Governance

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 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 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 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 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

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 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. 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 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 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 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 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 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, 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

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 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 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, 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 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 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

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. 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 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 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 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 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

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 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 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 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 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. 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 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 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 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 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 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 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 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 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, 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

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 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 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 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 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, 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, 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 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

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 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 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 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 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 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 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 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 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 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 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. 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