may not translate so easily into more U.S. jobs.

At family-owned Bernhardt Furniture in Lenoir, some 90 miles west of Thomasville, executives say it would take about $30 million in capital investment - some 10 percent of annual sales - to resurrect standard wood furniture lines now mainly made in countries like China and Vietnam.

That is too much to commit based on a policy that a future administration could reverse.

"The theory is you turn (imports) off, the jobs come back. That's not really true... The buildings don't exist. The people don't exist. The machinery does not exist," to make the sorts of furniture that now gets imported, said Alex Bernhardt Jr., chief executive and the company founder's great grandson.

What the company needs now, executives say, is the open markets and steady economy that have allowed it to grow its workforce from below 800 at the end of the 2007-2009 recession to almost 1,500 today - partly on the basis of exports to China.

DIFFERENT COMPANY

That growth has been largely driven by demand for more customized, higher end furniture. In expanding, the 129-year-old company has been hiring not only factory workers, but also designers, marketing experts and other professionals.

In all, it is a different firm from what it was three decades ago when it first began dividing product lines between the United States and Asia.

Economists say the same is true across much of U.S. manufacturing. To invest and hire more workers, executives would need certainty, for example, that consumers would prefer U.S.-made products at a potentially higher price. They would need confidence that tariffs would last beyond the Trump administration and that production could not be shifted to other more cost-competitive countries.

Even then, there may be little incentive to go back to old product lines for industries that have changed dramatically because of globalization.

Across the Rust Belt and the former factory towns of the south, the transformation is apparent. In Buffalo, an old steel mill is now a solar panel factory, and a retail goods manufacturer now houses an office and restaurant park. Near Dayton, Ohio, a shuttered GM plant has reopened as a Chinese-owned auto glass company. Abandoned factories throughout North Carolina have landed on the Environmental Protection Agency's list of "brownfield" sites that need cleanup.

Some companies are considering moving production from China as a result of the tariffs, but the jobs are unlikely to head home.

Illinois-based CCTY Bearing, for example, said it planned to move U.S.-bound production from Zhenjiang, China, to a new plant near Mumbai in India to keep labor costs down.

JLab Audio's China-made Bluetooth products are not being taxed yet, but its chief executive Win Cramer had been scouting for suppliers in Vietnam and Mexico.

"I would love to build products onshore, but consumers have proven time and time again that "Made in America" isn't as valuable a statement as it once was," Cramer said. "They make decisions based on the cost."

The price of, say, its Bluetooth earbud would jump from $20 to as much as $50 if it was made in the United States, Cramer said, far more than what tariffs would add to the cost of imports.

To be sure, early reactions suggest that foreign companies that make U.S.-bound goods in China may move some of that production to the United States. Still, countries such as Vietnam may ultimately benefit the most from Trump's tariffs.

Japanese construction and mining equipment maker Komatsu Ltd < 6301.T > has said it has already shifted some of its production of parts for U.S.-built excavators from China. Part of that production moved to the United States, but some also went to Mexico and Japan.

In South Korea, LG Electronics <066570 .ks=""> and its rival Samsung Electronics <005930 .ks=""> are considering moving parts of U.S.-bound refrigerator and air conditioner production to Mexico, Vietnam or back home, but not to the United States, according to company sources and local media.

STEADY RECOVERY

The responses to Trump's tariffs on steel and aluminum show how such steps create both winners and losers.

Producers such as U.S. Steel and Century Aluminum have said they will add at least several hundred jobs as a result of the higher prices they can charge.

Mid-Continental Nail, however, laid off 130 workers because of those higher steel prices, and furniture parts maker Leggett & Platt has warned that rising metal prices would prompt it to shift production abroad.

So far, Washington has imposed duties on $250 billion of Chinese imports and Trump has threatened to slap tariffs on all Chinese goods.

Many economists project new tariffs would on balance either slow down hiring or cause job losses in a manufacturing sector where employment has grown by 10 percent over the past eight years without special protection.

(Graphic: https://tmsnrt.rs/2Q1AFUW)

The furniture industry, among the hardest hit by Chinese imports, has added 43,000 jobs since its employment hit a low of 350,000 in 2011, helped by the recovering housing market and strong consumer demand.

Industry officials say skilled upholsterers and other workers are hard to find, echoing the Federal Reserve's concern about the impact of worker shortages on the U.S. economy.

In Thomasville, few expect that tariffs will bring furniture manufacturing back to its heyday, nor does the community need it, says city manager Kelly Craver, whose parents worked in the furniture and textile industries.

Since the recession, Thomasville has become a residential hub for growing nearby cities such as Greensboro and Charlotte. It also has its own mix of manufacturing and white collar jobs.

Mohawk Industries recently expanded its Thomasville laminate flooring facility while the Old Dominion Freight Line transportation firm and the fast-growing Cook Out burger chain have corporate headquarters there.

"We, for the very first time in this city's existence, are going to have a diversified economy," Craver said.

By Howard Schneider, Reuters

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Goodbye 2016, a strange and difficult year

The year will be remembered for the West ending its romance with globalisation, and its impact on the rest of the world.

JUST a few days before Christmas, it is time again to look back on the year that is about to pass.

What a strange year it has been, and not one we can celebrate!

The top event was Donald Trump’s unexpected victory. It became the biggest sign that the basic framework and values underpinning Western societies since the second world war have undergone a seismic change.

The established order represented by Hillary Clinton was defeated by the tumultuous wave Trump generated with his promise to stop the United States from pandering to other countries so that it could become “great again”.

Early in the year came the Brexit vote shock, taking Britain out of the European Union. It was the initial signal that the liberal order created by the West is now being quite effectively challenged by their own masses.

Openness to immigrants and foreigners is now opposed by citizens in Europe and the US who see them as threats to jobs, national culture and security rather than beneficial additions to the economy and society.

The long-held thesis that openness to trade and foreign investments is best for the economy and underpins political stability is crumbling under the weight of a sceptical public that blames job losses and the shift of industries abroad on ultra-liberal trade and investment agreements and policies.

Thus, 2016 which started with mega trade agreements completed (Trans-Pacific Partnership) or in the pipeline (the Transatlantic Trade and Investment Partnership between the US and Europe) ended with both being dumped by the President Elect, a stunning reversal of the decades-old US position advocating the benefits of the open economy.

2016 will be remembered as the year when the romance in the West with “globalisation” was killed by a public disillusioned and outraged by the inequalities of an economic system tilted in favour of a rich minority, while a sizeable majority feel marginalised and discarded.

In Asia, the dismantling of the globalisation ideal in the Western world was greeted with a mixture of regret, alarm and a sense of opportunity.

Many in this region believe that trade and investment have served several of their countries well. There is fear that the anti-globalisation rebellion in the West will lead to a rapid rise of protectionism that will hit the exports and industries of Asia.

As Trump announced he would pull the US out of the TPP, China stepped into the vacuum vacated by the US and pledged to be among the torchbearers of trade liberalisation in the Asia-Pacific region and possibly the world.

The change of direction in the US and to some extent Europe poses an imminent threat to Asian exports, investors and economic growth. But it is also an opportunity for Asian countries to review their development strategies, rely more on themselves and the region, and take on a more active leadership role.

China made use of 2016 to prepare for this, with the Asian Infrastructure Investment Bank taking off and the immense Belt and Road Initiative gathering steam.

Many companies and governments are now latching on to the latter as the most promising source of future growth.

The closing months of 2016 also saw a surprising and remarkable shift in position by the Philippines, whose new President took big steps to reconcile with China over conflicting claims in the South China Sea, thus defusing the situation – at least for now.

Unfortunately, the year also saw heart-rending reports on the plight of the Rohingya in Myanmar, and the deaths of thousands of Syrians including those who perished or were injured in the end-game in Aleppo.

On the environmental front, it is likely 2016 will be the hottest year on record, overtaking 2015. This makes the coming into force in October of the Paris Agreement on climate change all the more meaningful.

But there are two big problems. First, the pledges in the agreement are grossly insufficient to meet the level of emissions cuts needed to keep the world safe from global warming, and there is also insufficient financing to support the developing countries’ climate actions, whether on mitigation or adaptation.

And secondly, there is a big question mark on the future of the Paris agreement as Trump had vowed to take the US out of it.

The biggest effect of 2016 could be that a climate skeptic was elected US President.

In the area of health, the dangers of antibiotic resistance went up on the global agenda with a declaration and day-long event involving political leaders at the United Nations in September.

There was growing evidence and stark warnings in 2016 that we are entering a post-antibiotic era where medicines will no longer work and millions will die from infection and ailments that could once be easily treated by antibiotics.

The world will also be closing in a mood of great economic uncertainty. In 2016 the world economy overall didn’t do well but also not too badly, with growth rates projected at 2.4 to 3%.

But for developing economies like Malaysia, the year ended with worries that the high capital inflows of recent years are reversing as money flows back to the US.

The first in an expected series of interest rate increases came last week.

All in all, there was not much to rejoice about in 2016, and worse still it built the foundation for more difficulties to come in 2017.

So we should enjoy the Christmas/New Year season while we can. Merry Christmas to all readers!

Global Trends By Martin Khor

Martin Khor (director@southcentre.org) is executive director of the South Centre. The views expressed here are entirely his own.


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Need to ‘civilise’ capitalism

THE world economy is in a much worse-off shape than even many who know had expected, or what central bankers have come to understand.

Whatever growth there is remains paltry and uneven. Deflation was viewed as a strictly Japanese phenomenon. Now it’s a global threat, being revived and updated by Harvard’s Lawrence Summers as “secular stagnation.” The International Monetary Fund (IMF) says 2016 will be the fifth straight year of global growth below 3.7%, its average for nearly two decades before the recent great recession.

G-20 economies (representing 85% of the world economy, comprising most rich nations and major emerging economies) are expected to again downgrade their forecast to below 3% global expansion this year. They are likely to miss the target they had set for themselves in 2014 to lift their combined output by 2% over the IMF’s then forecast for 2018.

In early September, G-20 leaders met in Hangzhou, China, in the wake of Brexit and the rise of populist politics on both sides of the Atlantic with a strong sense of urgency to placate public discontent. Indeed, they have to “civilise’’ capitalism (Australian Prime Minister) as they seek to revive economic growth and address growing public scepticism about the benefits of free trade and growing backlash against globalisation. “Growth has been too low, for too long, for too few” (IMF chief Christine Lagarde).

Hangzhou consensus

This time G-20 leaders were on the defensive, amid a welter of familiar complaints back home on frustratingly slow growth, rising social inequalities and the surge of corporate tax avoidance. Looking back, the summer of 2016 is viewed not as a period of respite but as the moment it became clear that policy solutions from G-20, IMF and major central banks aren’t working well.

They have proved woefully inadequate. As a result, businesses are pessimistic about growth prospects, as reflected in low expectations for long-term interest rates. Yield on German 10-year notes is negative 0.116% p.a. What’s needed is a new approach. There has to be more growth and growth must be more inclusive.

At Hangzhou, the G-20 list of remedies rivals the world economy in its complexities, running beyond 7,000 words (excluding several lengthy appendices) addressing many issues, including immigration, terrorism, energy and Zika virus. Indeed, it risks looking “like an X’mas tree”. It was preceded by a surprising display of co-operation between China and US, who together ratified the Paris climate change agreement.

A long list of problems was on the table: including overstretched central banks, trade disputes, corporate tax avoidance, inequality and the populist backlash against globalisation and free trade. In the end, the Hangzhou consensus reflected an “innovative, invigorated, interconnected and inclusive” approach towards its main goals. It adopted a wide-ranging package of policies based on “Vision” (of innovative, new drivers of growth); “Integration” (forge synergy among fiscal, monetary and structural reform policies); “Openness” (build an open world economy, rejecting protectionism); and “Inclusiveness” (ensure growth promotes the role of women and youth, and generates quality jobs, addresses inequality and eradicates poverty).

All these won’t be enough to get us out of the rut. The real setback remains one of credibility. G-20’s sprawling agenda is filled with items that have little chance of success. Many stakeholders and opinion-makers are unlikely to take them really seriously. Experience shows that G-20 is better off when it focuses. Better stick with a limited agenda that has a high chance of achieving an outcome. Sometimes, more is done by doing less.

As host, China promoted innovation as the core of the G-20 agenda. This is sensible because: (i) the use of monetary and fiscal policies can only achieve so much. In the longer-run, real progress has to depend on improved productivity – getting more out of existing resources; and (ii) overcoming anxiety arising from the use of technologies and artificial intelligence that threaten jobs. Getting G-20 to think collectively about the downside of innovation and fintech can only help. There is then the endorsement of a set of non-binding principles designed to guide governments in devising cross-border investment policies in an effort to revive cross-border investment, which is sagging along with global growth and trade. The intention is good – there is a need to foster a more open, transparent global environment for investment, and ensure national and international rules remain clear, coherent and consistent. No investment, no trade, no growth.

Globalisation

The Organisation for Economic Co-operation and Development (OECD), i.e. the rich nations’ club, warned last week that growth in world trade is set to lag global growth in 2016, i.e. globalisation as measured by trade intensity has stalled. Other signs are just as worrisome: (i) ratio of world trade to output has been flat since 2008; (ii) volume of world trade stagnated between January 2015 and March 2016; (iii) stock of cross-border financial assets peaked at 57% global GDP in 2007, down by 36% over 2015; and (iv) inflows of foreign direct investment remained well below 3.3% of world GDP reached in 2007.

Indeed, the growing backlash against trade liberalisation as well as recessions in some big commodity producers are adding to the slackening of trade flows and is likely to erode already flagging productivity and ultimately global living standards. All this, at a time of poor economic performance in the rich nations, rising inequality and big shifts in the balance of global power.

So much so, failure to deal with the negative consequences of globalisation has surged into the political agenda of several large nations (including the US) facing forthcoming elections. Worse still, growth is too meagre to generate the jobs that youths expect and to fulfil pension promises for the elderly. Indeed, globalisation has stalled. Does it matter?

Yes it does. Recent history witnessed the first fall in global inequality of household incomes since the early 19th century. Average world real income rose by 120% between 1980 and 2015. The opportunities accorded by global integration should not be dismissed. No man is an island. Globalisation’s failure, however, lies in (a) not ensuring that its gains are not better shared, and (b) just as dismal is failure to assist those adversely affected. But, the net impact on jobs and wages from rising productivity and new technologies has far exceeded rising imports.

Globalisation shouldn’t be made the scapegoat. What’s really needed is better management. I recall Nobel laureate Joseph Stiglitz’s main message in his 2002 book Globalisation and its Discontents: the problem is not globalisation but how the process is being managed. The rules of the game has to include measures to “tame globalisation.” Unfortunately, global management didn’t change. Today, the new discontents are bringing home the same message – only more intensely.

Inequality

G-20 leaders in Hangzhou were preoccupied with the need to placate public discontent about the unequal distribution of the benefits of free trade and globalisation. Hence, a lot of talk about people. China’s President Xi Jinping set the tone: “Development is for the people. It should be pursued by the people and its outcome should be shared by the people. This is not just a moral responsibility. It also helps unleash immeasurable effective demand.”

In China, Xi said: “We will make the pie bigger and make sure people get a fairer share of it.” The global Gini coefficient – the economist’s measure of inequality, has raced passed (Xi’s) “alarm level of 0.6, and now stood at 0.7” (the closer it approaches 1, the greater the inequality in income distribution). “We need to build a more inclusive world economy.”

Unfortunately, globalisation is today seen naively as a zero-sum-game (I win, you lose), with a US presidential hopeful arguing that China’s rise has come at the expense of US manufacturing heartlands – reflecting a rising disenchantment with the global economic order. It’s spreading. Last week, France publicly called on Brussels to end trade deal talks between US and Europe, citing a globalisation “without rules, where social models are pit against each other and dragged downward, where inequalities grow.”

This “docile of discontent” is best illustrated by Branko Milanovic’s controversial “elephant chart,” which was created (from 196 household surveys worldwide) by ranking world population (from the poorest 10% to the richest 1%) showing growth in income between 1988 and 2008, i.e. from the fall of the Berlin Wall to the fall of Lehman Brothers.

His global chart traced the distribution of growth in real income as first sloping right up, then down sharply and up again steeply, like an elephant raising its trunk: it shows big income gains at the high middle and very top, with the era of globalisation offering very little or nothing for those in between (at the bottom and in the middle and working classes in the rich nations who are poorer than the top 15% but richer than everyone else; this group seemed scarcely better off in 2008 than they were 20 years before).

The stagnant fortunes of these Trumpian and Brexiteer discontents in advanced economies are squeezed between their own countries’ plutocrats and Asia’s rapidly rising middle-class. It is this dangerous sharp dip in the chart to near zero which reflects those who occupy this dangerous docile. Milanovic’s study showed that (a) Chinese middle-class and the world’s 1% rich have gained handsomely in the era of globalisation; (b) lower middle-class in rich countries have fared poorly; and (c) rising income inequality remains a serious problem.

What then, are we to do

Global growth are revised downwards yet again as its traditional engines of trade and investment sputter. OECD now estimates the world economy would muster growth of only 2.9% this year. I consider this to be optimistic. Worse, potential growth has fallen in both advanced and emerging economies. The rise in income and wealth inequalities exacerbates the glut in global savings (reflecting the global investment slump). This can only lead to lower trend growth. Economists call this “hysteresis”: long-term unemployment erodes workers’ skills and human capital; and because innovation is embedded in new capital goods, low investment leads to permanently lower productivity growth. That’s why structural and market reforms are vital to boost potential growth. This has become critical in Asean, especially Malaysia.

There are no politically easy solutions. I know fiscal policy (especially productive public investment that boosts both supply and demand) remains hostage of high debts and misguided austerity. For now, the world is likely to remain as IMF’s new mediocre, or in Summer’s secular stagnation, or China’s new normal.

Make no mistake. There is nothing healthy or normal about rising inequality in the face of continuing slow economic growth. Worse, it leads to rising populist backlash against trade, migration, globalisation, even technological innovation. Following the old road of relying purely on cheap and plentiful money leads to a dead end eventually.

Policymakers’ renewed focus on the need to make capitalism more inclusive is welcome. But rich nations need to ditch austerity in favour of purposeful fiscal support – emphasising structural supply side reforms. There is no other way to unleash effective demand. The tools are already available. Finally, of course, there is innovation.


By Lin See-Yan

Former banker, Harvard educated economist and British Chartered Scientist, Tan Sri Lin See-Yan is the author of “The Global Economy in Turbulent Times” (Wiley, 2015). Feedback is most welcome; email: starbiz@thestar.com.my.


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