INTERREGNUM: Civilizations; Clash or coexistence? Fernando Delage

(Traducción: Isabel Gacho Carmona) The rise of China is not only transforming the global balance of power. It is also a challenge to the liberal values that served as the basis for the international order still in force, created after the Second World War. China is a great defender of the Charter of the United Nations and the principle of absolute sovereignty of the nation-state – which in its opinion is incompatible with Western efforts to promote its political schemes in the rest of the world – but at the same time it define itself, rather than as a nation or territory, as an exceptional civilization that can offer an alternative model to liberal democracy.

The new authoritarianism stands, in practice, more on cultural than on ideological pillars. Capitalism also prevails in China (or Russia), although under the direct supervision of the State: economic interventionism is a central element of their definition of “sovereignty”, and of the battle against Western pluralism. It is the cultural differentiation which is also used to justify the rejection of the universality of human rights, the rule of law or press freedom.

The irruption of the breakdown among civilizations as a structural factor of the world’s geopolitical dynamics-in addition to economics and security-was a famous argument advanced by the Harvard University professor Samuel Huntington 25 years ago. But the way in which States like China or Russia (also Turkey or Daesh itself) resort to criteria of civilization to express their identity in the international system, is a phenomenon that has not been given enough attention. It is a deficit that some experts try to correct, such as the professor at the London School of Economics Christopher Coker in his recent book “The rise of the civilizational state” (Polity Press, 2019).

The People’s Republic of Xi Jinping defends, as is well known, a model of “socialism with Chinese characteristics” that combines a Leninist State with a neo-Confucian culture. Resorting to the historical continuity of its civilization, the nationalist discourse of Beijing pursues the promotion of its status as a great power by criticising liberal universalism. The challenge is, therefore, how to articulate the coexistence among very diverse civilizations, including those that have placed themselves at the centre of world power and will not continue to accept a subordinate position to the West.

Also, here China seems be taking the initiative. Last week, at a conference on the dialogue between Asian civilizations´ opening in Beijing, President Xi pronounced himself on the grave error of considering one race and civilization as superior to the others, and the disaster that would involve trying to remake one´s civilization on the basis on other from the outside. “The different civilizations are not destined to face each other,” Xi said. “The growing global challenges facing humanity, he added, require joint efforts,” in which culture will play a fundamental role.

We do not know if it’s a coincidence, but a few days before the head of the planning office of the US State Department declared in Washington that, for the first time, the United States faces “a competitor that is not Caucasian.” The current commercial tensions develop in a context in which a “battle with a truly different civilization” is fought. The controversy was served, in a new demonstration that the pressures on the liberal order come not only from China or Russia, but-perhaps more worryingly-from within, driven by this phenomenon of identity populism, and by a US administration who seems to have forgotten the secret of its leadership for seven decades. Demonizing third powers when the West is eroding in its own bosom will not serve to restore the strength of the principles that created the modern world. It can even lead to lose the ability to define the terms of the debate that will shape the history of the coming decades.

The EU fearing a closed agreement between China and the United States

The European Union fears that China and the United States, who are about to begin to negotiate how to manage the threat of trade war between protectionist systems, will reach an agreement for the distribution of quotas that leaves European companies out. It is not that the EU is less protectionist, but that it fears to be left without its portion of cake.

“We are in favour of fair global trade based on rules, but the rules should be the same for everyone,” added the Vice President of the European Commission and Commissioner for Employment, Growth, Investment and Competitiveness, Jyrki Katainen when asked about the effect that a potential agreement between China and the US could have for the EU. It was a month ago, after the first meeting held between the EU and China since Xi Jinping and Donald Trump greed to a truce of 90 days.

The EU can play an important role if it considers that China needs it as a counterweight to the United States and plays with its economic power which, although in crisis, is not as unimportant as it is sometimes said.

But Europe has a vulnerability. It still lacks a foreign policy agreed upon among its members, it continues without gaining political prominence, much less military, and continues to put at the same level, (Trump aside) its criticism to the United States and China. Although we must remember that the position of the European Commission and the concrete opinion of the countries that set the course of the Union, France and Germany are different things.

But the fact of an absence of common criteria (because the absence of an agreed strategy stems from a lack of unity of criteria, since, in the end, there is no identification of national interests) makes European protagonism more difficult; and the initiatives of France, Germany and others (Spain among them) to achieve investments and business areas reveal the weakness of the community project.

So, it is probably time to stop regretting the lack of such unitary strategy and to try to locate and assume the lowest common denominator among the national interests of the Member States to take some measures that should be more oriented towards free trade than towards raising protectionist barriers of the European market. It is not easy, but that is the challenge. (Traducción: Isabel Gacho Carmona)

Trump-Kim, towards their second summit. Nieves C. Pérez Rodríguez

Washington.- The USA is living a heated political environment in its capital with the president’s stubbornness in moving forward until Congress approves the funds to build the wall on the border with Mexico. Meanwhile, at the international level, Washington has on the agenda a second historic meeting between Trump and Kim Jon-un, and that can could be used to try to change the focus of attention.

Kim Jong was on an official visit to the Chinese capital, as if he were going to ask permission to meet the adversary. In fact, last Thursday (January 10th), the president of South Korea, Moon Jae-in, stated that Kim’s trip to Beijing was an announcement of an imminent meeting that will take place between Trump and Kim. This happened previously in the first meeting and after his return from Singapore.

North Korea has very few allies, and China is more than an ally for Pyongyang; It is a protection card, a kind of international shield that has helped to survive its isolation. Kim knows it and accept it.

This visit coincides with the anniversary of the 70 years of bilateral relations between both, and demonstrates a strategic strengthening of their closeness, along with a common agenda for the year. In their conversations, most likely the issue of a second meeting with Trump and to what extend Kim should be flexible were discussed.

Earlier in this year, Trump said in a tweet that he was waiting for a meeting with Kim while we made it clear that North Korea has great economic potential and that its leader is aware of it. And then he said that they are negotiating the place where the meeting could take place. According to CNN, the places that are being floated are Vietnam, Thailand, Hawaii and maybe even New York or Geneva.

Vietnam is a country with close relations with the United States, which the secretary of state visited last summer. During that visit he expressed how “the Vietnamese economy has benefited from its exchanges with America” and, in addition, he emphasized the positive impact the abandonment of its nuclear program had meant to Vietnam, as a good example to follow for the North Koreans.

Thailand is a country closer to North Korea, and where they have diplomatic headquarters. Kim Jong-un surely feels more comfortable attending a summit there. In addition to being relatively close to the Korean peninsula.

Hawaii is not neutral territory. In fact, it’s literally enemy territory for Kim, so it’s very unlikely to be the venue. Regarding New York, even though as it is the headquarters of the United Nations it could be more feasible, still holds the great difficulty of distance. The same happens with Geneva. Even Kim himself offered Pyongyang, but for Washington it would be an uncomfortable place where they would have no control.

We cannot but wait for the decision to be made and announced. However, the problem is fundamental, the advances in the denuclearization have not been made effective. Pyongyang wants the international sanctions to be suppressed, but without any real signs of change.

The great winner is still Kim Jong-un, who in less than a year has visited China four times on official visit and with all the honours of a Head of State: he has met with the president of South Korea a couple of times; he sent a delegation to participate in the Winter Olympics, and today, he is preparing a second meeting with the American leader when only last January we were fearing an attack from Pyongyang and a change of their relations was unthinkable. (Traducción: Isabel Gacho Carmona)

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)

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)