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The pioneer’s dilemma. Miguel Ors Villarejo

Xavier Sala i Martín told me a few years ago that if the Chinese had told him in 1978 that “they thought to start up a capitalist system, but with limited property rights, I would have thrown them out of my office”. At that time began to crystallize what John Williamson, a researcher at the Peterson Institute, baptized later as the Washington Consensus and that, in one of those traditional pendulums of economic theory, postulated the return to the market after the interventionist excesses of Keynesianism. “Stabilizing, privatizing and liberalizing became the mantra of a generation of technocrats,” writes Dani Rodrik.

If one looks at what has happened since then, progress seems undeniable: in the last four decades, poverty has been reduced by 80%, as my colleague Diego Sánchez de la Cruz explains. However, the reasons for this extraordinary progress are far from clear, because by analysing the results country by country one can see that where there has been growth there has not been so much Washington Consensus and where there has been Washington Consensus there has not been so much growth.

The most notorious example is China. Its success, says Rodrik in another work, “raises many questions.” Liberal orthodoxy prescribes poor patients to dismantling of barriers to imports, the full convertibility of the currency and the rule of law but considering this recipe the Chinese have not been able to do worse: they maintained tariffs and monetary controls and its rule of law is manifestly improvable. How have they managed to grow as they have grown?

Normally, capital avidly seeks cheap labour to exploit, but that cheap labour was there before 1978, and continues to be in many other places in Africa and Latin America where, however, no one considers investing a penny. There is no more coward animal than a million dollars and it is not easy to attract it, because being a pioneer involves many uncertainties. It is very well explained by Reginald, a character from Saki: “Do not ever be a pioneer,” he tells his dearest friend. “The first Christian is the one who takes the fattest lion.”

In the same way, the first investor is exposed to losing all his flows. Only when the adventure succeed others will be encouraged, just like those penguins that wait at the edge of the iceberg for someone else to jump to make sure there are no killer whales. Meanwhile, the pioneer’s dilemma works as a powerful disincentive and no one jumps.

How did Beijing solve it? Unwittingly, probably. Western investors had been operating in Hong Kong for decades. Many farmers crossed illegally to the colony looking for opportunities and, tired of arresting them and the bad publicity that this entailed, the officials thought: why don´t we set up factories on this side of the border and avoid leaks? In Hong Kong they were also running out of land and therefore it made perfect sense to set up a special economic zone (SEZ) in Shenzhen, a neighbouring village of 30,000 inhabitants that today exceeds 23 million.

What came next is a combination of improvisation and good luck. Deng Xiaoping would probably have preferred to generalize the reforms to the whole nation, as Boris Yeltsin did in Russia and the IMF’s technocrats defended, but the resistance of the Communist Party forced him to adopt a gradual strategy. He had to be satisfied with promoting more SEZs, to which he conferred enormous autonomy. This lack of coordination made it possible for local authorities to experience initiatives of all kinds: those that worked were exported to other regions and those that didn´t were closed without remorse. In no other society has Schumpeter’s creative destruction been applied so mercilessly. Only the determination of convinced Marxists could bring capitalism to its ultimate consequences.

Although Joshua Cooper Ramo speaks of a Beijing Consensus, few believe that it is a true model. “There was no architect,” says historian Zhang Lifan. From the academic point of view, the economic script of China is full of bizarre twists and I’m not surprised that Sala would throw out of his office anyone who would have tried to tell him. “No way!” (Traducción: Isabel Gacho Carmona)

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THE ASIAN DOOR: How lucrative is the Chinese diaspora for e-commerce. Águeda Parra.

Among economic analysts there seems to be some consensus that the Chinese economy is slowing down, registering a growth of 6.7% year-on-year in first three quarters in 2018, two tenths less than what was registered in 2017. The protectionist policy of the Trump administration, with its doctrine ‘America First’, has led to a trade war with China that, within 20 weeks of its entry into force, may be coming to an end in light of a foreseeable announcement of agreement during the next G20 Summit in Argentina at the end of November. However, in the meantime, the Chinese economy has taken good note of the vulnerabilities of its economy to import certain products.

In view of this unforeseen situation, China has adopted the motto ‘Every crisis is an opportunity’, and has relied on e-commerce giants to reverse the slow economic downturn the country is experiencing, and that also affects domestic consumption due to the devaluation of the yuan. A situation that, however, does not apply to the vast Chinese diaspora distributed all over the world, constituting a lucrative opportunity for e-commerce in China.

In the transition from a manufacturing and export-led economy to a consumption-driven one, China has discover that new technologies have become one of the great facilitators for change. The development of the digital ecosystem is part of the daily life of the population to perform almost any kind of activity, but also allows the Chinese diaspora to maintain their habits as if they continued to live in China, acquiring products through e-commerce they cannot find through Amazon. It is estimated that the number of Chinese citizens living outside the country exceeds 100 million people; a diaspora spread mainly by the Southeast Asian countries and the United States that constitutes a new market that emerges as an alternative to the trade war started by Trump.

To that end, Alibaba has launched a new modality of sea freight as a shipping method of its e-commerce platforms that allow the distribution of consumer goods, including Chinese brand furniture. The option is implemented for the diaspora residing in Australia, where 1.2 million people live, of which 15% are Chinese students who study overseas, in addition to the more than 600 million consumers in the Southeast Asian countries. A shipping method that allows increasing sales, but also gets to internationalize Made in China products in international markets, improving the perception of Chinese brands abroad.

The promotion choice used by the Chinese technological giants is to create a pop-up store, an ephemeral store aimed at making the public aware of new options, such as the ones created in Melbourne and Sydney to promote its new sea freight options, and the one inaugurated in Madrid on the occasion of the celebration of the Single’s Day this year. JD.com is another of the platforms the Chinese diaspora is taking advantage of to offset the effects of a slight decrease in domestic consumption. Unlike the Alibaba platforms only available in Chinese, JD.com has gone a step further in adapting its international e-commerce platforms to local language in countries like Russia and Indonesia.

Thanks to the world market of e-commerce, Alibaba promotes the Chinese diaspora can get products that are closely tied to their lifestyle by buying the country’s own products through Tmall and Taobao, but also enable the international companies hosted on its platforms to offer their products to a growing Chinese middle class that demands quality international products. This is the reason for the JD.com office in Paris or the one that will launch on Google’s shopping platforms by the end of the year, which on one hand allow developing the brand portfolio present in its e-commerce platform, and on the other hand connects its local partners to access the 270 million active Chinese consumers on JD.com.

This type of promotion of China’s tech titans platforms in foreign markets is highly lucrative for Chinese e-commerce companies, as has been displayed during the celebration of the tenth anniversary of the great e-commerce Shopping Festival organized by Alibaba on the occasion of the Single’s Day in China. In this last edition, Spain has managed to reach the eighth position in a ranking that leads Japan, followed by the United States, South Korea, Australia, Germany, United Kingdom, France, and completes New Zealand and Italy in the ninth and tenth position, highlighting the great opportunities e-commerce offers for international brands to improve their positioning among Chinese consumers.

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INTERREGNUM. Trump approaches China and Japan. Fernando Delage

(Traducción: Isabel Gacho Carmona) Last week, for the first time in seven years, a Japanese Prime Minister paid a bilateral visit to China (in the multilateral arena, Abe attended the APEC summit in Beijing in 2014). And it is also expected that Chinese President Xi Jinping will travel to Japan next year. Do these meetings mean a return to normality in relations between the second and third largest economies on the planet?

The change in the relative position of power between the two neighbours since 2010 -when the Chinese GDP exceeded the Japanese and the Chinese claims of sovereignty over the Senkaku Islands- opened a period of crisis. Japanese investments in the People’s Republic fell sharply between 2013 and 2015 and recovered last year, but China continued to be Japan’s largest trading partner (its bilateral exchanges add up to 300 billion dollars a year, a third more than Japan-United States trade).

Although Japan is the only one of the main North American allies that still does not belong to the Asian Infrastructure Investment Bank (AIIB) and received with considerable reservations the announcement of the initiative of the Chinese New Silk Road, after a while it understood that it could not reject the opportunities that the project represented for its companies. Hence, without officially supporting it, it decided to allow the participation of Japanese firms, provided that certain regulatory requirements were respected. At the same time, Japan opted to compete directly with China, offering its own initiative to develop quality infrastructures-for which it offered a $ 100 billion fund and developing the Asia-Africa Economic Corridor with India. In opposition to the Chinese Silk Road, Japan offered an alternative scheme under the denomination of an “A Free and Open Indo-Pacific “.

The policies of Donald Trump are facilitating, however, the bases for a new approach between China and Japan. The increase in tensions with Washington leads Beijing to seek a stable relationship with Tokyo. Japan, meanwhile, also subject to threats of sanctions by the US administration – and concerned about Trump’s rapprochement with the North Korean leader – finds itself with an opportunity to reinforce shared economic interests with China, including advancing in the negotiation of the Regional Comprehensive Economic Partnership (RCEP) with the ASEAN countries, and give new impetus to the free trade agreement between them and South Korea.

It is a complex challenge for the Japanese Prime Minister, Shinzo Abe. The underlying strategic context will not change: the change is structural, and the differential of economic and military power with the People’s Republic will continue to grow. Abe also cannot align with China against Trump. But while trying to maintain balance in the strategic triangle formed by these three powers, it complements it by expanding the playing field.

It is not accidental, therefore, that as soon as he returned from Beijing he received in Tokyo his Indian counterpart, Narendra Modo. Or that, on November 1st, Japan and India begin their first joint military exercises in the Indian northeast, which will last for 14 days. Manoeuvres that in turn are added to those recently made by 100 Japanese soldiers-with their armoured vehicles included-with US troops in the Philippines. A couple of weeks ago, Abe also received the leaders of Cambodia, Laos, Myanmar, Thailand and Vietnam. The Japan-Mekong summit showed the participants’ concern for freedom of navigation in the South China Sea and the militarization of the islands by Beijing. Japanese diplomatic proactivism has no precedent, but it is paradoxical that it is its North American ally, and not only China, who is provoking it. (Foto: Leo Eberts, flickr.com)

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Chinese mafia in Latin América. Nieves C. Pérez Rodríguez

The Chinese presence in any region of the planet is nowadays a fact. A report by the World Economic Forum states that China invested between 2003 and 2017 more than 110.00 million dollars in Latin America and the Caribbean, being the main trading partner of Argentina, Chile, Peru and Uruguay, and the second of Mexico. Most of the Chinese investment in this region was concentrated in Brazil followed by Peru, Argentina, Cuba and Jamaica, according to the Latin American and Caribbean Academic Network on China.

These numbers show how China impacts these countries and their economies, but it can also indicate more. For example, the number of Chinese immigrants in Latin America, which is a great enigma due to the incompetence of the receiving states of these communities, or even complicity, as happened in Venezuela under the leadership of Hugo Chávez who documented with Venezuelan passports a large number of Chinese citizens to guarantee their votes in elections a few years after taking office, in the first decade of 2000.

In Argentina there are Chinese criminal gangs or triads (三合会). Pixiu (貔貅,which means protector) operates in Buenos Aires, and is basically dedicated to the extortion of the owners of Chinese food stores in exchange for protection. Its modus operandi is retaliation to those who do not pay their quota, either with shots in the legs, fire of properties or death. Its members are all Chinese (come from China or born in the diaspora), the mediators are Chinese too, but the hit men in most cases are of other nationalities to avoid being related to the crime. As in all communities, they are established in small groups that have their own compatriots under pressure.

For a long time, the South American security forces ignored this danger, but in recent years more attention is being paid because they have been able to verify links of the triads with organizations such as Primeiro Comander da Capital (a very dangerous Brazilian criminal organization) and with Mexican cartels such as Los Zetas, Sinaloa or the Cartel de Juárez.

The activities of these groups are focused on the trafficking of people, who move from China to South America and many of whom work hard to pay for their trips. Another practice is money laundering; the Chinese mafias help the South American cartels to launder large sums using companies created in China and Hong Kong through international transfers.

The triple border, that curious T-shaped area formed by the meeting of the Iguazú River with the Paraná River separating Brazil from Argentina and leaving Paraguay to the west, according to Vanessa Neuwmann, president of the consulting firm Asymmetrica, is a mini state that benefits a corrupt elite while works as a large money laundering centre, efficient for organized crime and tobacco trafficking, and a money production machine for groups such as Hezbollah. Neuwman maintains that the leaders of the Paraguayan trade through the triple border are Chinese and Lebanese. The Colombian FARC, on the other hand, have also been benefited from the triple border and the free market areas in the Caribbean and Panama to mobilize contraband.

During the conversation that 4Asia held with Neuwmann, she assured us that the tobacco traffic comes mostly from Horacio Cartés’s factories in Paraguay and travels to China on mysterious flights departing from the Guaraní airport, located in the eastern city of Paraguay -in the triple border-. These planes land there loaded with Chinese contraband clothing and appliances and return to China with tobacco. Newman is convinced that there must also be smuggling of Chinese weapons but claims that it has not been confirmed yet. “The smuggling of tobacco to China is a very complicated issue” she says, because the importation of foreign brands is prohibited. Technically it is a closed market controlled by the State. However, the Chinese military (PLA) has a system of corruption and illicit trafficking of tobacco that they take advantage of to finance themselves. Likewise, our interviewee assures that this illicit tobacco traffic benefits North Korea, a country that is sustained by all types of legal or illegal trade with China.

Even though the existence of criminal organizations and contraband are common practices in all states, the striking point is that these practices exist in states like China, which maintains excessive control and penalization of its citizens. The fact that Chinese military forces handle the smuggling of tobacco into their territory is known by the authorities, who could eradicate it and nevertheless allow it. Just as they have allowed the money laundering that has been taking place in China for years and that has opportunely favoured the growth of its economy.

The double standard of the Chinese State has been put into practice to promote the interests of the State and its perpetuation. (Traducción: Isabel Gacho Carmona)

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China and the seduction of Syracuse. Miguel Ors Villarejo

During the colloquium that closed the event ¿Planeta China?, one of the attendees raised the question whether the Western criticisms of the People’s Republic were the result of envy, because they had found a more efficient regime than our democracies. The question reveals an admiration for the dictatorships that many naive people believed eradicated after the fall of the Berlin Wall. However, it periodically regresses and even has a name: the seduction of Syracuse.

The expression was coined by Mark Lilla and it refers to the attempt to establish a government of philosopher kings in the Syracuse of Dionysius the Younger. Encouraged by an old student of his Academy, Plato moved to the island to see if the tyrant was a different kind of leader, willing to constrict his power to the limits of reason and justice. The experiment was a failure and, although Plato resigned as soon as he realized that his hiring had been a mere image operation, the episode has remained for posterity as the first documented example of the fascination that despots exercise in intellectuals.

The recent history of Europe is full of eminent figures who, unlike Plato, had no objection to serving modern Dionysus. “Their stories are infamous,” writes Lilla: “Martin Heidegger and Carl Schmitt in Nazi Germany; Georgy Lukács in Hungary; maybe someone else. Many, without taking great risks, adhered to the fascist and communist parties on both sides of the Berlin Wall […]. A surprisingly high number pilgrimed to the new Syracuses: Moscow, Berlin, Hanoi or Havana. As observers, they carefully choreographed their trips […], always with a round-trip ticket”, and explained to us their admiration for collective farms, tractor factories, sugarcane plantations or schools,” although for some reason they never visited prisons. “

As now happens with the propagandists of Maduro’s Venezuela, this type of thinker visits Siracusa especially with his imagination, standing behind the desk of the Complutense, while deploying his “interesting and sometimes brilliant theories” to justify the sufferings of people he will never look in the eye. At what point did it become acceptable to argue that despotism is “something good, even beautiful?”

In his essay, Lilla reviews different explanations. Isaiah Berlin blames the Enlightenment. The philosophes were convinced that social problems, like physics and mathematical ones, had one and only one solution, and their subsequent imitators were dedicated to hammer reality into it. Jacob Telman thinks, on the contrary, that communist or fascist fanaticism has little to do with reason and it is rather the fruit of the conversion of ideology into a new religion.

Raymond Aron, on the other hand, blames the arrogance of the academics, who, during the Dreyfus scandal, abandoned their natural environment (research) to teach their ignorant compatriots how to govern themselves. But Jürgen Habermas warns, with no little foundation, that this could be true in France, but that in Germany the opposite happened: the withdrawal of the academics to their ivory tower facilitated the rise of Hitler.

After this recapitulation, Lilla offers his own thesis and observes that the most striking thing about Dionysus is that he was a philosopher. As Plato teaches, curiosity supposes the overcoming of the animal condition and it is concreted in a desire to “procreate in the beautiful” that leads some to become poets and others to be interested in “the good order of cities and families”. It is a laudable impulse, but one that requires, like all, temperance. “The philosopher,” says Lilla, “knows the madness of love of wisdom, but cannot give away his soul; he always keeps control. “

Unfortunately, that is not always the case. Many intellectuals throw themselves into the arena “burned by ideas”. “They consider themselves independent, when, actually, they let themselves be led like sheep by their inner demons.” That is what the seduction of Syracuse consists of: in an inertia that drags you behind some ideal.

Resisting that attraction is not easy. The brilliant promises of utopia contrast with the grey spectacle of our imperfect democracies, subject to recurrent crises and incapable of reaching an equilibrium to all. We live in a constant yearning for the “good order of cities and families” and that anxiety makes us vulnerable to the charms of any unscrupulous individual.

What the success of China inspires to its critics it is not envy. It is fear. (Traducción: Isabel Gacho Carmona)

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STEPS FORWARD

The new appointment between political and military leaders of the two Koreas in the border area of Panmunjom is far from anecdotal. In the midst of the uproar and propaganda actions, the fact that the two countries keep their agenda and move forward on bilateral issues is good news, even though they are closely supervised by China and the United States. And we must keep in mind that this tutelage is never absolute, and that each country has a margin of autonomy that, in turn, conditions the strategies of its backers.

The current bilateral relationship, unthinkable a few months ago, although not without risks and shocks, has probably opened some irreversible processes. In this case, it is South Korea who assumes greater responsibility. It must give answers and explanations to its citizens like any democratic country, it must maintain serenity and firmness with an erratic United States president from whom they shouldn´t distance themselves very much and, at the same time, build better regional alliances.

The agenda is not exactly known, but undoubtedly the denuclearization, the opening of new processes of commercial exchange, the study of the problem of separated families and new gestures to visualize that there is a credible project in progress will be on the table. These bilateral advances are not going to solve the problem, but they can be an anchor for the great process to be consolidated. (Traducción: Isabel Gacho Carmona)

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THE ASIAN DOOR: The silent revolution of the digital economy. Águeda Parra.

The United States and China have been fighting a commercial war for a long time in the economic field without apparent winners or losers yet. Diplomacy is playing an important role in the game of alliances in Asia Pacific, where Washington has seen its leadership and influence reduced in recent years. However, the most growing rivalry is seen in the silent digital revolution that is placing China a few steps behind the United States, reducing the distance that separated them just a decade ago.

In the words of John Chambers, director of Cisco System, “At least 40% of all businesses will die in the next ten years if they cannot imagine how to change their entire business model to accommodate new technologies.” And not only they must transform themselves so as not to have an imminent expiration date, but adapting to the digital universe allows companies to have less rigid production processes, making them more competitive. China is taking advantage of it to reduce its differences with the major powers, thanks to the fact it does not have the burden of highly structured business processes. China is jumping into the digital environment in a more agile way and with greater capacity to start competing more easily in the global ecosystem within a globalized environment.

In the physical world, a dissatisfied customer can tell 6 people, while in the digital world it can reach up to 6,000 friends, according to Jeff Bezos, founder and CEO of Amazon. This principle is followed by the main digital platforms in China, the so-called BAT (Baidu, Alibaba and Tencent), the ones that with their star applications are redesigning the model of digital economy in China. So much so, that the search engine par excellence in the Asian giant is Baidu, the first Chinese company listed in the NASDAQ 100 Index. It has a market share in the country of 75.1%, compared to the 1.4% that Google has. In the field of e-Commerce, the reference in China is Tmall, owned by Alibaba, with a 56.6% share, whereas Amazon represents only 0.8% of the Chinese market. In the field of social networks, WeChat, owned by Tencent, with 1 billion active users, exercises the leadership. This is a universe Facebook cannot compete with, having just 54 million users in China, according to the report 2017 Digital Economy Compass by Statista.

The transformation of the digital environment is causing 4 Chinese tech titans to appear in the Top 15 of major digital platforms, Alibaba (5), Tencent (6), Baidu (8), and JD.com (10), in a classification that worldwide continue to lead the US companies Apple (1), Google (2), Amazon (3) and Facebook (4), according to the aforementioned report. However, China has in its favour the immense population of the country that represents the great growth potential of online services. With an Internet penetration in China that reaches 50% of the population, about 700 million people can find in online services the means to meet their daily needs. In the case of the United States, the situation is quite different, since Internet penetration reaches 77% of the population, and only 59 million people still do not enjoy online services, according to the Statista study.

The stereotype of unicorns, private investment technology startups that have a value of more than $1 billion, follows the same dynamic as the digital economy as a whole. In this decade, it is more possible that companies with a value of more than $1 billion are Chinese or American, as was the case of 31 out of the 40 companies created during 2016, mostly related to new technologies. In this digital revolution, Europe seems to be falling behind and far from China and the United States, not only in the creation of startups, but also in digital spending calculated as a percentage of total household consumption per capita. At this point, China is in the Top 1 with 10.6% in 2016, much higher than that registered by Europe (5%) and the United States (4.5%).

Among the markets analysed by Statista in its report are the eServices, highlighting the distribution of food as the most dynamic market, with an overall annual profit growth of 21% between 2016-2021, similar to the one registered in the United States, with an 19% increase in the next five years. The eTravel market is another example of the markets that will register the most significant growth globally, almost doubling the revenues in 2021 to reach around one trillion dollars, mainly driven by the United States, which will grow by 7.4%, while China with an increase of 17.9% will not be enough to overcome the American power in this area. The study also indicates that China will dominate the online luxury market worldwide with a turnover that can reach more than $285 billion in 2021. The Asian giant, as dragon of the FinTech, leads a market that has expected to double its revenues in this period, registering growths of 30.2% between 2016 and 2021, according to the abovementioned report.

However, in the Chinese digital ecosystem, payment for advertising follows an inverse trend. WeChat incorporated payment campaigns in 2015, and today they only represent 15-20% of Tencent’s revenues, compared to 70% for Facebook. However, according to the forecast, the market will double its income between 2016 and 2021. The situation is likely to change in the next five years. How long will the digital economy revolution in China continue to seem silent?

 (Traducción: Isabel Gacho Carmona)