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Instituut Defensie Leergangen 11 April 2008 DRAGON AND ELEPHANT Partners and Rivals in the World Economy 5/23/2017 Willem van Kemenade Website: www.willemvk.org E-mail: [email protected] 1 Willem van Kemenade Senior Fellow, Netherlands Institute of International Relations ‘Clingendael’ • • • • • • • • Recent Publications: China and Pakistan: New Friends can’t compare. Common Strategic Interests make them All-Weather Friends, Yale Global, March 12, 2008. http://yaleglobal.yale.edu:80/display.article?id=10490 Between Beijing and Paris: From abnormally good to pragmatic normalcy , Jamestown Foundation China Brief, July 2007. http://www.jamestown.org Azie in de Wereld, (in Dutch), Internationale Spectator, The Hague, JuliAugustus 2007. China and Japan: Reconciliation with Limits, In: Stanley Crossick and Etienne Reuter, China and the European Union, A Common Future, European Policy Centre, Brussels, March 2007. The Elephant Economies China and India on the Global Energy Market, Clingendael Lecture for Leergang Topmanagement Defensie, February 2007. China and Japan, Partners or Permanent Rivals, Clingendael Diplomacy Paper, 98 p., December 2006. www.clingendael.nl Forthcoming: China and India, Assertive Neighbors in a Multipolar World, May 2008. 5/23/2017 2 In 1900, Europe accounted for 20 percent of the world's population. Today, this figure is down to 12 percent. By 2050 it will drop to 7, by the end of the 21st century to 4 percent. Today, India and China together account for 37 % of the world’s population. 5/23/2017 3 Political Liberalization ? The Big Unknown • China has evolved from a totalitarian Marxist-Leninist dictatorship to a nationalistic, conservative, selectively repressive, authoritarian state, a “grand alliance of a one-party state with domestic nouveau-riches and international capital”. • Party moved away from “worker-peasant alliance” to “all people’s party”, or the corporatist, Latin-American model. Capitalists are welcome to join the party. • Conservatives blame fm. President Jiang for abandoning “Marxism”. Liberals criticize him for not reforming the political system. • Optimism that engagement, internet, globalisation, WTOaccession, prosperity, urban middle class and low-level elections would lead to democratisation at the national level, has not materialized as yet. 5/23/2017 4 Some Chinese are envious of India’s Democracy • Despite the sharp limits on free speech in their country, Chinese intellectuals talk, often enviously, of India's advantages in democratic governance. For all of China's apparent strengths today, they say, future success may depend on democratic reform. • “If China learns its lessons from India, it can succeed in democratizing in the future,” said Pang Zhongying, a professor of international relations at Nankai University in Tianjin, now at Brookings in Washington. • “India is a far more diverse country”, he said, “a place with the second largest Muslim population in the world, and lots of ethnic minorities, and yet it organizes regular elections without conflict. China is 90 % Han, so if India can conduct elections, so can China.” 5/23/2017 5 Some Indians praise China’s Authoritarian Regime • Many Indians believe that a large part of the blame for their country’s inferior economic performance must be borne by the political system. • China, the argument goes, is an authoritarian system where the government and the businesses it favours can do what they want— get funding, change laws, build infrastructure, secure licences, fiddle their books— without significant opposition. • In India, however, not only does every step require dealing with an inept, corrupt and intrusive bureaucracy, but the democratic system itself also imposes extra costs and delays. For every important and helpful reform, there is a powerful lobby that will oppose it. 5/23/2017 6 Tibet: A Burden for SinoIndian Relations • In 1962, China defeated India in a short border war. • The war was the result of a border dispute, inherited from the British Empire in 1947 and the granting of political asylum to the Dalai Lama in 1959. • The two issues have poisoned relations between the two powers for decades. • In recent years there have been significant improvements: expansion of trade and cooperation on global issues, but no solution to the border problem. • The current Tibet Crisis could lead to renewed hardening of old unresolved issues. 5/23/2017 7 Historical Precedent of China, “Globalizing” the World in the 14th Century • As the millennium began, Song Dynasty China was on top of the world. In the late 13th century, Marco Polo amazed Europe with his tales of Cathay's wealth. China's economy didn't fall behind Europe's until around 1800. • China’s naval expansion and exploration reached its peak during the early Ming-dynasty – 1407-1435 – but was abruptly aborted for domestic reasons. • For perhaps 18 of the past 20 centuries China has boasted the biggest economy in the world and still displays many of the reflexes and instincts of a hegemonic power. • The Chinese see the past two centuries of underdevelopment and Western domination as an embarrassing aberration that must be redressed. Home to the world's oldest and one of its richest civilisations, the argument goes, China must now regain its rightful place in the sun. 5/23/2017 8 India: Too Disunited to be a Great Power during Early Modern History • India has a history of transient Buddhist, Hindu and Muslim empires, based more on ephemeral, mercenary conquests of a multi-ethnic, multi-religious periphery – like the Mongol or Ottoman Empires – than on an ancient, homogeneous, cultural core, like China. • Foreign conquests changed Indian history: Turks and Mughals in 1206 and 1398 by land and the Portuguese by sea in 1498. • The Mughals used mercenaries from as far as Ethiopia. • During the 17th century Indian, British and Dutch ships traded as equals. From the early eighteenth century, British ships displaced the Indian ones. The ‘Mughal Empire’ (1556-1707) was so weakened by wars of succession, agrarian crises and local revolts that it could no longer resist British submission by 1757. • After the end of the British Raj in 1947, India’s deep historical and religious divisions exploded with the violent partition into two, later three states, plus continuous wars in Kashmir. This has been the main cause of India’s weakness, compared to China. 5/23/2017 9 European Colonialism, from the 16th Century ~ the beginning of Globalization • • • • • • Early 1700s, 10 % of Bengal textile workers produced for British market. By the mid-1700s, the British were importing raw cotton from India and manufacturing it into cotton textiles in new processes that signaled the birth of the Industrial Revolution, and would substantially displace Indian hand-manufactures with British machine products. First destructive impact of “globalization” on China was the “Taiping Rebellion” (1850-1864) just after the first Opium War. It was then that the Chinese traditional Confucian system broke down in the face of the pressures of globalization as these were forcibly brought to bear upon China by the Western powers. The communist revolution and the character of the Mao-regime (1949- 1976) was shaped by a nationalist reaction to this experience. The greatest globalization-era before the current one ended in 1914 with the outbreak of the First World War. The “9-11” attacks on the WTO Centre in New York were a massive terrorist scheme to reverse the current tide of globalization 5/23/2017 10 The Current Wave of Globalization • The first big step was China’s turn away from Mao to the Market in 1978. • A year later Margaret Thatcher abolished foreign exchange controls paving the way for London’s rise as a global financial centre. • Then in 1981 Ronald Reagan entered the stage with a programme of deregulation and tax cuts giving a huge boost to market ideology around the world. • Finally in 1991 came another huge change: Indian PM Narasimha Rao and his Finance Minister Manmohan Singh moving away from the regulation and protectionism that had hobbled the Indian economy since independence in 1947. • Globalization may be under threat by the current tide of protectionism in the US and elsewhere. 5/23/2017 11 Transformation from Agricultural to Industrial Economy • • • • • • • In 1979 Deng Xiaoping concluded that the only way to lift China’s 800 million peasants out of poverty was to move them off the land into factory jobs. Since state industries resisted reform, new rural industries of mixed ownership, combined with investment from the “globalized” parts of China – Hong Kong since 1981 and Taiwan since 1989 – created the new jobs. Big Foreign investment from Japan, the US and EU followed in the 1990s. “In early 1980s, SE Asia attracted half the FDI into Asia outside Japan, and China only 20 %. From mid-1990s the proportions are reversed. China has become the world’s biggest centre for the manufacture of everyday industrial products, taking over the role that used to be filled by Britain (1850-1900), the US (1900-1960) and Japan (1960-1990). Also, Overseas Chinese billionaires from SE Asia prefer to invest in China, rather than in their adopted countries. Many Chinese in China fear that this globalization will primarily benefit foreign companies at the expense of local companies. Many industries are almost completely foreign owned 5/23/2017 12 India: Late-comer in Economic Reform • India has about 75 % of the population of China but its GDP is 40 % • As a Soviet-ally, India has long practiced a brand of xenophobic, soft socialism that is less conducive to foreign investment and globalization than China’s reform-communism. Fall of the Berlin Wall marked the beginning of the convergence of economic ideologies. • India’s economy is less integrated with the world-economy than China’s. India’s exports were less than a quarter of China’s in 1999. Now less than 1/10. • India’s reform process, initiated in the mid-nineties is halting due to deep misgivings over globalisation and politicians’ obsession with “swadeshi”, self-reliance. • The Congress party-led coalition government has shied away from “neo-liberal reforms” since coming to power in May 2004, partly because it depends on the backing of four allied Communist parties for its majority in parliament. 5/23/2017 13 The Elephant Economies of Asia • There have been three dramatic changes in World Economic History over the last century and a half: – Between 1870 and 1914, the US overtook Britain and Germany and became the leading world economy. – Between 1950 and 1975, Japan caught up with Europe and the US to become the world's second largest economy. – The third catch-up period, from 1975 to 1997, saw the narrowing of the gap between the “tiger economies” of east Asia and the developed world. • The next phase is to shift the centre of the world economy from the Atlantic ocean to the Asian mainland. It will change the composition of world output and trade and global energy consumption. • It will create severe tensions between leading economies as they are challenged for global dominance. • The east Asian tiger economies moved fast but with stealth. The “elephant economies” of Asia, by contrast, will create global commotion as they begin to stampede. 5/23/2017 14 Seismic Shifts in World Economic History (PPP-figures) 1. China 2. India 3. France 4. UK 5. Russia 6. Japan 7. Austria 8. Spain 9. USA 10. Prussia Top Ten Total 1820 1992 GDP Population % of World Total % of World Total 28.7 35.5 16 19.6 5.4 2.9 5.2 2 4.9 4.2 3.1 2.9 1.9 1.3 1.9 1.1 1.8 0.9 1.7 1.1 GDP Population % of World Total % of World Total 20.3 4.7 12.9 20.9 8.6 2.3 4.9 1.5 4.2 16.2 3.7 1.1 3.4 1.1 3.3 1.1 2.9 2.7 2.7 2.9 70.5 71.7 1. USA 2. China 3. Japan 4. Germany 5. India 6. France 7. Italy 8. UK 9. Russia 10. Brazil Top Ten Total 66.8 54.9 Source: Angus Maddison, Monitoring the World Economy, OECD, 1995 5/23/2017 15 CHINDIA • Coined by an Indian politician/economist, Jairam Ramesh in a book/manifesto to bring the two together, not only in business, but also culturally. • It was popularized by BusinessWeek and came to represent an object of both paranoia for those in the US who fear economic eclipse, and pride for Asian dreamers who long for the day when the US gets its comeuppance. • In reality China and India, far from being in strategic wedlock, remain cool and wary neighbours. • Five years ago, India still lived in fear of a China Threat, China marginalizing India economically, but although Chinese products dominate certain sectors, like electronics and toys, most Indian companies, making quality products continue to thrive. Many companies in the IT sectors are aggressively investing and setting up shop in China. • India’s spectacular succes in software and IT services has made Chinese leaders sit up and take note. 5/23/2017 16 An Economic NATO ? • Gabor Steingart of Der Spiegel published a book recently advocating a ‘Trans-Atlantic Free Trade Area’, an Economic NATO to combat the challenge of China (‘a dark superpower’) and Asia in a ‘World War for Wealth’. • Chancellor Angela Merkel warmed to the idea and broached it with president Bush who was lukewarm. • Together the Europeans and the Americans represent about 13 % of the world population and 60 % of today's global economic power. • “The military alliance forged during the Cold War could be carried over into the global economic war.” ….. 5/23/2017 17 Rise Of China, India, Benefits Europe - EU Study • The average EU household's yearly income could increase by Euro 5,000 through 2050 if the EU embraces the rise of China and India rather than trying to stop it, a new EC study argues. • The EU is split over whether to impose limits on the flood of goods coming from Asia, with euro-zone manufacturers of textiles, shoes and other products clamoring for protection and retailers fighting for cheap imports. • The report, authored by economists Cecile Denis, Kieran McMorrow and Werner Roger, acknowledges that globalization has caused much pain as many industries and regions have seen their competitiveness undercut by cheap Asian imports. 5/23/2017 18 The US-China Economic Relationship: “A Balance of Financial Terror” (Chimerica) • That’s how former Harvard president Larry Summers described China’s hundreds of billions in dollar-holdings. • The argument holds that both countries would be so economically devastated by a trade or financial war – “mutually assured economic destruction” -- that neither would trigger one despite growing trade tensions. • By that logic, China won't stop buying billions of U.S. dollars each month because to do so could prompt a dollar collapse that would undermine the American consumer and the global stability upon which China's economic miracle rests. The U.S. would not implement tough sanctions to punish China's undervalued currency because such action could trigger inflation, higher interest rates and recession. 5/23/2017 19 Selected Indicators China-India China India 1.31 bn 1.14 bn Population Growth Rate 0.6 % 1.4 % Population in Poverty 4.6 % 28.6 % $ 2.24 trillion $ 805.7 bn $ 6.757 (PPP) $ 1.713 $ 3.452 (PPP) $736 Average annual GDP Growth Rate 1990-2005 8.8 % 4.2 % Foreign Investment 2007 $ 69.4 bn $ 12 bn $ 2.1 trillion $ 114 bn 0.703 81th 0.619 128th Population GDP 2005 GDP per capita 2005 Foreign Trade 2007/’04 Human Development Index (UNDP) 5/23/2017 Human Development Report 2007/2008 20 China: A Regional Power with some Global Influence and the Ambition to become a Two-Ocean Country Gwadar 5/23/2017 21 Transparency International Corruption Perception Index 2007 Selected Countries Ranking Score Netherlands 7 9.0 USA 20 7.2 Taiwan 34 5.7 South Korea 43 5.1 China 72 3.5 India 72 3.5 Indonesia Russia 143 2.3 Nigeria 147 2.2 Myanmar, Somalia 179 1.4 5/23/2017 22 The best Route to Economic Progress: The Chinese or the Indian Way ? • At the start of “Reform Communism” in 1978, the Chinese diaspora and later multinationals, were eager to invest. China’s state-banking system did not lend to private entrepreneurs and its stockmarket strongly favors state-enterprises. As a result, China’s economy until recently was dominated by state-enterprises and foreign investors. Private enterprise emerged only slowly. • Democratic India under soft Fabian socialism could not allow foreign investors to “exploit” the Indian people and gave priority to native entrepreneurship. • The OECD recently warned India was not fully exploiting its advantage as a labour-abundant economy because of high levels of employment protection that particularly deterred larger manufacturing companies from hiring workers. • Work in companies with more than 10 employees accounts for only 3.75 % of employment in India, a much smaller proportion than in any OECD country. India has stricter job protection laws than China, Brazil and all but two OECD countries. 5/23/2017 23 FDI in India slowly catching up with China, but Stockmarket Hot and Open • The Indian government predicts foreign direct investment will hit $15 billion for the current fiscal year, a fraction of the $69.4 billion of foreign investment in China last year. • Savvy multinationals have discovered that India is a potential source of low-cost innovation -- a sweatshop not just for labor but for brain ware as well. • Most FDI in India is – like in China – in form of joint ventures. Most of them have failed so far. Danone failed in both China and India. • India needs to attract more money from abroad if it is going to reach its target of $350 billion of public and private infrastructure investment. • The Indian stockmarket is much more open than the insider market of China but new restrictions were imposed after excess cash inflow from the US triggered by the housing market crisis caused disruptions. 5/23/2017 24 India’s New Government and its Rigid, Over-protective Labour-laws • Chinese factory workers are paid less than their Indian counterparts and are more productive. India has rigid labour laws that make it almost impossible to fire an employee or hire contract labour. That is one reason India attracts roughly one tenth of China’s FDI. • The previous Hindu-nationalist BJP government had indicated before its electoral defeat in May that it would dilute or scrap two statutes that make it hard for companies to fire workers and hamper their ability to take on temporary labour. • The more leftist Congress-government of Dr. Manmohan Singh depends on Communist support. • The Communists have always opposed labourreform. 5/23/2017 25 China’s Strength: Manufacturing India’s Strength: Global Back-Office Services • China as a manufacturing base and India as the back office to the world could power global growth in future. • China's strength is its rapidly growing domestic market -Mobile's growth in subscriptions, is more than India's total telephone access for both fixed and mobile access. • On the other hand, India has a clear edge in winning service export orders, in everything from Hollywood animation to multinational data processing. India's software exports have the potential to be as dominant as China's in electronics and toys. • If deregulation continues as expected, the surge of the two economies could be phenomenal. 5/23/2017 26 Competitive Outsourcing The Third Industrial Revolution • It will take 5 to 10 years before China rises as an equal to India in IT and outsourcing services in English. • Weakness: poor English; weak protection of IPR; shortage of managerial talent; fragmented industrial structure. • There are 200,000 architecture level IT engineers in India, against around 1,000 in China. • There are about 8,000 software-service providers in China, compared with fewer than 3,000 in India 5/23/2017 27 Outsourcing moves to Higher Levels • While medium level jobs have been moving to the East for years, high-skilled jobs in fields like aeronautical engineering, investment banking and drug research, those very fields, which once epitomized the competitiveness of Western economies, are flowing to India. • Boeing and Airbus now employ hundreds of Indians on critical tasks, including the design of next-generation cockpits and systems to prevent airborne collisions. For about one-fifth the cost, investment banks like Morgan Stanley are hiring Indians to analyze U.S. stocks, a job that can pay $200,000 a year or more on Wall Street. • As their Indian back offices gain in sophistication, Western firms are finding that a vast swathe of their work - even tasks requiring rarified expertise - can be done in the country at a fraction of the cost. At the same time, many see India as deep reservoir of potential customers. • "India is at the epicenter of the flat world," said Michael CannonBrookes, the vice president for business development in India and China at IBM, which has shrunk its American work force by 31,000 since 1992 as its Indian staff mushroomed to 52,000 from zero. 5/23/2017 28 The West Marginalizing Itself • N. R. Narayana Murthy, chairman of Infosys, an Indian outsourcing company, said Western multinationals were entering a world in which they would conceptualize, develop, manufacture and sell products and services, from start to finish, outside their countries of origin. • "The U.S. will progressively become less and less predominant for the U.S. corporations," Murthy said. • That may be wishful thinking by an Indian magnate. And experts warn that a continued flow of work to India requires drastic improvements in its physical and educational infrastructure. Water and power shortages are endemic, and an industry trade body has predicted that India could find itself short of 500,000 engineers by 2010. 5/23/2017 29 India and China: Partners here, Rivals there • Indian oil companies engage in similar government-sponsored, preferentially financed asset purchases in “problem countries” like Sudan, Iran, Uzbekistan. India has not come under the same international criticism as China. • In Sudan India and China cooperate, in Kazakhstan they compete and China gets the better end of the deal because the latter two share a landborder. • In 2005 ONGC lost a bid for Toronto-listed PetroKaz to Petrochina. • In January 2006, India and China set aside rivalries and agreed to cooperate in securing supplies and prevent their competition from driving up prices. CNPC and ONGC signed an agreement for joint bids in Central Asia/Caspian Region, Africa and Latin-America. • India has agreed to transfer Compressed Natural Gas technology to China. 5/23/2017 30 India plans Chinese-style Special Economic Zones • The Indian government has enacted legislation in May 2005 to allow the country's 29 states to bypass the country's strict labour laws through the creation of Chinese-style special economic zones. Eleven have been in operation and another 35 will be set up soon. • The creation of SEZs is a central plank of the Indian government's plans to encourage faster inflows of foreign direct investment and boost employment. • Leftwing parties that support the Congress-led coalition are likely to see the measure as a Trojan Horse to smuggle in labour reform. • A weak level of FDI along with low savings levels and woeful infrastructure is seen as one of India's principal economic challenges. 5/23/2017 31 New Pattern of India-China Trade • India has overtaken Brazil to become the largest supplier of iron ore to China after Australia. Overall, China is now India's secondbiggest trading partner after the United States. • Huawei Technologies, China's biggest telecommunications equipment maker, spend $200 million to start making phone equipment and expand its software development and research center in India. • Haier is building a factory in India to manufacture 50,000 TV sets a month. The company, based in Qingdao, recently began selling mobile phones in India, Asia's fastest-growing wireless market. • India has slashed its tariff rate - from 150 % in 1992 to 15 % now. It's still higher than China's 10 % rate, suggesting that benefits of free trade may be slightly skewed in favor of supercompetitive Chinese manufacturers, who already make 75 % of the world's toys, 58 % of clothes and 29 % of mobile phones, according to McKinsey estimates. 5/23/2017 32 Corporate Governance • Tharun Khanna, an Indian professor at Harvard Business School says in his new book “Billions of Entrepreneurs: How China and India Are Reshaping Their Future and Yours” that Indian companies demonstrate better corporate governance than Chinese. • “India is like a noisier version of the US” – accountability, transparency, very vibrant credible business media • China is the opposite: “Noise-free but biased. You get a clean story, but it’s not always true”. • In China it doesn’t matter that much, because financial markets don’t work like in India or the US. “The stockprice of a bad company can go up as much as that of a good company” 5/23/2017 33 Multicultural Management • Khanna: Chinese are “utterly zero”. “It is hard to blame them because there is a language barrier also. You may remember the acquisition of a German company, Schneider, by TCL in 2002 which was based in Shenzhen. It was a disaster. In 2004 a bigger disaster followed, buying assets from Thomson CSF in France which they also destroyed. • Many questions: Can a Frenchman report to a Chinese and what if the French guy makes more than the Chinese guy ? • The Chinese have little incentive to improve their corporate governance. They are sitting on a mountain of hundreds of billions of capital. They don’t need anybody. So, why bother ? 5/23/2017 34 China, India and the Fortune Global 500 List 2007 • As a result of the different paths to development, China has 24 companies on the 2007 Fortune Global 500 List against India 6. • The Chinese companies are state conglomerates - power, oil, steel, railway, automotive, insurance, telecom, chemical, grain - and statebanks, plus two Hong Kong diversified companies. • China accounted for a third of the world’s growth in oil demand and it gobbled up half of the world’s cement, a third of its steel, a quarter of its copper and a fifth of its aluminum. • The 6 Indian companies on the list are 3 in the oil- and gas-sector, industry-conglomerate “Reliance Industries” and a state bank • However, last year’s, Forbes 200, an annual ranking of the world's best small companies, included 13 Indian firms but just four from China. It will be years before Indian high tech companies are big enough to make the Global 500. 5/23/2017 35 The Chinese Diaspora: Big Money / Sports The Indian Diaspora: High Tech Brainpower • • • • • In contrast to the Overseas Chinese, the “Non-Resident-Indians” have accounted for less than 10 % of foreign money flows to India. Lakshmi Mittal bought Arcelor and Tata took over Corus, but they invest very little in India itself. India’s current steel output of 44 million tons is one-tenth that of China. And while the Indian diaspora may not be able to match the Chinese diaspora in “hard” capital, Indians abroad have substantially more scientific capital, which could prove even more valuable. China has won the race to be the world's workshop. With the help of its diaspora, India could become the world's technology lab. India has received only a fraction of the FDI the world has invested in China, but portfolio managers say India is in a number of ways the more attractive stock-market investment. India is about a dozen years behind China in liberalizing its economy, lowering tariffs, and opening up industry to foreign investors. 5/23/2017 36 India’s Billionaires: The New Maharajas • The accumulated wealth of the 20-million-strong nonresident Indians (NRI) community has been estimated to be more than $1 trillion, more than the Indian economy of about $850 billion. • According to Forbes Magazine India has 54 billionaires, the largest number in Asia. Topping the list is Lakshmi Mittal, the steel-magnate with $ 51 billion. • International remittances to India are the highest in the world - $25 billion a year - and growing 25 % annually. It is one of the fastest-growing markets in the world, with the Persian Gulf region one of the major contributors. • Recently, Prime Minister Manmohan Singh said Indians abroad are the backbone of the country's economy and that “their welfare is in the country's interest”. 5/23/2017 37 China’s Billionaire-Tycoons • China as a late (re-) starter with capitalism had only one billionaire in 1999 when Forbes started the list. He was Larry Rong, son of Rong Yiren, a pre-war Shanghai capitalist who became vice-president of China. Larry Rong is chairman of CITIC and good for only $ 2 bn. • A Chinese publication claims there are more than 100 now, whereas Forbes puts it at 66. • They could start buying companies in the US and gobble up global assets as they have already unsuccessfully tried. • "A lot of people are surprised at how fast this has happened," said Jing Ulrich, an analyst at JPMorgan. "But this is the power of the capital markets. A lot of people's wealth is based on newly listed companies." 5/23/2017 38 Projected Income Per Capita for the “BRICS” (Goldman Sachs Report) GDP per capita (2003 US$) 60,000 50,000 India Brazil 40,000 China Russia 30,000 20,000 10,000 0 2000 2010 2020 2030 2040 2050 GS BRICs Model Projections. 5/23/2017 39 China effectively resisted the “Washington Consensus” • In 1990, the World Bank issued a list of “virtues” for emerging economies: • They should be open to capital flows, while moving towards transparency, privatisation and liberalisation. • This became a doctrine, known as “The Washington Concensus”. • China ignored the pressure from the World Bank, the IMF and the US and this saved it from the financial collapse that hit Thailand, South-Korea and Indonesia during the “Asian Crisis” of 1997. • China now has its independent “coordinated development” strategy, i.e. approach privatisation and free trade with caution, open capital markets only gradually, use “assymetric” power like huge dollar reserves to get leverage over a recklessly spending U.S., and befriend neighbors by massive, fast increasing imports. 5/23/2017 Joshua Cooper Ramo, The Beijing Concensus, The Foreign Policy Centre, London, May 2004 40 Pew Memorial Trust Survey on Chinese People’s Attitudes towards Globalization • 76% of Chinese respondents say that globalization is good for China, as opposed to 60% of French or 62% of Americans. Chinese respondents have significantly more favorable views of MNCs and international organizations than Americans and most Europeans. • Only 65% of Chinese respondents see increased access to foreign culture in the last five years, which places them, along with Americans, at the low end of the scale. On the other hand, Chinese are among the world's most enthusiastic recipients of international culture. Starbucks in the “Forbidden City”, a “barbarian invasion of the hallowed halls of China's past” stirs controversy but is tolerated. • At the same time, 64% of Chinese agree that 'our way of life has to be protected from foreign influences'. • Questions on democracy, inequality and corruption were not allowed. • http://yaleglobal.yale.edu/pdfs/PewGlobal.pdf 5/23/2017 41