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Indonesia Islamic Economic Project: A Disruptive Initiative for a more Just, Inclusive, and Impactful Finance

By Banjaran Surya Indrastomo

Indonesia Islamic economic project was initiated in the periphery and has been expanding significantly in different spectrums generating both authentic and Islamic version of financial institutions. With the recent move by the government to accelerate the development, it has to acknowledge its nature to reach its most potential.

 

Common presumptive mistake that general observer of Islamic economic in Indonesia would typically have is on the belief that Islamic economic is naturally flourished and accommodated in the most populous Muslim country. Although it is not entirely erroneous to have such initial thought, the fact that the penetration of Islamic finance was considerably low in a country of 219.9 million Muslim,1 with Islamic banking leading at around 5.3% by end 2016, set a contradicting reality on the ground.2 Even, Indonesia was not among top five countries of Islamic finance by size. This opposing fact might suggest the assumption that Islamic economics is naturally fitted in Muslim majority context does not always stand. Nevertheless, one could not take away the condition and the context over which Islamic economic realisations are taking place in different parts of the world and this is where Indonesia’s story is unique in particular. While most of Islamic economics project elsewhere were initiated by either Muslim regime or dominant Muslim group,3 the inception of the concept and its articulation in Indonesia happened through a bottom-up process involving processes of experimentation, collaboration, negotiation, and institutionalisation. This is where the story is becoming interesting as the Indonesian experience depict more of a civil initiative rather than imposed project in the setting where it could be assumed to be at its most welcomed and synchronised environment. In particular, this initiative was fuelled with spirit to realise just, inclusive, and impactful finance.

This opposing fact might suggest the assumption that Islamic economics is naturally fitted in Muslim majority context does not always stand.

Indonesia is a late comer in the global Islamic economic wave compared to other experiences. While the first experimental trial in the form of social bank came in Egypt in 1963, Indonesia’s experience began in early 1980s with cooperative-acting-as-microfinance providing Islamic-based financing at a time where Islamic Development Bank and the first Islamic-commercial bank in Dubai have already been established. The first Islamic bank of Indonesia was established ten years after in 1992, causing another delay for expansion and consolidation. This delay was not without a reason: at a time when the regime was consolidating the economy through a centralistic approach, such an idea integrating an experiment into a national plan was not a popular path in developmental planning. A negative stigma to initiative that carry Islamic agenda as a result of unpopular political Islam in the past is worsening any attempt to bring this case legitimate. Hence, when it first came into ground as a micro-level experiment, it is out of the initiative of small group of Islamic economic enthusiast influenced by global spread that was aware with the limited opportunity available for pushing for a bigger agenda of a messo-level institution. Therefore, this particular early stage development was uniquely bottom-up pushed within an available opportunity and rather unconducive environment.

Even though global influence was strong in Indonesian case, the initiative moved within the context of local problem that is already in existence in the ground. In coming with cooperative-acting-as-Islamic-Microfinance that later widely known as Baitul Maal Wa Tamwil, this small group of proponents of Islamic economics was aiming at addressing problems aroused from informal money lending practices that is considered zalim (unjust). This condition was substantiated as a problem aroused out of Riba, a forbidden practice within a transaction that was initially touching upon multiplying the payment from the principal that was popular in the medieval time and then later include the practice of interest taking in the modern time.4 The solution offered to this unacceptable practice is a partnership type of arrangement that resets the predetermined rate on giving financing by bringing together individual or groups and financial institution to share both potential risks and return under either Mudharabah or Musharakah contract.5 This arrangement is expected to eliminate injustice practice that burden those in need of capital through sharing risks rather than transferring risks. With its nature being an experiment, such initiative faced challenges and difficulties, resulting in series of failures.6 Nonetheless, the pursuance for a better model continued, triggering for institutional experiment and emergence in differing part of Indonesia with particular concentration in Java. This was indeed an indication of its focus on the impact.

While the micro expansion continued until end of 1980s, early 1990s period marked the beginning of collaborative initiative in developing Islamic economics through Islamic finance. With the lead of Scholar council, coalitional power that consist of civil leaders, technocrat, and Muslim intellectual was formed.7 This sparked new form of initiative that not only brought together different spectrum of influences but also targetted a higher objective within meso and macro level. Two achievements can be highlighted out of this: (i) a recognition of sharing practice in banking Act during deregulation process, and (ii) the formation of the first Islamic bank in Indonesia. These achievements were made possible due to consolidated attempts in different lines to assure that all required changes were there to support such action. For instance, a continuous approach to the regime was facilitated by the link and support from the Muslim intellectual circle whose influence was extended to the presidential circle. Indeed, those progresses were not possible without the consent of the regime. When the regime was on board, the president Suharto himself led the fund raising for the establishment of the bank.8 Beyond this process, the success of this collaboration took place through contextualising the presence of Islamic meso and macro products with the existing problem. One of the reason for that collaboration was on the fact this initiative was seen as a common solution to inclusivity in finance. This sourced from the belief that low financial deepening was contributed by religious reason related to prohibition of Riba. As such, Islamic bank in Indonesia was foreseen as a solution to this issue by regulator or regime at a time. On the other hand, Islamic bank was seen as a start for empowering Muslim in Indonesia through equitable financing. Hence, common ground could be reached between those with differing motives.

The progress made was an important milestone for proponent of Islamic economics as their marginal aspiration was institutionalised in later stage. This achievement managed to raise confidence level of those who believe with such structure. Albeit the hurdling regulatory environment within the frame of banking and other financial institutions, the continuous expansion of both Islamic banks and Islamic micro-economic institution along with other supporting institutions such as takaful, Islamic-version of insurance, has allowed the project to strengthen their presence. The collaboration even managed to be extended within Islamic finance ecosystem by fund channelling and other harmonisation attempt to back up those within the ecosystem. This collective mobilisation of capacity and resources in supporting each part has brought that recognition for Islamic finance industry as a legitimated industry. When Asian financial crisis hammered Indonesia in 1997-1998, a positive wave for reforming the financial sector has placed the industry on upper hand as the success of its Islamic bank to pass the crisis was seen as an avenue to strengthen the soundness and resilience of financial system.9 Since then, the project has seen an active involvement of regulatory body, especially Bank Indonesia, in facilitating further expansion of the industry and creating public awareness with various programmes. The expansion also stretched beyond intermediary institution toward other platform such as capital market. Regulator of capital market also innovated to allow Islamic capital market to grow with Islamic mutual fund and Sukuk to come together with Jakarta Islamic Index. Choiruzzad considered the leadership of regulatory bodies as timely given the decline of Muslim intellectual presence providing resources and authority to further institutionalised Islamic finance mode through collaboration.10

Indonesia Islamic capital market also recorded tremendous growth with increasing issuance of sukuk, especially government one that raised Rp. 87.31 Trillion, as a highlight.

With regulatory body driving the expansion of Islamic finance, the penetration of Islamic finance became visible as institutional presence soar with the market size of both banking institutions and other micro-oriented Islamic financial institution. In 2016, Islamic banks reached 34 units along with 163 Islamic rural banks spread across Indonesia.11 Non-banking institutions also grew in numbers with Takaful companies reaching 58 in number while Shari’ah financing companies and venture capital hit 40 and 7 in total. The total assets of Islamic finance in Indonesia accounted for around Rp. 897.1 Trillion by first quarter of 2017.12 Indonesia Islamic capital market also recorded tremendous growth with increasing issuance of sukuk, especially government one that raised Rp. 87.31 Trillion, as a highlight. This does not include around 4,500 to 5,500 BMTs that spread both in urban and remoted areas opening access of financing to those sub-prime individuals and groups.13 It remains a mystery of the size of the total assets of these institutions, yet, some have been growing in size up to the level that it could not be categorised as micro institution. Hence, the expansion of Islamic finance not only happened through mainstreaming process but it also consistently pushed in the periphery serving underprivileged beyond middle class urban Indonesian.

The expansive nature of Islamic economic project of Indonesia finally attract the attention of the central authority. They realise the potential of such project in contributing to developmental agenda of the nation. In July 27th, 2017, the government formed Komite Nasional Keuangan Syari’ah (“National Committee of Shari’ah Finance”) as a coordinating body in facilitating the development of Islamic economic and finance involving multiple stakeholders.14 This committee function to ensure that the masterplan of Shari’ah finance architecture that officially introduced in World Islamic Economic Forum 2016 can be executed. Within this mandate, this committee worked toward synergising regulators, government and industry, creating a synergised and progressive Shari’ah financial system that accommodate development, implementing the agenda of the masterplan, and integrating with halal-based industry.15 This move marked the beginning of government leading initiative within a movement that was bottom-up in nature. It is indeed a timely move considering the stagnancy of the industry since it is going mainstream which was contributed by structural issue related to regulation and incentive mechanism within taxation system.16

The expansive nature of Islamic economic project of Indonesia finally attract the attention of the central authority. They realise the potential of such project in contributing to developmental agenda of the nation.

Although the formation of KNKS demonstrate government commitment to foster the expansion of Islamic finance in having stronger presence and contribution to other expanding and halal industries, this move should be observed carefully in relation to disruptive nature of its development so far within the motives to reach just, inclusive, and impactful finance. It could not be denied that this alignment has been long awaited by some proponents of this Islamic economic project. Nevertheless, one should realise that this initiative was indeed periphery nature and concern toward reforming finance to go beyond its business as usual providing access and opportunity for greater masses that happened to be Muslim. When this frame was seen as a mode to mobilise capital, the purpose of this process should not only limit toward money making purpose but also toward a contribution that is in line with the goal of Shari’ah, which is Maqasid itself. This brings finance toward a greater dimension of responsibility to account for stakeholders, especially the underprivileged. For instance, in relation to recent discussion over the use of Hajj fund for development,17 this should be seen as a positive step stone as such funding would not only strengthen the capitalisation of Islamic financial industry but also exposed toward better management and disclosure standard. The challenge would be on its professionalisation to the extent that any allocation of investment should not only consider pay off but also its effect as well as liability management. As perpetual fund with particular mandate, the utilisation of the fund should first map its liability exposure and construct strategy accordingly without neglecting its responsibility toward national development, including in relation to infrastructure project. Such careful consideration is for the purpose of providing necessary space for Islamic economic project to remain disruptive and impactful in nature opposed to being conformist and structurally determined. Hence, a top-down approach should ensure that enabling mind-set should be put forward in facilitating further expansion of Islamic economic project in Indonesia with such a promising prospect in the future.

 

Featured Image: Bank Indonesia, the central bank of the Republic of Indonesia © Wikipedia

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About the Author

Banjaran Surya Indrastomo is an Islamic Political Economist by training with research focus on Islamic Economics, Islamic Economic Sociology, and Indonesia Islamic Economic experience. He is an Awardee of the Indonesia Endowment Fund for Education (LPDP) and is registered in the doctoral programme in Islamic Finance at Durham University Business School.

 

References

1. Badan Pusat Statistik, Statistical Yearbook of Indonesia 2016, https://www.bps.go.id/website/pdf_publikasi/Statistik-Indonesia-2016–_rev.pdf, (August 10, 2017)
2. Islamic Finance Service Board, Islamic Financial Services Industry Stability Report 2016, http://www.ifsb.org/docs/IFSI%20Stability%20Report%202016%20(final).pdf, (August 10, 2017)
3. Henry, C., M and Wilson, R., The Politics of Islamic Finance. (Edinburgh: Edinburgh University Press, 2004).
4. Siddiqi, M., N., “Current State of Knowledge and Development of the Disclipline” (Keynote Address, Roundtable on Islamic Economics, Islamic Research and Training Institute, Jeddah and the Arab Planning Institute, Kuwait, May 26-27, 2004).
5. Ahmad, M., Economics of Islam: A Comparative Study (Lahore: Muhammad Ashraf, 1947).
6. Antonio, M., S. “Islamic Banking in Indonesia”, (unpublished doctoral thesis, University of Melbourne, 2004).
7. Choiruzzad, S., A. and Nugroho, B., E., “Indonesia’s Islamic Economy Project and the Islamic Scholars”, Procedia Environmental Sciences 17 (2013): 957-966.
8. Perwataatmadja, K., A., Membumika Ekonomi Islam di Indonesia, (Depok: Usaha Kami, 1996).
9. Indrastomo, B., S., “The Emergence of Islamic Economic Movement in Indonesia”, Kyoto Bulletin of Islamic Area Studies, 9 (March 2016): 62-78.
10. Choiruzzad, S., A., “The Central Bank in the Development of Islamic Economy Project in Indonesia: Role, Motivations, and Moderating Effect”, The Ritsumeikan Journal of International Studies 25, 2 (2012): 125-172.
11. Otoritas Jasa Keuangan, Laporan Triwulanan Triwulan I – 2017, http://www.ojk.go.id/id/data-dan-statistik/ojk/Documents/Pages/Laporan-Triwulan-I—2017/Laporan%20Triwulan%20I-2017.pdf, (August 10, 2017)
12. Ibid
13. Bappenas, Komite Nasional Keuangan Syariah untuk Percepatan Pengembangan Ekonomi dan Keuangan Syari’ah Indonesia (Jakarta, 2017)
14. Geotimes, Presiden Resmikan KNKS untuk Kembangkan Perbankan Syariah <https://geotimes.co.id/presiden-resmikan-knks-untuk-kembangkan-perbankan-syariah/> [accessed 10 August 2017]
15. Bappenas, Komite Nasional Keuangan Syariah untuk Percepatan Pengembangan Ekonomi dan Keuangan Syari’ah Indonesia (Jakarta, 2017)
16. Thomson Reuters, Indonesia Islamic Finance Report: Prospects for Exponential Growth, <https://ceif.iba.edu.pk/pdf/ThomsonReuters-IndonesiaIslamicFinanceReportProspectsforExponentialGrowth.pdf> [accessed 10 August 2017]
17. Suryowati, E. Investasi Dana Haji untuk Infrastruktur Dikhawatirkan Bias Kepentingan http://nasional.kompas.com/read/2017/07/31/12345301/investasi-dana-haji-untuk-infrastruktur-dikhawatirkan-bias-kepentingan [accessed 10 August 2017]

Trump’s Asia Tour: From Old Conflicts to New Prospects

By Dan Steinbock                                      

Trump’s gruelling 12-day Asia tour was a quest for mega deals. US policies in Asia are shifting. The stress on competitive strategic visions is being redefined by historic bilateral economic opportunities with China, Vietnam, South Korea, the Philippines and other ASEAN and APEC nations.

 

Diplomatic history has its ironies. In the Obama era, US President initiated a pivot to Asia that he had little time to visit. In the Trump era, US President has been so busy fortressing America against the world that he has had to spend more time in Asia to tame rumours about US disengagement.

This time President Trump’s strategic objective was in lucrative deal-making, which proved historical. In the future “America First” issues are likely to return with gusto, especially as the White House’s future is overshadowed by the Mueller investigation at home.

 

Golf, Trade and Arms in Japan        

Besides golf with Prime Minister Shinzo Abe, Trump had a good reason to start his Asian tour in Japan. Outside of North America, Japan is America’s third-largest export market and second-largest source of imports. Japanese firms are the second-largest source of foreign direct investment (FDI) in the US, and Japanese investors are the largest foreign holders of US treasuries.

The aging Japan has a critical role in a containment scenario, which Washington would seize against Beijing, should the US-China bilateral relations fall apart.

Ever since Trump withdrew from the Trans-Pacific Partnership (TPP), the White House’s focus has been on a redefined bilateral trade deal with Japan that would also include significant arms deals. Strategically, the alliance rests on the forward deployment of 50,000 US troops and other US military assets in Japan, including the controversial Okinawa base.

After decades of secular stagnation, Japanese politics has been more stable after the victories of Abe’s Liberal Democratic Party in the 2012, 2016 and 2017 elections. But instead of seizing the historic opportunity to use political consolidation to reignite the Japanese economy, Abe has pursued controversial strategic initiatives, including re-militarisation, the US-style 2015 security legislation, and re-nuclearisation.

 

Ménage à Trois in the Korean Peninsula   

Since the early 1950s, the Mutual Defense Treaty has allowed the US to dominate South Korea’s military defence. Today, some 29,000 US troops are based in the country, which is included under the US “nuclear umbrella”.

Realistically, the harder Trump will push Seoul economically, the more he will stand to lose strategically – and vice versa.

However, after the Park impeachment, South Korea opted for a strategic U-turn in economy and strategic relations. Elected in May 2017, President Moon Jae-in is no friend of the US anti-missile system (THAAD); he supports sanctions against North Korea, but only as long as it is aimed at bringing Pyongyang to the negotiating table.Moon does not accept the past Park-Obama “sanctions-only” approach toward North Korea, which the Trump administration has escalated with its “maximum pressure” principle.

South Korea remains the US’s seventh-largest trading partner and the US is South Korea’s second-largest trading partner. The two economies are joined by the Korea-US Free Trade Agreement (KORUS FTA). While the Trump administration has stated its intent to review and renegotiate the deal, it has not specified what it would like to amend.

Realistically, the harder Trump will push Seoul economically, the more he will stand to lose strategically – and vice versa.

Historic Deals to Avoid a Clash with China

In 2016, US-China trade amounted to $579 billion, while Trump’s singular focus is on the $368 billion trade deficit. Yet, merchandise trade is only one aspect of the broad bilateral economic relationship. Today, China is US’s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.

During his tour, Trump was accompanied by CEOs of 30 companies. Hungry for huge deals, the last thing they wanted was Trump to undermine access to the $400 billion Chinese market, based on US exports to China, sales by US foreign affiliates in China, and re-exports of US products through Hong Kong to China.

The same goes for services, foreign direct investment (FDI) and US Treasury securities. China is America’s fourth largest services trading partner (at $70 billion), third-largest services export market, and US has a major services trade surplus with China. The combined annual US-China investment passed $60 billion in 2016, but there is room for far more as China has become the world’s third-largest source of global FDI. Finally, China remains the second-largest foreign holder of US Treasury securities ($1.2 billion as of August 2017), which help keep US interest rates low.

In Beijing, the Trump Administration more moderate approach toward China paid off – as evidenced by the historic $254 billion deals.

 

Nurturing Vietnam as ASEAN’s “Mini-China”

Trump’s tour featured two major Association of Southeast Asian Nations (ASEAN) nations, Vietnam and the Philippines. Since Obama’s military pivot to Asia, Washington has morphed its relationship with Vietnam into a “strategic partnership”.

Vietnam’s rapid growth in bilateral trade can be attributed to the post-1986 domestic economic reforms and US extension of normal trade relations (NTR) status in 2001.

Based on US data, bilateral trade soared from $220 million in 1994 to $45 billion in 2015, which has turned Vietnam into the 13th-largest source for US imports (but only 37th-largest destination for US exports). To Washington, Vietnam is a “mini-China”: the second-largest source of US clothing imports, a major source for electrical machinery, footwear, and furniture. While Washington seeks to protect US agricultural interests against Vietnam, the latter sees the regulation of its catfish-like basa imports in the US as protectionism.

Vietnam is hedging its trade bets. While it was a willing participant in the TPP, it is a party to negotiations to the Regional Comprehensive Economic Partnership (RCEP), a pan-Asian regional trade association that currently does not include the US but promotes the interests of emerging nations in Asia Pacific.

 

Duterte Re-calibration Between US and China

Washington’s ties with its former colony the Philippines grew deep during the controversial Marcos years (1965-86), which led to the end of the US bases in the country (1947-91) and the departure of US forces from the Philippines, and during the Aquino III years (2010-16), which resulted in the Enhanced Defense Cooperation Agreement (EDCA), the return of US forces to the Philippines, rearmament with Pentagon’s support and the escalation of maritime conflicts with China.

Since the 2016 election triumph of Rodrigo Duterte, the US-Philippines relationship has been subject to a recalibration and, in the end of the Obama era, alleged US efforts at destabilisation.

However, the twin periods of close US ties coincided with deep strategic dependency on US, increasing economic polarisation within the country and the spread of drugs, corruption and questionable “narco ties” with the pre-2016 regime.

Since the 2016 election triumph of Rodrigo Duterte, the US-Philippines relationship has been subject to a recalibration and, in the end of the Obama era, alleged US efforts at destabilisation. Duterte’s sovereign foreign policy is less reliant on US security guarantees and benefits from economic relations with China – even as he has been developing more constructive personal ties with the Trump White House.

Duterte has also been able to link the Philippines into the China-supported One Road One Belt (OBOR) initiative, which is vital to his government’s huge “Build, Build, Build” infrastructure program that is paving way to the tripling of the Philippine per capita incomes in the next 25 years.

 

ASEAN Tribute to the Not-so-benign Hegemon    

Trump seeks to review and renegotiate many of the existing trade deals, while challenging the US postwar hub-and-spoke system of security alliances in the region. Unsurprisingly, then, several Association of Southeast Asian Nations (ASEAN), countries – such as Malaysia, Thailand and Singapore – that were not included in the current tour sought to preempt pressures.

During a recent visit, Premier Najib Raza announced that Malaysia’s large national pension fund and provident fund would invest several billion dollars in equity and infrastructure projects in the US as Malaysia Airlines pledged to explore options for acquiring more Boeing jetliners and General Electric engines at $10 billion.

Prime Minister Prayut Chanocha promised Thailand would buy Blackhawk and Lakota helicopters, a Cobra gunship, Harpoon missiles and F-16 fighter jet upgrades, plus 20 new Boeing jetliners for Thai Airways. Siam Cement Group agreed to purchase 155,000 tons of coal while Thai petroleum company PTT will invest in shale gas factories in Ohio. Prayut and Trump signed an MOU to facilitate $6 billion worth of investments that could create over 8,000 jobs in the US.

Tiny but wealthy Singapore followed in the footprints. Prime Minister Lee Hsien Loong showcased Singapore Airlines’ deal with Boeing for buying 39 B787 and B777-9 aircraft, which – as it was said – could create 70,000 jobs in the US.

That is the regional way to offer dollar-tribute to the US hegemon.

 

US Military Pivot to Asia                 

Trump’s Asian tour was also about the hard sell of military assets across the region. According to SIPRI, increases in global military spending are now driven by demand in Asia, along with the Middle East. During the Obama military pivot to Asia, Asia/Oceania received most of global imports (43%). Of the 10 largest importers in 2012-16, half were in India, China, Australia, Pakistan and Vietnam.

US dominates imports to its key security allies in East Asia and Oceania; Australia, Japan, and South Korea. In the past, these were thriving economies; today, they are aging and slowing. Growth markets are in emerging Asia, which is less prosperous and thus not willing to pay the US price premium, especially with more cost-efficient arms rivals, such as Russia.

When President Obama gave eloquent speeches about peace, his pivot to Asia contributed to maritime conflicts in the region fuelling demand for weapons.  But Pentagon did not cash the profits. Russia accounted for most arms deliveries to Asia and Oceania (37%), followed by the US (27%) and China (10%).

And despite US-India strategic cooperation, Russia dominated arms imports in India (68% of total imports) and Vietnam (88%). Meanwhile, China has become a major arms supplier in Pakistan (68%), Bangladesh (73%), and Myanmar (70%).

 

From TPP Lite to Real Free Trade in Asia Pacific     

After Japan, South Korea, China and Vietnam, Trump attended the Asia Pacific Economic Cooperation (APEC) Summit in Danang, Vietnam, followed by the 50th Anniversary of ASEAN and 40th Anniversary of the US-ASEAN Relations in Manila.

While trade ministers from 11 countries announced they would push ahead with a TPP lite, Abe may have seen the newly-named Comprehensive and Progressive Agreement for Trans-Pacific Partnership as a rival to the China-supported RCEP. In reality, it is a shaky TPP lite that will serve as a face-saving measure to him but as a hedge option to other 10 nations.

The US has a role in the ASEAN Economic Community (AEC), APEC and the US-ASEAN Connect Framework – as long as its engagement rests on economic cooperation, not geopolitical destabilisation.

With the failed original TPP, the “America First” doctrine, Washington’s polarisation and the impending impasse of the Mueller investigation, APEC hopes for greater US initiative in the region rest on quick-sand. The best APEC may hope for is long-term US-Chinese cooperation for the Free Trade Area of Asia-Pacific (FTAAP), which focuses on trade and investment and has room for both the US and China.

In this view, the US has a role in the ASEAN Economic Community (AEC), APEC and the US-ASEAN Connect Framework – as long as its engagement rests on economic cooperation, not geopolitical destabilisation. In turn, the ASEAN nations’ integration plan AEC 2025 can benefit from China’s globalisation initiatives, particularly the OBOR and the Asian Infrastructure Investment initiative (AIIP). In contrast, an enforced “America First” doctrine would undermine ASEAN 2025 goals.

 

A Historical US-Chinese Opportunity

In a defiant address, Trump told the APEC meeting that the US would no longer tolerate “chronic trade abuses”, while Xi announced that globalisation was irreversible. What got lost in the translation was the intriguing fact – and historical opportunity – that the Trump and Xi visions need not be seen as exclusive.

In fact, both the US and Chinese visions support globalisation, but with caveats. Both criticise the old multilateral international banks, though for different reasons. Both believe in rebalancing that is not accompanied by excessive trade deficits and foreign investment that should benefit both investors and destinations.

It is not the competitive US-China visions that offer a new path to the future in Asia Pacific. Rather, it is the inherent commonalities in these approaches that could sustain trade and investment in the region – and globally.

 

The original commentary was published by China-US Focus on November 15, 2017

Featured Image: President Donald Trump and other leaders do the “ASEAN-way handshake” on stage during the opening ceremony at the ASEAN Summit at the Cultural Center of the Philippines, Nov. 13, 2017, in Manila, Philippines.

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About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

It’s Not The Economy, Stupid!

By Graham Vanbergen

Europe is slowly spinning out of control. The Centrifugal forces of failing economics and politics are causing populism on the peripheral edges of the bloc. The push for power in Hungary and Poland is also coming to life in Austria and the Czech Republic, which in turn provides oxygen to the ever shrill voices of the secessionist movements that have seen Brexit, the Catalonia crisis and Italy’s Lombardy and Veneto regions calling for independence. They are all connected.

 

These are the escalating symptoms of political and economic fragility. The concentration of this failure has manifested itself as rising inequality and social injustice. Rights and suffrage go hand in hand and the solidarity of those less fortunate is finally being seen.

Proper analysis of macroeconomics – that is the performance, structure, behaviour and decision-making of an economy as a whole will lead the impartial mind to conclude that average incomes have not just stagnated but declined when factoring in “real” inflation over the last four decades. Whilst citizens see economies recovering from the 2008 bank-driven financial collapse, their own economic experience is now turning into a crisis of daily life. If not for them, then for members of their family, usually the generation below.

Increases in employment have not arrested the fall in living standards for the many whilst corporations see ever-greater levels of capital wealth, enriching their small management teams. This drives an inevitable cycle of lower consumption, that itself pushes down wages and so on.

The employment landscape has also changed considerably over the last four decades. The middle classes have been affected by the rise of high-skill and low-skill work, leaving many no option but to resort to the latter. This large demographic has been “hollowed out”, as so many economists often report today.

Deceptive economic reporting by government masks what is really going on. We might have the lowest unemployment in Britain for forty-four years, but we also have one third of all children living in poverty.1 How can this dichotomy of life in the sixth richest nation on Earth exist?

In 1997, General Motors, Ford, Exxon, Walmart and AT&T were the largest corporations in the USA. Ten years later, not much had changed – it was Walmart, Exxon, General Motors, Ford and General Electric. Another decade on and a seismic shift had already occurred. Apple, Google, Microsoft, Facebook and Amazon are the top dogs with the biggest market capitalisation. Only Exxon Mobil now makes it to the top 10.

General Motors was the largest motor manufacturer in the world from 1931 to 2007. At its peak in the late 1980’s General Motors employed 350,000 workers not including tens of thousands more in the supply chain. In 2016, GM produced 10 million cars with just 200,000 workers.2

These crest fallen corporate manufacturing behemoths that build and sell things, to this day still employ nearly three times as many workers as the so-called frontier firms, now known as tech giants.

Facebook, a company founded in 2004 that employed just 15,000 people ousted GM from the top five US corporations a few years back. And whilst Facebook continues to grow exponentially, its global workforce has barely grown and now sits at just 17,016 (December 2016).

These crest fallen corporate manufacturing behemoths that build and sell things, to this day still employ nearly three times as many workers as the so-called frontier firms, now known as tech giants. The diffusion of wealth is therefore being concentrated into the hands of so few that you can count them on one hand.

This is evidenced by productivity verses wages. Since the beginning of the 1980’s productivity in the US, and many other western economies for that matter, has increased by almost 250 percent.3 In real terms, wages have fallen a very long way behind. From that you can deduct that political influences, those macroeconomic decisions over the economy, have been such that the workforce has not kept up with those productivity gains in any tangible way. Inequality was an unreported output.

In this backdrop, western politicians and economists then forced to “trickle down economic” theory down the throats of its citizens. It hinged on two assumptions: all members of society would benefit from growth, and growth is most likely to come from those with the resources and skills to increase productive output.

As we have since learned, that was the lie of political charlatan’s who were bankrolled by the very corporations who in turn funded shadowy, obscure think tanks and a subservient media to promote nothing more than the economic mirage of excessive neoliberalism.

The “hollowing” out of the middle classes has led to millions entering what Britain politely terms as the “JAM’s” or Just About Managing.4 Academics like to refer to these hardworking but poor households as the “precariat” – a social class formed by people suffering from a condition of “existence without predictability or security, which affects both material and psychological welfare”. Nearly 40 percent of all British citizens live in a world dominated by austerity that, by no fault of their own, end up stuck in JAM.

Whilst corporations continue to suck the wealth and well being of nations, the state inevitably picks up the tab for this new and rapidly rising social class who can barely feed their families. Half of all households in Britain are now dependent on state benefits to make ends meet. The shredding of the social contract is leading directly to those centrifugal forces referred to earlier. It is this that is tearing apart the stability of Western democracies.

Economically, this injustice can be demonstrated no better than Amazon’s CEO Jeff Bezos. He is reportedly the world’s richest man, worth a staggering $90 billion. His personal wealth exceeds the annual GDP of two thirds of the world’s economies. To reach such stratospheric wealth his workforce permanently suffers brutally exploitative contracts and low wages the world over. A committee of British MP’s recently concluded that Amazon workers were routinely forced to sign “unintelligible contracts designed to stop them asserting their rights”.

Europe’s real problem is not really immigration, the economy or the threat of the fourth industrial revolution. It is the loss of dignity, the loss of rights and the total loss of social justice as a result of the cynical exploitation of the working and middle classes by those who should know better, by those in power. Blowback is both inevitable and now visibly evident.

When parents cannot feed their children, when families submerge under a sea of un-payable debt, when communities decay, this loss leads to unambiguous frustration and anger. When there is nowhere to go, no choice – anything but the status quo will do. Hence, we see the rise of populism, isolationism and extremism.

Call it what you like, but it’s not the economy on its own that causes these reactionary responses. The economic ideology deployed since the 1980’s is a tool of the selfish and greedy and it has ended up cutting the umbilical chord between the state and its people. Those at the helm have become so corrupted by power and money they still fail to see what ails, fails and ultimately nails everyone else.

History tells us, when the social contract is severed, the state is in deep trouble. If Trump fails to make good on his promise to make America great again, what’s next? If the Conservative party fail to make a good Brexit deal, or indeed, any deal for Britain and the economy sinks into recession, what then?

The American philosopher Richard Rorty gave lectures at University College, London and Trinity College, Cambridge about his controversial 1989 book “Contingency, Irony and Solidarity”. In it Rorty predicted with a high degree of precision that:

“Members of labour unions, and un-organised unskilled workers, will sooner or later realise that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realise that suburban white-collar workers – themselves desperately afraid of being downsized – are not going to let themselves be taxed to provide social benefits for anyone else. 

At that point, something will crack. The non-suburban electorate will decide that the system has failed and start looking around for a strongman to vote for – someone willing to assure them that once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen and post modernist professors will no longer be calling the shots…

All the resentment which badly educated Americans feel about having their manners dictated to them by college graduates will find an outlet”.

Nearly thirty years later, we have Trump promising to drain the swamp, in a nation fully divided and what many consider to be, on the brink of civil unrest along with its alt-everything’s.

Did Rorty have such foresight as to predict exactly the trajectory of economic theory or did he simply look back in history to see the future?

Pitching workers purely against productivity gains in an age of new technologies will only increase the precarious nature of life already blighting society and community alike.

Bill Clinton’s 1991 election campaign advantageously used the then-prevailing recession in the United States as one of the campaign’s means to successfully unseat George H. W. Bush with the slogan “It’s the economy, stupid.”

Today, taxing what is left of the dwindling middle classes to pay for an austerity they never caused whilst ostentatious billionaires parade across endless front pages of the glossies and financial pages will only accelerate the predictability of Rorty’s thoughts.

At this juncture, politicians still have a choice. Pitching workers purely against productivity gains in an age of new technologies will only increase the precarious nature of life already blighting society and community alike. The tax burden has to revert back to corporate capital. Corporations need to understand their place in society. Society has to be included in economic models that return dignity, rights and justice – because it’s no longer about the economy, stupid!

Featured Image: General Motors’ workers assemble a Cadillac ATS on the assembly line at the General Motors Lansing Grand River Assembly Plant. © Bill Pugliano – Getty Images

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About the Author

graham-webGraham Vanbergen’s business career culminated in a Board position in one of Britain’s largest property portfolio’s owned by one of the world’s largest financial institutions of its type. Today, he writes for a number of renowned news and political outlets, is the contributing editor of TruePublica.org.uk and Director of NewsPublica.com.

References

1. (1) BBC – UK Unemployment at 44 year low: http://www.bbc.com/news/business-40947087
2. Fortune 500 – 50 year database: http://archive.fortune.com/magazines/fortune/fortune500_archive/full/1995/
3. The productivity pay gap: http://www.epi.org/productivity-pay-gap/
4. YouGov. Just About Managing: https://yougov.co.uk/news/2016/11/30/who-are-jams-37-britons-say-they-are-just-about-ma/

US-China Trade at Global Crossroads

By Dan Steinbock

Despite “America First” policies, President Trump’s economic agenda needs expanding trade with China.

 

President Donald Trump began his gruelling 12-day Asia tour amid US Special Counsel’s first indictments, which cast a shadow over the White House’s future.

Nevertheless, Trump and President Xi Jinping were able to sign deals worth US$253 billion, which makes the visit to China historic in terms of the value of business agreements struck.

If anything, the visit demonstrates that, despite an insular foreign policy, Trump’s economic objectives cannot be executed without expanding trade with China.

Rapid Trade Expansion

In 2016, US-China trade amounted to $579 billion, while Trump’s singular focus is on the $368 billion trade deficit. Yet, merchandise trade is only one aspect of the broad bilateral economic relationship. Today, China is US’s second-largest merchandise trading partner, third-largest export market, and biggest source of imports.

China is the centre for global supply chains, which has greatly lowered US multinationals’ costs and thus prices for US consumers.

The increase of imports from China in the US and the bilateral trade imbalance is largely the result of the shift of production facilities from other, mainly Asian countries to China. Since 1990, the share of US imports from China has soared sevenfold to 26 percent. Today, China is the centre for global supply chains, which has greatly lowered US multinationals’ costs and thus prices for US consumers.

During his tour in Japan, South Korea, China, Vietnam and the Philippines, Trump was accompanied by CEOs of some 30 companies. Determined to sign huge deals during the China visit, they did not want Trump to undermine access to what they see as the $400 billion Chinese market, based on US exports of goods and services to China, sales by US foreign affiliates in China, and re-exports of US products through Hong Kong to China.

The same goes for services, foreign direct investment (FDI) and US Treasury securities. China is America’s fourth largest services trading partner (at $70 billion), third-largest services export market, and US has a major services trade surplus with China.

The combined annual US-China investment passed $60 billion in 2016, but there is room for far more as China is the world’s third-largest source of global FDI.

Finally, China remains the second-largest foreign holder of US Treasury securities ($1.2 billion as of August 2017), which help keep US interest rates low.

Three Scenarios

There are only three probable US-Chinese trade scenarios, after the US directive on steel imports and national security, the recent US-Sino Comprehensive Dialogue, US reliance of Section 301 of the Trade Act of 1974, and the investigation into China over US intellectual property.

In the “Trade Pragmatism” scenario, the White House stance would focus not just on deficits, but other critical bilateral dimensions as well. US multinationals and consumers would continue to benefit from lower costs and prices. Emulating General Electric and Caterpillar, US companies would adopt a more active role in the One Road and One Belt (OBOR) initiatives. Chinese investment would contribute to jobs in America. China-held US Treasuries would keep interest rates moderate. The international role of US dollar would continue to erode, but slowly.

In the “Trade War” scenario, bilateral deficits would dictate the White House’s stance, which would result in progressive deterioration of the bilateral relationship. While corporate giants with major China stakes, such as Apple and Walmart, would be crushed (which would hit hard the US markets), US multinationals would be penalised by higher costs and US consumers by higher prices. American companies would miss historical opportunities in the OBOR initiatives. US would lose Chinese capital and jobs. The bilateral service surplus would shrink.

With the sales of Treasuries, rising interest rates would harm Trump’s $1 trillion infrastructure modernisation. The decline of US diplomacy could threaten the dollar’s global-reserve status, especially as the US petrodollar – dollar spending based on revenues from oil exports – will soon be augmented by China’s petrorenminbi; the use of Chinese yuan in oil transactions.

Until recently, the White House’s stance has reflected a mixture of these two scenarios. But that has come with uncertainty and volatility, which could prove challenging in crisis conditions.

 

US Reliance on Chinese Market

Private consumption in the US is growing at only 1.6 percent per year; in China, over five times faster.

Over time, America’s reliance on the Chinese market will deepen as per capita incomes in China will double by 2020. According to Credit Suisse, China overtook the US in 2015 as the country with the largest middle class at 109 million adults, as opposed to 92 million in the US.

The future translates to more of the same. Private consumption in the US is growing at only 1.6 percent per year; in China, over five times faster.

The global car industry is a case in point. In the past, American cars dominated the international market. But in 2018-9, unit sales in China will soar to 31 million, which is almost twice the size of the US market. As a result, US companies, from old players such as General Motors to new ones such as Tesla, invest heavily in China, where they sell more cars than in the US.

Other industries will follow in the footprints, the “Trade War” scenario would be a lose-lose proposition not just to the US and China. It would undermine global growth prospects – our future.

 

The original commentary was released by China Daily on November 10, 2017.

Featured Image: United States President Donald Trump speaks to Chinese leader Xi Jinping, as First Lady Melania Trump and Xi’s wife Peng Liyuan look on, at the Great Hall of the People in Beijing on Nov. 9, 2017. (Jim Watson/AFP/Getty Images)

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About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

Iran – President Putin in Tehran – Emissary of Peace and Promoter of Resistance Economy

By Peter Koenig

President Putin arrived in Tehran on 1 November for talks with the Ayatollah Khamenei. First, to cement the Nuclear Agreement of 2015 (Vienna), as far as Russia is concerned, thereby sidelining Trump’s attempt at reneging on the agreement. Second, to sign billions worth of tripartite hydrocarbon deals between Russia, Iran and Azerbeijan. And this in ruble. NOT in US dollars, thus, effectively detaching Iran from the dollar hegemony. In other words – helping Iran in de-dollarising her economy – and effectively and drastically contributing to diminishing the dollar’s stance as a world reserve currency. That’s “Resistance Economy” at its best. De-dollarisation is a key principal of the concept of Resistance Economy which also implies economic auto-reliance and trading only with friendly partners.

Iran has full technological, agricultural and intellectual capacity to become self-sufficient. This is a great step towards a new economy – a sea change in economic parameters of freedom and equality. It is in particular a detachment from the uncountable illegal “sanctions” the US is keen on imposing on countries that refuse to follow her dictate. Belonging to another monetary system, trading and investing outside the dollar-dominated western banking system, is like a breath of fresh air.

Other countries may take an example. Venezuela has already done so, by signing hydrocarbon deals with China in Yuan – gold-convertible yuans. Chapeau! – Away from the dollar. For Venezuela, only a few thousand kilometres apart from the border of the great abusive emperor, this is a daring move and a demonstration for Washington of Venezuela’s independence. Venezuela has the support of Russia and China, as both have huge investment and trade agreements in Venezuela, i.e. China in excess of 12 billion dollars of trade agreements alone, one of the largest, if not the largest with any Latin American country.

Washington is aware of it. Threatening Venezuela is therefore more of Trump-type bluff and propaganda than anything else. Besides, US mercenaries and CIA agents were vital in initiating and inciting violent disruptions in Venezuela’s elections, causing more than hundred deaths. Venezuela’s democracy has survived and is a shining example of a peaceful, democratic and sovereign country, despite these vicious outside interferences. 

Threatening Venezuela is therefore more of Trump-type bluff and propaganda than anything else.

Iran is also at the point of joining the Shanghai Cooperation Organization (SCO) which comprises China, Russia and most of Eurasia, plus India and Pakistan – embracing about half of the globe’s population and one third of the world’s GDP. The SCO is a strategic economic but also defence association – and foremost, the SCO has an economy free from the dollar dominion. There is a “waiting list” of more countries wanting to join the SCO.

What Mr. Putin said in terms of self-reliance and “sanctions” has worldwide significance. It not only applies to Iran, but to any country across the globe that is tired of corporate globalisation, of the subservience to Washington and of being enslaved by debt. Here are Mr. Putin’s words to the Ayatollah repeated:

“Some Russian producers and traders pray that the US sanctions wouldn’t end, because as a result of them, their capacities have started to attract attention. From 2014, i.e. the start of US sanctions, we devoted our funds to scientific and technological progress, and we had significant growth in the fields of biotechnology, IT, agriculture and space industries. Now, in spite of the initial concerns, we have realised that we can do whatever we decide to.”

These words translate into a new economic paradigm, “local production for local consumption with local money and public banking for a sovereign local economy and sovereign and friendly trading partners”.

The Russian leader also referred to Iran as a vital pillar for stability and peace in the Middle East; he lauded Iran’s role in helping defeat the ISIS/Daesh terror and bringing Syria back into control of Damascus.

In addition, Iran will be part of President Xi (China) initiated New Silk Road, or OBI – “One Belt Initiative” – which is already designed in four routes connecting China and Russia throughout Eurasia, the Middle East – and even Africa – with the western most links of Eurasia, i.e. western Europe – that is, if Europe will finally see the light and accept that the future is in the EAST – also Europe’s future – and that the west, led by Washington into an abyss, is slowly committing suicide by its war atrocities, greed-sponsored terrorism continuous lies. There is no lie that will not be discovered sooner or later – and when that happens a quantum shift in public opinion may take place and the west’s credibility and the fake abusive debt-and-interest based dollar economy will become a collapsing Ponzi scheme.

Iran has chosen – and is well on her way to fully recover from the wrongly and criminally imposed punishments from a nation that has no right whatsoever to police and oppress sovereign nations according to her will.

The One Belt Initiative has the potential for massive economic, scientific and cultural development over the next few centuries, involving trillions of (today’s) dollar in investment and millions of jobs and livelihoods for the populations along the OBI route – with wide-ranging positive socioeconomic repercussions way beyond the geographic OBI sphere. The OBI inspires new dynamics in future socio-economic thinking and relations between nations. Countries are welcome to join the One Belt Road or Initiative, but are never forced, into this new economic direction, one of peace and equality, of a multi-polar world economy and political system.

Iran has chosen – and is well on her way to fully recover from the wrongly and criminally imposed punishments from a nation that has no right whatsoever to police and oppress sovereign nations according to her will. Those times are on a fast track to oblivion.

 

Featured Image: Russia’s President Vladimir Putin (L) shakes with his Iran’s counterpart Hassan Rouhani in Shanghai on May 2014. (Alexey Druzhini/AFP/Getty Images)

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

BRICS – Potential and Future in an Emerging New World Economy

By Peter Koenig

The article is based on an interview with Tashreeq Truebody, Radio 786, South Africa. Peter Koenig elaborates on the potential of BRICS in the new emerging global economy where western supremacy would be a thing of the past.

 

Questions

1. Global Economy and BRICS

Peter Koenig

Let’s put the BRICS in perspective: The BRICS are of course Brazil, Russia, India, China and South Africa. Together they make up for almost 50% of the world population and close to one third of the world’s economic output, or GDP.

This alone would make them fully independent from the western economy, from the western, what I call, fraudulent dollar-based monetary system. And it will happen – it will happen sooner than the world believes. However, with the current political structure of the BRICS, the relative lack of political and economic coherence, safe for Russia and China, this for the moment is just theory.

If you allow me, let’s backtrack a bit in history, to where the term BRIC came from, and who coined it. At the beginning, South Africa was not yet member of the association. In 2001, shortly after the 9/11, in 2001, the chief economist of Goldman Sachs, Jim O’Neill, invented the term BRIC – as he was forecasting that these emerging economies, spread throughout the world, Brazil, Russia, India and China – would overtake the so-called western economy by 2041. The forecast was later revised several times, all the way to 2032 – and now, there is, I believe no formal forecast, but it could easily happen by 2025, or earlier, especially with the new Oil-for-yuan and gold exchange market soon to be opened in Shanghai. Many predict this to be the end of the petro-dollar, and the end of the dollar hegemony.

By 2011, the five countries, Brazil, Russia, India and China – plus South Africa were the five fastest growing emerging markets, and in April 2013, South Africa was added to the BRIC group – to make it formally the BRICS.

Then strangely and formidably the four BRIC countries realised their potential and took things in their own hands. That’s how dynamics work – often totally unpredictably. For sure, Goldman Sachs and their Chief economist had no clue that this would create the western monetary and economic system’s most daunting adversary.

The first BRIC summit was held in Russia in June 2009. That was the formal conference to create the BRICS. 

By 2011, the five countries, Brazil, Russia, India and China – plus South Africa were the five fastest growing emerging markets, and in April 2013, South Africa was added to the BRIC group – to make it formally the BRICS.

This just as a little historic introduction – to show that the impetus for the BRIC(S) came actually from a most unlikely western source – Goldman Sachs.

In the meantime, the BRICS are struggling with another reality. For the BRICS to be an effective alternative to the western economy, or the western monetary system, they need a unified political vision, as well as a coherent and unified economic development approach, one that distances itself from the western dollar-euro based system. Unfortunately, today this is not so. But that doesn’t mean it will not happen. Personally, I believe it will. It may just take longer than the majority of the world may have liked.

Both Brazil and India are totally in the hands of Wall Street, the World Bank and the IMF. In the case of India, you will recall last fall’s deadly monetary fiasco, when PM Narendra Modi decided to cancel more than 80% of the countries circulating cash currency, and as an interim step to replace it with other bills and eventually digitalise the Indian economy.

It is not known how many poor Indians perished, those with no access to bank accounts, those who have no alternative means to pay for food. Uncountable small businesses failed – an important impact on the Indian economy. More, much more inhuman was the impact on the poor average Indians. But – Modi followed the dictate of the west, of Wall Street and the IMF –  with a programme to test digitalisation in a large emerging economy, implemented by USAID. – How much trust does India under Modi as a BRICS member deserve?

And Brazil under neoliberal Temer, who is under accusation of corruption; he has literally handed his country’s economy to the sharks of Wall Street, the IMF and the WB. So, when Temer and Modi stood there holding hands with the other three BRICS members in Xiamen, China on 4th and 5th September – it looked to me like a club that was united only by name.

Yet, the theme of this 9th BRICS Conference was “BRICS: Stronger Partnership for a Brighter Future”. – I truly hope this objective will be achieved. And it very well may – over time. It is important to approach such an event in a positive and forward-looking spirit.

Perhaps it was along the same philosophy, that ahead of the September summit in Xiamen, President Putin said something crucial, but highly political and highly diplomatic: “It is important that our group’s activities are based on the principles of equality, respect for one another’s opinions and consensus. Within BRICS, nothing is ever forced on anyone. When the approaches of its members do not coincide, we work patiently and carefully to coordinate them. This open and trust-based atmosphere is conducive to the successful implementation of our tasks.” 

 

2. Understanding Industrialisation/Development and the BRICS Bank.

PK

Let’s start with the BRICS development bank, now called New Development Bank (NDB). It emerged as an idea from the Durban BRICS summit in March 2013 and was formally created in 2014, and signed as a Treaty in July 2015.

Under the Agreement the BRICS Development Bank, as it was first called – now the NDB, they set up a “reserve currency pool” of US$ 100 billion. Each of the five-member countries was to allocate an equal share of the US$ 50 billion start-up capital, to be expanded later to the US$ 100 billion.

Contributions per country were, Brazil, $18 billion, Russia $18 billion, India $18 billion, China $41 billion and South Africa $5 billion. The problem is that the initial capital and the Contingency Reserve Arrangement (CRA) of US$ 100 billion was set up in US dollars.

How can they break loose from the western dollar-based monetary system, if their contribution is dollar based?

Contributions per country were, Brazil, $18 billion, Russia $18 billion, India $18 billion, China $41 billion and South Africa $5 billion. The problem is that the initial capital and the Contingency Reserve Arrangement (CRA) of US$ 100 billion was set up in US dollars.

Also, South Africa and Brazil are heavily indebted – in US dollars. South Africa’s current debt is today above 50% (US$ 153 billion) of GDP which stands just below 300 billion.

To comply with their contribution to the dollar-denominated CRA, Brazil and SA may have to borrow from where? – Wall Street, or the IMF, as the CRA is a dollar reserve fund. This puts these countries even more into a dollar bondage, in the hands of the FED and the Bretton Woods Organizations – instead of freeing them from this predicament.

As a parenthesis, South Africa’s interest on foreign debt of $153 billion was about US$ 5 billion (2016). Foreign debt is almost 52% of SA’s GDP of close to US$ 300 billion. The US$ 5 billion debt payments are higher than the country’s spending on tertiary education (about R60 billion/US$ 4.6 billion equivalent). This is also a good reason to detach from a debt-based monetary system – and, as originally was planned by the BRICS – migrate towards a BRICS own monetary and international payment system – similar to the one already introduced to the world by China – the Chinese International Payment System (CIPS).

On Industrialisation – the NDB will certainly help boost industrialisation within each of the BRICS countries, but also among the BRICS countries – and even outside the BRICS nations, as trade will increase.

At present the NDB has approved seven investment projects in the BRICS countries, worth around $1.5 billion. This year, the NDB is to approve a second package of investment projects worth $2.5 to $3 billion in total.

Although it is not clear what precisely these projects entail, the original idea for the NDB was to support infrastructure and energy projects within the BRICS countries. There is a big need for infrastructure and independent energy production. Of course, infrastructure and energy development, means also industrialisation and trade.

 

3. Economic Diversification 

PK

A solid BRICS cooperation, as well as an own development bank, will most likely attract – and through the NDB leverage – new investments. This was one of the goals discussed during the Xiamen summit. The amount of which is difficult to predict, but Indian PM Modi has talked about an expected 40% increase over the next few years. But even if India or any BRICS country receives foreign investments, it will be difficult to discern which investments are directly related to the new BRICS strength, as so fervently expressed in Xiamen.

More important is the diversification of investments, as well as the related trade. There are currently several countries on a – what shall I call it – “wait list” – to become members of the BRICS. For example, South Korea and Mexico (both are OECD members), Indonesia, Turkey, Argentina, have been mentioned.

Trade between emerging and developing markets has already been increasing more rapidly than “globalised average trade” for which WTO imposes the rules. I could imagine that trade – and, thus, diversification – between BRICS countries, or better even, an enlarged BRICS block, could really boom. It would be a sort of “globalisation” with most trade barriers removed, of a peace-oriented economy, one that strives for the well-being of the people, rather than an elite – and of course, an economy that does not work for the war industry, as does the western dollar-based economy.

For that reason, it will be important that the BRICS detach themselves from the western dollar-based economy and eventually have their own currency. At the Xiamen summit, this was discussed in some ways. 

The five members have agreed to “promote and develop BRICS Local Currency Bond Markets and jointly establish a BRICS Local Currency Bond Fund, as a means of contribution to the capital sustainability of financing in BRICS countries, boosting the development of BRICS domestic and regional bond markets.”

This comes pretty close to what the Euro was before it became Fiat money, i.e. it was the European Currency Unit (ECU) that then converted into the virtual Euro, before in January 2002, the Euro became paper and dollar like Fiat money.

By now we know that the US drove this European currency effort – establishing the euro as the foster child of the US dollar – totally unsustainable as a unitary currency of a group of countries that have no common political interests and goals, that have no common Constitution. Their only common denominator is NATO, their permanent drive for war. It was clear from the beginning that such a project will be doomed to fail.

Hopefully – and I trust, the BRICS will learn a lesson from this failed exercise, and only with a strong bond that includes political, economic and defence long-term goals, a common currency can flourish.

In Xiamen, the BRICS also established the Strategy for “BRICS Economic Partnership and initiatives related to its priority areas such as trade and investment, manufacturing and minerals processing, infrastructure connectivity, financial integration, science, technology and innovation, and Information and Communication Technology (ICT) cooperation, among others.” All this for sustainable, balanced and inclusive global growth.

This Strategy already is indicative for a different development and monetary approach than was the one that laid the cornerstone for the European Union.

 

4. Trade Between BRICS and the Dollar

PK

This will be interesting to see emerging. In the medium term, I see a full integration between the countries of the Shanghai Cooperation Organisation (SCO) and the BRICS. Several countries are already today members of both associations; for example, Russia and China, recently also India joined the SCO. The SCO also comprises most of central Asia, the former Soviet Republics, and also new Iran and Pakistan. The SCO has already a common long-term objective, in economic development, political vision, as well as defence strategy.

During the recent Eastern Economic Forum (EEF) in Vladivostok, President Putin and President Xi announced cementing of the fusion between the Eurasian Economic Union (EUAU) and the new “Silk Road”, also called “One Belt One Road” (OBOR), or for short “OBI” – the One Belt Initiative.

Since OBI is largely driven by SCO, i.e. by China, this also means that the countries of the Eurasian Economic Union are part of SCO. Imagine, the economic power of the entire group SCO, EAEU and BRICS… Western supremacy will be a thing of the past.

This means worldwide trading – but without the dollar hegemony, without an economic and monetary systems that allows Washington to impose “sanctions” – outrageous and illegal punishments on countries that refuse to follow their dictate. Its high time that this high crime stops. And that we reinstate international law – which today is completely “bought” by Washington.

Imagine, the economic power of the entire group SCO, EAEU and BRICS…. Western supremacy will be a thing of the past.

Today it is clear to most progressive and forward-looking economists that the future is the east; the west has practically committed suicide with its constant wars for greed and dominance and disrespect for the very peoples that foot the western empire’s war bills.

 

5. BRICS Development Bank vs. World Bank

PK

Yes, the original idea was – and I hope still is – that the BRICS New Development Bank will be able to compete with the WB and the IMF. In other words, by applying non-neoliberal economic policies and with loans that do not impose austerity – which, as we know, is devastating for economic development – but will promote peoples’ based development – aiming at a more just income and wealth distribution.

This is not yet the case.

As mentioned before, the problem is that the BRICS bank’s initial capital and the Contingency Reserve Arrangement (CRA) of US$ 100 billion was set up in US dollars.

Also, as said before, South Africa and Brazil are heavily indebted – in US dollars, an existing bondage that is difficult to break. But not impossible!

The same is true for the Chinese Asian Infrastructure and Investment Bank (AIIB), whose capital of currently also US$ 100 billion is also dollar denominated, and of which about US$ 18 billion is paid in.

It is very likely that the NDB and the AIIB will work together in the future – and jointly break the stranglehold of the WB and the IMF.

In order to do so, they both need to totally break loose from the dollar economy – which is about to happen, perhaps soon, with the enactment of the Chinese Petrol exchange in Shanghai, where trading will NOT be in US dollars but in gold-convertible Yuan.

A possible solution is an SCO-BRICS currency basket, similar to the IMFs Special Drawing Rights (SDR) basket which currently consist of 5 currencies – the US-dollar, British Pound, Euro, Yen and since October 2016 also the Chinese Yuan. This may start out as a virtual currency for external trade, while each country preserves her own monetary system.

It looks like a brighter future is ahead.

 

The article is based on an interview with Tashreeq Truebody, Radio 786, South Africa

Featured Image: The leaders of BRICS nations meet in 2015. Photo: Xinhua

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About the Author

koenig-webPeter Koenig is an economist and geopolitical analyst. He is also a former World Bank staff and worked extensively around the world in the fields of environment and water resources. He lectures at universities in the US, Europe and South America. He writes regularly for Global Research, ICH, RT, Sputnik, PressTV, The 4th Media, TeleSUR, TruePublica, The Vineyard of The Saker Blog, and other internet sites. He is the author of Implosion – An Economic Thriller about War, Environmental Destruction and Corporate Greed – fiction based on facts and on 30 years of World Bank experience around the globe. He is also a co-author of The World Order and Revolution! – Essays from the Resistance.

Will Catalonia’s Fate Reverberate Through The European Union?

By Georgia Monaghan and Amy Maguire

Catalonia is claiming self-determination in the form of independence from Spain. This assertion of independence has implications for the integrity of the Spanish state. Unsurprisingly, Spain’s response has been resistant and repressive. The Catalan case also raises concern around Europe regarding the potential precedent effect for other secessionist movements. 

 

Catalonia’s Push for Self-determination

On 1 October 2017, the Catalan regional government held a referendum on independence. The referendum seemed to point to majority Catalonian support for self-determination in the form of secession from Spain. Forty per cent, or over two million eligible Catalans, voted, with 90% of voters supporting independence.

Yet the significance of this result is contested. The referendum was marred by violence and repression. Catalan emergency officials estimated that 761 Catalan civilians and 12 police were injured during the referendum, during which Spanish police forcibly obstructed voting and attacked civilians with batons and rubber bullets. The shocking scenes may have discouraged some Catalans from attempting to vote.

On the other hand, six of ten eligible Catalan voters abstained from participating in the referendum. An alternative reading of this low turnout is that many regarded the referendum as a stunt, and ignored it in preference to remaining within Spain.

The validity of the referendum has also been brought into question. The vote did not adhere to democratic conventions, such as the requirement for a minimum threshold of votes. Further, there have been accusations of voter fraud following evidence that some Catalans cast multiple votes.

Regardless, it is apparent that the Spanish state was determined to suppress the referendum, and Spanish authorities used excessive force to disrupt the vote. In defiance of Madrid, Catalan President Carles Puigdemont proceeded to declare independence on 19 October. The Spanish central government responded by stating its intention to invoke article 155 of the Constitution.1 That move, while unprecedented, would suspend Catalonia’s autonomy and give full governance power to the central authority in Madrid.

The Drive for Independence and Spain’s Response

For Puigdemont, the referendum signalled that Catalans

have sent a message to the world: we have the right to decide our future, we have the right to be free and we want to live in peace.2

Catalonia has historically maintained a distinct cultural and political identity from Spain. Many Catalans identify as Catalonian rather than Spanish. In a 2013 poll, the Catalan Center for Opinion Studies found that approximately 60% of Catalans felt distinctly separate from Spain and wanted independence.3 Catalans have maintained their culture, language and identity, despite pressure from Spain to integrate, especially during the Franco dictatorship.

Despite co-existing with Spain for centuries, Catalonia has retained autonomous control over various aspects of public life. The 1979 Statute of Autonomy, formed under the 1978 post-Franco Spanish Constitution, formalised this arrangement by permitting Catalonia devolved government in the areas of education, welfare and health care.

It is clear that Spain’s response to the 1 October referendum was not an isolated instance of state opposition to Catalonia’s secessionist movement.

It is arguable that recent efforts by Madrid to centralise control, curtail regional autonomy and capitalise on the strength of Catalonia’s economy gave renewed impetus to the Catalan separatist movement. For example, the state budget for Catalonia was reduced by 6.5% between 2003 and 2015, with 20% of Spain’s total GDP coming from Catalonia in 2015.4 Meanwhile, in 2010, the Spanish Constitutional Court struck down an expanded version of the Statute of Autonomy that gave Catalonia greater autonomy and granted it the title of a “nation”.5

In this context, it is clear that Spain’s response to the 1 October referendum was not an isolated instance of state opposition to Catalonia’s secessionist movement. Indeed, in March 2017, the then Catalan leader, Artur Mas, was found guilty of disobeying the Constitutional Court by holding a symbolic referendum in 2014. Mas was banned from holding public office for two years.

In response to the current referendum, Madrid has dissolved the Catalan government and sacked Puigdemont. Madrid claims that Puigdemont could run for re-election on 21 December. However, if Spanish prosecutors succeed in charging him with rebellion, an offence punishable with imprisonment, Puigdemont may not be free to run. The Court has already called for the arrest of two pro-independence leaders, Jordi Sanchez and Jordi Cuixart, for alleged sedition. Catalans have condemned Spain for taking “political prisoners”.

Madrid’s position is that the pro-independence leaders have overstepped the democratic boundaries of the constitution that permits Catalan autonomy within the Spanish state. Madrid argues that a unilateral vote of independence is at odds with the requirement for democratic participation of all Spaniards in decision-making regarding constitutional change. This was emphasised by a 2010 Constitutional Court decision, which upheld the “indissoluble unity of the Spanish nation”. The Constitutional Court has declared the 1 October referendum illegal.

 

Catalonia as a Potential Precedent

While Catalonia’s fate is uncertain, the future of the European Union (EU) is also in turmoil. EU member states are watching anxiously, fearing Catalan independence will inspire other separatist movements. This concern was apparent in the EU’s muted response to the voter intimidation and abuse meted out to Catalans by the Spanish police in October.

Puigdemont had called for the EU to help mediate the conflict between Spain and Catalonia. However, on 19 October, European Council President, Donald Tusk, ruled out any assistance from the EU in resolving the dispute. Leaders of the EU’s member states, such as Emmanuel Macron of France, declared the referendum illegal and promised support for Spain. Antonio Tajani, head of the European Parliament, further warned that “nobody in the European Union” would recognise Catalonia as a sovereign state if it declared independence.7

Meanwhile, though, a number of burgeoning secessionist movements throughout Europe are closely observing Catalonia’s efforts. Such movements include those in the Basque Country (which spans territory in northern Spain and south-western France), Bavaria (Germany), Scotland (United Kingdom), the Veneto and Lombardy regions (Italy), Corsica (France) and the Faroe Islands (Denmark).

Like Catalonia, many of these regions have distinct histories, culture and political identities. As Stefano Valdegamberi, deputy of the Veneto parliament, said in 2016, Venetians “have a very long history, very important history, identity, and they want it to be recognised”.8 Many of these regions also have a separate language.

Typically, as for Catalonia, dominant states have constructed constitutional frameworks that would invalidate any attempt to exercise self-determination through referenda or unilateral declarations of independence.

Further, many secessionist movements have gained impetus over the past decade following the 2008 global financial crisis. Some of the regions that are home to independence movements, like Catalonia, contribute disproportionately to their state’s GDP. They also economically supported the rest of the country through the financial crisis. For example, the Venetian independence movement argues that the rest of Italy’s debt weighs the Veneto down.

However, secessionist movements across Europe face significant obstacles. Typically, as for Catalonia, dominant states have constructed constitutional frameworks that would invalidate any attempt to exercise self-determination through referenda or unilateral declarations of independence.

One exception is the Faroe Islands, which are planning a valid independence referendum for April 2018. In contrast, the German Supreme Court confirmed in January this year that “there is no room under the constitution for individual states to attempt to secede”. Consequently, a Bavarian declaration of independence is unconstitutional under German law.9

In such circumstances, the onus is on the nation state to reach agreement with the secessionist entity and permit opportunities for the free and fair expression of popular views. This occurred between the United Kingdom and Scotland in the form of the Edinburgh Agreement, which permitted Scotland to undertake its 2014 independence referendum. This agreed solution bypassed the constitutional settings, which prohibit a unilateral declaration of independence by Scotland.

While the 2014 referendum did not deliver the necessary vote in favour of independence, Scottish First Minister Nicola Sturgeon regards the question of Scottish self-determination as live and continuing. Sturgeon has said that Catalonia’s agitation for independence and the advent of Brexit give impetus to the Scottish independence movement.10

 

Legal Considerations for Europe

As a collective right, self-determination empowers a group of people to “freely determine their political status and freely pursue their economic, social and cultural development”.11 In some cases, a self-determination claimant group will assert the right in the form of secession to form an independent state. The key obstacle in such a case will be resistance from the state that the new entity seeks to separate from.

In the awake of Catalonia’s referendum, it is clear that force and suppression are never the answer. Madrid’s repressive response will entrench opposition to the centralisation of power and generate social division.

Such efforts at secession can expose a failure of the nation-state model. As Bavaria Party Leader, Florian Weber, argued, “the larger the political unit, the less chance individuals have of being heard”.12 Where central governments fail in adequately promoting the aspirations of all citizens, especially those of regional minority groups with distinct identities, agitation for secession will sometimes result.

In order to deter secession, states might consider adopting more flexible constitutional arrangements, to promote rather than limit regional autonomy while also building a shared sense of belonging to the nation state. Such an outcome might be on the cards for Lombardy, which held an independence referendum on 22 October. Unlike Catalonia, the Italian region intends to remain within Italy and use the referendum outcome to leverage a better economic deal and greater autonomy from Rome.

In the wake of Catalonia’s referendum, it is clear that force and suppression are never the answer. Madrid’s repressive response will entrench opposition to the centralisation of power and generate social division. It is clear that negotiation and respect for the right to self-determination are essential to ensure a peaceful resolution.

 

Featured Image: Pro-independence supporters hold a European Union flag during a rally in Spain © Francisco Seco AP

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About the Author

Georgia Monaghan has a Bachelor of Business (Distinction)/Bachelor of Laws (Hons Class I) from the University of Newcastle, Australia. Georgia is a Research Assistant in the University of Newcastle Law School, specialising in human rights law. Her interests include international human rights, ethical value chain governance (particularly in the area of ethical fashion) and international labour law.

Dr. Amy Maguire is a Senior Lecturer at the University of Newcastle Law School. Amy’s research and teaching span a range of topics in public international legal scholarship, including self-determination, climate change and human rights, indigenous rights, the rights of refugees, capital punishment and international criminal law. She is a featured columnist for The Conversation.

 

References

1. Spanish Constitution 1978.
2. https://www.theguardian.com/world/video/2017/oct/02/catalan-leader-opens-door-to-unilateral-declaration-of-independence-video
3. https://www.washingtonpost.com/news/monkey-cage/wp/2017/10/11/the-myth-of-massive-support-for-independence-in-catalonia/
4. http://www.bbc.com/news/world-europe-29478415
5. https://www.theatlantic.com/international/archive/2017/10/catalonia-referendum/541611/
6. https://www.bloomberg.com/news/articles/2017-10-18/political-prisoner-or-jailed-politician-it-s-catalan-feud-spin
7. https://www.usnews.com/news/business/articles/2017-10-19/the-latest-catalonia-threatens-to-declare-independence
8. https://www.rt.com/news/369576-veneto-italy-minority-bill/
9. https://www.washingtonpost.com/news/worldviews/wp/2017/01/04/a-german-court-has-shut-down-hopes-for-a-breakaway-bavaria/?utm_term=.2b2da2fa8ade
10. http://www.bbc.com/news/uk-scotland-scotland-politics-41550906
11. UN General Assembly, International Covenant on Civil and Political Rights, 16 December 1966, United Nations, Treaty Series, vol. 999; UN General Assembly, International Covenant on Economic, Social and Cultural Rights, 16 December 1966, United Nations, Treaty Series, vol. 993.
12. http://www.telegraph.co.uk/news/worldnews/europe/germany/11088451/Bavaria-Party-inspired-by-Scots-in-bid-for-German-secession.html

Lessons from a Bank-Free Investment: Peer to Peer Lending, Risks, and Returns

By Nicholas Read and Anthony Mahler

Bonus time is approaching for many executives. So what’s the best way to put that money to work for you? The options are myriad, but the rise of peer to peer lending presents an interesting new alternative. After 20 years investing in properties and learning how to use predictive software algorithms to place measured bets on the share market, Australian medical entrepreneur and armchair investor Anthony Mahler started investing in P2P lending platforms in 2016. This is what he learned after the first 12 months.

 

Peer to peer lending (P2P) allows investors to deploy capital in a broad suite of loan structures that previously only banks like https://instabank.no/lan-til-oppussing and large financial institutions could service. Various P2P lending internet platforms match the needs of borrowers and investors by giving them a way to deal directly with each other, thus eliminating the role of a bank. 

My involvement has been principally as an investor although I took the opportunity as a borrower on one occasion to check out how the other side of a platform operates. I experienced a degree of customer satisfaction that I’ve never experienced with a bank.

An interest in P2P lending was sparked when I was looking for an alternative passive investment not strongly correlated to equities or bonds. The idea of enjoying the fruits of a lender with regular interest payments being delivered without much work was very appealing. Until then, most of my wealth was achieved with hard work in running businesses and developing properties. Returns of 15-25% per annum were achievable but with much stress, hard work and risk.

Initially I had reservations. I was concerned about whether there was adequate regulation of the platforms, what level of risk existed for fraudulent losses, and the actual capital risk of the investments. I saw this new type of lending was poorly regulated or completely unchecked in some countries. For example, Ezubao in China allegedly defrauded investors of over $8 billion USD, and I didn’t want to become another statistic for amateur investing gone wrong.

I investigated further. My criteria for investment were: transparency of operations, financial strength of the platforms, website functionality, liquidity of investments, asset backing of loans, loss protections, diversification (loan types, geographic regions and currency) and returns.

My criteria for investment were: transparency of operations, financial strength of the platforms, website functionality, liquidity of investments, asset backing of loans, loss protections, diversification and returns.

I found many vendors in Australia’s burgeoning fintech industry, as well as in Europe. To diversify risk, I decided to spread my loans between players in both regions.

Most P2P lenders are also the loan originators. They seek investor capital to finance their loan books. Many types of loans are catered for by P2P lending and each have different appeal. For liquidity, I like investing in invoice financing and short term personal loans. For asset security, mortgages appealed to me, and to a lesser extent, car loans.

In Australia where I’m based more than half my time, my preferred P2P lender is MarketLend. They are a business loan provider that allows investors to participate in each loan individually. You can choose businesses to invest in based on their financials, size, market segment etc. The returns are based on risk of default, with net returns ranging from 9-18%. Some loans are insured by a third party insurer thereby largely eliminating default risk. The loans are generally on 6-12 month terms, which offers considerable liquidity.

There are other providers in Australia, including Society One, RateSetter, and Thin Cats. Each have different appeal. RateSetter is one of the fastest growing due to its risk minimising strategy. It funds a separate trust account from borrowers to provide for future losses. It has thereby prevented any loss to investors of its loans of over $100 million in Australia. The short term loan I took with RateSetter was easy to set up and quite competitive compared to bank loans.

Its parent company in the UK has been in operation for over a decade and has loaned over £800 billion without a penny of loss to investors. This is very impressive, though the safeties in place are reflected by a lower rate of return. Five year loans in Australia return approximately 9% p.a.

For global diversification I have invested funds in the Latvian based platform Mintos. This operates as a pure broker between investors and loan originators. It allows diversification of loan types and regions, but the loan security is dependent on the strength of the loan provider as well as the individual borrower. This is one of the platforms I learned to trust most of all.

The loans I have backed have been spread over various geographies, from Latvia to Spain, and a variety of loan types. Numerous loan originators on this platform take over all loans that age over 60 days, and absorb the default costs. This provides investors with great security on the actual returns they can expect to achieve.

Loan originators provide up to date financial information on the platform so investors can assess their financial strength. I have found Mintos to be wholly transparent about all loan information. As an investor you can download the entire loan book each day. Alternatively all loans are tabulated by originator, loan type and state of the loan. They have processed over 300 billion Euro in loans with only 60,000 Euro of bad debts. As you can loan as little as 10 Euro in any one loan it is easy to diversify risk of loss. My returns on their platform always range from 12-18%.

How have my investments fared over the past year? The spectrum of rates of return have been 10-18% with an average return of over 13% across all platforms and loan types. Two of my loans are in default (representing 0.25% of total loans made) but both are conservative leveraged mortgages so my absolute losses will be minimal.

I am very happy with these returns, because by nature I am risk averse. The vast majority of my loans are protected from default loss so my rates of return are lower than the absolute amount that can be achieved in P2P lending. I would tolerate a default rate of 1-3% per annum to achieve my 10% targetted return but at this stage it appears defaults will represent a fraction of this.

A strength I see in P2P lending is the ability to diversify investment capital away from the more volatile equity and tepid bond markets.

A strength I see in P2P lending is the ability to diversify investment capital away from the more volatile equity and tepid bond markets. Long term, I will limit these investments to 10% of my portfolio. Currently I invest approximately 20% of my assets in P2P lending as, having proven its safety and returns, I have become something of a bull. As the world catches up I expect rates of return to diminish. The relatively asymmetric risk/reward may only be on offer for the next few years.

Some risks I see in the P2P lending system include the fact that the industry is still new, and its rigour in a downwards economic cycle has yet to be tested. Also, outside of a few countries, regulatory frameworks aren’t yet sufficiently in place to patrol these services, which may create some risk. Diversifying across multiple platforms can reduce this.

If you missed the Internet boom and can’t get on the property ladder, you can make a start in P2P lending for as little at $10. Spread your risk around. Be consistent. Make your money work for you. Get a passive income for retirement. It could be a smart move for you as it has been for me.

 

Disclaimer: The author has active investments in Mintos and Marketlend and has previously borrowed money from RateSetter.

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About the Author

Nicholas Read is a researcher and bestselling sales author, who was formerly Executive Director of Ernst & Young’s revenue growth advisory practice following a career in sales and management. His sales coaching methods have been deployed to more than 40 countries, helping clients win more than £20B more than forecast.

Anthony Mahler is Co-Founder of Omega Health in Australia, and has been investing in property, shares and alternative trading for 20 years.

Post 19th National Congress of CPC: China is Ready to Redefine the Global Economic Order

By Yu Xiong and Senmao Xia 

The shift in global leadership has been brewing for quite some time now. In this article, the authors elaborate on the UK-China partnership and how it has been working to balance the global economy. Ultimately, the authors illustrate how UK can aid China in redefining the global economic order.

 

In October 2017, the 19th National Congress of Communist Party of China (CPC) clarified China’s newest strategy of achieving a full modernisation by 2035 and becoming a global leading power by 2050. This congress once again stressed the importance of open and globalisation in realising China’s vision. In the same month, the US confirmed it will withdraw from United Nation Educational, Scientific and Cultural Organization (UNESCO) by the end of 2018. This is a newest move to show the US’s “America First” policy, after the US decided to pull out of Paris Climate Agreement in August and Trans-Pacific Partnership (TTP) in January this year. Many voices within the US strongly oppose globalisation as a lot of ordinary people find it hurt their interests. Some American politicians accuse other countries of free-riders as they think these countries benefit from globalisation but leave global responsibilities to the US. In recent years, the US pays more attention to its domestic issues and leaves more global responsibilities to other countries.

China contributed to around 30% of the global economic growth in the last five years, while the US’s contribution was less than 20%, according to the data of International Monetary Fund (IMF).

The world is experiencing a significant shift between two global powers. Although the US is still the largest economy, the gap between the US and China is diminishing rapidly. China contributed to around 30% of the global economic growth in the last five years, while the US’s contribution was less than 20%, according to the data of International Monetary Fund (IMF). When the US is concerned about globalisation, China spares no effort in contributing to globalisation. China’s president XI Jinping publicly welcomed all countries to ride on China’s development in his speech in World Economic Forum (WEF) in 2017.

Britain is a visionary country and was good at taking advantage of the shift of world economic orders in the last several hundred years, so is this time. In fact, UK has been trying to play an irreplaceable role in facilitating China to change the governing institutes of global economy, introduce a new global innovation-spillover pattern, as well as endorse the “created-in-China”.

With the strong support of Britain, China has been taking two approaches, or “walking on two legs” in a Chinese saying, to change global economic governing bodies. One traditional way is to gain more voice in traditional international institutes, such as IMF, World Bank (WB) and so on. The other newer approach is to push new global initiatives, e.g. One Belt One Road (OBOR), supported by China-led global institutions, such as, Asian Infrastructure Investment Bank (AIIB) and Silk Road Fund (SRF). To accelerate the internationalisation of China’s currency-RMB, UK not only pushes London to become the one of the biggest offshore centres for RMB, but also was the first major country to support RMB to join IMF’s Special Drawing Right (SDR). Further, although being regarded as the most closed ally with the US, who opposes AIIB, UK still determinedly became the first major western power to announce its participation to AIIB in 2015, which directly resulted more countries to follow. Also, UK actively supports OBOR while the US is still hesitated about its stance on the initiative proposed by China.

UK and China have been working to balance the global economy by introducing a new innovation-spillover path. UK owns top research capabilities in the world and has many prestigious research institutes. Nevertheless, the relatively limited domestic demand forces British companies to seek overseas emerging markets to further develop and commercialise the research outputs. At the same time, China owns the largest market in the world but needs more innovation to upgrade its domestic industries. UK-China technology and business collaboration will lead innovations and new products to first emerge in the Asia and Europe, which will enable more countries to participate in innovation and share the economic outputs. This is different from the old global innovation-spillover pattern where the US designs industrial standards and is usually the first market to commercialise innovation and launch new products, and then other countries gradually follow up. In this pattern, the US occupies the biggest share of the global economic cake. The new innovation-spillover path will enable China to accelerate its transfer from a factor-driven growth model to an innovation-driven one, which is important for China to overcome middle-income trap and maintain a long-term high growth rate. Meanwhile, it will help British research institutes gain more R&D funding, cultivate more world-level British companies.

UK-China technology and business collaboration will lead innovations and new products to first emerge in the Asia and Europe, which will enable more countries to participate in innovation and share the economic outputs.

In addition, UK has been acting as a gateway to endorse created-in-China, e.g. technological standards and brands, in global markets. Chinese economy is experiencing an upgrading from made-in-China to created-in-China. Recent years have witnessed more Chinese companies became global leaders in some industries, e.g. nuclear power and high-speed railway, but they still find it hard to be accepted by global markets, especially the western ones. Some experts attributed this to the disparate technological standards across countries and “historical prejudice”. Britain is not only renowned for its high threshold in the introduction of products & services, but also shares similar legal systems and technological standards with some western countries. Therefore, the endorsement of British market will be a springboard for the created-in-China to get the recognition by more overseas countries, especially the western markets. China’s national “going-out” strategy encourages Chinese investments to bring the created-in-China to overseas markets. In the period of Brexit, UK needs more foreign investments to boost its economy and further develop manufacturing industries, which is what China can offer. A recent case is the involvement of China Guangdong Nuclear Power Group in UK’s Hinkley Point power station programme.

In the period of Brexit, UK needs more foreign investments to boost its economy and further develop manufacturing industries, which is what China can offer.

UK would be the best partner of China in the West, said the former prime minister David Cameron. The present chancellor Philip Hammond calls China a natural partner of UK, especially in the post-Brexit era. In fact, the collaboration between UK and China is a win-win strategy. UK will get more leadership in the newly established global economic order, which will help Britain to keep and strengthen its global influence. At the same time, UK can share with China much wisdom in governing the global affairs, considering UK is one of the only two countries that have the experience of leading the world after the industrial revolution. Therefore, with the UK’s support, China will be more powerful to redefine the global economic order. UK-China’s ever more closed comprehensive collaboration, called golden age, has become a model for the rest of the world to follow, especially for those western countries who have not yet been clear on how to work with China and how to adapt to the upcoming new global economic order.

Featured Image:  The 19th National Congress of the Communist Party of China (CPC) October 18, at the Great Hall of the People in Beijing. © Photo/Xinhua

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About the Authors

Professor Yu Xiong is the Chair of Technology and Operations Management in Newcastle Business School of Northumbria University. He has been advising the Department of Business, Energy and Industrial Strategies (BEIS) in the UK about innovation collaboration with China, via his role as a core member of the China UK Innovation Expert Group run by the BEIS. In China he was appointed to be a member of the International Affairs Committee, Chinese People’s Political Consultative Conference in Chongqing (Chinese provincial parliament). He is also a committee member of the All China Youth Federation, and win the prestigious May 4th Medal presented by Chongqing Government.

Dr. Senmao Xia, School of Leadership and Strategy, Faculty of Business and Law, Coventry University, Coventry, UK. He participated in several influential research projects funded by Department for Business, Energy & Industrial Strategy (BEIS, UK) and Ministry of Science and Technology (MoST, China). Senmao is a guest editor of Technovation (ABS 3*/SSCI/SCI) Special Issue and the anonymous reviewer of several high-quality journals.

China’s New Leadership: 2017-2022 Leaders, Grand Strategy and Policies

By Dan Steinbock

After the 19th Congress, Xi’s China is preparing for a new roadmap domestically and internationally. This is Dr. Dan Steinbock’s in-depth analysis of China’s critical changes that will shape the world economy until 2022 – and beyond.

 

As the 19th National Congress of the Chinese Communist Party (CPC) opened in Beijing, General Secretary Xi Jinping delivered a report about “building a moderately prosperous society” for a new era. In his speech, Xi offered a blueprint for China’s development for the next 5-15 years.

Afterwards, the Congress unveiled the new leadership team who will be ultimately accountable for Beijing’s evolving grand strategy and its execution that will shape China and the world in the next five years.

 

Leadership Transition: From 5th Generation to 6th Generation

China’s first leadership – from 1949 to mid-70s – featured Mao Zedong, his foreign affairs expert Zhou Enlai and half a dozen other core leaders. These were mainly Communist revolutionaries born around 1886 and 1907; that is, during an era of imperial disintegration, colonial divisions, and the nascent efforts at Chinese Republic.

The current Xi-Li Administration came to power at the 18th Party Congress in 2012. Most of these leaders were born around 1945-55 and educated at elite Chinese universities. They comprised fewer engineers but more managers and finance majors, including business executives. They grew up during the years of Cultural Revolution, but built their lives amid economic reforms and opening-up. They were more professional, share a more international outlook and remain determined to shape a new China for the 21st century.

Five years ago, Western media far too often portrayed the Xi-Li team as hard-core conservatives who would reject economic reforms. In contrast, I argued on CNBC in New York City that this was a gross misperception that reflected poor understanding of China’s actual past and potential future. “China,” I argued, “is moving toward liberal reforms, but such changes require tough hands.”

In 2012, China did not opt for leaders who had a reputation for rhetorical eloquence but poor performance. Instead, China’s new leadership featured tough doers who were known for getting things done. Such leaders are necessary to transcend entrenched interests and to move China toward the post-industrial society. That’s what the Xi-Li team initiated in the past half a decade and it is likely to complete by 2022. That is when the 6th generation will take over- Chinese leaders born in the 1960s and thus with no personal experience of the Cultural Revolution.

Half a decade ago, I argued on CNBC that the 2017 leadership would also consist of tough hands but ones that would be determined to achieve a more open and transparent China, with liberal market doctrines but socialist long-term objectives. And that’s precisely what hundreds of millions of Chinese TV viewers saw as Xi introduced the other six Standing Committee members at a press conference, which was broadcast live.

After three decades of dramatic industrialisation, Xi’s first team began the transition to post-industrial society in 2012, which his second team is likely to complete.

The address ensued after Xi’s name had been added to the Party constitution, which puts him on a part with late paramount leaders Mao Zedong and Deng Xiaoping. Indeed, each of these leaders exemplifies critical phases in China’s postwar history. It was Mao who made possible a sovereign China and peace that allowed the first efforts at industrial take-off. But China’s industrial revolution did not materialise until Deng took over in the 1980s. After three decades of dramatic industrialisation, Xi’s first team began the transition to post-industrial society in 2012, which his second team is likely to complete.

The full line-up of the new Politburo and its ultimate leadership Standing Committee includes Party General Secretary Xi Jinping (born in 1953), who accounts for China’s grand strategy, and Premier Li Keqiang (1955), an economist who did his PhD on the restructuring of Chinese big businesses and is exceptionally well-equipped to execute the impending reforms.

Who are the new Chinese leaders?

 

Wang Yang: Liberal Voice

Wang Yang (1955) is one of Li Keqiang’s four vice-premiers who is expected to become chairman of China’s top political advisory body, the People’s Political Consultative Conference. While Wang is perceived as one of the most “liberal” members of Chinese leaders, that’s only a part of the story. He grew up in an urban working-class family in Anhui, a landlocked, agricultural and poorer province in eastern China.

Starting as a food processing factory hand, Wang joined the CPC in 1975, served as an instructor in the local Party School and went on to study political economics in the Central Party School in 1979, right at the dawn of Deng Xiaoping’s economic reforms.

After the local Communist Youth League (CYL), he became deputy head of the National Development and Reform Commission (NDRC) in the late 1990s, deputy secretary general of the State Council in 2003-5, and Party Secretary in Chongqing. He began to modernise the megacity of more than 30 million people, and became Party Secretary of Guangdong, another critical stepping stone.

Credited with pioneering the Guangdong model of development, exemplified by private enterprise, economic growth and a greater role for civil society, Wang began to diversify Guangdong’s economy away from manufacturing already in 2007 to develop Shenzhen into an innovation hub for China’s new economy. He also became an outspoken critic of corruption and nepotism and went against the “princelings”; the prosperous descendants of early revolutionaries who had not earned their own wealth.

In the past half a decade, Wang has overseen several portfolios in the Li administration and often accompanied Xi and Li on trips abroad. Unlike many of his peers, Wang is known for offhand dry humor. During the 2013 US-China Dialogue, he compared the bilateral relations with a marriage. China and the United States should not “choose the path of a divorce,” he said adding, “like that of Wendy Deng and Rupert Murdoch, it is just too expensive.” Wang is among those Chinese leaders who could follow Xi or Li in the 2020s.

 

Zhanshu: Security and Foreign Affairs Specialist

Li Zhanshu (1950) is one of Xi’s right-hand men and his chief of staff. Well before the 19th Congress, Li stood a good chance of becoming chairman of China’s parliament, the National People’s Congress.

Like Xi and Wang, Li belongs to the generation that lived through the Cultural Revolution. In fact, his very name personifies the tragedy of his parents’ generation. Born in Hebei province, Li got his name from the phrase “a letter home from the battlefield” in remembrance of his uncle’s last letter before he was killed in 1949 while fighting the Nationalists. Another of his uncles who fought in the Chinese Civil War sufferred crippling injuries, while still another died in Japanese captivity. He also lost his grandfather during the Cultural Revolution.

As Director of the CCP’s General Office and the chief of its National Security Commission, Li is one of the key members of the Politburo. Like Wang, he joined the CPC in 1975. After studies in the night school, he was promoted to Party Secretary of Wuji County, while Xi Jinping served as party chief of the neighbouring county.

Li’s career took off fast in the provincial leadership and he became the Vice Governor of Heilongjiang in 2004. Regarded as a rising star, Li was elected to the Politburo in 2012. Li has also played a key role in foreign affairs. He facilitated a strong relationship between China and Russia. In 2015, Xi sent Li as his “special representative” to meet with President Putin in Moscow. Li would also pave the way to Xi’s meetings with other foreign guests, including the 2015 state visit to the US.

 

Zhao Leji: New Anti-Corruption Chief

Formerly head of the CPC’s organiSation department and its personnel chief, Zhao Leji (1957) will replace the smart and tough hands-on anti-corruption tsar Wang Qishan to become his successor as the head of the Central Commission for Discipline Inspection (CCDI).

Zhao has been a member of the CCP Politburo and its Central Committee Secretariat since 2012. He has also served in Xi’s important economic reform steering committee. Like Xi, Zhao went to the countryside to perform manual laboUr on a commune during the later years of the Cultural Revolution. He joined the Party in 1975, entered Peking University and studied philosophy until 1980 but moved to Quinghai School of Commerce to oversee the Communist Youth League (CLY) wing. Within the CPC, this branch has stressed not just growth but equity.

In the early 1990s, Zhao entered the provincial government and was elevated Party Secretary of his hometown Xining at only 42. A decade later, he became party chief of Qinghai, where his tenure was marked by rapid economic growth, even by Chinese standards. He also took a softer but smart approach on ethnic minority issues and environmentally-conscious investment projects.

As Zhao took over his parents’ home province Shaanxi, he oversaw dramatic economic growth that soared to 15 percent in 2008. By 2012, he became a member of the Central Committee and a candidate for promotion into the Standing Committee in 2017. Zhao’s appointment signals great trust in his capabilities. Xi expects much from China’s anti-corruption leader who must have great integrity, high execution ability and be untouchable.

 

Han Zheng: Shanghai’s Chief

Han Zheng (1954), the Shanghai party chief, will become the executive vice-premier. Born in Shanghai, Han was not sent to the countryside. He began his career as a warehouse labourer toward the end of the Cultural Revolution and joined the CPC in 1979

After serving as an administrator in a chemical equipment company and a municipal chemical engineering college, he oversaw the party organisation at the Shanghai Greater China Rubber Shoe Factory, and caught the eye of the then Shanghai mayor Zhu Rongji, the popular, tough and fearless, liberal CPC boss who would serve as China’s premier at the turn of the century. That’s when Han’s career took off.

Han served as Mayor of Shanghai from 2003 to 2012; a critical period of rapid growth, booming property markets, and the Expo coming out party. Thereafter he was promoted to Shanghai’s party secretary, the top political job in the city. As Han arrived after the dismissal of Chen Liangyu over corruption probes during the Shanghai pension scandal, he led the municipal task force to crack down on corruption. That’s also when Xi Jinping was sent to Shanghai in 2007 and the two got to know each other.

Han developed a mainly positive image in Shanghai for his openness and transparency, and for his modern and international outlook. If Beijing is a bit like Washington DC, the nation’s political centre, Shanghai is more like New York City, China’s global and financial hub, while Guangdong province is becoming known as the mainland’s Silicon Valley. All three are today so critical for China’s future that their CPC leaders are natural candidates to the Politburo and its Standing Committee.

 

Wang Huning: “Chinese Kissinger”

The Xi team will also include Wang Huning (1955), the CPC’s top party theorist and director of the Central Policy Research Office who is expected to be in charge of ideology, propaganda and party organisation. In the West, Wang has occasionally been portrayed as a stuffy party propagandist in the old Soviet style. Nothing could be further from the reality.

A born Shanghainese, Wang started his French studies in the mid-70s, but was soon enrolled in International Politics at Fudan University and began to conduct research for the Shanghai Academy of Social Sciences (SASS). In 1985, at just 30, he became the youngest law professor in Fudan’s history.

By the 1990s, Wang was noticed by Shanghai’s CPC leaders, while Chinese scholars got to know him through his textbooks, such as Logic of Politics, America against America, Introduction to New Politics, Analysis of Modern Western Politics, and Analysis of Comparative Politics.

In the CPC, Wang represents continuity and change. He is one of the key theorists behind the ideological stances of three administrations: the “Three Represents” by Jiang Zemin (which opened the CPC to more diverse constituencies, including business people); the “Scientific Development Concept” by Hun Jintao (which began the quest for greater balance amid income polarisation); and the “Chinese Dream” by Xi Jinping (which reflects the transition from poverty reduction to the emerging middle classes).

Moreover, Wang has served as Xi’s key foreign policy aide, particularly during his international trips, which has earned his nickname as “China’s Kissinger”.

 

Xu and Zhang: The Leaders of the World’s Largest Military

During the 19th Congress, the second vice-chairman Xu Qiliang was elevated to replace the retiring 70-year old Fan Changlong as the first chairman of the powerful Central Military Commission that oversees the military. He will be seconded by General Zhang Youxia, a long-time Xi ally.

Born in Shangdong province, Xu Qiliang (1950) comes from a military family, learned piloting in 1966 and joined the CPC a year later. As reforms took off, Xu became chief of staff at the Air Force Shanghai headquarters in the mid-80s. A decade later, he was promoted to chief of staff of the PLA Air Force. Today, he is vice chairman of the Central Military Commission.

In turn, Zhang Youxia (1950) is a general in the PLA and member of the Central Military Commission. A son of a military family as well, he is one of the few serving generals in China with war experience. He joined the army in 1968 at just 18 years. A decade later, he participated in the border clashes of 1979 between China and Vietnam, and the 1984 Battle of Battle of Vị Xuyên.

In 2011, Zhang was promoted to General. Before the 18th CPC Congress, the PLA leadership went through a wholesale re-shuffle, which led Zhang to director of the Equipment Development Department and a member of the Central Military Commission. He is Xi’s trusted ally and the two hope to create a more modern, professional and capable Chinese military.

Other Major Politburo Leaders 

There is also a select group of major CPC leaders who are members of the Politburo but not in the Standing Committee. Guangdong party chief Hu Chunhua, Xi’s possible successor, and the president’s protégé, Chongqing party chief Chen Miner will join the Politburo, which is one rank lower the Politburo Standing Committee.

Chen Min’er (1960) is one of the Party’s younger rising stars. He serves as the Party Secretary of Chongqing, after the ouster of his corrupt predecessor Sun Zhengcai. By 2002, he was on the provincial Party Standing Committee, and served as Vice Governor of Zhejiang in 2007-12, working under then-Zhejiang party secretary Xi Jinping. As Party Secretary of Guizhou since 2015, Chen has promoted Xi’s policies, including the fight against corruption. As Party Secretary of Chongqing, Chen can still make his mark in the next CPC Congress in 2022.

In 2012, Hu Chunhua (1963) was appointed Party Secretary in Guangdong where he became known as a low-profile but action-oriented leader. Emulating best practices of Hong Kong’s Independent Commission Against Corruption, Hu fought graft, while cracking down drug trafficking and prostitution. He is seen as one of the key leaders of the “sixth generation” in 2022.

It is these members of the Standing Committee and the Politburo that are expected to implement the new grand strategy and policies.

One of the most interesting names in the Central Committee is Liu He (1952), Xi Jinping’s trusted economic adviser. Despite his current ministerial-level rank, Liu’s international profile is higher than many other senior officials because of his close ties to Xi. In the 1990s he met Singapore’s strong man Lee Kuan Yew who told him to pay attention to urbanization. “It’ll change everything,” Lee said. “He was right,” adds Liu. A Harvard-trained economist, he is seen as the mastermind behind Xi’s macroeconomic policy. Liu has also accompanied the president on many of his overseas trips.

Another key name of the Central Committee is Yang Jiechi (1950), China’s former US ambassador, Foreign Minister and member of the inner circle of the State Council as director of the Foreign Affairs Leading Group. He is one of the key architects of China’s foreign policy.

Other major leaders include Ding Xuexiang (1962), one of Xi’s political aides who comes from Shanghai but followed Xi to Beijing, and journalist politician Wang Chen (1950), whose career moved from the People’s Daily to the State Council. With her trade union background, Sun Chunlan (1950) is one of China’s leading female CPC chiefs. Still others feature the party chief of Jiangsu province Li Qiang (1959); CPC Secretary of Tianjin Li Hongzhong (1956); current Minister of Supervision Yang Xiaodu (1953), who also plays a role in the anti-graft CCDI; the CPC chief of Xinjiang Chen Quanguo (1955) who has had a key role in fostering development while containing separatism.

In turn, Guo Shengkun (1954) is not only the current Minister of Public Security but also chief of Aluminum Corp. of China, a major state-owned enterprise. Huang Kunming (1956) serves as the deputy chief of CPC’s Propaganda Department. Coming from Zhejiang, Guo Jinlong (1955) has attracted attention as Xi’s close ally but also his use of social media and creative approaches to governance. Finally, Party Secretary of Liaoning Li Xi (1956) has served as alternate member of the CPC since 2007.

It is these members of the Standing Committee and the Politburo that are expected to implement the new grand strategy and policies.

 

Roadmap to Post-industrial China

In the 1980s, Deng Xiaoping launched the economic reforms and opening-up policies that created the foundation for Chinese revival. In the 1990s, Jiang Zemin’s “Three Represents” opened the Party to more people, including business people. In the 2000s, Hu Jintao’s “scientific development concept” sought to crystallise the key aspects of the quest for a harmonious society through development.

Nevertheless, these doctrines rested on the foundation of Deng’s legacy of industrialisation, which had first been ignited in Mao’s 1950s and re-ignited with the 1960s “Four Modernizations” in agriculture, industry, defence as well as science and technology. But it was only Deng’s tough execution that made those modernisations possible after the Cultural Revolution and its tumultuous aftermath – followed by economic reforms and opening-up policies.

So from the 1980s to the early 2010s, China’s growth rested on investment and net exports. That was China as the “world factory” of low costs and cheap prices. It was a world historical performance of double-digit growth. Yet, it would also be – toward the early 2010s – China of overcapacity and local debt; China that grew with foreign capital and domestic imitation, amid deep income polarisation and great damage to the environment.

It was when Xi Jinping and Li Keqiang took charge in the early 2010s, that the new transformation began with huge, pent-up force. With Xi as President and Li as Premier, a progressive transition would ensue. From Deng to Hu, Chinese policies built on industrialisation. In the Xi decade, these policies are driving transition to the post-industrial society.

In the Xi decade, development is not seen as a win-lose struggle between man and nature, but as a quest for an ecological civilisation that China promotes through the Paris Accord – with or without the Trump administration.

In the past half a decade, China has begun a massive rebalancing of the economy toward innovation and consumption. The new China is represented by rising costs and prices, but also by more indigenous innovation and premium domestic brands. It is China of supply-side reforms and restructuring, painful but necessary transitions across industry sectors and geographic regions, particularly in the Northeast’s “Rust Belt”. It is China where excessive debt is no longer sanctioned and where deleveraging has begun.

That highlights the importance of the rule of law, and the struggle against corruption by both “tigers and flies”; the only effective way to put people first. Internationally, “sinologists” have tried to attribute the anti-graft struggle to political consolidation, as if the goals had more to do with political posturing than ordinary Chinese welfare. That is a misperception. China is decisively moving toward the rule of law, via its anti-corruption struggle.

In the Xi decade, development is not seen as a win-lose struggle between man and nature, but as a quest for an ecological civilisation that China promotes through the Paris Accord – with or without the Trump administration.

In the new China, prosperity is no longer seen as the conspicuous privilege of few, but as the moderate goal for many. It is a nation in which the Chinese Dream means a moderately prosperous society and the eradication of poverty. The new China is a strong sovereign state that will never again allow internal disintegration or foreign intrusions.

In Xi’s China, direct investment is no longer a foreign monopoly. Now Chinese capital is moving across borders and contributing to modernisation not just in China and emerging Asia – but increasingly across the world.

 

From Growth to Social Equity and Environmental Protection

The 19th CPC Congress will complete China’s transition from industrialisation to post-industrial society. In his report, President Xi set the tone for the party’s medium-term policy agenda. In this view, China has entered the “new normal” of the international environment with its “uneven and inadequate development” at odds with “people’s ever-growing demand for a better life”.

New policies must address this contradiction, with greater economic policy focus on quality and equality of development than before. In the past, development translated to economic growth. Today, the deceleration of economic growth goes hand in hand with greater investments in social equity. That means broader and less uneven coverage of pension and health care insurance nationwide; basic public services; rejuvenation of rural areas through land and fiscal reforms; appropriate scaling of farming operations, increased spending on high school education and vocational training; more affordable housing; and extended rural land leases.

In view of macroeconomic policy objectives, this medium-term agenda rests on what might be called Xi’s axiom: “Development is the foundation and key to addressing all problems.” These goals include the target to achieve “a moderately prosperous society” by 2020, which rests on the doubling of GDP per capita between 2010 and 2020. This is no longer a dream but the reality, if China’s growth remains around 6.8-6.3 percent until the end of the 2010s – in other words, despite growth deceleration that is typical of post-industrialisation.

Xi’s blueprint suggests that environmental protection will become as important as economic growth in the coming years. That means development of new technologies in green manufacturing and clean energy; cleaning up air, water and soil pollution; developing green finance; emissions-reduction per targets; the establishment of a new national natural resource management and ecological supervision agency, plus tighter environmental rules, and accordingly deeper impact on certain key sectors and companies.

 

China as Responsible International Stakeholder

Internationally, the new China promotes more inclusive global governance creating institutions that look more like the world they pledge to serve.

If the US-led Bretton Woods, Marshall Plan and North American Treaty Organization (NATO) defined the divisions of the Cold War; China promotes international cooperation, assistance and peaceful development in the 21st century. While Washington made its economic aid conditional to membership or support of the NATO, Beijing does not require membership in the Shanghai Cooperation Organization (SCO) as a precondition to participation in Beijing-led international initiatives.

Today, globalisation proceeds through the One Belt and One Road (OBOR) initiative, supported by the BRICS New Development Bank (NDB) and the Asian Infrastructure Investment Bank (AIIB); multilateral development banks that represent the interests of emerging and developing nations – not just those of advanced economies.

The progress has been stunning. In 1980, Chinese GDP per capita, adjusted to purchasing parity, was barely 2.5 percent of the US per capita income. When Xi became CCP’s General Secretary in 2012, Chinese per capita income had increased tenfold to 23 percent of the US per capita income.

China will be also ever closer to the new milestone; the moment when the size of China’s economy will surpass that of the United States and the consequences will reverberate across the globe.

As the new Xi roadmap will be executed across China, per capita income could climb to 35 percent of the US per capita income in 2022. In relative terms, that corresponds to US living standards in the early 1990s and those in Western Europe in late 90s. In advanced economies, such progress took two centuries; in China, just four decades.

At the end of the new leadership’s mandate in the early 2020s, China will be also ever closer to the new milestone; the moment when the size of China’s economy will surpass that of the United States – just as the US once left behind British Empire in the late 19th century – and the consequences will reverberate across the globe.

That’s the China Xi envisioned in his long speech at the 19th Party Congress. That’s his Chinese Dream – one that we all will know better by the early 2020s.

 

Featured Image: China’s President Xi Jinping (C) and other new Politburo Standing Committee members (L-R) Wang Huning, Li Zhanshu, Han Zheng, Li Keqiang, Wang Yang and Zhao Leji attend a meeting with the media at the Great Hall of the People in Beijing, China October 25, 2017. © REUTERS

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About the Author

Dr. Dan Steinbock is Guest Fellow of Shanghai Institutes for International Studies (SIIS), see http://en.siis.org.cn/. The commentary is part of his SIIS project “China in the Era of Economic Uncertainty and Geopolitical Risk”. For his global advisory activities and other affiliations in the US and Europe, see http://www.differencegroup.net/

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