tag:theconversation.com,2011:/nz/topics/global-economy-1729/articlesGlobal economy – The Conversation2024-02-12T16:31:41Ztag:theconversation.com,2011:article/2215542024-02-12T16:31:41Z2024-02-12T16:31:41ZChina’s doom loop: a dramatically smaller (and older) population could create a devastating global slowdown<p><a href="https://theconversation.com/chinas-population-shrinks-again-and-could-more-than-halve-heres-what-that-means-220667">China</a> has announced that in 2023 its population declined from <a href="https://time.com/6556324/china-population-decline-births-deaths/">1.4118</a> to 1.4097 billion people. Forecasting by the <a href="https://www.un.org/development/desa/pd/sites/www.un.org.development.desa.pd/files/wpp2022_summary_of_results.pdf%22%22">UN</a> suggests China’s population will dip to 1.313 billion by 2050 and then down to about 800 million by 2100. This is a significant change and will have ramifications well beyond its borders. </p>
<p>There are two trends that underline such a demographic shift. First is the <a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(22)02410-2/fulltext%22%22">ageing population</a> with the percentage of those aged 60 and older currently above <a href="https://time.com/6556324/china-population-decline-births-deaths/">20%</a> of the total population. Second, birth rates <a href="https://www.bbc.com/news/world-asia-china-68002803">have dropped significantly</a>, <a href="https://www.statista.com/statistics/250650/number-of-births-in-china/">from 17.86 million births in 2016</a> to 9.02 million in 2023. Several interrelated economic consequences of such shifts could emerge which ultimately can affect China’s economic wellbeing in the mid-to-long term and resonate globally.</p>
<p>More than one-quarter of China’s population will be over <a href="https://www.who.int/china/health-topics/ageing">60 by 2040</a> and so less economically active (retirement age for <a href="https://www.oecd.org/els/public-pensions/PAG2021-country-profile-China.pdf">men is 60 and for women</a> it’s 50-55). This will put pressure on China’s pension and elderly care systems with some <a href="https://www.msn.com/en-in/news/other/chinas-demographic-challenge-ageing-population-threatens-economic-shift-growth/ar-BB1gVgCo">predictions</a> indicating that the pension system could be bankrupted by 2035. </p>
<p>To avoid pension-related issues straining public resources, <a href="https://link.springer.com/article/10.1007/s42379-019-00040-7">possible</a> scenarios include raising the retirement age to get people to work for longer, increasing taxes to cover additional pension requirements and shrinking current benefits.</p>
<p>Changes in the healthcare system to cope with population changes could leave the many people feeling less well off or unhappy with services being reduced. This in turn could result in some degree of political instability. </p>
<p>In addition, as the dependency of the elderly on their children increases, <a href="https://www.msn.com/en-in/news/other/chinas-demographic-challenge-ageing-population-threatens-economic-shift-growth/ar-BB1gVgCo">household consumption</a>, savings and investment levels are likely to decline, which in turns negatively affects the overall health of the economy.</p>
<h2>Labour force reductions</h2>
<p>As older workers retire, there will be fewer people of <a href="https://link.springer.com/chapter/10.1007/978-3-642-15594-9_3">working age</a> in the total population, and therefore available to work. Taking measures to help <a href="https://www.proquest.com/docview/1501334873/A074EDC5E084226PQ/2?accountid=140108&sourcetype=Scholarly%20Journals">older people</a> continue to work for longer, for example, could become fundamental to long-term economic growth and to sustain the levels of GDP per capita. Nevertheless, as pointed out above, such measures could be politically unpopular.</p>
<p>Productivity gains (GDP per employed person) may also be affected by a reduced workforce, and one which is getting older. Some studies find evidence that labour productivity (output per working hour) varies with <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">age</a>. It tends to increase as a person enters the labour market, then plateaus between 30 and 40, and eventually declines as an individual’s work life comes to an end.</p>
<p>Population shifts can lead to a <a href="https://www.investopedia.com/doom-loop-6748009">“doom loop”</a>, where one economic situation creates a negative impact and then another and another. As lower productivity begins to affect production in particular sectors, China may be compelled to increase imports to satisfy demand in those industries. </p>
<p>This could significantly affect innovation and entrepreneurship which in turn can further diminish productivity. <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">New ideas</a>, drive economic growth. The size of the workforce affects innovation because as the number of employed individuals shrinks, the pool of new ideas becomes narrower. </p>
<p>If population growth becomes <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">negative or falls to zero</a>, then the knowledge behind those ideas stagnates. In addition, there is evidence that the <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">peak</a> of a person’s innovative activities and scientific output comes at around 30 and 40 years of age.</p>
<p>Current demographic trends are therefore likely to stifle technological advances and innovation in China. Innovation is essential to sustain and improve <a href="https://development.asia/summary/how-demographic-challenges-impact-innovation-asia-and-pacific">living standards</a>, consequently the levels of quality of life may come under strain as the population reduces. </p>
<p>At the same time, <a href="https://www.econbiz.de/Record/entrepreneurship-and-demographics-liang-james/10013112441">studies</a> suggest that entrepreneurship can be negatively affected by the ageing of the population as the percentage of young people is positively linked to entrepreneurial activities. This hampers the dynamism of the economy and contributes to slower economic growth.</p>
<p>China’s <a href="https://ec.europa.eu/social/main.jsp?catId=1196&furtherNews=yes&langId=en&newsId=2402">economic growth</a> depends on productivity and employment growth. Economic growth is driven by the <a href="https://www.cato.org/cato-journal/spring/summer-2018/demographics-their-implications-economy-policy#demographic-implications-for-economic-growth">effective combination</a> of labour and capital (money) to generate services or products. </p>
<p>This requires a constant or increasing <a href="https://www.nber.org/system/files/working_papers/w26651/w26651.pdf">population size</a>. Importantly, with its <a href="https://ec.europa.eu/social/main.jsp?catId=1196&furtherNews=yes&langId=en&newsId=2402">population going down</a>, China would need to increase its per capita productivity so as to sustain economic growth.</p>
<p>As we have seen, Chinese productivity is also likely to go down as a result of the demographic changes. Therefore, it is expected that the Chinese economy will experience a slower economic growth through, for example, the shrinking of the numbers of shoppers or consumers which will directly impact the retail trade sector. </p>
<p>In addition, lower demand is likely to intensify the ongoing crisis in the <a href="https://www.nytimes.com/2023/12/28/business/citic-trust-china-property.html">property sector</a>. Fewer people able to buy property will mean a fall in prices. </p>
<h2>And prices go up outside China</h2>
<p>China is the second largest market in the world responsible for over <a href="https://www.bbc.com/news/business-66840367">one-third</a> of the world’s growth and the <a href="https://www.spglobal.com/en/enterprise/geopolitical-risk/global-economy-in-china/">second</a> largest importer, so any changes will have global repercussions.</p>
<p>In Brazil and South Africa, for instance, both significant trading partners with China, these population shifts may lead to a <a href="https://www.abc.net.au/listen/programs/am/what-s-the-impact-on-australia-of-china-s-population-decline-/103367094">lower demand</a> for their exports. This may result in lower <a href="https://www.abc.net.au/listen/programs/am/what-s-the-impact-on-australia-of-china-s-population-decline-/103367094">employment</a> levels in those countries as exporting companies are forced to reduce operations. </p>
<p>As productivity declines in China, its trading partners may be compelled to import products from other economies which in turn can increase the prices of their products. In addition, emerging economies such as Thailand and Vietnam that rely on Chinese <a href="https://www.investec.com/en_za/focus/no-ordinary-wednesday-with-jeremy-maggs/china-s-recovery-implications-for-the-global-economy-and-emergin.html">outbound tourism</a> will experience a significant downturn in all tourism-related sectors such as transport and hospitality as the effect of population shifts lowers the number of people able to travel overseas.</p>
<p>Multinational corporations will also <a href="https://www.bbc.com/news/business-66840367">feel demand drop</a> as the Chinese consumer market is a large source of their revenue. The knock-on effect is likely to be global as suppliers and workers around the world find jobs disappearing. In short, as a recent <a href="https://www.oecd.org/economic-outlook/september-2023/">OECD report</a> puts it, a sharp economic slowdown in China would drag down global growth, the effects of which could be devastating.</p><img src="https://counter.theconversation.com/content/221554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jose Caballero does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A higher proportion of China’s population is elderly, and this will have knock-on effects on the rest of the world via their economy.Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2193712024-01-03T17:41:22Z2024-01-03T17:41:22ZGlobal triggers: why these five big issues could cause significant problems in 2024<p>The <a href="https://www.cnbc.com/2023/11/20/us-china-will-try-to-limit-rising-tensions-amid-domestic-challenges-control-risks.html">tensions</a> between the US and China made the global economy shudder in 2023. The ramifications of the Ukrainian war echoed beyond the country’s border. In Africa, the coup d’état in Niger and Gabon contributed to the global <a href="https://freedomhouse.org/issues/democracies-decline">democratic retreat</a> of recent years and the Hamas/Israel conflict has so far resulted in thousands of <a href="https://www.aljazeera.com/news/2023/12/15/us-presses-israel-on-civilian-deaths-move-to-lower-intensity-war-in-gaza#:%7E:text=US%20President%20Joe%20Biden%20says,to%20protect%20civilians%20in%20Gaza.&text=The%20United%20States%20has%20ramped,lower%20intensity%E2%80%9D%20war%20against%20Hamas.">deaths</a>.</p>
<p>Such trends of global power tensions, open war, democratic decline and extreme job market fluctuations are likely to continue in 2024. With this in mind, here are five global geopolitical and economic trends to watch out for.</p>
<h2>Power shifts</h2>
<p>As the Brics (Brazil, Russia, India, China, South Africa) organisation expands to include Egypt, Ethiopia, Iran, Saudi Arabia and the UAE, its growing economic influence could dramatically change the global balance of power. </p>
<p><a href="https://www.euronews.com/business/2023/08/29/how-the-brics-expansion-could-shake-up-the-world-economy">From January 2024</a>, Brics will represent about 46.5% of the world’s population, US$30.8 trillion (£23.7 trillion) about a third of global GDP and 45% of global oil production. A related economic consequence is that the Brics’ expanded trade network can reduce their dependence on western markets, particularly through <a href="https://www.bernstein.com/our-insights/insights/2023/articles/brics-expansion-a-journey-of-a-thousand-miles.html">preferential trade agreements</a> and possibly the use of a common currency. </p>
<p>For countries that have been sanctioned by the west, <a href="https://news.mit.edu/2023/taylor-fravel-brics-expansion-0926">such as Iran</a>, becoming a Brics member increases their diplomatic options. This may make Brics attractive to other sanctioned countries. The Brics’ expansion can also enable members to strengthen their impact by pursuing their political and economic interests more easily. <a href="https://digitalcommons.dartmouth.edu/cgi/viewcontent.cgi?article=3652&context=facoa">Challenging the west</a> may not take the form of direct confrontation, but occur by gradually <a href="https://www.cambridge.org/core/journals/ethics-and-international-affairs/article/abs/soft-balancing-institutions-and-peaceful-change/BBC6E5E3549848F27B5ABFA17F488105">moving away from</a> current institutions such as the IMF.</p>
<h2>Global election cycle</h2>
<p>The list of general elections in 2024 includes countries from all continents and the participation of billions of people. At the core is the US election where former president Donald Trump is likely to be the Republican candidate. If re-elected, he may continue with his policy of “global engagement abstention” as evidenced by his <a href="https://www.nytimes.com/2019/01/14/us/politics/nato-president-trump.html">past willingness</a> to <a href="https://www.theatlantic.com/magazine/archive/2024/01/trump-2024-reelection-pull-out-of-nato-membership/676120/">disengage from Nato</a>. </p>
<p>Such a stance may weaken the global economic and political system and contribute to the rise of other countries searching for greater global clout. Another important aspect emerging from the cornucopia of general elections is the potential erosion of democracy. In the US, for instance, there is talk of a possible <a href="https://www.bbc.com/news/world-us-canada-67667198">Trump dictatorship</a>. In Russia, a win by <a href="https://www.bbc.com/news/world-europe-67660745">President Vladimir Putin</a> can see him remaining as president until 2030 with the possibility of a further sixth term up to 2036 (or about 32 years in power). </p>
<p>In other countries, such as El Salvador, some politicians are willing to <a href="https://www.ft.com/content/0241105c-ab30-40f6-ac87-b879ffb6c84c">circumvent their constitutions</a> to be re-elected or to <a href="https://www.newarab.com/news/tunisia-kais-saied-bar-foreign-election-monitors">ban efforts to monitor</a> elections, as is happening in Tunisa. Such practices are likely to weaken democratic institutions or constrain their development.</p>
<h2>Heightened tensions in the Middle East</h2>
<p>The Israel/Hamas war will continue to have repercussions beyond the Middle East. The risk of further <a href="https://theconversation.com/israel-gaza-conflict-how-could-it-change-the-middle-easts-political-landscape-expert-qanda-215473">escalation of the conflict</a> regionally has <a href="https://www.telegraph.co.uk/world-news/2024/01/02/israel-hamas-war-latest-news-updates-gaza-day-88-live/">intensified</a> after an air strike in Beirut. Some nearby states, for example, have strongly condemned Israel’s overall response to Hamas’ attack. Jordan called that response a “<a href="https://www.middleeastmonitor.com/20231027-jordan-fm-condemns-collective-punishment-by-israel-in-gaza-as-a-war-crime/">war crime</a>” and Egypt a “<a href="https://www.reuters.com/article/israel-palestinians-egypt-usa-idAFS8N39M02L/">collective punishment</a>.” The war is likely to compound regional uncertainty and instability.</p>
<p>Some <a href="https://www.sciencedirect.com/science/article/abs/pii/S0927538X19303609">evidence</a> suggests that increasing political instability will also <a href="https://www.emerald.com/insight/content/doi/10.1108/JFC-09-2023-0229/full/html?utm_source=rss&utm_medium=feed&utm_campaign=rss_journalLatest">affect the health</a> of the region’s financial institutions. </p>
<p>In turn, greater instability could increase refugee flows to the US and Europe. The latter will exacerbate the already tense political debate over immigration policy. The Israel/Gaza war is also likely to <a href="https://www.financialexpress.com/business/defence-geopolitical-uncertainty-hits-india-europe-middle-east-corridor-as-hamas-israel-war-erupts-3267399/">discourage investment</a> in the Middle East and disrupt trade routes leading to increasing shipping costs.</p>
<h2>China’s economic pressures</h2>
<p>Recently, China’s economy has been described as a <a href="https://www.bbc.co.uk/news/business-66636403">“ticking time bomb”</a> as a result of slow economic growth, high youth unemployment, the property sector crisis, lower Foreign Direct Investment (FDI) and weaker exports. Growth prospects are expected to remain <a href="https://www.economist.com/finance-and-economics/2023/12/07/will-china-leave-behind-its-economic-woes-in-2024">“structurally weaker”</a> with low consumer confidence and spending and declining external demand.</p>
<p>Lower internal Chinese consumption means <a href="https://www.bbc.com/news/business-66840367">lower demand for raw material and commodities</a> which, in turn, will affect larger exporters such as Australia and Brazil. </p>
<p>Multinational corporations are likely to experience some negative impact on their profits as relocation of production and <a href="https://flow.db.com/more/dossier-asean/navigating-china-s-slowdown">supply chain</a> diversification continues as a result of trade frictions and armed conflicts. This may have a <a href="https://www.bbc.com/news/business-66840367">knock-on effect</a>, not only on their suppliers but also on their workforce in terms of salary growth, if not, downsizing and job losses.</p>
<p>More generally, the increased risks for China’s economy will <a href="https://www.fitchratings.com/research/sovereigns/world-growth-outlook-for-2024-deteriorates-as-china-risks-rise-13-09-2023">hit global growth</a>, according to the <a href="https://www.oecd.org/economic-outlook/september-2023/">OECD</a>.</p>
<h2>Ageing populations</h2>
<p>In <a href="https://www.statista.com/chart/29345/countries-and-territories-with-the-highest-share-of-people-aged-65-and-older/">2022</a>, Japan, Italy, Finland and Germany were among the countries with the greatest share of populations over 65 years of age and by 2050 it is projected that the list will include Hong Kong, South Korea and Taiwan. By <a href="https://www.who.int/news-room/fact-sheets/detail/ageing-and-health">2050</a> the percentage of the world’s over 60 population will increase from 12% to 22%. At the same time, <a href="https://www.who.int/data/gho/data/themes/mortality-and-global-health-estimates/ghe-life-expectancy-and-healthy-life-expectancy">life expectancy</a> is increasing. Such a population trend has implications for social security and other parts of the economy. </p>
<p><a href="https://www.who.int/news-room/fact-sheets/detail/ageing-and-health">Demands on governments and health providers</a> to deliver greater volumes of care will grow because of potential escalating risks of disease among the elderly. The <a href="https://www.nia.nih.gov/sites/default/files/2017-06/WPAM.pdf">ratio of workers to pensioners</a> is falling which is also putting pressure on the sustainability of current pensions systems. </p>
<p>In addition, there is <a href="https://www.imf.org/external/pubs/ft/wp/2016/wp16238.pdf">evidence</a> that the ageing of the population affects labour productivity and labour supply. It can, therefore, have an <a href="https://globaleurope.eu/globalization/effects-of-aging-population/">effect</a> on economic growth, trade, savings and investment. All in all, 2024 could be another rocky year.</p><img src="https://counter.theconversation.com/content/219371/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jose Caballero does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Trends of global power tensions, open war, democratic decline and extreme job market fluctuations are likely to continue in 2024Jose Caballero, Senior Economist, IMD World Competitiveness Center, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2179602023-12-13T13:35:56Z2023-12-13T13:35:56ZGrowth of autocracies will expand Chinese global influence via Belt and Road Initiative as it enters second decade<figure><img src="https://images.theconversation.com/files/564937/original/file-20231211-23-i4omvy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Xi Jinping shakes hands with Chinese construction workers at a Belt and Road Initiative site in Trinidad and Tobago in June 2023.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/chinas-president-xi-jinping-shake-hands-with-chinese-news-photo/169793922">Frederic Dubray/AFP via Getty Images</a></span></figcaption></figure><p>China currently faces <a href="https://www.economist.com/finance-and-economics/2023/10/18/chinas-economy-may-be-growing-faster-but-big-problems-remain">daunting challenges</a> in its domestic economy. But weakness in the real estate market and consumer spending at home is unlikely to stem its rising influence abroad. </p>
<p>In mid-October 2023, China celebrated the 10-year anniversary of its <a href="https://theconversation.com/chinas-belt-and-road-initiative-turns-10-xi-announces-8-new-priorities-continues-push-for-global-influence-216014">Belt and Road Initiative</a>, or BRI. The BRI seeks to connect China with countries around the world via land and maritime networks, with the aim of improving regional integration, increasing trade and stimulating economic growth. Through the expansion of the BRI, China also sought to extend its global influence, especially in developing regions.</p>
<p>During its first decade, the initiative has faced a <a href="https://www.forbes.com/sites/wadeshepard/2020/01/29/how-chinas-belt-and-road-became-a-global-trail-of-trouble/?sh=124d92a5443d">barrage of criticism from the West</a>, mainly for saddling countries with debt, inattention to environmental impact, and corruption. </p>
<p>It has also encountered unexpected challenges – notably the COVID-19 pandemic, which led to massive supply chain issues and restrictions on the movement of Chinese workers overseas. Yet, as the BRI heads into its second decade, global economic trends suggest it will continue to play an important role in spreading Chinese influence.</p>
<p>I’m an associate professor of global studies at the Chinese University of Hong Kong, Shenzhen, where I teach about <a href="https://hss.cuhk.edu.cn/en/teacher/1126">business-government relations</a> in emerging economies. In my new book, “<a href="https://www.cambridge.org/core/books/chinas-chance-to-lead/2C88E7D955049471664120981CDF2DFB">China’s Chance to Lead</a>,” I discuss which countries have already and are now most likely to seek out and benefit from Chinese spending. Understanding this helps explain why China and the Belt and Road Initiative are poised to benefit greatly from the global economy over the next several decades.</p>
<h2>Malaysia’s unlikely prominence</h2>
<p>In October 2013, China President Xi Jinping announced the launch of the maritime portion of the BRI during a <a href="https://www.bbc.com/news/world-asia-24361172">speech in Jakarta</a>. At the time, Indonesia appeared to be an ideal candidate for Chinese infrastructure spending, yet it was Malaysia – surprisingly – that emerged as a far more avid participant. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Aerial view of massive housing development in Malaysia" src="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564350/original/file-20231207-15-siwmcd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A view of Forest City, a condominium project launched under China’s Belt and Road Initiative, in Malaysia’s Johor state.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/this-aerial-photo-taken-on-june-16-2022-shows-a-general-news-photo/1241336726">Mohd Rasfan/AFP via Getty Images</a></span>
</figcaption>
</figure>
<p>In comparison to Malaysia, Indonesia’s economy was <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">three times larger</a> and its population <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">nearly nine times bigger</a>, yet its gross domestic product per capita only was <a href="https://www.worlddata.info/country-comparison.php?country1=IDN&country2=MYS">one-third as high</a>. Indonesia also had enormous potential to increase its already substantial <a href="https://oec.world/en/profile/bilateral-country/idn/partner/chn">natural resources exports to China</a>. Taken together, these factors point to Indonesia’s far greater demand for infrastructure that would aid its economic development. </p>
<p>Furthermore, Indonesia’s democratic institutions were more conducive to attracting foreign investment. Its checks and balances enhanced policy stability and reduced political risk. By contrast, Malaysia’s government, which was dominated by a single ruling party coalition, lacked comparable checks and balances.</p>
<p>Despite Indonesia’s numerous advantages, Malaysia attracted a far larger volume of BRI spending during its first several years. Data provided by the <a href="https://www.aei.org/china-global-investment-tracker/">China Global Investment Tracker</a> indicates the value of newly announced infrastructure projects in Malaysia surged from US$3.5 billion in 2012 to over $8.6 billion in 2016. Spending in Indonesia, meanwhile, rose modestly from $3.75 billion to $3.77 billion over the same period.</p>
<p>Malaysia also enthusiastically participated in the <a href="https://www.cfr.org/china-digital-silk-road/">Digital Silk Road</a>, or DSR, launched in 2015. The DSR is the technological dimension of the BRI that aims to improve digital connectivity in Belt and Road countries. Malaysia Prime Minister Najib Razak engaged Jack Ma, the co-founder of Chinese tech giant Alibaba, as an adviser to develop e-commerce in 2016. This led to the creation in 2017 of a <a href="https://www.nst.com.my/business/2017/11/298317/%C2%A0digital-free-trade-zone-goes-live-nov-3">Digital Free Trade Zone</a>, an international e-commerce logistics hub next to the Kuala Lumpur International Airport.</p>
<p>With this foundation in place, Malaysia’s capital went on to become the first city outside China to adopt Alibaba’s <a href="https://www.wired.co.uk/article/alibaba-city-brain-artificial-intelligence-china-kuala-lumpur">City Brain</a> smart city solution in January 2018. City Brain uses the wealth of urban data to effectively allocate public resources, improve social governance and promote sustainable urban development. <a href="https://www.linkedin.com/pulse/pivotal-year-city-brain-other-middle-east-ai-news-carrington-malin-/">Dubai and other cities in the Middle East</a> followed. </p>
<p>Digital Silk Road projects in Indonesia during that period were far fewer, slower and less ambitious. They primarily involved the expansion of <a href="https://www.lse.ac.uk/ideas/Assets/Documents/updates/2022-SU-IndoChina-Updated.pdf">Chinese smartphone and e-commerce firms</a> in Indonesia.</p>
<p>What accounts for these contrasting responses? The short answer: their political regimes. And understanding that could be key to the global spread of Chinese influence in the coming years.</p>
<h2>State-owned business and clientelism</h2>
<p>In the lead-up to the May 2018 election, Malaysia’s ruling party and its allies <a href="https://doi.org/10.1177/186810341803700307">worried they could lose power</a> after six decades of rule. Desperate to bolster support, Najib quickly identified <a href="https://thediplomat.com/2021/10/what-happened-to-chinas-bri-projects-in-malaysia/">numerous infrastructure megaprojects</a> in which Chinese state-owned businesses could partner with Malaysian counterparts.</p>
<p>Indonesia, by contrast, placed far greater emphasis on projects led by private business. For example, the Indonesia Morowali Industrial Park, “<a href="https://www.wired.com/story/workers-are-dying-in-the-ev-industrys-tainted-city/">the world’s epicenter for nickel production</a>,” is one of the largest Chinese investments in Indonesia and a joint venture between private Chinese and Indonesian companies. </p>
<p>As I discuss in <a href="https://www.cambridge.org/core/books/chinas-chance-to-lead/2C88E7D955049471664120981CDF2DFB">my book</a>, when rulers in autocracies with semi-competitive elections, like Malaysia’s, have a weak hold on power, their desire for Chinese spending is amplified. This relates to <a href="https://www.oxfordreference.com/display/10.1093/oi/authority.20110803095617734">clientelism</a>, or the delivery of goods and services in exchange for political support.</p>
<p>A higher level of state control in autocracies grants political leaders greater influence over the allocation of clientelist benefits, which aids leaders’ reelection efforts. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Najib Razak, prime minister of Malaysia, and Jack Ma Yun, founder of Alibaba Group, stand and clap" src="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=419&fit=crop&dpr=1 600w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=419&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=419&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=527&fit=crop&dpr=1 754w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=527&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/564351/original/file-20231207-27-yxvnt3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=527&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Najib Razak, left, then-prime minister of Malaysia, and Jack Ma, Alibaba Group founder and executive chairman, attend a launch ceremony of the Digital Free Trade Zone in Kuala Lumpur.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/najib-razak-prime-minister-of-malaysia-and-jack-ma-yun-news-photo/1092858894">Thomas Yau/South China Morning Post via Getty Images</a></span>
</figcaption>
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<h2>Economic trends that will benefit China</h2>
<p>Even if China’s future growth is lower than the pre-pandemic period, these four features of the global economy are poised to benefit China and the Belt and Road Initiative over the next several decades. </p>
<p><strong>1. Global rise of autocracies</strong> </p>
<p><a href="https://www.v-dem.net/documents/29/V-dem_democracyreport2023_lowres.pdf">Over 60% of developing countries</a> are autocratic, according to data provided by the <a href="https://www.v-dem.net/">Varieties of Democracy Project</a>. This represented 72% of the global population in 2022, up from 46% in 2012. </p>
<p>For decades, the World Bank and affiliated regional development banks were the only game in town for development financing to low- and middle-income countries. Consequently, these global lenders could demand liberalizing reforms that were sometimes contrary to the interests of incumbent rulers, especially autocrats. </p>
<p>China’s rise has created an attractive alternative for autocratic regimes, especially since it does not impose the same kinds of conditions that often require loosening state controls on the corporate sector and reducing clientelism. Between 2014 and 2019, I find that 77% of total BRI spending on construction projects went to autocracies, and primarily to those with semi-competitive elections.</p>
<p><strong>2. Demand for Chinese infrastructure spending</strong></p>
<p>The economies of developing countries have grown <a href="https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/WEOWORLD/ADVEC/OEMDC">more than twice as quickly</a> as advanced economies since 2000 and are projected to <a href="https://www.pwc.com/gx/en/research-insights/economy/the-world-in-2050.html">outpace advanced economies</a> in the decades ahead. On the eve of the Soviet Union’s dissolution in 1991, developing economies accounted for 37% of global GDP; by 2030, the International Monetary Fund projects they will account for <a href="https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD">around 63%</a>. </p>
<p>At the same time, the global infrastructure financing gap – that is, the money needed to build and upgrade existing infrastructure – is estimated to be around <a href="https://www.atlanticcouncil.org/blogs/econographics/the-global-infrastructure-financing-gap-where-sovereign-wealth-funds-swfs-and-pension-funds-can-come-in/#:%7E:text=The%20global%20infrastructure%20financing%20gap%20is%20estimated%20to%20be%20around,year%20in%20the%20infrastructure%20sector.">$15 trillion</a> by 2040. To fill this gap, the world must spend just under $1 trillion more than the previous year up through 2040, with most of this spending directed toward low-income economies.</p>
<p>Because many of these fast-growing, low-income countries are predominantly semicompetitive autocracies, China is well-positioned to expand its global influence via the Belt and Road Initiative. </p>
<p><strong>3. Emerging tech</strong></p>
<p>The advent of what is known as <a href="https://www.mckinsey.com/featured-insights/mckinsey-explainers/what-are-industry-4-0-the-fourth-industrial-revolution-and-4ir">Industry 4.0 technologies</a>, such as artificial intelligence, big data analytics and blockchain, could enable developing countries to <a href="https://hub.unido.org/sites/default/files/publications/Unlocking%20the%20Potential%20of%20Industry%204.0%20for%20Developing%20Countries.pdf">leapfrog stages of development</a>. </p>
<p>By creating <a href="https://www.nbr.org/publication/setting-the-standards-locking-in-chinas-technological-influence/">new technical standards</a> to be used in these emerging digital technologies, China aims to lock in Chinese digital products and services and lock out non-Chinese competitors wherever its standards are adopted. </p>
<p>In Tanzania, for example, the Chinese company contracted to deploy the national ICT broadband network constructed it to be <a href="https://www.cfr.org/sites/default/files/pdf/Chinas%20Digital%20Silk%20Road%20and%20Africas%20Technological%20Future_FINAL.pdf">compatible only with routers</a> made by Chinese firm Huawei. </p>
<p>Incorporating digital technologies into hard infrastructure projects – digital traffic sensors on roads, for example – presents more opportunities for China to use the Belt and Road Initiative to promote adoption of its technologies and standards globally.</p>
<p><strong>4. Urbanization</strong></p>
<p>Finally, the developing world’s <a href="https://ourworldindata.org/urbanization#:%7E:text=Across%20all%20countries%2C%20urban%20shares,from%2054%25%20in%202016">urban population</a> is expected to rise from 35% in 1990 to 65% by 2050. The biggest increases will likely occur in the semi-competitive autocracies of Africa. A desire for sustainable urbanization will increase the demand for infrastructure that incorporates digital technologies – once again amplifying the opportunity for China and the BRI. </p>
<p>Understanding what drives the demand for the Belt and Road Initiative, and the trends that will propel it into the future, is vital for the West to devise an effective strategy that counters China’s rising global influence.</p><img src="https://counter.theconversation.com/content/217960/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Carney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>More autocratic governments, growing urbanization and emerging technologies will bolster the spread of Chinese influence around the world, an expert on emerging economies explains.Richard Carney, Associate professor of global studies, Chinese University of Hong Kong, ShenzhenLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2159302023-10-20T12:26:48Z2023-10-20T12:26:48ZHow the Israel-Hamas war could affect the world economy and worsen global trade tensions<figure><img src="https://images.theconversation.com/files/554774/original/file-20231019-19-w3dpvj.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3335%2C2070&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stock-exchange-market-trading-concepts-227858692">Rawpixel.com/Shutterstock</a></span></figcaption></figure><p>Global geopolitical tensions often play a pivotal role in shaping people’s perceptions of economic growth. <a href="https://www.matteoiacoviello.com/gpr_files/GPR_PAPER.pdf">Research shows</a> concern about such issues can cause people and businesses to become more cautious about spending and investing, which can ultimately lead to economic recession.</p>
<p>The recent escalation of the <a href="https://www.bbc.co.uk/news/world-middle-east-67039975">Israel-Palestine conflict</a> is no different. Investors around the world are worried about the repercussions of this war – particularly in light of an already <a href="https://www.oecd-ilibrary.org/sites/1f628002-en/index.html?itemId=/content/publication/1f628002-en">bleak picture for global economic growth</a>. </p>
<p>Hamas’s <a href="https://apnews.com/article/israel-palestinians-gaza-hamas-rockets-airstrikes-tel-aviv-11fb98655c256d54ecb5329284fc37d2">October 7 attack</a> on southern Israel is the latest chapter of a cycle of violence that has been going on in this region for decades and, sadly, seems to have no end in sight. While the reasons behind these events are complex, the conflict’s potential immediate and long-term economic ramifications are easier to grasp. </p>
<p>After all, if the Russia-Ukraine war has taught us one thing, it’s that we should be mindful of the intricate interdependencies that shape the global economic and geopolitical landscape.</p>
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<a href="https://theconversation.com/ukraine-and-the-financial-markets-the-winners-and-losers-so-far-179015">Ukraine and the financial markets: the winners and losers so far</a>
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<h2>How conflicts can affect the economy</h2>
<p>Internal and inter-state conflicts often have <a href="https://www.jstor.org/stable/20798955#:%7E:text=The%20results%20suggest%20that%2C%20on,is%20higher%20for%20international%20conflicts.">a significant effect</a> on stock market indices, exchange rates, and commodity prices – sometimes even sending prices higher in the lead-up to hostilities. The longer-term economic impact is typically more complicated to assess, however. The lasting effects of even seemingly dramatic events on investor behaviour can be hard to predict. </p>
<p>Conflicts in the Middle East tend to lead to <a href="https://www.sciencedirect.com/science/article/abs/pii/S0140988319303184#preview-section-snippets">spikes in oil prices</a> – think of the <a href="https://www.federalreservehistory.org/essays/oil-shock-of-1973-74">OPEC oil embargo</a> of 1973-1974, the <a href="https://www.brookings.edu/articles/what-irans-1979-revolution-meant-for-us-and-global-oil-markets/#:%7E:text=barrel%20in%20mid%2D-,1980,-.">Iranian revolution</a> of 1978-1979, the <a href="http://news.bbc.co.uk/1/hi/business/7431805.stm#:%7E:text=crude%20oil%20prices%20to%20more%20than%20double">Iran-Iraq War</a> initiated in 1980, and the first <a href="https://www.jstor.org/stable/41322669">Persian Gulf War</a> in 1990-91. Since the region accounts for <a href="https://www.statista.com/statistics/269076/distribution-of-global-oil-production-since-2009/">nearly a third of global oil supply</a>, any instability can create market uncertainty based on <a href="https://www.eia.gov/energyexplained/oil-and-petroleum-products/prices-and-outlook.php">concerns about interruptions</a> to global oil supply.</p>
<p>This uncertainty <a href="https://www.sciencedirect.com/science/article/abs/pii/S0165188921000130">is reflected in the risk premium</a> in oil markets. This is the price paid for oil traded ahead of time in the futures markets versus the real-time price of oil. It reflects the profits that speculators expect to receive from buying and selling oil during a time of conflict, as well as the hedging needs of businesses that produce and consume oil and their concerns about supply and demand. </p>
<p>And so, the effect of the latest Israel-Hamas conflict on global financial markets will depend on the involvement of other major regional powers. If the conflict remains between Israel and Hamas, the effect will probably be limited and arguably exclusive to countries with direct trade exposure to Israel or Palestine. </p>
<p>But if the conflict spreads to major oil-producing nations in the region such as Iran, the global economy could face severe repercussions as energy costs for businesses and households could spike if supply is interrupted.</p>
<p>Higher energy prices would hamper central banks’ efforts to tame inflation pressures in most advanced and emerging economies. If this leads to a “higher for longer” monetary policy that keeps interest rates elevated, it would push up the cost of borrowing and refinancing by governments, companies and people.</p>
<p>History can offer some insights into how the impact on the global economy could unfold under these different scenarios. For instance, the 50-day war between Israel and Hamas in 2014, <a href="https://www.independent.co.uk/news/world/middle-east/israelgaza-conflict-50day-war-by-numbers-9693310.html">which killed 2,200 people</a>, mostly civilians, had <a href="https://www.sciencedirect.com/science/article/pii/S1059056017308201">no significant effect</a> on the global economy or financial markets. </p>
<p>Yet, when Israel and Hezbollah clashed in Lebanon in 2006, oil prices <a href="https://www.nytimes.com/2006/07/25/world/middleeast/25oil.html">surged globally</a> due to fears of a broader conflict in the Middle East.</p>
<h2>What to expect this time</h2>
<p>Unfortunately, there is another factor to consider at the moment. The escalation of the Israel-Palestine conflict has happened alongside the realignment of various <a href="https://www.cnbc.com/2023/09/18/biden-backs-economic-corridor-as-geopolitical-alliances-fragment-globe.html">global alliances</a>. This slow creep of “deglobalisation” can be seen in a <a href="https://www.nber.org/papers/w31115">shift in trade policies</a> in recent years. </p>
<p>Countries such as the US and UK are relocating economic activity including sourcing or manufacturing products from different countries out of concern about relying on suppliers in potentially hostile regions, as well as the impact of imports from low-wage countries on struggling local labour markets</p>
<p>At the moment, these shifts can also be seen in the reactions to the Hamas attack on Israel. A <a href="https://www.un.org/unispal/history/#:%7E:text=After%20looking%20at%20alternatives%2C%20the,(II)%20of%201947">two-state solution</a>) to the Israel/Palestine conflict was initially laid out by the United Nations in 1947 and reaffirmed in 1974, with almost unanimous support around the world. </p>
<p>But there has been <a href="https://www.washingtoninstitute.org/policy-analysis/international-reactions-hamas-attack-israel">some nuance</a> in the international reactions to the attack. With most western countries quickly voicing support for Israel’s right to defend itself, while countries like China and Russia <a href="https://edition.cnn.com/2023/10/19/china/china-xi-israel-hamas-ceasefire-comment-intl-hnk/index.html#:%7E:text=China%20and%20Russia%20have%20both,US%20and%20leaders%20across%20Europe">called for a ceasefire</a> without taking a stance on Hamas. </p>
<p>This suggests that the issue of Israel-Palestine could tie in with the broader trend towards the new geopolitical divisions that were already starting to emerge before Hamas’s attack. </p>
<p>A prolonged conflict between Israel and Palestine, especially with the involvement of major regional powers, could further accelerate this <a href="https://www.nber.org/papers/w31661">global realignment</a> and have detrimental consequences for global economic growth. </p>
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Read more:
<a href="https://theconversation.com/china-us-tensions-how-global-trade-began-splitting-into-two-blocs-188380">China-US tensions: how global trade began splitting into two blocs</a>
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<figure class="align-center ">
<img alt="Gold bars on top of dollar bills and a printed chart." src="https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/554775/original/file-20231019-19-37k6c0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Investors often invest in gold as a</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/gold-bullion-ingot-stack-on-america-1064227718">eamesBot/Shutterstock</a></span>
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<p>Under these circumstances, investors are already bracing for increased financial volatility across the board – from stocks and government bonds to commodity markets. So-called safe-haven assets like gold are <a href="https://econpapers.repec.org/article/wlyeconjl/v_3a128_3ay_3a2018_3ai_3a616_3ap_3a3266-3284.htm">typically used as protection</a> against overwhelming economic uncertainty. The <a href="https://nz.finance.yahoo.com/news/gold-climbs-four-week-high-015019215.html">price of gold</a> has shot up following the latest escalation in the Israel-Palestine conflict.</p>
<p>Financial markets will continue to monitor the conflict between Israel and Hamas for signs of escalation. Anything that pushes oil prices up further will reignite fears of higher inflation. </p>
<p>Unfortunately, this is happening just as many countries were starting to see inflation slow again after two years of <a href="https://ycharts.com/indicators/us_consumer_price_index_yoy#:%7E:text=Basic%20Info,long%20term%20average%20of%203.28%25.">persistently high consumer prices</a>.</p><img src="https://counter.theconversation.com/content/215930/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniele Bianchi does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>History shows how conflicts can create uncertainty that can rattle financial markets. This could feed into consumer price inflation, keeping it higher for longer.Daniele Bianchi, Associate Professor of Finance, Queen Mary University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2134862023-09-13T17:27:30Z2023-09-13T17:27:30ZHow action over parliamentary spying scandal could affect the UK’s economic relationship with China<p>The arrest of a parliamentary researcher on suspicion of spying for China has fuelled calls in Westminster for tougher action against China by the UK government. This could impact the UK economy since China is an important trading partner and industry investor. </p>
<p><a href="https://www.mfa.gov.cn/eng/xwfw_665399/s2510_665401/202309/t20230911_11141145.html#:%7E:text=The%20allegation%20that%20China%20spies%20on%20the%20UK%20is%20entirely%20groundless.">Chinese officials</a> and <a href="https://www.bbc.co.uk/news/uk-politics-66773052">the researcher</a> have both denied the spying claims. But prime minister Rishi Sunak <a href="https://news.sky.com/story/pm-conveys-to-china-significant-concerns-about-interference-in-uk-parliamentary-democracy-no-10-12958311">reportedly ticked off</a> his Chinese counterpart, premier Li Qiang, on the sidelines of the G20 in New Delhi last weekend, accusing China of undermining parliamentary democracy. </p>
<p>Deputy prime minister Oliver Dowden has also said there is a <a href="https://www.bbc.co.uk/news/uk-politics-66780515#:%7E:text=Mr%20Dowden%20said%20there%20was%20a%20%22strong%20case%20to%20be%20made%22%20for%20this">“strong case” for the government</a> to officially designate China as a threat to the UK, but that it was unrealistic to “completely disengage”.</p>
<p>This is an early Christmas present for <a href="https://www.politico.eu/article/not-just-china-spy-scandal-7-flashpoint-britain-uk-tory-hawks/">the hawkish side of the Conservative party</a> which has called for the UK to take a tougher stance on China for several years. A more critical engagement with China is long overdue, but clumsy mitigation policies won’t safeguard the UK’s relationship with China – economic or otherwise.</p>
<p>Leaving aside the political theatrics, little is known yet of the nature of the charges of the two persons arrested in March under the Official Secrets Act over alleged espionage-related offences. One of these people was a parliamentary researcher whose alleged identity was recently published in the media. But China is unlikely to ignore such a slight. </p>
<p>So what could this mean for British firms and the UK economy? A look at trade, investment and broader UK cooperation with China gives a sense of the economic hit the UK might sustain from any action against China.</p>
<h2>What does the UK import from China?</h2>
<p>China is the UK’s <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1178757/china-trade-and-investment-factsheet-2023-08-18.pdf">fourth largest trading partner</a>, accounting for <a href="https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/datasets/uktotaltradeallcountriesseasonallyadjusted">6.1% of total UK trade</a> in goods and services, which was £107.6 billion over the 12 months to the end of March 2023. Of this, the UK exported £38 billion of goods and services to China, but <a href="https://www.gov.uk/government/statistics/trade-and-investment-factsheets-latest-update/latest-trade-and-investment-factsheets-collection">imported £69.5 billion from China</a>. </p>
<p>In other words, the UK imports substantially more from China, meaning it has an overall trade deficit with the Asian country.</p>
<p>This deficit, however, is concentrated in goods rather than services. China is the UK’s second largest source of physical product imports, accounting for 10.4%. But as a destination for exports, it is the UK’s fifth largest export market, taking 6.6% of British goods. </p>
<p>Major UK imports from China include telecoms and sound equipment, office machinery, clothing and cars. The leading UK exports to China include cars, crude oil, pharmaceuticals and scientific instruments. The largest category, unspecified goods (41%), could include products like Scottish salmon, whiskey and luxury clothing from British brands like Burberry.</p>
<h2>How could China squeeze the UK economy?</h2>
<p>Services are a bright spot for UK exports to China. At £9.9 billion, the UK latest annual services exports are three times the value of those China sells to the UK. Especially important are <a href="https://www.china-briefing.com/news/uk-china-trade-and-investment-analysis-2023-updates/#:%7E:text=asset%20management%20powerhouse.-,The%20UK%2DChina%20Strategic%20Plan%20for%20Financial%20Services,-Because%20of%20the">financial services</a> and educational services. More than <a href="https://www.statista.com/statistics/372922/number-of-chinese-students-in-the-united-kingdom/">150,000 Chinese students are studying in the UK</a> right now. </p>
<p>These students directly and indirectly support local economies. Universities and their host towns, cities or areas are typically heavily reliant on student spending in general, not just those from China and other countries.</p>
<p>The recent spying allegations could encourage Chinese government retaliation against the UK comparable to <a href="https://www.china-briefing.com/news/china-australia-bilateral-ties-opportunities-challenges-latest-updates/">action it has taken against Australia</a> in recent years. This included restricting imports, which would hurt and widen the merchandise deficit. Australia <a href="https://www.pm.gov.au/media/press-conference">toughed it out</a>, and China softly wound back its restrictions over the past year. </p>
<p>But UK industries aren’t as heavily dependent on Chinese demand as some of those in Australia such as <a href="https://www.china-briefing.com/news/china-to-lift-restrictions-on-australian-coal-imports/#:%7E:text=The%20significance%20of%20Australian%20coal%20to%20China">coal mining</a>, <a href="https://www.trademinister.gov.au/minister/don-farrell/media-release/statement-reinstatement-barley-exporters-china#:%7E:text=Prior%20to%20the%20imposition%20of,barley%20with%20China%20effectively%20ceased.">barley</a> and <a href="https://www.reuters.com/business/retail-consumer/australian-wine-industry-faces-hangover-chinas-high-tariffs-2023-08-18/#:%7E:text=The%20curbs%20battered%20the%20wine,pandemic%20began%20to%20take%20hold.">wine production</a>. Also, exports of UK services could be less affected by government action because Chinese people’s demand for things like education is so strong government action may not dull this demand.</p>
<p>It’s more difficult to predict the impact of potential government action on foreign direct investment (FDI). This is when companies invest in other countries, often encouraged by subsidies or tax breaks. </p>
<p>The total stock of FDI into the UK in 2021 was <a href="https://commonslibrary.parliament.uk/research-briefings/cbp-8534/#:%7E:text=FDI%20in%20the%20UK&text=The%20value%20of%20foreign%20direct,up%20very%20slightly%20from%202020.">£2 trillion</a>, of which a third comes from the US, while <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1178757/china-trade-and-investment-factsheet-2023-08-18.pdf">China accounts for just 0.3%</a>. But how much investment comes into the UK from China via tax havens and third countries is a big unknown. Total Chinese money invested in firms, real estate and other ventures in the UK could well exceed official accounting.</p>
<p>Brexit has already been a major disincentive for Chinese state and private investors. The electric vehicle maker BYD, now the world’s largest producer, shied away from the UK <a href="https://www.theguardian.com/business/2023/mar/12/china-byd-blames-brexit-as-it-rules-out-uk-for-first-european-car-plant">for that very reason</a>. </p>
<p>If the UK is seen as an increasingly hostile environment for China, it won’t help encourage Chinese FDI. For the more hawkish on China that might seem like a good thing. But this is short sighted. Decoupling from China is neither feasible nor desirable. </p>
<figure class="align-center ">
<img alt="Two speech bubbles filled with British flag and China flag, dark clouds in the background." src="https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&rect=0%2C17%2C5946%2C2901&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=300&fit=crop&dpr=1 600w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=300&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=300&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=377&fit=crop&dpr=1 754w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=377&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/548069/original/file-20230913-23-e0gdrf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=377&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Officials believe the UK and China should keep talking.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/uk-china-brexit-negotiation-talks-3d-1621857976">Ink Drop/Shutterstock</a></span>
</figcaption>
</figure>
<h2>Managing the UK’s relationship with China</h2>
<p>UK foreign secretary James Cleverly subtly captured the problem when <a href="https://www.gov.uk/government/news/foreign-secretary-visits-beijing-to-further-british-interests">he said before a recent visit to China</a> that the challenge was to “manage our relationship with China across a range of issues”, citing climate change, pandemic prevention, economic instability and nuclear proliferation. “China’s size, history, and global significance means they cannot be ignored,” he said, adding that China had to fulfil its international commitments and obligations.</p>
<p>There are very real risks to UK security from China. But addressing this will require a deft hand by policymakers. Continued engagement is needed with China if the UK is to tap into the technological advances it has made in green technologies and other sectors vital to an advanced economy. </p>
<p>China needs to be kept inside the tent. Left outside, it will become so much more difficult to observe, let alone to share in economic developments that might be beneficial for the west. Sensible risk mitigation and collaboration strategies will be much more fruitful for the UK economy than name calling.</p><img src="https://counter.theconversation.com/content/213486/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Morgan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As a key UK trading partner, the government should tread carefully when addressing the very real risks posed by China.Stephen Morgan, Professor of Chinese Economic History (Emeritus), University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2068082023-06-21T14:52:58Z2023-06-21T14:52:58ZChina’s economic recovery is built on increasingly shaky foundations and that could affect the whole world<figure><img src="https://images.theconversation.com/files/532745/original/file-20230619-20-jl6eqw.jpg?ixlib=rb-1.1.0&rect=29%2C17%2C3964%2C2640&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People shopping in downtown Shanghai, China.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-july-21st-2016-local-508535308">LMspencer/Shutterstock</a></span></figcaption></figure><p>Confidence in China’s post-COVID recovery has started to waver over the past week after the world’s second-largest economy reported disappointing figures for two of the major drivers of its economy: <a href="https://openknowledge.worldbank.org/entities/publication/d20ddc24-0ad1-5eb7-a3d5-d2864897c3a6">property and exports</a>.</p>
<p>In response, China’s central bank is taking the opposite approach to western counterparts like the Bank of England by <a href="https://edition.cnn.com/2023/06/20/economy/china-lpr-cut-economy-intl-hnk/index.html">cutting its main interest rates</a> to try to stimulate investment in its economy.</p>
<p>The Chinese government had hoped to recapture previous economic highs after <a href="https://news.sky.com/story/zero-covid-absolutely-hammered-china-but-rapid-dropping-of-containment-laws-reveals-extent-of-pressure-it-was-under-12775008">ending its zero-COVID policy in December 2023</a>. But there are some indications that the country may instead settle into the same moderate growth patterns over the medium to long term as other advanced economies.</p>
<p>When Chinese GDP growth bounced back to exceed market expectations in the first quarter of 2023, <a href="https://www.china-briefing.com/news/chinas-economy-in-2023-gdp-grew-by-4-5-in-q1/#:%7E:text=China's%20economy%20expanded%204.5%20percent,recovery%20is%20right%20on%20track.">growing at 4.5% year on year</a>, it was good news for China and for the global economy. The surge was partly led by retail sales shooting up by 10.6% in March as the lifting of COVID restrictions in December 2022 started to filter through to the domestic economy.</p>
<p>More importantly for the global economy, the end of China’s COVID restrictions unblocked supply chains and led to <a href="https://apnews.com/article/china-trade-import-export-us-037e1dce8531d7f1d4acc1189e65bf83">a hefty 14.8% rise in exports in March</a> compared with the same month in 2022. Of course, it’s easy to hit high growth rates from a low base, but this was still a welcome sign that China could meet <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023">International Monetary Fund (IMF) expectations</a> for GDP growth of 5.2% in 2023.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line graph showing GDP peaking close to 20% in Q1 2021 before falling and flattening out to 5% in Q1 2023." src="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=308&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=308&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=308&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=387&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=387&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532737/original/file-20230619-22-a9tshr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=387&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.statista.com/statistics/271769/quarterly-gross-domestic-product-gdp-growth-rate-in-china/">Statista</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>However, all was not what it seemed: China’s recovery is actually built on quite shaky foundations. There is weakness in domestic real estate investment and export expectations due to uncertain global demand and ongoing trade frictions with the US. So what can – and should – the Chinese government do about this?</p>
<p>Domestically, the Chinese government has started to use monetary policy – <a href="https://www.nytimes.com/2023/06/19/business/china-loan-prime-rates.html#:%7E:text=Tuesday's%20cut%20brought%20the%20benchmark,companies%20and%20state%2Downed%20enterprises.">interest rate cuts</a> – to generate growth via personal and business borrowing. And the amount of <a href="https://mv-pt.org/monthly-monetary-update/">money circulating in China’s economy has picked up</a> because people and businesses are finding it easier to borrow. This means that domestic demand could help meet the government’s official 5% growth target for 2023.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Line chart showing rate of money growth in China falling from a pre-2010 peak." src="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=393&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=393&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=393&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=493&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=493&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532738/original/file-20230619-15-e0g8qo.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=493&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://mv-pt.org/monthly-monetary-update/">Institute of International Monetary Research, University of Buckingham</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Longer-term, however, uncertainty abounds about China’s growth prospects. <a href="https://www.imf.org/en/News/Articles/2023/02/02/cf-chinas-economy-is-rebounding-but-reforms-are-still-needed">The IMF has forecast</a> GDP growth of 4.5% in 2024, falling to around 3.2% by 2028. This slowdown is expected because of issues including further fragility in China’s real estate sector and a decline in its workforce due to age.</p>
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Read more:
<a href="https://theconversation.com/china-property-crisis-why-the-housing-market-is-collapsing-and-the-risks-to-the-wider-economy-189082">China property crisis: why the housing market is collapsing – and the risks to the wider economy</a>
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<p>Before COVID, China put its increasingly urban, working-age population to work in booming industries such as green tech to turbocharge its growth. This partly drove soaring <a href="https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2021&locations=CN&start=1961&view=chart">GDP growth from -27.3% in 1961 to 6% pre-COVID</a>. But achieving similar rates of growth won’t be as easy in the future. </p>
<p>The reasons for the spectacular past performance of China’s economy are well known: the 1978-2019 period was when China opened up its economy and saw its exports boom. Research often links <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1667775">competition through trade to productivity and growth</a>. It also helped that, during this time, <a href="https://www.jstor.org/stable/41038787">China shifted its manufacturing focus</a> from low-productivity industries such as mining heavy metals and coal to highly productive enterprises like computing and green technology. </p>
<p>As mentioned, urbanisation and the shift in population from rural to urban areas <a href="https://link.springer.com/article/10.1007/s11769-022-1255-7">have played a part</a> in China’s past positive performance. And China’s government has also used <a href="https://www.bbvaresearch.com/en/publicaciones/china-will-infrastructure-investment-become-the-key-growth-stabilizer-in-2022/">infrastructure investment</a> to boost business performance during downturns quite effectively.</p>
<h2>Long-term, moderate growth</h2>
<p>China is unlikely to be able to use the same strategies to return to its previous high-growth path. It’s much more likely to settle into the kind of moderate growth experienced by developed economies like the US and UK (pre-COVID). </p>
<p>To understand why, let’s start with the fundamentals. The size of its workforce is declining, affecting the contribution of labour to the economy. China is also facing a demographic problem of a decreasing population – <a href="https://theconversation.com/chinas-population-is-now-inexorably-shrinking-bringing-forward-the-day-the-planets-population-turns-down-198061">a drop of 850,000 last year</a> – and an increasing dependency ratio. This means there are fewer workers to support those that have retired.</p>
<p>An increasing dependency ratio has implications for the future of trade because total population consumption will start to outstrip whatever is produced by the working population. Domestic demand will grow faster than domestic output and this will create a mismatch when it comes to the way China has traditionally invested in its economy.</p>
<p>In the decades since it opened up its economy, China invested in domestic businesses (state-owned enterprises) through its largely state-owned banks. But if China’s savings ratio starts to fall due to its demographic changes – as its ageing population stops working and starts spending their savings rather than generating more income – the Chinese government will have to find a new way to finance its domestic investment in the private sector. </p>
<figure class="align-center ">
<img alt="A statue of a bull outside a glass skyscraper with flags including China's flag." src="https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/532746/original/file-20230619-1900-2x21u5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A bull sculpture outside the stock exchange building in Shenzhen, China.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shenzhenchinajune-152015-shenzhen-stock-market-building-297414167">zhu difeng/Shutterstock</a></span>
</figcaption>
</figure>
<p>The state’s reputation for strong intervention in private industry will complicate this issue by weakening growth in private investment, which will further restrict the domestic economy. Stronger <a href="https://www.reuters.com/markets/rates-bonds/shadow-banking-risks-china-curbed-significantly-regulator-says-2022-07-30/">regulation of shadow banking</a> has decreased access to finance for both people and businesses. The financial sector remains heavily regulated and high-profile interventions in the digital economy have created <a href="https://www.cnbc.com/2023/05/24/chinas-tech-sector-may-see-fewer-surprises-in-regulation-sp-report.html">a sense of uncertainty</a> that may weaken private investment. </p>
<p>A <a href="https://openknowledge.worldbank.org/entities/publication/d20ddc24-0ad1-5eb7-a3d5-d2864897c3a6">recent World Bank Group study</a> projects Chinese growth of 4% in the decade after 2030, if there are comprehensive reforms in areas like state regulation of private business. But with only limited reform, 2030’s growth is projected to fall below 2%, according to the World Bank. This will have an impact far beyond China’s borders. </p>
<p>The country has the potential to grow faster than the advanced economies for decades if it can overcome these challenges. And, of course, whatever happens in China is likely to have a major effect on global growth.</p><img src="https://counter.theconversation.com/content/206808/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kent Matthews receives funding from the ESRC (ES/P004199/1) for the project Shadow Banking and the Chinese Economy: A Micro to Macro Modelling Framework</span></em></p>China is trying to revive its economy to reach pre-COVID heights but future growth rates might be closer to developed economies like the US and UK.Kent Matthews, Professor of Banking and Finance, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2070572023-06-20T08:51:47Z2023-06-20T08:51:47ZWhy US ‘dollar doomsayers’ could be wrong about its imminent demise<figure><img src="https://images.theconversation.com/files/531167/original/file-20230609-15-iblgu4.jpg?ixlib=rb-1.1.0&rect=107%2C83%2C7748%2C4371&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">phanurak rubpol/Shutterstock</span></span></figcaption></figure><p>The position of the US dollar in <a href="https://data.imf.org/?sk=e6a5f467-c14b-4aa8-9f6d-5a09ec4e62a4">the global league table of foreign exchange reserves</a> held by other countries is closely watched. Every <a href="https://uk.style.yahoo.com/natural-way-diversify-janet-yellen-125500087.html#:%7E:text=Fed%20decides%20to%20pause%3A%20Impact%20on%20investors%2C%20markets&text=The%20U.S.%20dollar%20saw%20an,days%20of%20dominance%20are%20over.">slight fall in its share</a> is interpreted as confirmation of its imminent demise as <a href="https://www.cnbc.com/video/2023/06/08/expect-us-dollars-dominance-to-stay-for-foreseeable-future-moodys.html">the preferred global currency</a> for financial transactions. </p>
<p>The recent drama surrounding <a href="https://newrepublic.com/article/170703/debt-ceiling-dollar-reserve-currency">negotiations about raising the limit on US federal government debt</a> has only fuelled these predictions by “dollar doomsayers”, who believe <a href="https://www.investopedia.com/terms/d/debt-ceiling.asp#:%7E:text=Debt%20Ceiling%20Showdowns%20and%20Shutdowns">repeated crises over the US government’s borrowing limit</a> weakens the country’s perceived stability internationally. </p>
<p>But the real foundation of its dominance is global trade – and it would be very complicated to turn the tide of these many transactions away from the US dollar.</p>
<p>The international role of a global currency in financial markets is ultimately based on its use in non-financial transactions, especially as <a href="https://www.imf.org/en/Publications/WP/Issues/2020/07/17/Patterns-in-Invoicing-Currency-in-Global-Trade-49574">what’s called an “invoicing currency” in trade</a>. This is the currency in which a company charges its customers. </p>
<h2>Global network of supply and trade</h2>
<p>Modern trade can involve many financial transactions. Today’s supply chains often see goods shipped across several borders, and that’s after they are produced using a combination of intermediate inputs, usually from different countries. </p>
<p>Suppliers may also only get paid after delivery, meaning they have to finance production beforehand. Obtaining this financing in the currency in which they invoice makes trade easier and more cost effective. </p>
<p>In fact, it would be very inconvenient for all participants in a value chain if the invoicing and financing of each element of the chain happened in a different currency. Similarly, if most trade is invoiced and financed in one currency (the US dollar at present), even banks and firms outside the US have an incentive to denominate and settle financial transactions in that currency. </p>
<p>This status quo becomes difficult to change because no individual organisation along the chain has an incentive to switch currencies if others aren’t doing the same. </p>
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<a href="https://theconversation.com/five-ways-that-the-super-strong-us-dollar-could-hurt-the-world-economy-186654">Five ways that the super-strong US dollar could hurt the world economy</a>
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<p>This is why the US dollar is <a href="https://www.wto.org/english/res_e/reser_e/ersd201210_e.pdf">the most widely used currency in third-country transactions</a> – those that don’t even involve the US. In such situations it’s called a vehicle currency. The euro is used mainly in the vicinity of Europe, whereas the US dollar is widely used <a href="https://www.jstor.org/stable/23352320">in international trade among Asian countries</a>. Researchers call this <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20171201">the dominant currency paradigm</a>.</p>
<p>The convenience of using the US dollar, even outside its home country, is further buttressed by the openness and size of US financial markets. They make up <a href="https://www.msci.com/documents/10199/178e6643-6ae6-47b9-82be-e1fc565ededb">36% of the world’s total</a> or five times more than the euro area’s markets. Most trade-related financial transactions <a href="https://blogs.worldbank.org/trade/greasing-wheels-commerce-trade-finance-and-credit">involve the use of short-term credit</a>, like using a credit card to buy something. As a result, the banking systems of many countries must then be at least partially based on the dollar so they can provide this short-term credit. </p>
<p>And so, these banks need to invest in the US financial markets to refinance themselves in dollars. They can then provide this to their clients as dollar-based short-term loans.</p>
<p>It’s fair to say, then, that the US dollar has not become the premier global currency only because of US efforts to foster its use internationally. It will also continue to dominate as long as private organisations engaged in international trade and finance find it the most convenient currency to use.</p>
<h2>What could knock the US dollar off its perch?</h2>
<p>Some governments such as that of China might try to offer alternatives to the US dollar, but they are unlikely to succeed. </p>
<p>Government-to-government transactions, for example for crude oil between China and Saudi Arabia, could be denominated in yuan. But then the Saudi government would have to find something to do with the Chinese currency it receives. Some could be used to pay for imports from China, but <a href="https://oec.world/en/profile/country/sau/?yearlyTradeFlowSelector=flow0">Saudi Arabia imports</a> a lot less from China (about US$30 billion) than it exports (about US$49 billion) to the country.</p>
<p>The US$600 billion <a href="https://www.pif.gov.sa/en/Pages/AboutPIF.aspx">Public Investment Fund</a> (PIF), Saudi Arabia’s sovereign wealth fund, could of course use the yuan to invest in China. But this is difficult on a large scale because Chinese currency remains only partially “convertible”. This means that the Chinese authorities still control many transactions in and out of China, so that the PIF might not be able to use its yuan funds as and when it needs them. Even without convertibility restrictions, few private investors, and even fewer western investment funds, would be keen to put a lot of money into China if they are at the mercy of the Communist party.</p>
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Read more:
<a href="https://theconversation.com/war-in-ukraine-might-give-the-chinese-yuan-the-boost-it-needs-to-become-a-major-global-currency-and-be-a-serious-contender-against-the-us-dollar-205519">War in Ukraine might give the Chinese yuan the boost it needs to become a major global currency -- and be a serious contender against the US dollar</a>
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<p>China is of course the country with the strongest political motives to challenge the hegemony of the US dollar. A natural first step would be for China to diversify its foreign exchange reserves away from the US by investing in other countries. But this is easier said than done. </p>
<p>There are few opportunities to invest hundreds or thousands of billions of dollars outside of the US. <a href="https://stats.bis.org/statx/srs/table/c1?f=pdf">Figures from the Bank of International Settlements</a> show that the euro area bond market – a place for investors to finance loans to Euro area companies and governments – is worth less than one third of that of the US. </p>
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<img alt="Full-colour US dollar and Chinese yuan notes torn in half and pictured beside each other over a grey map of the world." src="https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531169/original/file-20230609-5641-6c2xc8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p>Also, in any big crisis, other major OECD economies like Europe and Japan are more likely to side with the US than China – making such a decision is even easier when they are using US dollars for trade. It was said that states <a href="https://www.piie.com/blogs/realtime-economics/much-global-south-ukraines-side">accounting for one half of the global population</a> refused to condemn Russia’s invasion of Ukraine, but this half does not account for a large share of global financial markets. </p>
<p>Similarly, it shouldn’t come as a surprise that democracies dominate the world financially. Companies and financial markets require trust and a well-established rule of law. Non-democratic regimes have no basis for establishing the rule of law and every investor is ultimately subject to the whims of the ruler.</p>
<p>When it comes to global trade, currency use is underpinned by a self-reinforcing network of transactions. Because of this, and the size of the US financial market, the dollar’s dominant position remains something for the US to lose rather for others to gain.</p><img src="https://counter.theconversation.com/content/207057/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Daniel Gros does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>So much international trade happens in dollars that it would be very difficult to turn the tide against the currency any time soon.Daniel Gros, Professor of Practice and Director of the Institute for European Policymaking, Bocconi UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2071612023-06-13T14:03:11Z2023-06-13T14:03:11ZThe US role in the global financial system is changing – here’s how it could affect the world’s economy<figure><img src="https://images.theconversation.com/files/531025/original/file-20230608-29-va8wnb.jpg?ixlib=rb-1.1.0&rect=109%2C58%2C5262%2C3581&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/paper-plane-on-travel-map-symbolizing-52674835">Anneka/Shutterstock</a></span></figcaption></figure><p>The last-minute resolution of <a href="https://www.bbc.co.uk/news/world-us-canada-65744615">the US debt ceiling crisis</a> recently has led to a collective sigh of relief in global financial markets. But the way it was resolved has renewed concerns about the <a href="https://apnews.com/article/debt-limit-congress-world-economy-recession-biden-52df635e9b89f4b1677176fc8d59eff0">the dominant role of the US in the world economy</a> at a time of unprecedented challenges including low growth, high inflation and worries about the stability of the banking system.</p>
<p>There is a high degree of uncertainty about how these issues will play out. But the political paralysis in Washington, the rise of populism and a retreat from free trade means that the US may not have either the means or the will to deal with another global crisis as effectively as it once did. </p>
<p>As a BBC economics reporter during the 2008 global financial crisis, I saw first hand the dominant role the US played, both domestically and internationally, in resolving the situation. There is little evidence of the same commitment from the US today.</p>
<p>The US Federal Reserve Bank played a <a href="https://www.federalreserve.gov/econres/feds/files/2019039pap.pdf">crucial role</a> in 2008. It stabilised the global banking system by lending over US$1 trillion (£796 billion) to other central banks <a href="https://www.grips.ac.jp/r-center/wp-content/uploads/11-18.pdf">through so-called “swap lines”</a>, which pumped money into the financial system. </p>
<p>This facilitated the bailout of the European banking system by lending much-needed dollars. This year, at the height of the banking crisis in March, the <a href="https://www.federalreserve.gov/monetarypolicy/central-bank-liquidity-swaps.htm">Fed intervened again</a> to provide daily currency swaps to other central banks. </p>
<p>During the 2008 crisis, the US was also <a href="https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2010/11/cj30n3-5.pdf">the driving force</a> behind urging the major industrial countries to introduce expansionary policies to grow their economies in order to avoid a global recession. </p>
<p>It also enabled the International Monetary Fund (IMF) <a href="https://www.imf.org/en/News/Articles/2015/09/28/04/53/sonew040309a">to make a further US$1 trillion</a> available to stabilise the threat to the financial system and help emerging market and <a href="https://www.imf.org/external/np/lic/2009/072909.htm">low-income countries</a>. And the US took the lead, through the G20, in creating the <a href="https://www.fsb.org/about/history-of-the-fsb/">global financial regulator</a>, the Financial Stability Board (FSB), to ensure the stability of large global banks.</p>
<p>More recently, the world’s financial system has been shaken by another financial crisis, although it has been smaller in scope: the failure of several US regional banks and the rescue of Swiss bank Credit Suisse. The latter is one of only 30 <a href="https://www.fsb.org/wp-content/uploads/P211122.pdf">global systemically important financial institutions</a> identified by the FSB as likely to cause a financial crisis if they fail. </p>
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Read more:
<a href="https://theconversation.com/silicon-valley-bank-how-interest-rates-helped-trigger-its-collapse-and-what-central-bankers-should-do-next-201697">Silicon Valley Bank: how interest rates helped trigger its collapse and what central bankers should do next</a>
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<p>It is by no means clear that <a href="https://www.theguardian.com/business/2023/may/02/is-the-banking-crisis-coming-to-an-end-as-jp-morgan-ceo-notes-risks-linger">the latest banking crisis has run its course</a>. There are concerns about the so-called <a href="https://home.treasury.gov/news/press-releases/jy1376">shadow banking system</a>, largely unregulated financial institutions that now make up <a href="https://www.imf.org/en/Publications/GFSR">half of all</a> global financial assets. For example, in the US many people invest in <a href="https://www.nytimes.com/2023/04/21/business/money-market-funds.html?referringSource=articleShare">money market funds</a>, which pay higher interest than banks, but provide no deposit insurance. </p>
<p>Meanwhile, the international regulatory system created in 2008 has been either ineffective or weakened. Political pressures led <a href="https://www.arnoldporter.com/en/perspectives/advisories/2018/06/passage-of-the-economic-growth-act-modifies">the US to reduce regulation and capital requirements</a> for its regional banks, <a href="https://www.brookings.edu/research/no-dodd-frank-was-neither-repealed-nor-gutted-heres-what-really-happened/">during the Trump administration</a>, while <a href="https://www-forbes-com.cdn.ampproject.org/c/s/www.forbes.com/sites/mayrarodriguezvalladares/2023/04/17/what-to-watch-for-with-us-regional-banks-this-week/amp/">worries about their soundness</a> remain. Internationally, geopolitical tensions within the G20, <a href="https://www.bbc.co.uk/news/world-asia-india-64781836">due to differences</a> between emerging market countries and G7 countries on Ukraine, have furthered weakened the impact of FSB recommendations.</p>
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<img alt="Globe on international banknotes, currency signs including dollar, euro, yen, yuan, pound, financial charts." src="https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/531022/original/file-20230608-21-swwjfx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<h2>The future of US global economic influence</h2>
<p>There are strong reasons to <a href="https://www.politico.com/news/2022/10/15/domestic-inflation-global-recession-00061927">doubt whether the Fed would be willing or able</a> to lead another large-scale 2008-style bank rescue. In the first place, in contrast to the <a href="https://www.statista.com/statistics/191077/inflation-rate-in-the-usa-since-1990/">relatively low inflation in 2008</a>, the Fed is now facing <a href="https://theconversation.com/federal-reserve-bows-to-bank-crisis-fears-with-quarter-point-rate-hike-letting-up-a-little-in-its-fight-against-inflation-202307">conflicting pressures</a>, having sharply raised interest rates to curb inflation. </p>
<p>This might surge again if the Fed is forced to cut rates to save banks which lent heavily during the recent period of low rates and are now seeing a rise in bad debts as rates rise and borrowers struggle to manage their repayments. For the same reason, the Fed would be reluctant to support a further expansion of the US economy, which could add to inflationary pressures.</p>
<p>Finally, the US’s ability to mount a major bank rescue, either domestically or internationally, is limited by the fact that the Fed still has a huge balance sheet overhang remaining from the 2008 rescue, which it is trying to reduce <a href="https://www.federalreserve.gov/monetarypolicy/policy-normalization.htm">by US$30 billion, and soon US$60 billion, per month</a>. And the Fed’s authority to issue swaps to other central banks <a href="https://www.npr.org/sections/money/2020/04/21/839374663/why-is-the-fed-sending-billions-of-dollars-all-over-the-world">could also be challenged</a> by politicians who might question the need to help the US’s economic rivals. </p>
<p>The twin threats of inflation and slow growth have not yet been tamed, either in Europe or the US. This calls the credibility of central banks – which is key to their ability to manage the economy – <a href="https://www.theguardian.com/business/2023/may/19/central-banks-trust-inflation-bank-of-international-settlements?CMP=Share_iOSApp_Other">into question</a> as never before. </p>
<p>Meanwhile, the value of financial assets that underpin the global financial system, particularly US Treasury bonds, have seen <a href="https://www.reuters.com/markets/rates-bonds/dysfunction-wildly-illiquid-bond-markets-unnerves-investors-officials-2023-03-17/">dramatic fluctuations</a> due to the banking and debt ceiling crisis, as well as concerns about the huge size of fast-rising US government debt. </p>
<p>Recent attempts by right-wing House Republicans to <a href="https://www.reuters.com/world/us/mccarthy-faces-sudden-challenge-hardliners-after-us-debt-ceiling-bill-2023-06-07/">block the passage</a> of some spending bills could ultimately lead to a government shutdown. This would further weaken the US government’s credit rating.</p>
<p>All of this has put unprecedented pressure on the stability of the banks around the world. The growing tensions within the globalised financial system, coupled with a weakened US in retreat from its global role, could spell danger for world economy.</p><img src="https://counter.theconversation.com/content/207161/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steve Schifferes does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Why the US may not always be able to lead global economic rescue efforts.Steve Schifferes, Honorary Research Fellow, City Political Economy Research Centre, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2057042023-05-25T12:34:11Z2023-05-25T12:34:11ZImproving how the IMF does business could help billions of people worldwide — by giving governments money to spend on public goods and increasing accountability. Podcast<figure><img src="https://images.theconversation.com/files/526826/original/file-20230517-23266-2g9fwb.jpg?ixlib=rb-1.1.0&rect=258%2C64%2C8368%2C5678&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People march with a banner that reads in Spanish 'Stop the adjustment, out with the IMF,' in Buenos Aires, Argentina on May 9, 2023.</span> <span class="attribution"><span class="source">(AP Photo/Victor R. Caivano)</span></span></figcaption></figure><p>In countries across the Global South, the launch of IMF programs often <a href="https://theconversation.com/when-the-imf-comes-to-town-why-they-visit-and-what-to-watch-out-for-188302">sparks considerable concern</a>. This is because of the IMF’s reputation: during the 1980s, many nations in Africa, Asia and Latin America turned to the IMF seeking loans to mitigate economic challenges. <a href="https://theconversation.com/imf-says-it-cares-about-inequality-but-will-it-change-its-ways-120105">These loans were accompanied by stringent conditions</a>, and countries faced pressure to reduce public subsidies and social spending, downsize the public sector workforce, and increase taxes.</p>
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<p>Originally <a href="https://www.imf.org/external/about/histcoop.htm">founded after the second world war</a>, the IMF aimed to provide a framework for countries to cooperate in managing their exchange rates and to facilitate international trade. Since then, it has evolved to provide financial assistance and support to countries facing economic crises and emergencies worldwide. Member countries contribute a certain amount of money to the IMF based on their economic size, and in turn, they are able to access loans as a means of aid. </p>
<p>During the recent COVID-19 pandemic, <a href="https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker">the IMF extended loans to over 80 countries</a>. Presently, <a href="https://www.imf.org/external/np/fin/tad/balmov2.aspx?type=TOTAL">more than 90 countries remain indebted</a> to the IMF, with such loans being accompanied by policy conditions.</p>
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<a href="https://theconversation.com/when-the-imf-comes-to-town-why-they-visit-and-what-to-watch-out-for-188302">When the IMF comes to town: why they visit and what to watch out for</a>
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<p>In this episode of <em>The Conversation Weekly</em>, we speak with two researchers about the impact of IMF loans on recipient countries and why countries continue to rely on IMF loans. We also discuss potential alternatives to this system.</p>
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<a href="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4031%2C3024&q=45&auto=format&w=1000&fit=clip"><img alt="a plaque on a building showing the IMF logo and the text INTERNATIONAL MONETARY FUND" src="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4031%2C3024&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526561/original/file-20230516-11526-ru0y3p.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">The International Monetary Fund has 190 member countries.</span>
<span class="attribution"><span class="source">(Shutterstock)</span></span>
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</figure>
<h2>Ongoing impact of colonialism</h2>
<p><a href="https://www.chr.up.ac.za/centre-staff/daniel-bradlow">Danny Bradlow</a>, a professor of international development law and African economic relations and senior fellow at the University of Pretoria in South Africa, highlights the harmful effects of IMF-imposed austerity measures. </p>
<p>The ongoing impact of colonialism means many countries in the Global South “were in a very dire situation to begin with,” Bradlow explains. “The IMF said if you follow our policy prescriptions, things will turn around and you’ll do much better.” </p>
<p>The measures imposed by the IMF limited access to healthcare and education for poorer people. Throughout the 1980s, the IMF pressured country after country — in what’s often known as <a href="https://theconversation.com/imf-says-it-cares-about-inequality-but-will-it-change-its-ways-120105">Structural Adjustment Programs</a> — with lasting damage on economies and populations.</p>
<p>The policy measures dictated by the IMF also had detrimental environmental consequences. To encourage economic growth, many countries were pressured to shift “from producing food to producing agricultural products that you could sell on the global markets,” Bradlow says. “Often that meant you were using more environmentally damaging fertilizers, or you were doing extractive mining projects that were environmentally damaging. In some cases it was logging, so countries would tear down forests.”</p>
<h2>Prolonged debt and austerity</h2>
<p><a href="https://profiles.uonbi.ac.ke/attiya/">Attiya Waris</a> is associate professor of fiscal law and policy at the University of Nairobi in Kenya, and an <a href="https://www.ohchr.org/en/special-procedures/ie-foreign-debt/attiya-waris">expert on foreign debt and international financial obligations</a> and their implications for human rights.</p>
<p>As part of her work, Waris sheds light on the experiences of Argentina and Pakistan. Both countries have received multiple loans since the 1950s to address economic challenges such as inflation, currency devaluation, and external debt crises. <a href="https://www.imf.org/en/Countries/ARG">Argentina currently holds the highest outstanding debt</a> of US$46 billion, <a href="https://www.imf.org/en/Countries/PAK">while Pakistan ranks fifth</a> with US$7.4 billion.</p>
<p>“Pakistan is one of 14 countries across the world that has a loan with the IMF that has a surcharge on it. A surcharge means that if you are paying a 1% interest rate and you default on your payments, then you’ll be paying 3%. So you’re being penalized for being unable to pay,” Waris explains. This in turn increases the likelihood of prolonged debt and austerity.</p>
<p>But for Waris, one of the biggest problems is that the contracts around IMF loans are extremely opaque, meaning it’s difficult to hold the institution to account or even evaluate what impact it has beyond the austerity measures.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="a woman draped in a black, yellow and red — the colours of the Ugandan flag — shouts at a protest" src="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526827/original/file-20230517-25100-qe6olr.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Demonstrators with the ‘People Power Movement,’ protesting the Ugandan government, join protests outside of the IMF and World Bank Spring Meetings on April 14, 2023, in Washington.</span>
<span class="attribution"><span class="source">(AP Photo/Mariam Zuhaib)</span></span>
</figcaption>
</figure>
<p>“This is problematic because there can be no societal oversight over what a group of human beings in their country are deciding to take on, on their behalf,” she says. “Representative, democratic or otherwise, people need to know what their governments are doing on their behalf.”</p>
<p>For Bradlow there are signs for positive change. <a href="https://doi.org/10.1093/jiel/jgac064">A recent research paper shows</a> that the IMF acknowledges some of the devastating impacts it has had on countries. In the paper, it identifies areas of enhanced focus, including climate change, gender, inequality, and social protection. However, while the IMF has adapted its focus and policies to address some of the negative consequences, it remains uncertain how it will achieve these goals.</p>
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Read more:
<a href="https://theconversation.com/government-debt-wont-necessarily-burden-future-generations-but-austerity-will-194658">Government debt won't necessarily burden future generations – but austerity will</a>
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<p>The Conversation has reached out to the International Monetary Fund for comment regarding the issues covered in this episode and is awaiting response.</p>
<p>Listen to the full episode of <em>The Conversation Weekly</em> to learn more about the impact of IMF loans on recipient nations, the potential benefits of allocating funds for public services in the Global South, and the importance of implementing accountability mechanisms within the IMF.</p>
<hr>
<p>This episode was written and produced by Mend Mariwany, who is also the executive producer of <em>The Conversation Weekly</em>. Eloise Stevens does our sound design, and our theme music is by Neeta Sarl.</p>
<p>You can find us on Twitter <a href="https://twitter.com/TC_Audio">@TC_Audio</a>, on Instagram at <a href="https://www.instagram.com/theconversationdotcom/">theconversationdotcom</a> or <a href="mailto:podcast@theconversation.com">via email</a>. You can also subscribe to The Conversation’s <a href="https://theconversation.com/newsletter">free daily email here</a>.</p>
<p>Listen to “The Conversation Weekly” via any of the apps listed above, download it directly via our <a href="https://feeds.acast.com/public/shows/60087127b9687759d637bade">RSS feed</a> or find out <a href="https://theconversation.com/how-to-listen-to-the-conversations-podcasts-154131">how else to listen here</a>.</p><img src="https://counter.theconversation.com/content/205704/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Attiya Waris does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p><p class="fine-print"><em><span>Danny Bradlow receives funding from South Africa’s National Research Foundation. He does not work for, consult or own shares from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The conditions placed on countries borrowing money from the International Monetary Fund have further disadvantaged these countries economically.Mend Mariwany, Producer, The Conversation Weekly, The Conversation Weekly PodcastNehal El-Hadi, Science + Technology Editor & Co-Host of The Conversation Weekly Podcast, The ConversationLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2046532023-05-16T16:36:25Z2023-05-16T16:36:25ZPrivate equity: when big profits come at a heavy price for human rights<figure><img src="https://images.theconversation.com/files/526024/original/file-20230514-104688-qjsrry.jpg?ixlib=rb-1.1.0&rect=82%2C59%2C4900%2C3772&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/financial-concept-stacked-coins-graph-2225212125">Billion Photos/Shutterstock</a></span></figcaption></figure><p>Private equity is an enormously powerful and wealthy industry that has a huge impact on the public <a href="https://link.springer.com/article/10.1007/s12142-023-00680-w">and their human rights</a>. As a sector, it holds around <a href="https://www.warren.senate.gov/imo/media/doc/PE%20Stats%20Final.pdf">US$4.4 trillion</a> (£3.5 trillion) in assets, while in the US, <a href="https://www.motherjones.com/politics/2022/05/private-equity-buyout-kkr-houdaille/">one in every 14 workers</a> is employed by a company owned by a private equity firm. </p>
<p>These firms use a unique business model. They attract outside investors by promising high returns, and invest this capital in buying companies. </p>
<p>The aim is to make these companies more profitable, return the necessary gains to their investors and then sell the company, usually <a href="https://www.privateequityreportinggroup.co.uk/Portals/0/Documents/EY-Annual-report-on-the-performance-of-portfolio-companies-XIII.pdf">around five years</a> later. </p>
<p>Recently there has been an increased appetite for private equity firms to buy companies that provide services such as health and social care, detention facilities and housing – services often relied on by vulnerable people. </p>
<p>Those people – and the workers who provide the services – are directly affected by some of the tactics used by private equity firms to make money, such as cutting staff and other running costs. </p>
<p>Other ways of raising funds quickly include “leveraged buyouts”, where the purchase price of a company is partly funded by a loan taken out against that company. Another common method is “dividend recapitalisation”, which means borrowing to pay investor dividends. </p>
<p>But these strategies – known as “value extraction” when they deliver investor returns by weakening the company – often lead to unsustainable debt levels and poorer quality services. This in turn can have a damaging effect on people’s lives and a significant impact on their human rights, including employment rights and the rights to health and housing. </p>
<p>In the US, for example, many hospitals bought by private equity firms have <a href="https://www.propublica.org/article/investors-extracted-400-million-from-a-hospital-chain-that-sometimes-couldnt-pay-for-medical-supplies-or-gas-for-ambulances">been accused of</a> drastic cost cutting, leading to persistent mechanical breakdowns, a lack of medical supplies, and insufficient fuel for ambulances due to unpaid bills. <a href="https://www.nber.org/system/files/working_papers/w28474/w28474.pdf">A study</a> found that private equity ownership increases the “short-term mortality” (deaths in care and during the following 90 days) of Medicare patients by 10%. </p>
<p><a href="https://blogs.lse.ac.uk/politicsandpolicy/corporate-care-homes/">In the UK,</a> two of the largest nursing home chains collapsed following private equity takeovers (Southern Cross in 2011 and Four Seasons in 2019), leading to job losses and closures. Research also suggests that workers in private equity owned nursing homes <a href="https://journals.sagepub.com/doi/epub/10.1177/0308518X19862580">earn around 30% less</a> than they would in a home run by the government. </p>
<h2>The private and the public</h2>
<p>The tactics built in to the private equity business model directly affect people’s lives and human rights. So human rights governance needs to address these tactics directly.</p>
<figure class="align-center ">
<img alt="Montage of different coloured huma face profiles." src="https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=360&fit=crop&dpr=1 600w, https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=360&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=360&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=453&fit=crop&dpr=1 754w, https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=453&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/526511/original/file-20230516-21-84mz96.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=453&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Economic activity affects everyone.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/multicultural-diverse-cultures-society-international-tolerance-1908957070">Lightspring/Shutterstock</a></span>
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<p>Our <a href="https://link.springer.com/article/10.1007/s12142-023-00680-w">recent research</a> suggests that an area of law known as “human rights due diligence” could provide a solution. Already in place in France, Germany and Norway, these laws require companies to identify the human rights risks within their operations. They then need to investigate and mitigate these risks, with a legal obligation to cancel a project or activity if the risks are too high. </p>
<p>There are already specific human rights standards applied in sectors such as <a href="https://www.oecd.org/daf/inv/mne/mining.htm">mining</a>, farming, <a href="https://cleanclothes.org/">fast fashion</a> and factory manufacturing. If a company sources from a factory, for example, it should ensure there is no child labour involved. </p>
<p>Applying the same approach to private equity firms is rather different, because something like the act of borrowing a large sum of money to pay dividends does not directly violate human rights in the way that factory operations might do. It is instead the debt and cost cutting made necessary by the loan that could lead to understaffing and poor levels of care, which can then violate human rights. </p>
<p>But just because it is different does not mean it is impossible. Human rights laws already apply to bank lending, and the economic activity of private equity firms should also be covered.</p>
<p>The technique would be fairly simple. A private equity firm undertaking any form of value extraction from a company it owns should identify how that undertaking will affect how that company is able to meet its human rights obligations. If no subsequent effect on human rights is found, it may proceed. </p>
<p>However, if an effect is likely, the size of the debt raised or the dividend paid out to investors should be reduced to the extent that human rights are left intact. The law would be able to punish any firm that failed to conduct adequate human rights due diligence. </p>
<p>Such a move would help to ensure that human rights are respected more widely. Across the world, those rights are routinely affected by economic activity – and as the impact and wealth of private equity firms continue to grow, legal enforcement would offer better protection for all of us.</p><img src="https://counter.theconversation.com/content/204653/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Those rights require legal protection.David Birchall, Senior Lecturer in Law, London South Bank UniversityNadia Bernaz, Associate Professor of Law, Wageningen UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2044102023-04-25T16:55:08Z2023-04-25T16:55:08ZGlobal economic uncertainty means oil prices – and your fuel bill – will continue to surprise this year<figure><img src="https://images.theconversation.com/files/522655/original/file-20230424-26-do499z.jpg?ixlib=rb-1.1.0&rect=242%2C148%2C8501%2C4244&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Oil price uncertainty.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/future-oil-concept-drum-question-mark-1691774782">Holmes Su/Shutterstock</a></span></figcaption></figure><p>Oil prices have confounded expectations in the first quarter of 2023. Brent – a major global benchmark – hit <a href="https://www.reuters.com/business/energy/oil-steadies-investors-take-stock-banking-crisis-2023-03-17/">a low of US$72 (£58) a barrel on March 17</a>, while the world’s other main benchmark, WTI, dropped to less than US$66 a barrel. This is a far cry from the nearly US$114 and US$103 a barrel, respectively, reached on <a href="https://www.reuters.com/business/energy/oil-futures-open-higher-iea-supply-warning-2022-03-17/">the same day a year before</a> following the invasion of Ukraine by Russia, a major oil producer. </p>
<p>These unexpectedly low prices remain even as the war in Ukraine continues with no clear end in sight. Other developments have also failed to boost prices as expected. China, the world’s largest importer of crude oil, <a href="https://theconversation.com/chinese-economic-growth-may-never-recover-from-covid-heres-why-195872">abandoned its zero-COVID policy in December 2022</a>, creating <a href="https://oilprice.com/Energy/Crude-Oil/From-Zero-Covid-To-Energy-Demand-Explosion-The-Impact-Of-Chinas-Reopening.html">expectations that Chinese oil demand would quickly return</a> with a vengeance, propelling prices higher. A couple of months before this, OPEC+ (the cartel of certain oil-producing nations) had announced a <a href="https://www.reuters.com/business/energy/opec-heads-deep-supply-cuts-clash-with-us-2022-10-04/">production cut of 2 million barrels a day</a> (mb/d) – roughly 2% of world supply and the largest cut since 2020. </p>
<p><a href="https://www.reuters.com/business/energy/sarabia-other-opec-producers-announce-voluntary-oil-output-cuts-2023-04-02/">A surprise announcement of 1.1 mb/d of cuts</a> by OPEC+ on April 2 did boost prices. On top of a 0.5 mb/d decrease <a href="https://www.reuters.com/business/energy/russia-cut-oil-output-by-500000-bpd-march-2023-02-10/">announced by Russia in February</a>, this has brought the group’s cuts to 1.6 mb/d. And by mid-April Brent reached US$86 and WTI US$83 per barrel. </p>
<p>But oil has now <a href="https://www.reuters.com/markets/commodities/oil-prices-slide-uncertainty-over-global-economic-outlook-rate-hikes-2023-04-24/">started to retreat again</a>, an unexpected development during a war involving a major oil exporter, and at a time when a giant consumer like China is reopening after three years of economic isolation.</p>
<p>This shows that oil price forecasts continue to be unreliable. The economic outlook and Chinese consumption growth are key to demand expectations, while Russia is the wild card in terms of supply. Until uncertainty around these three factors dissipates, global oil markets will not have a clear direction.</p>
<p><strong>Oil price movements:</strong></p>
<h2>Economic outlook</h2>
<p>Oil demand is closely linked to economic growth because a slowing economy shrinks income, leading people to curtail expenditure and travel less, and slowing down manufacturing that uses oil. Various economic forecasts have recently highlighted the major challenges facing the global economy, but widely prevailing uncertainty seems to top the list. </p>
<p>In its <a href="https://www.imf.org/en/Publications/WEO/Issues/2023/04/11/world-economic-outlook-april-2023">April 2023 World Economic Outlook</a>, the International Monetary Fund (IMF) emphasised a high level of uncertainty “amid financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID”. </p>
<p>The <a href="https://www.worldbank.org/en/news/press-release/2023/03/27/global-economy-s-speed-limit-set-to-fall-to-three-decade-low">World Bank has also warned</a> that “a lost decade could be in the making for the global economy” as “nearly all the economic forces that powered progress and prosperity over the last three decades are fading”. </p>
<p>April’s <a href="https://momr.opec.org/pdf-download/">OPEC+ Monthly Oil Market Report</a> kept its forecast for economic growth and oil demand largely unchanged from previous reports, but said: “The global economy will continue to navigate through challenges including high inflation, higher interest rates particularly in the Eurozone and the US, and high debt levels in many regions.” It stated that “these uncertainties surrounding current oil market dynamics” were behind its decision to cut production.</p>
<h2>The China factor</h2>
<p>China is the world’s <a href="https://www.statista.com/statistics/271622/countries-with-the-highest-oil-consumption-in-2012/">second-largest oil consumer</a> and the <a href="https://www.investopedia.com/insights/worlds-top-economies/">second-largest economy</a> after the US. So all eyes have been on its oil demand since the country ended the nearly three-year zero-COVID policy that severely restricted its peoples’ mobility and economic activity. </p>
<p>Today, it is the main bullish factor in many global economic forecasts. The IMF’s managing director <a href="https://www.chinadaily.com.cn/a/202304/14/WS64396987a310b6054facdc05.html">recently said</a>:</p>
<blockquote>
<p>China this year is going to contribute about one-third of global [economic] growth. We calculated that 1% more growth in China translates into 0.3% more growth for the economies that are connected to China. </p>
</blockquote>
<p>The <a href="https://www.iea.org/reports/oil-market-report-april-2023">IEA believes China</a> will account for half of the global increase in oil demand this year. <a href="https://www.goldmansachs.com/insights/pages/chinas-reopening-is-poised-to-boost-global-growth.html">Goldman Sachs expects</a> China’s oil demand growth to boost Brent by roughly US$15 per barrel.</p>
<p>However, such enthusiasm is not universally shared. A <a href="https://www.cnbc.com/2023/04/07/chinas-economic-recovery-is-taking-longer-than-expected-citi-says.html">Citibank report</a> says China’s post-COVID recovery seems slower than expected. Being an export-driven economy, the Asian powerhouse is exposed to the health of the rest of the world. A weakening global economy will reduce demand for Chinese exports, with negative repercussions on its economy and therefore oil demand.</p>
<p>Similarly, <a href="http://www.stats.gov.cn/english/PressRelease/202303/t20230315_1937167.html">China’s National Bureau of Statistics</a> said “the external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet”. Or, as the Saudi energy minister reportedly said when asked about an oil demand rebound recently: “<a href="https://www.reuters.com/article/us-global-oil-opec-saudi-idUSKBN2AX23F">I’ll believe it when I see it</a>.” </p>
<h2>Russia: not done yet</h2>
<p>As a major oil producer and exporter, Russia also has a massive influence on global oil markets. Despite sanctions since the beginning of the war in Ukraine (and following the annexation of Crimea in 2014), Russia continues to be the world’s <a href="https://www.iea.org/reports/russian-supplies-to-global-energy-markets/oil-market-and-russian-supply-2">third-largest oil producer</a> after the US and Saudi Arabia.</p>
<p>When Russia invaded Ukraine, oil prices spiked due to fears of a loss of Russian supply. <a href="https://www.iea.org/reports/oil-market-report-march-2022">The IEA warned</a> the resulting 3 mb/d loss (around one-third of Russia’s total and almost 3% of world production) could produce “the biggest supply crisis in decades”. Analysts from investment bank <a href="https://www.bloomberg.com/news/articles/2022-07-01/jpmorgan-sees-stratospheric-380-oil-on-worst-case-russian-cut?sref=DF2XabZQ">JP Morgan said</a> Russia could cut up to 5 mb/d of production driving global oil prices to a “stratospheric” US$380 per barrel. </p>
<p>Such gloomy scenarios did not materialise. Russian oil continued to flow but <a href="https://www.reuters.com/business/energy/russian-sanctions-shift-oil-price-making-power-asia-europe-2023-03-14/">changed direction from Europe to Asia</a>, helping to ease price pressure for consumers everywhere. And Russia’s cuts in retaliation for sanctions have so far been smaller than expected. Of course, it could cut more, especially if this would put more economic pressure on the west and affect support for Ukraine. </p>
<p>This cocktail of uncertainties should encourage a more cautious stance when it comes to predicting oil prices, this year at least. Some analysts <a href="https://www.reuters.com/business/energy/barclays-cuts-2023-oil-price-forecasts-resilient-russian-output-2023-03-08/#:%7E:text=The%20bank%20cut%20its%20average,year%20and%20WTI%20%2492%2Fb.">have already reduced their 2023 price forecasts</a>, with estimates varying between US$81 and US$100 a barrel. </p>
<p>Expect more revisions. As <a href="https://www.aeaweb.org/articles?id=10.1257/jep.30.1.139">one study</a> that tracked the evolution of oil prices over four decades said: “all price expectations are subject to error”.</p><img src="https://counter.theconversation.com/content/204410/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carole Nakhle does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Alongside the global economic outlook, Russian supply and Chinese demand are contributing to ‘a cocktail of uncertainty’ for oil prices.Carole Nakhle, Energy Economist, University of SurreyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2031952023-04-06T09:36:50Z2023-04-06T09:36:50ZWhy Britain’s new CPTPP trade deal will not make up for Brexit<figure><img src="https://images.theconversation.com/files/519298/original/file-20230404-14-172rmi.jpg?ixlib=rb-1.1.0&rect=16%2C7%2C973%2C432&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">UNIKYLUCKK/Shutterstock</span></span></figcaption></figure><p>The UK <a href="https://www.gov.uk/government/collections/the-uk-and-the-comprehensive-and-progressive-agreement-for-trans-pacific-partnershipcptpp">recently announced</a> that it will join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), giving British businesses access to the 11 other members of the Indo-Pacific trade bloc and bringing its combined GDP to £11 trillion.</p>
<p>Some commentators have suggested the deal could make up for Brexit. It’s been called “<a href="https://iea.org.uk/media/cptpp-membership-will-boost-british-producers-and-consumers/">a momentous economic and strategic moment</a>” that “<a href="https://www.telegraph.co.uk/business/2023/03/31/britain-cptpp-trade-deal-end-rejoiner-dream/">kills off any likelihood that it [the UK] will ever rejoin the EU customs union or single market</a>”. Shanker Singham of think tank the Institute of Economic Affairs has even said: “<a href="https://iea.org.uk/the-uk-joining-cptpp-is-a-seismic-moment-for-the-global-trading-system/">it’s no exaggeration to say that CPTPP+UK is an equivalent economic power to the EU-28-UK</a>”, comparing it to a trade deal between the UK and EU members.</p>
<p>UK business and trade secretary <a href="https://uk.news.yahoo.com/forget-brexit-pain-back-pacific-110357213.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAK3HWr0ZFmy82Gqbc4XcmRBzKRsZecgOYZhp8ckmsrAEkeeXj78loWi5j5Ku8tzOrcbuyBmlHjaEYhMXLXJm1zL5UEKRF_cwa4vAgdKz6rMeGEpD667Do_rCpRHnC_4cAG7eEs1eqcZJimKn4idSIaKL_7UwcomxZj02zInKj7X1">Kemi Badenoch echoed</a> such sentiments, telling Times Radio:</p>
<blockquote>
<p>We’ve left the EU so we need to look at what to do in order to grow the UK economy and not keep talking about a vote from seven years ago.</p>
</blockquote>
<p>The problem with this fanfare is that the government’s own economic analysis of the benefits of joining this bloc is underwhelming. There is an estimated gain to the UK of <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1027860/dit-cptpp-uk-accession-strategic-approach.pdf">0.08% of GDP</a> – this is just a 50th of the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1027860/dit-cptpp-uk-accession-strategic-approach.pdf">OBR’s estimate of what Brexit has cost the UK economy to date</a>. Even for those that are <a href="https://www.bloomberg.com/news/articles/2022-11-01/uk-minister-questions-watchdog-forecasts-in-echo-of-truss-era?leadSource=uverify%20wall">sceptical about models and forecasts</a>, that is an enormous difference in magnitude.</p>
<p>Of course, the CPTPP is expected to offer the UK some real gains. It certainly provides significant potential opportunities for some individual exporters. But the estimated gains for Britain overall are very small.</p>
<p>The main reason for this is that, apart from Japan, the major players of the global economy are not in the CPTPP. The US <a href="https://www.wsj.com/articles/america-tpp-china-japan-indo-pacific-trade-influence-11632931688">withdrew from the Trans Pacific Partnership</a> (the CPTPP is what the remaining members formed without it). And China <a href="https://www.scmp.com/economy/china-economy/article/3176487/what-cptpp-and-why-china-eager-join">started negotiations to join</a> in 2022, but current geopolitics now make its entry highly improbable. India was never involved.</p>
<p>In addition, the UK already has free trade agreements with nine out of the 11 members. The remaining two, <a href="https://news.sky.com/story/trade-secretary-kemi-badenoch-says-palm-oil-is-great-product-after-deal-criticised-for-endangering-orangutans-12846290">Malaysia</a> and <a href="https://wits.worldbank.org/trade/comtrade/en/country/BRN/year/2019/tradeflow/Exports/partner/ALL/product/151190">Brunei</a>, are controversial due to environmental threats from palm oil production to rainforests and orangutans.</p>
<p><strong>Britain’s existing trade agreements with CPTPP members</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="A table listing the existing British trade agreements with CPTPP members." src="https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=253&fit=crop&dpr=1 600w, https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=253&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=253&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=318&fit=crop&dpr=1 754w, https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=318&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/519096/original/file-20230403-28-v6040o.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=318&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://comtradeplus.un.org/TradeFlow">Author provided using GDP data from the World Bank and trade data from UN Comtrade.</a></span>
</figcaption>
</figure>
<p>And despite the widespread public perception of the Asia-Pacific area as a hub of future growth, the performance and prospects of the CPTPP members are a mixed bag. The largest member, Japan, is arguably in <a href="https://www.cnbc.com/2023/02/14/japan-economy-averts-recession-but-rebounds-less-than-expected-in-q4.html">long-term decline</a>, as is <a href="https://thescoop.co/2022/10/24/record-low-oil-output-drags-brunei-economy-deeper-into-recession/">Brunei</a>, while just three members (<a href="https://tradingeconomics.com/vietnam/full-year-gdp-growth#:%7E:text=Full%20Year%20GDP%20Growth%20in%20Vietnam%20averaged%205.89%20percent%20from,Vietnam%20Full%20Year%20Gdp%20Growth.">Vietnam</a>, <a href="https://tradingeconomics.com/singapore/gdp-growth-annual">Singapore</a> and <a href="https://tradingeconomics.com/new-zealand/gdp-growth-annual#:%7E:text=New%20Zealand's%20economy%20expanded%20by,the%20service%20(3.9%20percent%20vs.)">New Zealand</a> had average growth in the last decade above 3% annually. </p>
<p>Finally, distance really does matter in trade. All the CPTPP members are thousands of miles from the UK, which explains their relatively small shares in UK trade at present. </p>
<h2>Some benefits of CPTPP</h2>
<p>While all of these points pour cold water on the suggested gains, there are some potential benefits from the CPTPP agreement, which allows for mutual recognition of certain standards. This includes patents and some relaxation of sanitary and phytosanitary rules on food items. </p>
<p>However, agreements over standards will involve the UK submitting to international CPTPP courts on these issues. This sits uncomfortably with many of the <a href="https://www.lawsociety.org.uk/topics/brexit/what-is-the-european-court-of-justice-and-why-does-it-matter">“sovereignty” objections to the European Court of Justice</a> in relation to Brexit (largely from many of those who have extolled the CPTPP). It’s also notable that out of the nine agreements with CPTPP members that existed before the UK signed this deal, all but two are rollovers of previous EU deals. </p>
<p>But a trade deal with the CPTPP is worth more to the UK than separate deals with each member due to requirements around “<a href="https://www.wto.org/english/tratop_e/roi_e/roi_info_e.htm">rules of origin</a>”, which determine the national source of a product. When a product contains inputs from more than one country, a series of separate free trade agreements may not eliminate tariffs. But if all the relevant countries are members of a single free trade agreement, then rules of origin on inputs from other members cease to be a problem (although there might be some issues if some members do not police the requirements properly). </p>
<h2>Not the ideal agreement</h2>
<p>While these benefits should be recognised, we should also acknowledge that the CPTPP is not the ideal agreement for Britain. As stated above, distance really does matter in trade – this is <a href="https://ideas.repec.org/p/cpr/ceprdp/9322.html">overwhelmingly accepted by modern trade economists</a>. </p>
<p>Research shows that the rate at which trade declines with distance has <a href="http://www.cepii.fr/pdf_pub/wp/2016/wp2016-14.pdf">barely changed over more than a century</a>. This might seem strange because <a href="https://ourworldindata.org/grapher/real-transport-and-communication-costs">transport costs have fallen over time</a>. But, as transport and communications have improved, firms have outsourced much of their production to complex supply chains that often cross national borders many times, with “<a href="https://www.gep.com/knowledge-bank/glossary/what-is-just-in-time-supply-chain-strategy#:%7E:text=What%20is%20the%20just%2Din,is%20stockpiled%2C%20reducing%20storage%20costs.">just-in-time</a>” supply schedules to keep down the costs of holding large stocks. </p>
<p>This means that, while trade everywhere has grown, there is still a big premium for trading (many times) across borders between contiguous countries. It is exactly this type of trade which benefits most from big comprehensive trade agreements that simplify rules of origin and regulatory paperwork. </p>
<p>This suggests that, while some elements of the the CPTPP offer benefits to the UK, it is unlikely to boost its trade in the way it does between countries around the Pacific Rim. For this sort of boost, the UK really needs to look towards its own neighbours. Of course, this is just the sort of agreement that Badenoch seems reluctant to discuss.</p><img src="https://counter.theconversation.com/content/203195/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While there are some benefits to the free trade agreement, the UK would be better off striking a deal with its neighbours.Terence Huw Edwards, Senior Lecturer in Economics, Loughborough UniversityMustapha Douch, Assistant Professor in Economics, The University of EdinburghLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1989692023-02-15T19:15:23Z2023-02-15T19:15:23ZThe New International Economic Order stumbled once before. Will it succeed a second time around?<figure><img src="https://images.theconversation.com/files/509290/original/file-20230209-22-w4fp3a.jpg?ixlib=rb-1.1.0&rect=37%2C12%2C8325%2C5554&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People gather in the Davos Congress Center prior to the start of the World Economic Forum in Davos, Switzerland in January 2023.</span> <span class="attribution"><span class="source">(AP Photo/Markus Schreiber)</span></span></figcaption></figure><p>Calls for a new approach to the management of global affairs intensified after the curtain came down on this year’s World Economic Forum (WEF) <a href="https://www.reuters.com/business/davos-2023-world-economic-forum-explained-2023-01-16/">annual meeting</a> held at Davos, Switzerland.</p>
<p>In the wake of the WEF’s <a href="https://www.theguardian.com/business/2023/jan/18/mutiny-erupts-among-wef-staff-over-role-of-mr-davos-klaus-schwab">headline-grabbing controversies about the legitimacy of WEF’s leadership</a> and <a href="https://www.weforum.org/about/book">proposals for a new global economy</a>, a movement seeking to renew the promise of global co-operation quietly re-emerged. Delegates from over 25 countries, organized by a group called Progressive International, assembled in Havana on Jan. 27 to declare their intent to <a href="https://progressive.international/blueprint/d3b4f9e2-3fd7-4d9a-b067-d13b073b1c3f-presenting-the-havana-declaration-on-the-new-international-economic-order/">build a New International Economic Order (NIEO) fit for the 21st century</a>. </p>
<p>The Havana signatories are mobilizing around <a href="https://media.un.org/en/asset/k11/k11drtwp1w">Cuba’s presidency of the Group of 77</a> at the UN. They aim to use Cuba’s platform to revive discussions about a NIEO in the General Assembly. This diverse group of researchers, government officials and activists <a href="https://act.progressive.international/nieo-collection/#collection-00">intend to develop a new political vision</a> for managing the world economy, in the face of several global crises, over the next 16 months.</p>
<p>They hope to enshrine their vision in a UN Declaration next year that would coincide with the 50th anniversary of the <a href="http://www.un-documents.net/s6r3201.htm">General Assembly’s adoption of the Declaration on the Establishment of a New International Economic Order</a>.</p>
<p>The NIEO’s signatories seek to rebuild the collective power of emerging and developing countries within and beyond the UN system. They also support the creation of new governance institutions that would fundamentally transform the international system. In doing so, they are committed to proposing alternative ways to respond to international crises.</p>
<p>While this attempt to revamp global partnerships appears to be promising, at a time of overlapping global emergencies, the pitfalls are numerous. </p>
<h2>The birth of the NIEO</h2>
<p>The NIEO emerged in 1973 as the <a href="https://www.un.org/en/chronicle/article/early-days-group-77">collective project of developing countries</a> to transform the United Nations system. Its adherents were convinced that the international community’s insufficient response to several interlinked crises was undermining their interests. </p>
<p>In 1971, the unilateral U.S. decision <a href="https://history.state.gov/milestones/1969-1976/nixon-shock">to abandon the convertibility of U.S. dollars into gold</a> left many countries with devalued dollars. </p>
<p>To navigate this inflationary context, and respond to U.S. policy during <a href="https://www.britannica.com/event/Yom-Kippur-War">the 1973 Yom Kippur War</a>, members of the Organization of the Petroleum Exporting Countries <a href="https://history.state.gov/milestones/1969-1976/oil-embargo">placed an embargo on oil exports to the U.S</a>. </p>
<figure class="align-center ">
<img alt="Black and white photo of a man with a receding hairline speaking from behind a podium" src="https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509885/original/file-20230213-30-kbpsd2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">In 1971, then U.S. president Richard Nixon suspended the convertibility of U.S. dollars into gold to pressure U.S. trading partners into adjusting their exchange rates to the advantage of the U.S.</span>
<span class="attribution"><span class="source">(AP Photo)</span></span>
</figcaption>
</figure>
<p>The ensuing oil price increase compounded an ongoing <a href="https://doi.org/10.1093/acprof:oso/9780190600686.003.0007">food security crisis</a> and undercut the ambitious goals of the <a href="http://www.un-documents.net/a25r2626.htm">second UN Development Decade</a>. Moreover, the ongoing threat of nuclear conflict, and an emerging awareness of unaddressed environmental challenges, heightened popular malaise about the adequacy of international institutions.</p>
<p>In the wake of these crises, the NIEO was formed. Building on the <a href="https://www.southcentre.int/question/revisiting-the-1955-bandung-asian-african-conference-and-its-legacy/">ambitious development agenda</a> of leaders across the <a href="https://onlineacademiccommunity.uvic.ca/globalsouthpolitics/2018/08/08/global-south-what-does-it-mean-and-why-use-the-term/">Global South</a>, it included a comprehensive package of reform proposals. </p>
<p>Its <a href="http://www.un-documents.net/s6r3202.htm">Programme of Action</a> sought to help countries exercise more control over their own natural resources. The NIEO package recognized that many developing countries had been structured by colonizers to export raw materials and <a href="https://unctad.org/publications/prebisch-lectures">its backers sought to remedy this condition</a>. </p>
<p>Its advocates also pushed for new institutions to govern commodities and transnational corporations, and worked to speed up the transfer of technologies that would facilitate industrialization and end <a href="https://unctad.org/publication/state-commodity-dependence-2021">commodity dependence</a>. </p>
<h2>The NIEO’s stumbling block</h2>
<p>After the General Assembly adopted the NIEO, efforts to implement the full package failed to gain traction. While the U.S. initially recognized <a href="https://history.state.gov/historicaldocuments/frus1969-76v38p1/d32">some of the underlying challenges</a>, it advocated an issue-by-issue approach to engaging with the action program. </p>
<p>Negotiation processes on individual components of the NIEO subsequently multiplied. This fragmentation <a href="https://robarts.info.yorku.ca/files/wto-pdf/wto_globalembedliberal.pdf">taxed the capacity of developing countries and contributed to undermining their unity</a>. </p>
<p>Soon after, opinions on the program’s components polarized, and dialogue reached a contentious impasse. An <a href="https://sharing.org/information-centre/reports/brandt-report-summary">independent commission</a> was then struck to resolve the conflict that had emerged <a href="https://www.wilsoncenter.org/blog-post/the-non-aligned-movement-and-the-north-south-conflict">between the Global North and the Global South</a> over the NIEO. </p>
<p>By the early 1980s, as interest rates rose and a global <a href="https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESS_2017_ch3.pdf">debt crisis loomed</a>, some of <a href="https://www.britannica.com/biography/Houari-Boumedienne">the NIEO’s biggest champions had died</a> or <a href="https://www.britannica.com/biography/Michael-Manley">lost political power</a>. </p>
<p>The initiative ebbed after U.S. President Ronald Reagan declared an <a href="https://www.reaganlibrary.gov/archives/speech/statement-first-plenary-session-international-meeting-cooperation-and-development">end to the search for new international institutions</a> in his address to delegates at the International Meeting on Cooperation and Development held in Cancun on Oct. 22, 1981.</p>
<figure class="align-center ">
<img alt="Two rows of people standing and sitting on a white beach with turquoise water in the background" src="https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/509894/original/file-20230213-22-v1marp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Heads of state and government at the Cancun North-South Economic Summit of 1981 at the Cancun Sheraton Hotel Beach in Mexico.</span>
<span class="attribution"><span class="source">(U.S. Federal Government)</span></span>
</figcaption>
</figure>
<p>And now, fifty years later, <a href="https://theconversation.com/on-the-brink-global-crises-ranging-from-climate-to-economic-meltdown-demand-radical-change-190641">we are facing yet another set of intersecting crises</a> with woefully inadequate global responses. </p>
<p>Ongoing global challenges, including the <a href="https://www.who.int/emergencies/situations">public health crisis</a>, <a href="https://www.wfp.org/global-hunger-crisis">global food insecurity</a>, <a href="https://www.cfr.org/global-conflict-tracker">geopolitical conflicts</a> and the <a href="https://www.unep.org/news-and-stories/story/world-headed-climate-catastrophe-without-urgent-action-un-secretary-general">climate emergency</a>, are once again <a href="https://www.un.org/sustainabledevelopment/blog/2022/07/cascading-global-crises-threaten-human-survival-and-the-sdg-roadmap-is-the-way-forward/">outstripping the response capacity of the UN</a>. </p>
<h2>Back to the future?</h2>
<p>The NIEO’s faltering trajectory offers several lessons that must not be forgotten as pressure to renovate global institutions intensifies. </p>
<p>For starters, any proposed renewal of the NIEO must recognize that the original effort went off the rails after the full package was broken up. A case can be made that more substantive results could have been achieved had the program proceeded as <a href="https://www.wto.org/english/tratop_e/dda_e/work_organi_e.htm">an indivisible single undertaking</a>. </p>
<p>The NIEO also served as a rallying cry that enabled numerous <a href="https://www.britannica.com/biography/Muammar-al-Qaddafi">despots</a> and <a href="https://www.britannica.com/biography/Sekou-Toure">authoritarians</a> to sound like change-makers on the global stage, even as they repressed their people and looted state coffers. Today’s reformers must achieve a better balance between talking the talk at global gatherings and walking the walk for their people. </p>
<p>Moreover, the NIEO <a href="https://www.un.org/en/conferences/environment/stockholm1972">never seriously engaged with concerns</a> about the environment. Countries that depend on commodity exports have an interest in taking arguments about the need to <a href="https://unstats.un.org/sdgs/report/2019/goal-12/">downscale humanity’s material footprint</a> seriously. They must think creatively about possible futures that discard <a href="https://www.versobooks.com/books/3989-the-future-is-degrowth">the unsustainable pursuit of infinite growth</a>, and act boldly to end the climate emergency. </p>
<p>As the chorus of voices challenging the global governance status quo swells, a NIEO revival will make a difference if it moves beyond nostalgia. </p>
<p>While the <a href="https://www.jstor.org/stable/2706612">ideological conflicts that plagued the initial drive</a> for a new order could easily undermine the current effort, the fact that idealists and realists are uniting to build genuine paths to a world beyond the WEF is refreshing. Whatever our individual politics, we should watch this space.</p><img src="https://counter.theconversation.com/content/198969/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adam Sneyd does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A renewed attempt to revamp global partnerships appears to be promising, but at a time of overlapping global emergencies, the pitfalls are numerous.Adam Sneyd, Associate Professor, Political Science, University of GuelphLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1958742023-01-19T12:08:50Z2023-01-19T12:08:50ZHow Chinese companies are challenging national security decisions that could delay 5G network rollout<figure><img src="https://images.theconversation.com/files/502949/original/file-20230103-90208-uqlgqy.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C997%2C634&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">National security concerns could affect the cost and delay the rollout of 5G networks in some countries.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/male-engineer-uses-smartphone-connect-5g-2106316100">chalermphon_tiam / Shutterstock</a></span></figcaption></figure><p>British prime minister Rishi Sunak recently declared that the “<a href="https://www.gov.uk/government/speeches/pm-speech-to-the-lord-mayors-banquet-28-november-2022">golden era</a>” of UK-China relations is over. The next day, the government removed <a href="https://www.gov.uk/government/news/uk-government-takes-major-steps-forward-to-secure-britains-energy-independence">China General Nuclear Power Group</a>, a Chinese state-owned company, from the construction of the UK’s Sizewell C nuclear power station.</p>
<p>Other countries have made similar moves in recent years. In 2020, for example, then-US president Donald Trump attempted to ban social media platform TikTok in the US. The move was <a href="https://www.npr.org/2020/12/07/944039053/u-s-judge-halts-trumps-tiktok-ban-the-2nd-court-to-fully-block-the-action">subsequently stopped by two US judges</a> following a lawsuit by TikTok, and eventually <a href="https://www.bbc.co.uk/news/technology-57413227">dropped by current president, Joe Biden</a>. </p>
<p>But such government decisions based on national security concerns could affect the future international growth of Chinese business. This is particularly important given that international investment and trade by China has increased in recent years, enabling it to emerge as a powerful challenger to the global economic order. </p>
<p>Indeed, Chinese companies and investors often refuse to take such national security changes lying down. With varying degrees of success, firms have mounted a range of <a href="https://www.ft.com/content/a7e1d9cf-9d86-4a87-8e03-37a6a2327390">formal and informal challenges</a> in recent years. This includes lobbying, media campaigns and diplomatic assistance or support from business associations, but also <a href="https://www.nytimes.com/2020/02/19/business/huawei-us-court.html">contesting national security decisions</a> in <a href="https://nationalpost.com/news/canada/chinese-controlled-firm-loses-court-bid-to-pause-ottawas-divestment-order">domestic courts</a>.</p>
<p>A relatively new strategy for China, however, is to challenge national security decisions before international tribunals using a method called <a href="https://www.csis.org/analysis/investor-state-dispute-settlement-0">investor-state dispute settlement</a>. These tribunals are usually set up to handle specific disputes, with arbitrators appointed and paid for by one or both of the parties involved. The suits tend to claim that national security decisions have breached host countries’ obligations to Chinese investors under <a href="https://uk.practicallaw.thomsonreuters.com/4-502-2491?transitionType=Default&contextData=(sc.Default)&firstPage=true">bilateral investment treaties</a> (BITs). These treaties grant foreign investors certain standards of treatment and allow them to sue host states for alleged violations.</p>
<p>Most recently, Chinese tech giant Huawei made an <a href="https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/1208/huawei-v-sweden">investment treaty claim against the Swedish government</a> over its exclusion from the rollout of the country’s 5G network. And <a href="https://scholarlycommons.law.emory.edu/eilr/vol37/iss1/1/">my research shows</a> that Huawei’s legal challenge to Sweden’s ban might only be the tip of the iceberg since Huawei equipment is also <a href="https://www.channele2e.com/business/enterprise/huawei-banned-in-which-countries/">currently banned in other countries</a> that have signed BITs with China. In the UK, for example, the government has <a href="https://www.gov.uk/government/news/huawei-to-be-removed-from-uk-5g-networks-by-2027">committed to exclude</a> Huawei’s technology from the country’s 5G public networks by the end of 2027. </p>
<p>The outcome of Huawei’s dispute with Sweden could affect public interest there and in other countries like the UK. If the tribunal finds in Sweden’s favour, preventing the use of Huawei equipment could <a href="https://www.theguardian.com/technology/2020/jul/14/huawei-decision-may-delay-5g-rollout-by-three-years-and-cost-uk-7bn-">delay 5G rollout by years</a> and inflate <a href="https://www.oxfordeconomics.com/resource/the-economic-impact-of-restricting-competition-in-5g-network-equipment/">prices for mobile phone users</a>.</p>
<p>It’s also worth noting a 2019 tribunal decision that ordered Pakistan to pay <a href="https://www.reuters.com/article/us-pakistan-mine-military-idUSKCN1U80GT">US$6 billion in compensation</a> to an injured foreign investor, mining company Tethyan Copper. If Huawei wins this or any other similar legal challenge, financial liabilities could be passed on to taxpayers.</p>
<h2>Defining ‘national security’</h2>
<p>Huawei’s challenge of Sweden’s national security decision shows how brewing tensions and increasing distrust between China and western countries is affecting international trade and business.</p>
<p>Indeed, when countries adopt an expansive concept of “national security” in domestic law, companies might see it as a pretext for protectionism or a tool of geopolitical rivalry. Certainly, there is no conclusive evidence that Huawei products, for example, are inherently unsafe versus similar products from other companies, or that Huawei poses a national security threat. </p>
<p>To complicate matters further, some early Chinese BITs – between <a href="https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/6042/download">China and Sweden</a>, and <a href="https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/793/download">China and the UK</a> for example – do not explicitly allow host states to prohibit foreign investment based on national security concerns. And so Huawei’s recent legal challenge should help determine: </p>
<ul>
<li>when and why a host country can stop a foreign investment based on national security concerns</li>
<li>and how international arbitral tribunals are likely to review national security decisions in the future.</li>
</ul>
<figure class="align-center ">
<img alt="Telecommunication tower with 5G cellular network antenna on city skyline background." src="https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/502946/original/file-20230103-105030-49uzt.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A 5G cellular network antenna.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/telecommunication-tower-5g-cellular-network-antenna-1786888505">Suwin / Shutterstock</a></span>
</figcaption>
</figure>
<h2>Challenging national security decisions</h2>
<p>But what could this case mean for 5G rollout? In this specific example, Huawei is likely to fight an uphill battle to persuade a tribunal that Sweden’s decision is inconsistent with the China-Sweden treaty, for three reasons. </p>
<p>First, any potential threat to the security of 5G networks constitutes a national security risk because it means a country’s communications could be brought down by espionage, sabotage or system failure. Second, 5G networks are so complex that it is virtually impossible to find and eliminate every significant vulnerability. This means attempts by Huawei to argue for screening and control of software, for example, may not defuse national security concerns. And third, tribunals usually defer to a host country’s national security decisions. </p>
<p>Of course, tribunal decisions can go the other way. For example, several tribunals found against the Argentinian government that the country’s <a href="https://www.italaw.com/sites/default/files/case-documents/ita0184.pdf">financial crisis in the 2000s</a> was severe enough to qualify as a national security issue. But generally, these tribunals tend to decide that governments are best placed to make such judgements. </p>
<p>Huawei has not brought a case against the UK yet, but western countries generally should think about how to maintain and improve technology infrastructure – even if innovation comes from regions with which tensions are strained. Failure to do so could significantly impact consumer costs and access to cutting-edge technology.</p><img src="https://counter.theconversation.com/content/195874/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ming Du does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Chinese tech giant Huawei is among companies adopting new strategies to challenge national security reviews.Ming Du, Professor in Chinese law, Durham UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1979382023-01-17T18:34:05Z2023-01-17T18:34:05ZDavos: three ways leaders can use these summits to create a more sustainable world<p>Davos 2023 is the World Economic Forum’s (<a href="https://www.weforum.org/events/world-economic-forum-annual-meeting-2023">WEF</a>) first in-person annual meeting since the start of the COVID pandemic. The yearly gathering sees business, political and civil society leaders convene in the Swiss mountain resort with academics, journalists and celebrities to discuss global economic agendas. Many regard it as essentially <a href="https://theintercept.com/2020/12/08/great-reset-conspiracy/">a forum for the wealthy</a>, but the 2023 Davos summit has returned at “<a href="https://www.weforum.org/events/world-economic-forum-annual-meeting-2023/about/meeting-overview">a critical inflection point for the world</a>”, according to the WEF.</p>
<p>This year’s meeting slogan – Cooperation in a Fragmented World – nods to what the WEF’s recently published <a href="https://www.weforum.org/agenda/2023/01/these-are-the-biggest-risks-facing-the-world-global-risks-2023">Global Risks Report</a> calls the “polycrises” affecting our interconnected world. These intersecting crises range from climate change and energy shortfalls to food insecurity and forced migration. The WEF is calling for “bold collective action” to address them.</p>
<p>In the wake of COVID, many people seemed to be more aware of how vulnerable the world is to the excesses of economic production. UN secretary general, <a href="https://www.theguardian.com/commentisfree/2020/apr/02/un-secretary-general-coronavirus-crisis-world-pandemic-response">António Guterres</a>, declared that we needed to build more “sustainable economies and societies”, and wider hopes abounded for greater global co-operation on human and environmental health.</p>
<p>Then, as much of the world emerged from lockdowns and restrictions, national governments refocused on economic recovery. This appeals of course to the oldest human impulses of progress. But it also led to a missed opportunity to rethink how economies should be organised for a more sustainable world. Global leaders could have used this time to respond to the ecological damage of late modern capitalism by working towards a more regulated, socially and environmentally responsible economic system.</p>
<p>Political leaders across the world may have failed to take this chance immediately after COVID, but the UN explored these issues and published a new vision for global security in 2022 called <a href="https://hdr.undp.org/content/2022-special-report-human-security">New Threats to Human Security in the Anthropocene</a>. I was one of the background authors for the report, which sets out three vital challenges for securing the sustainability of the planet:</p>
<h2>1. Protect both human and environmental security</h2>
<p>The UN report documents the lack of global action in response to <a href="https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_Full_Report.pdf">alarming scientific measures</a> of planetary health – from greenhouse gas emissions to temperature rise, from deforestation to biodiversity loss. It underlines the connections between industrial economic production, climate change and human health.</p>
<p>Among the many reasons why the impact of <a href="https://apps.who.int/iris/bitstream/handle/10665/62989/WHO_EHG_96.7.pdf">capitalism on the environment</a> has yet to be fully recognised, one of the most important is the political ascendancy of neoliberalism. This way of thinking promotes free-market ideas that have long sidelined the environment in advancing economic development. The UK government’s 2021 <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/962785/The_Economics_of_Biodiversity_The_Dasgupta_Review_Full_Report.pdf">Dasgupta Review</a> – which examines the relationship between economics and biodiversity – made the same point.</p>
<p>Neoliberalism consistently prioritises <a href="https://ugapress.org/book/9780820351056/the-long-war">military and economic security</a> over <a href="https://hdr.undp.org/content/human-development-report-1994">human and environmental security</a>. This has meant that global economic production values profit over both planetary and human health. Probably the best examples of this are the rise of <a href="https://monthlyreview.org/2020/05/01/covid-19-and-circuits-of-capital">“Big Farm” agribusiness</a> and the role unregulated <a href="https://www.theguardian.com/world/2020/apr/06/ban-live-animal-markets-pandemics-un-biodiversity-chief-age-of-extinction">wildlife markets</a> may have played in <a href="https://www.unenvironment.org/news-and-stories/story/coronavirus-outbreak-highlights-need-address-threats-ecosystems-and-wildlife">the emergence of COVID</a>.</p>
<h2>2. Measure development differently</h2>
<p>Defining and measuring development is also an important consideration for today’s world leaders. But when linking economic growth to development, it’s important to use measures other than GDP.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/beyond-gdp-changing-how-we-measure-progress-is-key-to-tackling-a-world-in-crisis-three-leading-experts-186488">Beyond GDP: changing how we measure progress is key to tackling a world in crisis – three leading experts</a>
</strong>
</em>
</p>
<hr>
<p>The UNDP’s 2020 <a href="https://hdr.undp.org/content/human-development-report-2020">Human Development Report</a> introduced what it calls “planetary pressure adjustments” to measure human development. This classifies a country’s development not just in terms of economic prosperity, but also in relation to carbon emissions and resource use per person.</p>
<p>Other alternative models and measures of economic welfare, including <a href="https://www.weforum.org/agenda/2022/06/what-is-degrowth-economics-climate-change/#:%7E:text=What%20is%20degrowth%3F,planet%20by%20becoming%20more%20sustainable">degrowth</a>, are gaining traction with <a href="https://ipbes.net/sites/default/files/inline/files/ipbes_global_assessment_report_summary_for_policymakers.pdf">policymakers</a>. <a href="https://www.penguin.co.uk/books/441772/less-is-more-by-jason-hickel/9781786091215">Supporters of degrowth</a> want to transform how wellbeing is measured and how our economies are regulated to ensure resources are used more sustainably. But this requires both political acceptance and wider <a href="https://www.irishtimes.com/opinion/2022/08/10/is-it-time-for-ireland-to-consider-degrowth">public buy-in</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/degrowth-why-some-economists-think-abandoning-growth-is-the-only-way-to-save-the-planet-podcast-170748">Degrowth: why some economists think abandoning growth is the only way to save the planet – podcast</a>
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</p>
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<h2>3. Use global governance to create a shared planet</h2>
<p>Building consensus on how to create a more sustainable world will take collective global action on shared interests. It will require solidarity and robust global governance tools to enable <a href="https://unsdg.un.org/sites/default/files/2020-03/SG-Report-Socio-Economic-Impact-of-Covid19.pdf">regulation and accountability</a>. This means legal consequences for countries that don’t adhere to agreed conventions such as the <a href="https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement">Paris Agreement</a> on climate change, or the <a href="https://www.coe.int/en/web/landscape">Council of Europe Convention</a> on landscape. And international organisations such as the World Health Organisation will need more powers to oversee international laws such as the <a href="https://www.tandfonline.com/doi/full/10.1080/13523260.2020.1771955">International Health Regulations</a> in monitoring and combating the global spread of disease.</p>
<p>Governments can also use <a href="https://hdr.undp.org/content/human-development-report-2020">financial incentives</a> to encourage companies to protect biodiversity and advance nature-based solutions to industry problems. Technology can play a part too, although it’s important to be wary of both the limits and rhetoric of the “<a href="https://www.nature.com/articles/s43016-021-00275-z">technological fix</a>”.</p>
<figure class="align-center ">
<img alt="14 January 2020: the congress center in Davos with flags of nations at sunrise during the WEF World Economic Forum" src="https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/504694/original/file-20230116-20-hxv9kx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Congress Center in Davos, Switzerland during the World Economic Forum’s 2020 annual meeting.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/davos-gr-switzerland-14-january-2020-1617109249">makasana photo/Shutterstock</a></span>
</figcaption>
</figure>
<p>A more sustainable world means understanding the planet’s <a href="http://www.librelloph.com/journalofhumansecurity/article/view/johs-17.1.15/html">intersecting human and environmental crises</a>, and working out how to address them holistically, cooperatively and responsibly. After that, the challenge lies in using the institutions and mechanisms of global governance that already exist, as well as pushing leaders to make brave decisions that put <a href="https://hdr.undp.org/content/2022-special-report-human-security">human and environmental security for all</a> ahead of endless profit for the few.</p><img src="https://counter.theconversation.com/content/197938/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Morrissey was a background author for the UNDP 2022 Special Report on Human Security, "New Threats to Human Security in the Anthropocene".</span></em></p>Leaders must find new ways to measure development and economic progress and to co-operate on prioritising human and environmental security over profits.John Morrissey, Professor of Geography, University of GalwayLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1957522022-12-02T13:35:53Z2022-12-02T13:35:53ZHow China’s response to zero-COVID protests could affect global business<p>The recent protests in China against the country’s zero-COVID policy have been unprecedented in their scale, intensity and distribution. Protestors numbering in the thousands were <a href="https://www.economist.com/graphic-detail/2022/11/16/how-common-are-protests-in-china">reported</a> in dozens of cities. Not since <a href="https://www.bbc.co.uk/news/world-asia-48445934">1989’s Tiananmen Square protests</a> has there been such widespread civil disobedience.</p>
<p>The protests do not signify the imminent collapse of the Chinese Communist Party regime, but they are a big challenge to the authority of the party’s general secretary Xi Jinping, the president of China. They also have far-reaching implications for China’s domestic economy and society, as well as for international firms and the global economy.</p>
<p>International reaction to the protests was a mix of awe at the scale and <a href="https://www.theguardian.com/world/2022/nov/28/clashes-in-shanghai-as-protests-over-zero-covid-policy-grip-china#:%7E:text=Chinese%20stocks%20fell%20sharply">fear about the consequences</a>. But there was also hope that <a href="https://uk.finance.yahoo.com/news/oil-prices-slide-concerns-over-014448364.html">COVID controls might be loosened further</a>, reopening China and unblocking recent global supply chain bottlenecks.</p>
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<p>
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Read more:
<a href="https://theconversation.com/shanghai-worlds-biggest-port-is-returning-to-normal-but-supply-chains-will-get-worse-before-they-get-better-182720">Shanghai: world's biggest port is returning to normal, but supply chains will get worse before they get better</a>
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<p>World stock markets <a href="https://www.cnbc.com/2022/11/28/china-covid-protests-send-global-stocks-lower-as-strategists-see-disruption-persisting.html">dived initially</a> on the Monday following the first weekend of protests on November 26 and 27. By Tuesday, a massive police presence at protest sites and early arrests of protestors led to a <a href="https://www.reuters.com/breakingviews/china-investors-desperately-seek-market-bottom-2022-11-02/">market rebound</a> as foreign investors poured back into Chinese markets.</p>
<p>Investors now appear to have discounted further protests and are <a href="https://www.ft.com/content/78a9ce92-286d-4b1c-852e-750d68e7768e?desktop=true&segmentId=7c8f09b9-9b61-4fbb-9430-9208a9e233c8#myft:notification:daily-email:content">reportedly optimistic</a> that Beijing will be forced to change course and open up the economy again. There have already been signs of a <a href="https://www.bbc.co.uk/news/world-asia-china-63805188">loosening of controls</a>, with vice-premier Sun Chunalan quoted as saying the current virus iteration is less virulent. However, enthusiastic investors risk ignoring the long-term challenges of China’s current political culture, domestic economy and outlook for international business.</p>
<figure class="align-center ">
<img alt="President of the People's Republic of China, Xi Jinping during the G20 summit in Hangzhou, China" src="https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498561/original/file-20221201-20-1hg0bx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">President of China, Xi Jinping.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/hangzhou-china-09052016-president-peoples-republic-1376982239">Gil Corzo / Shutterstock</a></span>
</figcaption>
</figure>
<h2>Shifting Chinese policy</h2>
<p>At the heart of contemporary political culture in China is regime survival. Xi wants China to be rich and powerful, but believes controlling domestic politics and addressing geopolitical challenges matters most. The economy comes second to security, a view Xi has expressed many times and <a href="https://www.fmprc.gov.cn/eng/zxxx_662805/202210/t20221025_10791908.html">reiterated at the Party Congress</a> in October. International investors need to realise this because China’s domestic economy and politics affect international firms involved with the country, as well as global markets.</p>
<p>So it’s important for investors and businesses to note that China is not prepared for a surge in COVID infections. Only two-thirds of the over-60s have had a third booster vaccination, although the government wants to <a href="https://www.reuters.com/world/china/china-ramp-up-covid-vaccinations-elderly-2022-11-29/">increase this</a>. But opening the economy again could bring a <a href="https://www.ft.com/content/9b81b9f0-e13d-4b0a-8bdf-91c97c7d61e7">massive increase in deaths</a> because of China’s fragile health system, <a href="https://www.researchgate.net/publication/338520008_Critical_Care_Bed_Capacity_in_Asian_Countries_and_Regions">insufficient ICU beds</a> and low natural immunity.</p>
<p>Any economic growth from the lifting of COVID controls is also likely to be short-lived for China. The domestic economy is floundering. Growth has been anaemic since 2020, after discounting initial bounces from periodic loosening. GDP <a href="http://www.stats.gov.cn/english/PressRelease/202210/t20221025_1889685.html">grew just 3%</a> for the first three quarters of 2022 and will miss the government’s target of 5.5%.</p>
<p>House prices and investment have also been on a slide. Apartment prices have been flat or negative for most of the 70 largest cities in China since 2020 – both for <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890350.html">new builds</a> and <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890352.html">resales</a>. Investment in residential floor space is down 38.5% for the year to October. Property sector woes have squeezed the revenues of local government, which bears the costs of Beijing’s dictates to control virus outbreaks. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/china-property-crisis-why-the-housing-market-is-collapsing-and-the-risks-to-the-wider-economy-189082">China property crisis: why the housing market is collapsing – and the risks to the wider economy</a>
</strong>
</em>
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<hr>
<p>Meanwhile, for the first ten months of 2022, <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221116_1890351.html">consumer retail sales</a> were down 0.5% and sales of food services were down 8.1% – although that is better than the 23% year-on-year fall during the spring 2020 lockdowns in Shanghai, Sichuan and Guangdong. And the <a href="http://www.stats.gov.cn/english/PressRelease/202211/t20221101_1889909.html">Purchasing Managers’ Index</a> (which gives an idea of how positive the manufacturing and services industries are feeling) declined in October to 49.2 and has been below 50 for six of the first ten months this year. Any number less than 50 indicates the economy is contracting.</p>
<h2>China’s global role</h2>
<p>Internationally, China’s role as the motor of the global economy could diminish. The continuing slowing of the Chinese economy – whether COVID controls are lifted or not – and Beijing’s prioritising of security over the economy will push international firms to act. </p>
<p>While many firms have already relocated, others have stayed – such as Apple, which gets much of its <a href="https://www.ft.com/content/e917d76a-62af-4cfc-95d1-aec67cde4e84">new iPhone Pro stock</a> from the large Foxconn-owned plant in Zhengzhou. This plant was the scene of battles between police and workers in November protesting COVID controls and <a href="https://www.reuters.com/technology/foxconn-covid-woes-may-hit-up-30-iphone-nov-shipments-zhengzhou-plant-source-2022-10-31/">lack of benefits</a>. Apple’s share price has held up remarkably well this year, as have those of major carmakers, but all are heavily dependent on China as a market and manufacturing base.</p>
<figure class="align-center ">
<img alt="Head and shoulders shot of UK prime minister Rishi Sunak at an event in Cardiff, Wales in August 2022." src="https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/498560/original/file-20221201-6191-b952h6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Prime minister Rishi Sunak has signalled a change in relations between the UK and China.</span>
<span class="attribution"><span class="source">ComposedPix / Shutterstock</span></span>
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</figure>
<p>For some politicians in the west, one solution is to <a href="https://www.bbc.co.uk/news/uk-politics-63787877">accelerate decoupling from China</a>. But doing so is neither feasible nor desirable despite their justified security concerns. Science and technology innovation is international in scope and depends on openness and exchange to a certain extent. It will be difficult to freeze China out if western firms want to share in Chinese growth and developments in these areas. </p>
<p>Recent US efforts to restrict the sale of semiconductors have come about only because of a belated realisation of how aggressive China has been acquiring technology since the 2000s. Too many people in the west were not reading Xi’s speeches in the early 2010s, only waking up around 2016 after Beijing had laid bare its strategy in the <a href="https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade">Made in China 2025 plan</a>.</p>
<p>The pursuit of profits in China’s very large domestic market has led international firms to neglect the politics of the China marketplace. It’s time to realise that <a href="https://doi.org/10.2307/j.ctv1mvw8x7.11">the business of government in China</a> ultimately rests on ensuring business serves the interest of the party-state and its goals.</p><img src="https://counter.theconversation.com/content/195752/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen Morgan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Recent unrest will affect China’s domestic economy as well as international businesses with a stake in the country.Stephen Morgan, Professor of Economic History (Emeritus), University of NottinghamLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1938832022-11-10T17:13:35Z2022-11-10T17:13:35ZBrazil: the new president inherits massive economic and environmental problems<figure><img src="https://images.theconversation.com/files/494649/original/file-20221110-26-emob5.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C3877%2C2569&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Plenty for the president-elect to think about.</span> <span class="attribution"><span class="source">Shutterstock/Marcus Mendes</span></span></figcaption></figure><p>The <a href="https://www.theguardian.com/world/2022/oct/30/lula-stages-astonishing-comeback-to-beat-bolsonaro-in-brazil-election">newly elected</a> president of Brazil is an experienced politician, having already served two terms in the role. But Lula da Silva will take the reins of a country that looks very different from the one he presided over before.</p>
<p>Much of this change was caused by COVID. Brazil had the world’s second-highest death toll (after the US) and the government spent <a href="https://www.ft.com/content/152609c9-8162-4bdc-aeef-4c3f8829d66f">about US$60 billion</a> (£52 billion) in mitigation measures, including cash transfers to the poorest. </p>
<p>Such high levels of <a href="https://theprisma.co.uk/2022/10/17/brazil-a-general-contempt-for-human-life/">public spending</a> by President Bolsonaro (which some viewed as a ploy to boost his popularity ahead of the 2022 election) have significantly deepened the country’s level of debt. </p>
<p>Now the country faces a serious economic hangover. Restoring fiscal sustainability is Lula’s first major task, as he attempts to strike a difficult balance between protecting the poor and ensuring sustainable public finances.</p>
<p>The international context for this could hardly be more challenging. <a href="https://fortune.com/2022/11/03/elliott-warns-hyperinflation-global-societal-collapse-financial-crisis/">Global levels</a> of inflation and interest rates, as well as supply constraints caused by Russia’s war with Ukraine have drastically increased the cost of imported goods. </p>
<p>In the past, high commodity prices had supported Brazil’s growth, given its substantial exports of things like iron and oil. But the situation today is very different. China, Brazil’s largest trading partner, has seen a <a href="https://www.ft.com/content/a53c4f92-0999-4cd1-beb7-c901c0f6cb19">cooling of its economic growth</a>, and the price of those same commodities has decreased. </p>
<p>Added to this, Brazil remains a relatively closed economy that has failed to diversify away from mining and agribusiness. And while the farming industry accounts for over a <a href="https://g1.globo.com/economia/agronegocios/noticia/2021/03/11/agronegocio-cresce-243percent-em-2020-e-responde-por-mais-de-um-quarto-do-pib-do-brasil-diz-cna-1.ghtml">quarter of Brazil’s GDP</a>, with the country’s exports of crops and meat totalling US$100 billion in 2021, the sector does not have enough scope to provide new jobs, limiting national prospects of employment recovery. </p>
<p>Despite a recent decrease, <a href="https://agenciadenoticias.ibge.gov.br/en/agencia-press-room/2185-news-agency/releases-en/35304-continuous-pnad-unemployment-rate-is-8-7-underutilization-rate-is-20-1-in-quarter-ending-in-september">unemployment levels</a> in Brazil remain high. And combined with inflation rates of around 8% this year this is hurting the poorest most, causing 33 million <a href="https://apnews.com/article/jair-bolsonaro-elections-caribbean-presidential-business-9bf9953778a0a227ad4b6708c879d9f0">Brazilians to go hungry</a> – an increase of 14 million compared with two years ago.</p>
<p>But Lula has some form in this regard. While in office from 2003 to 2011 <a href="https://www.cps.fgv.br/cps/bd/papers/es86-Poverty-Reduction-and-Well-Being-Lulas-Real.pdf">he was credited</a> with lifting 33 million people out of poverty, reducing extreme poverty by 25%, and expanding access to healthcare and education. </p>
<p>Now protecting the poorest and most vulnerable could not be more urgent – but the global and national economic picture gives him little room for manoeuvre. One option open to him is to focus on attracting green international investment by developing Brazil’s <a href="https://www.evwind.es/2022/08/24/brazil-with-great-potential-for-solar-and-wind-energy/87534">flourishing renewable energy sector</a> and acting quickly on his campaign promises to eradicate deforestation in the Amazon. </p>
<p>But Lula will need to reassure investors over his broader vision and economic plans. During his campaign he promised <a href="https://www.bloomberg.com/news/articles/2022-10-27/brazil-markets-rally-as-lula-pledges-fiscal-responsibility#xj4y7vzkg">higher welfare spending and higher investment, but also fiscal responsibility</a>. There have been no indications of how he will pay for his spending wish list so far. </p>
<h2>Negotiation over confrontation</h2>
<p>Yet his commitments to prosperity and the protection of the Amazon seem sincere. Within hours of winning the presidency <a href="https://www.theguardian.com/world/2022/oct/30/lula-stages-astonishing-comeback-to-beat-bolsonaro-in-brazil-election">he pledged</a> to halt the destruction of the rainforest and restore Brazil’s credibility as an international leader on climate issues. </p>
<p>These are <a href="https://theconversation.com/lulas-victory-in-brazil-comes-just-in-time-to-save-the-amazon-can-he-do-it-193618">immense tasks</a>. Bolsonaro was elected on an anti-environmental platform back in 2018, and deforestation had soon reached <a href="https://www.reuters.com/world/americas/brazil-deforestation-data-shows-22-annual-jump-clearing-amazon-2021-11-18/">its highest level in 15 years</a>. Every day, an area of the Amazon <a href="https://www.hrw.org/news/2022/11/04/brazil-lula-should-urgently-address-amazon-crisis">the size of 2,000 football pitches</a> is eradicated and prepared for crops or pastures.</p>
<p>The Bolsonaro government <a href="https://theconversation.com/lulas-victory-in-brazil-comes-just-in-time-to-save-the-amazon-can-he-do-it-193618">weakened environment protection agencies</a> at the same time as it empowered the powerful agricultural industry that harms indigenous people and the forest they live in. Some environmental experts have argued that, while the goal of zero deforestation is credible, it is <a href="https://www.ft.com/content/8ce01a8c-6deb-45c6-95cb-99a66d4a84a3">practically impossible</a> within the next decade.</p>
<p>Brazil is also deeply divided after four years of polarisation and <a href="https://brazilian.report/power/2022/09/13/radical-rhetoric-political-violence/?mc_cid=c4424dd3b1&mc_eid=88a34429a6">political violence</a>. Nearly half the country did not vote for him, and many did so only to keep Bolsonaro out. The fact that many pro-Bolsonaro politicians were re-elected means the new president will have to make concessions and secure the support of opposition parties if he wants to implement changes. </p>
<p>Equally important is the need to consolidate Brazilian democracy after years of erosion. Bolsonaro implemented a massive return of the military to national political life. Today they occupy more positions in the public administration than during the 1964-84 dictatorship. </p>
<p>Establishing the preponderance of civil power over the Armed Forces is crucial for the democratic strengthening of Brazil.</p>
<p>A glimmer of hope lies in the fact that as one of the few heads of state to command respect from nations as diverse as the US, China, Germany and Russia, Lula may prioritise negotiation over confrontation. In a polarised world maybe he is the one who can promote peace and stability, and live up to some of the great expectations Brazilians have placed on his shoulders.</p><img src="https://counter.theconversation.com/content/193883/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Nicolas Forsans does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Lula’s international reputation could be key to the country’s success.Nicolas Forsans, Professor of Management and co-director of the Centre for Latin American & Caribbean Studies, University of Essex, University of EssexLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1921192022-10-26T09:35:43Z2022-10-26T09:35:43ZThe whole world is facing a debt crisis – but richer countries can afford to stop it<figure><img src="https://images.theconversation.com/files/491024/original/file-20221021-24-e2k7rw.jpg?ixlib=rb-1.1.0&rect=98%2C26%2C5883%2C3332&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/low-interest-rate-economic-recession-stock-1461426560">Shutterstock/Immersion Imagery</a></span></figcaption></figure><p>Countries across the world are drifting towards a <a href="https://www.imf.org/en/Blogs/Articles/2021/12/15/blog-global-debt-reaches-a-record-226-trillion">debt crisis</a>. Economic slowdowns and rising inflation have increased demands on spending, making it almost impossible for many governments to pay back the money they owe. </p>
<p>In normal times, those countries could simply take on new debt to replace the old debt. But international conditions have made it much more difficult to do this. </p>
<p>As a result, some of <a href="https://bondvigilantes.com/blog/2020/01/can-africas-wall-of-eurobond-repayments-be-dismantled/">those approaching</a> repayment deadlines will simply not be able to meet them. <a href="https://www.bbc.co.uk/news/world-61028138">Sri Lanka</a> and <a href="https://www.theguardian.com/world/2022/sep/16/zambia-debt-lenders-urged-to-cancel">Zambia</a> have already missed payments, throwing both countries into an <a href="https://www.worldbank.org/en/news/press-release/2022/10/06/debt-restructuring-and-implementation-of-deep-reforms-critical-for-sri-lanka-s-economic-stabilization">economic tailspin</a>, and offering perhaps a preview of impending global problems. </p>
<p>One of the main reasons for this worrying scenario is that countries across the world are essentially compelled to borrow money in US dollars or Euros, and keep foreign currency reserves for future debt payments. </p>
<p>But those reserves face other vital demands. They are needed to <a href="https://www.ft.com/content/bee3f1c7-4b7b-432b-ad35-6f506d173516">purchase oil</a> and other imports, and well as maintaining the <a href="https://markets.businessinsider.com/news/currencies/dollar-vs-yen-won-japan-korea-currency-wars-market-intervention-2022-9">credible value</a> of their domestic currency.</p>
<p>Unfortunately for many emerging economies, the reserves they hold are simply not enough to cover all of these demands – especially after energy prices soared when Russia invaded Ukraine. </p>
<p>At the same time, foreign currencies have become more expensive to buy because the <a href="https://theconversation.com/three-reasons-why-the-us-federal-reserve-bank-holds-the-world-in-its-hands-190936">US Federal Reserve</a> and the European Central Bank are raising interest rates. Sri Lanka reportedly has no reserves left, while Pakistan is said to be operating on a <a href="https://www.reuters.com/markets/asia/how-worried-should-we-be-about-pakistans-economy-2022-09-30/">month-to-month basis</a>.</p>
<p>Countries usually issue new bonds (think of them as <a href="https://theconversation.com/how-bonds-work-and-why-everyone-is-talking-about-them-right-now-a-finance-expert-explains-191550">tradeable IOUs</a>) to roll over old debt, a process that works just fine – until it doesn’t. In July 2022, no emerging countries <a href="https://www.wsj.com/articles/low-income-nations-turn-to-risky-bank-loans-11659399411">issued any new bonds</a>, indicating that investors are alarmed by the risk of low currency reserves, and are no longer interested in lending to them. </p>
<p>China too has <a href="https://www.wsj.com/articles/china-belt-road-debt-11663961638">scaled back its lending</a> since the beginning of the pandemic to limit its exposure to global risk. So without bond markets or China, countries are turning to alternative sources of credit. </p>
<p>Kenya and Ghana for example, <a href="https://www.wsj.com/articles/low-income-nations-turn-to-risky-bank-loans-11659399411">recently took out</a> bank loans to alleviate budget shortfalls. And while the precise terms of these loans are not known, banks usually demand higher interest rates and shorter repayment periods, which may only add to a country’s financial stress levels. </p>
<p>Other countries are turning to some of the oil-rich gulf states currently profiting from high energy prices. Egypt and Pakistan have <a href="https://www.wsj.com/articles/gulf-states-rich-from-oil-spread-influence-with-financial-lifelines-11663143410">received loans</a> from Saudi Arabia, the United Arab Emirates (UAE) and Qatar, while Turkey has also borrowed from the UAE. These loans may be welcome lifelines, but they also <a href="https://www.tandfonline.com/doi/abs/10.1080/09692290.2018.1455600">create opportunities</a> for richer countries to effectively buy influence and generate dependency. </p>
<p>Overall then, a multitude of factors are working against some of the world’s poorest and indebted countries. If a global debt crisis does ensue, expect <a href="https://www.sciencedirect.com/science/article/pii/S0304393207000323?casa_token=kVhblVUZmJsAAAAA:S8qDvYdtbLAkDaPW8X2J_w0Ij2sPYzE_QBd-A3LKiibOlJVrSeplV31Hu1QlMMMPF95DknmxZaM">political turmoil</a> to follow. </p>
<p>Sri Lanka’s default prompted wide spread <a href="https://www.bbc.co.uk/news/world-61028138">protests</a>, forcing the president to resign. And <a href="https://www.sciencedirect.com/science/article/abs/pii/S0014292116300587">research shows</a> that extremist parties perform better after a financial crisis.</p>
<h2>Liquidity and transparency</h2>
<p>But it is not too late for the international community to help avoid such a scenario. </p>
<p>First off, the US and the EU should slow down their interest rate hikes. These US and EU rate hikes slow economic growth around the world, as <a href="https://www.reuters.com/markets/rates-bonds/un-agency-warns-recession-linked-imprudent-policy-decisions-report-2022-10-03/">the United Nations warned</a>, and they are draining countries’ foreign currency reserves. </p>
<p>It is also not clear that these interest rate hikes are addressing domestic inflation problems. If wealthier countries wish to lower inflation without igniting a global debt crisis, they should lower the trade barriers that artificially raise prices. For example, both the US and EU levy tariffs on imported agricultural products, which increase the price of food for their consumers. </p>
<figure class="align-center ">
<img alt="Oil plant." src="https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/491046/original/file-20221021-18-dnas7u.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Oil prices are depleting reserves.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/saudi-price-war-oil-market-prices-1667830870">Shutterstock/Corona Borealis Studio</a></span>
</figcaption>
</figure>
<p>Second, the International Monetary Fund (IMF) should drop or at least soften the austerity requirements linked to its emergency lending. For example, Zambia’s <a href="https://www.imf.org/en/News/Articles/2022/08/31/pr22297-imf-executive-board-approves-new-extended-credit-facility-arrangement-for-zambia#:%7E:text=The%20IMF%20Board%20approves%20SDR%20978.2%20million%20%28about,foster%20higher%2C%20more%20resilient%2C%20and%20more%20inclusive%20growth.">new IMF deal</a> requires lower government subsidies on fuel and food at a time when prices are increasing. These policies are politically unpopular and encourage countries to seek help from China and oil-rich states instead. </p>
<p>Those countries that are compelled to borrow from the IMF face the risk of emboldening extremist political elements. Now is not the time to push orthodox fiscal requirements that are questionable in their effectiveness. Instead, the IMF should prioritise global liquidity during these difficult economic conditions. </p>
<p>Finally, China should take a leading, transparent role in debt negotiations. Many of the countries facing debt problems owe money to China, a process often shrouded in secrecy. </p>
<p>We know, for instance, that China has agreed to participate in restructuring negotiations in Zambia but has not done the same in Sri Lanka. China has provided emergency loans and debt relief to Pakistan and Argentina, though the effectiveness or extent of this aid is unknown. </p>
<p>A more transparent approach would reduce uncertainty in global markets and allow other creditors to coordinate with China. While China’s lending has not been transparent up until this point, more clarity would benefit China’s overseas investments as well as the global debt market. </p>
<p>Time is running out before many debt distressed countries face repayment day. Debt <a href="https://academic.oup.com/isq/article-abstract/59/3/587/1814886">problems are contagious</a>, as was seen with the Latin American debt <a href="https://journals.sagepub.com/doi/abs/10.1177/0094582x8901600105?casa_token=iEhEBTHeHsYAAAAA:gsScEPlFsA1fqwOWqa4DV5GOvoNkV-k7it2O-9aFnxHNmmy9YnbzOoIGhx-Hai6NK0htRUvNNCXr">crises of the 1980s</a>, the <a href="https://muse.jhu.edu/article/17036/summary?casa_token=oFCyylA4ILMAAAAA:KyX2bn0v1QcK5-0v61jcSESuaePxklLBkB4O53edVcI_QYI3P3EyGVopJDTjNUUp9g48LoumoA">Asian financial crises</a> of the 1990s, and the <a href="https://www.annualreviews.org/doi/abs/10.1146/annurev-polisci-051215-023101">Eurozone debt crises</a> of the 2010s. The global community should work together to avert another global economic spiral, and help millions of people avoid needless suffering.</p><img src="https://counter.theconversation.com/content/192119/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Patrick E. Shea does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debt is becoming unaffordable.Patrick E. Shea, Senior Lecturer in International Relations and Global Governance, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1916192022-09-30T14:40:48Z2022-09-30T14:40:48ZWhy IMF comments on the UK economy spooked traders and investors<figure><img src="https://images.theconversation.com/files/487356/original/file-20220929-20-piv9cr.jpg?ixlib=rb-1.1.0&rect=25%2C44%2C4198%2C3191&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The International Monetary Fund recently issued an assessment of the UK economy.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/washington-dc-june-04-2018-pedestrian-1118510882">Bumble Dee / Shutterstock</a></span></figcaption></figure><p>Everyone from political pundits to people on the street have issued forth on the new UK government’s tax cut-laden growth plan recently. But it was a <a href="https://www.bbc.co.uk/news/business-63051702">rare public rebuke</a> from the International Monetary Fund (IMF) that really impacted financial markets. </p>
<p>Days after the government made its mini-budget announcement, the IMF <a href="https://www.imf.org/en/Countries/GBR">warned</a> that “large and untargeted fiscal packages” could work at “cross purposes” to monetary policy, referring to current efforts by central banks around the world to fight <a href="https://www.independent.co.uk/news/inflation-ap-frankfurt-germany-consumer-prices-b2182732.html">rampant inflation</a>. It also suggested the government should reevaluate its tax measures and provide more targeted energy crisis support at its next budget, currently scheduled for November 23.</p>
<p>Investors <a href="https://www.bbc.com/news/business-63051702">responded</a> by beating an even hastier exit from government bond markets and sending the pound plummeting. Within hours of the IMF statement, the Bank of England had <a href="https://www.bankofengland.co.uk/news/2022/september/bank-of-england-announces-gilt-market-operation">announced a plan</a> to try to calm the markets.</p>
<p>The IMF’s decision to comment on UK tax policy was significant and clearly had an impact on traders and investors. And while the uninitiated may be blissfully unaware of the IMF’s existence, it has played a key role in supporting economies in trouble since the middle of the last century.</p>
<h2>Upholding global financial stability</h2>
<p>The IMF was established in 1944 at the Bretton Woods Conference, which sought to stabilise global finances after the second world war. Based in Washington D.C., it is an international organisation with <a href="https://www.imf.org/en/About#:%7E:text=The%20IMF%20works%20to%20achieve,of%20its%20190%20member%20countries">190 member states</a> – from Afghanistan to the UK and US, right through to Zimbabwe. </p>
<p>Its mandate is to uphold international financial stability, which it tries to do by monitoring global macroeconomic developments and providing governments with advice and <a href="https://www.imf.org/en/Capacity-Development">training</a> on economic policy management.</p>
<p>Most importantly, perhaps, the IMF frequently acts as a “lender of last resort” for its members. This means it provides countries in dire financial straits with much-needed money in the form of loans. </p>
<p>In return, these countries must agree to certain austerity measures. Depending on the situation, this can include <a href="https://link.springer.com/article/10.1007/s12116-020-09307-4">tax</a> hikes and drastic spending <a href="https://link.springer.com/article/10.1007/s11558-018-9332-5">cuts</a>, alongside other substantial economic <a href="https://www.sciencedirect.com/science/article/pii/S0176268018304890?casa_token=vaRXAJWeV_8AAAAA:fq4KXMT_Ixn395-cOXoVmjU1-CAMjWDhE8feQI15aPQ9Yf5A8TTDwh8FNDE_4LEFeifrzKPFYQ">reforms</a>. </p>
<p>In the last few years, governments in <a href="https://www.theguardian.com/commentisfree/2020/aug/29/ecuador-austerity-imf-disaster">Ecuador</a> and <a href="https://www.ft.com/content/fb64d5f8-ed3e-4b1f-aab4-d19927519efe">Pakistan</a>, among others, have hiked interest rates, cut back on public spending programmes, and reduced subsidies on household essentials such as fuel and food to meet the IMF’s performance criteria. As a result, the IMF has become one of the world’s most <a href="https://link.springer.com/book/10.1007/978-3-030-05761-9">controversial</a> organisations.</p>
<p>Since the performance criteria it uses are based on the IMF’s worldview, the question of whether its advice is adequate, proportionate, and effective is often subject to debate. </p>
<p>For IMF <a href="https://www.cfr.org/backgrounder/imf-worlds-controversial-financial-firefighter">advocates</a>, the sometimes draconian measures it mandates are necessary to restore investor confidence, boost economic growth and help countries become more competitive in the long run. As such, the IMF can work like a <a href="https://www.sciencedirect.com/science/article/pii/S0304387820300821?casa_token=abQpxiHlyekAAAAA:1QBvfEdtm_ZhO0t2KhsdaCU3erjauQ9fl0uWpGftd29wP-OwacF3iFee25y-KrLF-pkGQIJLMw">seal of approval</a> for a country’s policy plans, helping governments to shore up international confidence in their economies.</p>
<p>To its critics, the IMF has used its policy leverage to advance reforms that have increased <a href="https://link.springer.com/article/10.1007/s11558-020-09405-x">poverty</a> and <a href="https://www.sciencedirect.com/science/article/pii/S0049089X18300802?casa_token=xR1kGl8fdKwAAAAA:0XlgVsv5bRBP2HE-wnrguY6ao8oKKukenVFGWcn4XjndIAYIOWxfxssNZ-Sskkm-hoQygBC9MA">inequality</a>, leaving countries with deep social and political scars for years after accepting its help. For example, during the Ebola crisis in 2014-15, the IMF was <a href="https://www.sciencedirect.com/science/article/pii/S0277953616306876?casa_token=M_z016hRpy0AAAAA:sjHc_4R9Lw8sTBO5EIvewyUdjanCYI8dZ3go-krrjUGW0l5vMZ5NSPs7H1QCqoWrC8brLe5wOQ">criticised</a> for contributing to underfunded health systems that prevented effective government responses to the epidemic. </p>
<h2>Moving markets</h2>
<p>Regardless, as the recent case of the UK shows, an IMF verdict on government policy proposals can significantly <a href="https://www.tandfonline.com/doi/full/10.1080/09692290.2021.2004441">affect</a> financial markets. For countries with immediate financing needs – typically developing economies – restoring investor confidence with an IMF intervention can be <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/rego.12422">critical</a> to the successful resolution of financial crises. </p>
<p>But the IMF has also used its “magic shield” to rescue UK governments from global financial woes in the past. In fact, since the Fund’s creation, the UK has called upon the IMF 11 times. </p>
<p>Its last <a href="https://www.telegraph.co.uk/business/2020/05/13/1976-bailout-rescued-britains-failing-economy/">IMF rescue</a> happened in 1976 when stagflation and political stalemate forced the UK government to ask for a loan to halt speculative pressures on the British pound. The IMF provided not only financial relief, but also stability to a newly elected British administration by helping to calm market nerves about the UK economy.</p>
<p>This time, the IMF offered up its thoughts on the current economic situation in Britain, rather than being invited to intervene. But instead of curbing speculation about the UK’s financial viability, the statement had the opposite effect: markets panicked. </p>
<p>Mortgage lenders continued to <a href="https://www.theguardian.com/money/2022/sep/28/almost-1000-mortgage-deals-pulled-as-panic-grips-uk-housing-market">pull their offerings</a> and investors kept <a href="https://www.aljazeera.com/economy/2022/9/28/uk-stocks-sterling-slip-as-boe-intervenes-after-imf-slams-budget">unloading government bonds</a>, forcing up yields and the cost of government borrowing. Add the <a href="https://www.theguardian.com/uk-news/2022/sep/26/why-is-sterling-falling-and-what-does-it-mean-for-the-rest-of-the-world">plummeting British pound</a> in the mix and the current situation is in danger of becoming a textbook financial crisis.</p>
<p>But the IMF’s assessment is in line with <a href="https://markets.businessinsider.com/news/currencies/uk-pound-fall-tax-cut-budget-inflation-recession-paul-krugman-2022-9">international experts</a> and <a href="https://www.reuters.com/world/uk/moodys-warns-uk-unfunded-tax-cuts-are-credit-negative-2022-09-28/">ratings agencies</a> in doubting that tax cuts will help reignite UK economic growth. Instead, it argues that the cuts will further expand the budget deficit. </p>
<p>Without a sound fiscal plan, this will increase the need for new government debt. At a time of rampant inflation, deteriorating global economic conditions and rising interest rates – which affect the cost of financing for the government – such debts may become unsustainable for the UK. </p>
<p>Taking into account the reaction of market participants to the IMF’s statement, and that the Bank of England felt the need to intervene in the bond market afterwards, the IMF assessment seems to have carried weight. </p>
<p>Certainly, the UK in debt distress is the last thing the world needs. Many governments in developing and emerging markets are <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3951586">struggling</a> to keep their own economies afloat right now while awaiting financial relief from western banks and the IMF. </p>
<p>But the UK’s <a href="https://link.springer.com/article/10.1007/s11558-021-09446-w">central position in global financial markets</a> means any panic in the City of London can spread quickly to global financial markets. From this perspective, the IMF’s recent comments about the UK can be seen an attempt to prevent the world from slipping further into a winter of despair.</p><img src="https://counter.theconversation.com/content/191619/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Why the IMF has weighed into the UK’s current financial situation and what it means for markets.Bernhard Reinsberg, Reader in Politics, University of GlasgowAndreas Kern, Associate Teaching Professor, McCourt School of Public Policy, Georgetown UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1910372022-09-20T23:24:25Z2022-09-20T23:24:25ZFed keeps focus on US economy as the world tilts toward a recession that it may be contributing to<figure><img src="https://images.theconversation.com/files/485733/original/file-20220920-18-tvy2ri.jpg?ixlib=rb-1.1.0&rect=102%2C86%2C3492%2C2306&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Fed has a mandate that keeps its focus on the U.S.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FinancialMarketsWallStreet/7a9a609ec46d4f4389a007e4af49e29a/photo?Query=federal%20reserve%20flag&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=36&currentItemNo=13">AP Photo/Mark Lennihan</a></span></figcaption></figure><p>The U.S. Federal Reserve holds inordinate sway over the world’s economies – yet it acts, in some ways, like they don’t really matter. </p>
<p>Its power is primarily because of the <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">dominance of the U.S. dollar</a>, which soared in recent months as the Fed’s <a href="https://fred.stlouisfed.org/series/FEDFUNDS">aggressive interest rate hikes</a> made the greenback more attractive to investors. But this has a downside for other countries because it is fueling inflation, raising the cost of borrowing and <a href="https://www.bloomberg.com/news/articles/2022-09-19/central-bank-rate-hikes-risk-global-recession-in-2023?sref=Hjm5biAW">increasing the risk of a global recession</a>. </p>
<p>If you only paid attention to the <a href="https://www.federalreserve.gov/newsevents/speech/powell20220826a.htm">words of Fed Chair Jerome Powell</a>, however, you probably would have no idea this is happening. He hasn’t said a peep in his public speeches about the significant risks to the global economy as central banks jack up interest rates to tame inflation – <a href="https://www.bloomberg.com/news/articles/2022-09-21/key-takeaways-from-fed-decision-to-raise-rates-75-basis-points?srnd=premium">including the Fed’s 0.75 percentage point increase on Sept. 21, 2022</a>. </p>
<p>This may seem a bit odd that the Fed would appear to be so blasé about the global economy that it arguably leads. Yet as a <a href="https://scholar.google.com/citations?user=VxWst50AAAAJ&hl=en&oi=ao">finance scholar</a>, I believe it makes perfect sense – though there are risks.</p>
<h2>The Fed’s domestic focus</h2>
<p>The Federal Reserve is <a href="https://www.federalreserve.gov/aboutthefed/fract.htm">mandated to focus on the U.S. economy</a>, and it takes this job very seriously. </p>
<p>While central banks are aware of all global economic data, they focus on their own economies, helping them do what is best for their own nations. In the U.S., that means the Fed is focused on improving the American economy through
<a href="https://www.stlouisfed.org/in-plain-english/the-fed-and-the-dual-mandate#:%7E:text=The%20Federal%20Reserve%20System%20has,other%20words%2C%20conducting%20monetary%20policy.">stable prices and full employment</a>. </p>
<p>As a result, when the U.S. economy is slowing too quickly and people are losing jobs, such as <a href="https://www.npr.org/2021/01/28/961372699/us-economy-slows-sharply-as-pandemic-resurges">early in the pandemic</a>, the Fed <a href="https://fred.stlouisfed.org/series/FEDFUNDS">lowers interest rates</a> – no matter the impact on other countries. Similarly, when the economy is growing but consumer prices are rising too fast, the central bank raises interest rates. </p>
<figure class="align-center ">
<img alt="Hands hold and pick up US dollar bills next to euros at an exchange counter" src="https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/485925/original/file-20220921-9184-4fclkl.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The U.S. dollar is the world’s main reserve currency.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/EuropeEconomy/314bfcbc4d44474083da9a5c4b8a0178/photo?Query=us%20dollar%20exchange&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=1171&currentItemNo=2">AP Photo/Gregorio Borgia</a></span>
</figcaption>
</figure>
<h2>And its global impact</h2>
<p>Yet it’s unavoidable that the Fed’s policies will influence economies, companies and citizens in virtually every country in the world.</p>
<p>While all central banks influence the rest of the world, the Fed has a much larger impact because of the size of the U.S. economy – it <a href="https://worldpopulationreview.com/countries/countries-by-gdp">remains by far the largest in absolute terms</a> – and the prominence of the U.S. dollar in international markets and trade. </p>
<p><a href="https://www.nber.org/digest/digestsep18/debt-markets-are-biased-toward-home-country-currencies">Approximately half of the world’s international debt is denominated</a> in <a href="https://www.phenomenalworld.org/analysis/acute-dollar-dominance/">dollars</a>, which means countries need to pay interest and principle on what they borrow in greenbacks. The dollar has soared <a href="https://www.marketwatch.com/investing/index/dxy">almost 15% this year relative to a basket of foreign currencies</a>, largely as a result of the Fed interest rate hikes that began in March. That means it’s, on average, 15% more expensive to finance those dollar-denominated debts – and for some countries, it could be a lot more.</p>
<p>Moreover, <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">about 60% of all global foreign exchange reserves</a> – that’s the money central banks hold to protect the value of their own currencies – are in dollars. And since <a href="https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006.html">most major commodities</a> <a href="https://www.energyvoice.com/markets/259645/understanding-how-oil-and-currency-prices-are-connected/">like</a> <a href="https://www.washingtonpost.com/business/energy/in-the-oil-market-the-strong-dollar-is-the-worlds-problem/2022/06/08/acec9ba8-e6e8-11ec-a422-11bbb91db30b_story.html">oil</a> and <a href="https://goldprice.org/live-gold-price.html">gold</a> are priced in dollars, a stronger dollar makes everything cost a lot more for businesses and consumers in every country. </p>
<p>Finally, when U.S. interest rates are high relative to those in other countries, more foreign investment flocks to the U.S. to get more bang for their buck. Since there’s only so much money to go around, this drains <a href="https://www.morningstar.com/articles/1101202/whats-the-impact-of-the-strong-dollar-on-my-portfolio">investment</a> from other <a href="https://tylerpaper.com/news/business/what-does-a-strong-dollar-mean-to-investors/article_57fa9361-bac5-5854-8fb0-1ef18231f0ce.html">economies</a>, especially emerging markets. And it means <a href="https://theconversation.com/three-reasons-why-the-us-federal-reserve-bank-holds-the-world-in-its-hands-190936">they have to raise interest rates</a> to keep foreign direct investment flowing into their countries, which can hurt their local economies.</p>
<h2>Risks in a global world</h2>
<p>Unfortunately, focusing solely on the domestic economy has its own risks.</p>
<p>It may sound cliche, but we do live in a global, interconnected world – something demonstrated powerfully by the COVID-19 pandemic and the supply chain issues that repeatedly <a href="https://www.nytimes.com/2022/04/14/business/economy/biden-supply-chain.html">rippled across the world</a>. American businesses depend on other countries for supplies, workers and consumers.<br>
That means even if the Fed manages a proverbial soft landing and is able to reduce inflation without causing a recession, a global downturn may still ultimately reach American shores. This could threaten much of the Fed’s success if the global slowdown results in <a href="https://www.imf.org/en/Blogs/Articles/2022/07/26/blog-weo-update-july-2022">international instability or food insecurity</a>.</p>
<p>So while I believe the Fed is correct to keep its focus on the U.S. economy and lift rates as much as it deems necessary, I’ll be looking closely at how the central bank’s economic projections evolve. If the data shows the U.S. economy’s inflation problems diminishing, the Fed may be able to begin to think a bit less about what’s happening in its own backyard and more about the impact of its policies on the rest of the world.</p><img src="https://counter.theconversation.com/content/191037/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>D. Brian Blank does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Fed’s recent rate hikes are contributing to higher prices and growing recession risks around the world, yet there are good reasons why the US central bank has to keep its focus domestic.D. Brian Blank, Assistant Professor of Finance, Mississippi State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1866542022-07-08T13:27:19Z2022-07-08T13:27:19ZFive ways that the super-strong US dollar could hurt the world economy<figure><img src="https://images.theconversation.com/files/473192/original/file-20220708-22-ig5zsq.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Look out below!</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/continuous-line-drawing-superhero-business-man-2060993075">cupuuu25</a></span></figcaption></figure><p>The US dollar has been on a <a href="https://www.exchangerates.org.uk/Dollars-to-Yen-currency-conversion-page.html">major surge</a> against major global currencies in the past year, recently hitting levels not seen in 20 years. It has gained 15% against the British pound, 16% against the euro and 23% against the Japanese yen. </p>
<p>The dollar is the world’s reserve currency, which means it is used in most international transactions. As a result, changes in its value have implications for the entire global economy. Below are five of the main ones. </p>
<p><strong>US dollar strength 1977-2022</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing the strength of the dollar since 1980" src="https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=335&fit=crop&dpr=1 600w, https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=335&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=335&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=422&fit=crop&dpr=1 754w, https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=422&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/473186/original/file-20220708-23-jofxsq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=422&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The US dollar index or DXY is the US dollar measured against a basket of world currencies.</span>
<span class="attribution"><a class="source" href="https://www.tradingview.com">Trading View</a></span>
</figcaption>
</figure>
<h2>1. Even more inflation</h2>
<p>Petrol and most commodities such as metals or timber are usually traded in US dollars (though <a href="https://oilprice.com/Energy/Coal/China-Calls-Out-US-Dollar-Dominance-As-It-Buys-Russian-Coal-With-Yuan.html">with exceptions</a>). So when the dollar gets stronger, these items cost more in local currency. For example in British pounds, the cost of US$100-worth of petrol has risen over the past year from £72 to £84. And since the price per litre of petrol in <em>US dollars</em> has risen steeply as well, it is creating a double whammy. </p>
<p>When energy and raw materials cost more, the prices of many products go up for consumers and businesses, causing inflation around the world. The only exception is the US, where a stronger dollar makes it cheaper to import consumer products and therefore could help to tame inflation. </p>
<h2>2. Low-income countries under threat</h2>
<p>Most developing countries owe their debt in US dollars, so many owe much more now than a year ago. As a result, many will struggle to find an ever increasing amount of local currency to service their debts. </p>
<p>We are already seeing this in <a href="https://www.bbc.co.uk/news/business-61505842">Sri Lanka</a>, and other countries may soon <a href="https://blogs.worldbank.org/voices/are-we-ready-coming-spate-debt-crises">follow suit</a>. They will either have to tax their economies more, issue inflationary local money or simply borrow more. The results could be deep recession, hyper-inflation, a sovereign debt crisis or all three together, depending on the path chosen. Developing countries which fall into sovereign debt crises <a href="https://www.reuters.com/business/argentinas-economic-crisis-whack-a-mole-goes-into-overdrive-2022-06-28/">can take years</a> or even decades to recover, causing severe hardship to their people. </p>
<h2>3. A bigger US trade deficit</h2>
<p>Other countries will buy fewer US products as a result of the strong dollar.
The US trade deficit, which is the difference between the amount of exports and imports, already runs close to a mammoth <a href="https://www.thebalance.com/u-s-trade-deficit-causes-effects-trade-partners-3306276#:%7E:text=The%20annual%20trade%20deficit%20for,%24394%20billion%20increase%20from%202020">one trillion dollars</a> per year. <a href="https://www.independent.co.uk/news/world/americas/us-politics/under-biden-china-faces-renewed-trade-pressure-china-us-joe-biden-economy-donald-trump-b1792607.html">President Joe Biden</a> and <a href="https://observer.com/2017/03/protectionism-could-it-benefit-us-economy-free-trade-wto-useconomy/">Donald Trump</a> before him vowed to reduce it, particularly against China. <a href="https://www.cfr.org/backgrounder/us-trade-deficit-how-much-does-it-matter">Some economists worry</a> that the trade deficit drives up US borrowing and reflects the fact that many manufacturing jobs have moved overseas. </p>
<p><strong>US trade deficit as a % GDP</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing US trade deficit as a percentage of GDP" src="https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=272&fit=crop&dpr=1 600w, https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=272&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=272&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=342&fit=crop&dpr=1 754w, https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=342&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/473197/original/file-20220708-15-vdmjaf.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=342&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/united-states/balance-of-trade">Trading Economics</a></span>
</figcaption>
</figure>
<h2>4. De-globalisation to get worse</h2>
<p>The most obvious economic policy to prevent a trade deficit from growing is the old game of imposing tariffs, quotas or other barriers on imports. Other countries <a href="https://observer.com/2017/03/protectionism-could-it-benefit-us-economy-free-trade-wto-useconomy/">tend to retaliate</a> against such protectionism, adding their own taxes and other barriers to US products. In an era when <a href="https://theconversation.com/africa-faces-hard-knocks-as-rich-countries-take-manufacturing-back-home-181490">“de-globalisation” has already begun</a> thanks to worsening western relations with Russia and China, a stronger dollar adds to the political momentum for protectionism and threatens global trade. </p>
<h2>5. Eurozone fears</h2>
<p>Weaker EU member states such as Portugal, Ireland, <a href="https://www.esm.europa.eu/blog/euronomics-fresh-look-greek-debt-sustainability#:%7E:text=The%20ESM%20holds%20around%2055,of%20the%20remaining%20debt%20stock">Greece</a> and Cyprus have become somewhat less vulnerable to investors driving up their borrowing costs to crisis levels than during the darkest days of the eurozone crisis. This is because much of their national debt is <a href="https://www.ceps.eu/wp-content/uploads/2019/06/PI2019_11_Italian-public-debt-holdings.pdf">now in the hands</a> of the the European Stability Mechanism (ESM), which was set up to help rescue them, as well as friendlier investment banks within the eurozone. </p>
<p>However, the stronger dollar is <a href="https://www.ft.com/content/2eca224f-7923-4f9b-ba11-6c8832768edf">creating pressure</a> for the European Central Bank to raise its own interest rates to prop up the euro and subdue the cost of imports, including energy. This will put more pressure on eurozone countries with high levels of debt. Italy, which is the ninth largest economy in the world and has government debts at a whopping 150% of GDP, would be <a href="https://www.ft.com/content/581255ab-c2aa-4df9-bf87-80ade371a4bb">particularly hard</a> to bail out if the situation got out of control. </p>
<p>Bringing these five points together, the ultra-strong dollar is <a href="https://www.reuters.com/markets/europe/global-economy-us-recession-fears-darken-outlook-japan-global-factories-2022-06-23/">yet another reason</a> to fear a global recession in the coming period. Higher inflation erodes consumer incomes and reduces consumption. Protectionism can reduce international trade and investment. Sovereign debt crises mean serious trouble for many developing countries and possibly even the eurozone. </p>
<h2>Will the dollar keep rising?</h2>
<p>The dollar has been rising for both economic and geopolitical reasons. The central bank of the US – the Federal Reserve – has been hiking interest rates aggressively and also reversing its policy of creating money via <a href="https://www.forbes.com/advisor/investing/quantitative-easing-qe/">quantitative easing (QE)</a>. This is with a view to curbing inflation caused by COVID supply issues, the war in Ukraine and also QE. </p>
<p>The stronger US dollar is a side effect of these higher interest rates. Because the dollar now offers a higher yield when deposited in a US bank, it encourages foreign investors to sell their local currency and buy US dollars. </p>
<p>Of course, central banks in other jurisdictions such as the UK have also been raising interest rates, and the eurozone is planning to do likewise. But they are not acting as aggressively as the US. Meanwhile Japan is not tightening at all, so the net result is still greater overseas demand for greenbacks. </p>
<p>The other reason for the surging US dollar is because it is a classic safe haven when the world is worried about a recession – and the current geopolitical situation is arguably making it still more appealing. The euro has suffered from the EU’s proximity to the war in Ukraine, its exposure to Russian energy and the prospect of <a href="https://theconversation.com/why-a-new-eurozone-crisis-now-looks-a-distinct-possibility-184765">another eurozone crisis</a>. It is close to dollar parity for the first time since its early years. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Euro symbol outside the ECB" src="https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/473209/original/file-20220708-27-c7d4ia.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The euro is in trouble.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/frankfurt-germany-january-22-2019-euro-1397385803">Ilolab</a></span>
</figcaption>
</figure>
<p>The British pound has been hit by Brexit and is also facing the prospect of a second Scottish independence referendum and a <a href="https://www.politicshome.com/thehouse/article/northern-ireland-protocol-bill-eu-uk-trade-war-scotland">potential trade war</a> with the EU over the Northern Ireland protocol. Finally, the yen belongs to an economy that seems to be slowly losing ground. Japan is ageing and is <a href="https://thediplomat.com/2022/01/japans-self-destructive-immigration-policy/">still not comfortable</a> with migration to boost its production capabilities. A weaker yen is also the price that <a href="https://www.reuters.com/markets/currencies/govt-panel-member-says-bojs-yield-cap-causing-negative-spiral-yen-falls-2022-06-23/">Japan pays</a> for continuing QE to keep the interest rates low on its government debt. </p>
<p>It is difficult to predict the future direction of the US dollar when there are so many moving parts in the world economy. But we suspect that persistent inflation will force US interest rates to keep rising, and that together with geopolitical shocks from war and sovereign debt defaults, it will probably keep the dollar high. A strong US dollar is a response to troubled times.</p><img src="https://counter.theconversation.com/content/186654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The greenback is at its heftiest since 2002 and still rising fast.Alexander Tziamalis, Senior Lecturer in Economics, Sheffield Hallam UniversityYuan Wang, Seinor Lecturer in Economics, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1846092022-07-01T15:39:55Z2022-07-01T15:39:55ZCorporation tax: why plans to set a global rate are too complicated and need a new approach<figure><img src="https://images.theconversation.com/files/472041/original/file-20220701-20-5n0im0.jpg?ixlib=rb-1.1.0&rect=57%2C34%2C3771%2C2103&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/global-communication-network-concept-smart-city-1396576496">Shutterstock/metamorworks</a></span></figcaption></figure><p>Back in 2021, the world’s richest countries announced plans to agree and enforce a <a href="https://www.gov.uk/government/news/g7-finance-ministers-agree-historic-global-tax-agreement">minimum rate</a> of corporation tax. The idea was to solve the problem of large companies generating huge revenues but paying very little tax into the public purse. </p>
<p>But the Organisation for Economic Co-operation and Development (OECD) <a href="https://www.theguardian.com/business/2022/may/24/historic-global-tax-deal-on-multinationals-delayed-until-2024">recently admitted</a> that this groundbreaking international deal will not in fact be implemented in 2023, as had been hoped. Mathias Cormann, the OECD’s secretary-general, spoke of “difficult discussions” taking place over the “historic and very important” idea. </p>
<p>Perhaps then, such an an ambitious plan requires a different approach. For one of the reasons for the lack of progress is that the OECD is trying to reach an overly inclusive consensus (more than 130 countries) with an overly complicated agenda. </p>
<p>The original idea was fairly straightforward. The US <a href="https://www.ft.com/content/847c5f77-f0af-4787-8c8e-070ac6a7c74f">had proposed</a> an agreement on a “global minimum tax” in which individual countries taxed companies based in those countries on their global profits.</p>
<p>The motive was to ensure that multinationals were taxed in at least one country (the one in which they are based), forming a kind of global defensive alliance against “profit shifting”, when companies move profits from high-tax jurisdictions to low-tax regimes.</p>
<p>Such an arrangement, where a minimum tax rate (say 15%) on global profits is agreed at international level, would mean each country participating in a cooperative framework. Not so much a complex systemic international mechanism as an agreed alignment, where each state is responsible for taxing its own multinationals. So far, so simple. </p>
<p>But the OECD has complicated things, introducing complex arrangements that may yet jeopardise the establishment of any international pact. And it is seeking the agreement of too many countries. </p>
<p>This means that nothing has yet changed, and currently there is no hint of a global minimum rate of corporation tax becoming a reality. It was not high on the agenda at the recent G7 summit in Germany, where the invasion of Ukraine was understandably the <a href="https://edition.cnn.com/2022/06/28/politics/takeaways-from-g7/index.html">top priority</a>. </p>
<p>But the OECD’s ambitious path does not mean the original idea should be abandoned. It is still possible for any country to adopt the global taxation minimum standard and begin to form a “defensive alliance” against tax competition and profit shifting. </p>
<p>A broad, overly inclusive multilateral approach is not absolutely necessary. Instead, this is a clear opportunity for “minilateralism” – when a smaller group of committed countries acting together could be extremely effective. </p>
<h2>Taxing times</h2>
<p>Put simply, minilateral arrangements are a form of cooperation which avoid some of the problems presented by deals that get held up by a desire to be over-inclusive. </p>
<p>Their effectiveness lies in the fact they require the inclusion of the smallest possible number of countries needed to have the largest possible impact on solving a problem.</p>
<p>They have been used in areas like <a href="https://direct.mit.edu/glep/article/12/2/24/14560/Moving-Forward-in-the-Climate-Negotiations">environmental policy</a>, where certain countries have decided on their own targets with regard to things like carbon emissions.</p>
<p>In the case of taxing multinationals, minilateralism would allow cooperation among the countries which genuinely believe in the policy. The smaller number of participants would make agreement on specific measures far more likely, and would also set the stage for more countries joining in at a later stage. </p>
<figure class="align-center ">
<img alt="Seesaw with 'tax' weighed against a percentage sign." src="https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/472044/original/file-20220701-21-1lyae2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Finding the balance.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/tax-concept-percentage-symbol-3d-rendered-553347208">Shutterstock/Shyamalamuralinath</a></span>
</figcaption>
</figure>
<p>Most EU countries are <a href="https://ec.europa.eu/taxation_customs/taxation-1/minimum-corporate-taxation_en">still in favour</a> of an agreed tax rate, yet just last month <a href="https://www.reuters.com/markets/europe/eu-fails-agree-corporate-tax-reform-hungary-vetoes-overhaul-2022-06-17/">Hungary raised objections</a> that have stalled progress among the 27 member states. Meanwhile the US, which originally took the lead on the project, has <a href="https://www.theguardian.com/business/2021/jun/09/republicans-threaten-g7-joe-biden-global-tax">faced opposition</a> right from the start. </p>
<p>Add in the economic impact of war in Ukraine, soaring inflation, and a cost of living crisis, and everything looks much more complicated. Forging international agreement on a tax rate when so many other compelling issues are at play seems unlikely, certainly in the short term. In the longer term, a minilateral approach may be the only way to make progress.</p><img src="https://counter.theconversation.com/content/184609/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Carlo Garbarino does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A less inclusive approach may be the most practical.Carlo Garbarino, Professor of Taxation, Director of the Tax and Accounting Observatory, Bocconi UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1858682022-06-29T03:35:28Z2022-06-29T03:35:28Z1970s-style stagflation now playing on central bankers’ minds<figure><img src="https://images.theconversation.com/files/471516/original/file-20220629-12-nfo4ow.jpg?ixlib=rb-1.1.0&rect=0%2C377%2C6144%2C3072&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>“Stagflation” is an ugly word for an ugly situation – the unpleasant combination of economic stagnation and inflation. </p>
<p>The last time the world experienced it was the early 1970s, when oil-exporting countries in the Middle East cut supplies to the United States and other supporters of Israel. The “supply shock” of a four-fold increase in the cost of oil drove up many prices and dampened economic activity globally. </p>
<p>Stagflation was thought left behind. But now there is a real risk of it coming back, warns the central bank for the world’s central banks.</p>
<p>“We may be reaching a tipping point, beyond which an inflationary psychology
spreads and becomes entrenched,” says the Bank for International Settlements <a href="https://www.bis.org/">BIS</a> in its latest <a href="https://www.bis.org/publ/arpdf/ar2022e.htm">annual economic report</a>.</p>
<p>By “inflationary psychology” it means that expectations of higher prices lead consumers to spend now rather than later, on the assumption waiting will cost more. This increases demand, pushing up prices. Thus expectations of inflation become a self-fulfilling prophecy. </p>
<p>The danger of stagflation comes from this inflationary cycle becoming so entrenched that attempts to curb it through higher interest rates push economies into recession. </p>
<hr>
<p><strong>Global inflation since the 19th century</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graph of global inflation since the 19th century." src="https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=319&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=319&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=319&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=401&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=401&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471521/original/file-20220629-19-mtakpz.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=401&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.bis.org/publ/arpdf/ar2022e.pdf">BIS</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<hr>
<h2>What’s driving inflation</h2>
<p>As well as its own expert staff, the BIS brings together expertise from its member central banks, such as the <a href="https://www.federalreserve.gov/">US Federal Reserve</a>, the <a href="https://www.ecb.europa.eu/home/html/index.en.html">European Central Bank</a>, the <a href="https://www.bankofengland.co.uk/">Bank of England</a> and <a href="https://www.rba.gov.au/">Reserve Bank of Australia</a>. So its views are worth paying attention to. </p>
<p>Its report makes clear its experts, like most forecasters, have been surprised by the extent of the rise in inflation. </p>
<p>This is a global phenomenon, which the report attributes to a combination of an unexpectedly strong economic rebound from the COVID-19 lockdowns, a sustained switch in demand from services to goods, and supply bottlenecks exacerbated by a shift from “just-in-time” to “just-in-case” inventory management. </p>
<p>Then there is Russia’s invasion of Ukraine. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="An apartment building damaged by Russian attacks on the northern Ukraine city of Chernihiv, June 27 2022." src="https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=504&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=504&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471514/original/file-20220629-26-emka1y.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=504&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">An apartment building damaged by Russian attacks on the northern Ukraine city of Chernihiv, June 27 2022.</span>
<span class="attribution"><span class="source">Kunihiko Miura/Yomiuri Shimbun/AP</span></span>
</figcaption>
</figure>
<p>The war’s effect in driving up the price of oil, gas, food, fertilisers and other commodities has been “inherently stagflationary”: </p>
<blockquote>
<p>Since commodities are a key production input, an increase in their cost constrains output. At the same time, soaring commodity prices have boosted inflation everywhere, exacerbating a shift that was already well in train before the onset of the war.</p>
</blockquote>
<p>The only bright note is that BIS expects these price surges to be less disruptive than the oil supply shock of the 1970s. </p>
<p>This is because the relative impact of the oil supply shock was greater due to economies in the 1970s being more energy-intensive. </p>
<p>There is also much more focus now on containing inflation, with most central banks having a clearly stated inflation target (2% in Europe and the US, 2%-3% in Australia). </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Traffic in Los Angeles, 1973. Economies were much more energy-intensive than now." src="https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=412&fit=crop&dpr=1 600w, https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=412&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=412&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=517&fit=crop&dpr=1 754w, https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=517&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/471505/original/file-20220629-18-jtozlp.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=517&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Traffic in Los Angeles, 1973. Economies were much more energy-intensive than now.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:HOLLYWOOD_FREEWAY_-_NARA_-_542684.jpg">Gene Daniels/Wikimedia Commons</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<h2>What are the biggest dangers?</h2>
<p>But the current situation is still very challenging, the report says, because increases in the price of food and energy are particularly conducive to spreading inflationary psychology. </p>
<p>This is because food is bought frequently, so price changes are notable. The same goes for fuel prices, which are prominently displayed on large roadside signs.</p>
<p>There is also the risk in many economies of a wage-price spiral – in which higher prices drive demands for higher wages, which employers then pass on in higher prices. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/rising-prices-why-the-global-drive-to-keep-food-cheap-is-unsustainable-185326">Rising prices: why the global drive to keep food cheap is unsustainable</a>
</strong>
</em>
</p>
<hr>
<p>Central banks face what Reserve Bank of Australia governor Philip Lowe has called a “<a href="https://www.rba.gov.au/speeches/2022/sp-gov-2022-06-21-q-and-a-transcript.html">narrow path</a>”. </p>
<p>To achieve a “soft landing” they need to raise interest rates enough to bring inflation down. But not enough to cause a recession (and thus stagflation). </p>
<h2>How to avoid a ‘hard landing’?</h2>
<p>The BIS report cites an analysis of monetary tightening cycles – defined as interest rate rises in at least three consecutive quarters – in 35 countries between 1985 and 2018. A soft landing was achieved in only about half the cases.</p>
<p>A key factor in the hard landings was the extent of financial vulnerabilities, particularly debt. Economies with hard landings on average had double the growth in credit to GDP prior to the interest-rate rises. </p>
<p>This factor contributes to BIS concerns now. As the report notes:</p>
<blockquote>
<p>Unlike in the past, stagflation today would occur alongside heightened financial vulnerabilities, including stretched asset prices and high debt levels, which could magnify any growth slowdown. </p>
</blockquote>
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<p><iframe id="wlAjv" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/wlAjv/2/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>Furthermore, the slowdown in China’s labour productivity is removing an important boost to global economic growth and restraint on global inflation. </p>
<p>But a key lesson from the 1970s is that the long-term costs of doing nothing outweigh the short-term pain of bringing inflation under control.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/5-things-to-know-about-the-feds-biggest-interest-rate-increase-since-1994-and-how-it-will-affect-you-185008">5 things to know about the Fed's biggest interest rate increase since 1994 and how it will affect you</a>
</strong>
</em>
</p>
<hr>
<p>This means governments must curb handouts or tax cuts to help people with cost-of-living pressures. Expansionary fiscal policy will only make things worse. Assistance must be strictly targeted to those who most need it.</p>
<p>There is also a need to rebuild monetary and fiscal buffers to cope with future shocks. This will require raising interest rates above inflation targets and returning government budgets (close) to surplus.</p><img src="https://counter.theconversation.com/content/185868/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Hawkins was formerly a senior economist at the Reserve Bank of Australia and the Bank for International Settlements.</span></em></p>We are at a dangerous tipping point in ‘inflationary psychology’, says the central bank for the world’s central banks.John Hawkins, Senior Lecturer, Canberra School of Politics, Economics and Society, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1824512022-05-10T13:49:06Z2022-05-10T13:49:06ZChina’s COVID crisis and the dilemma facing its leaders, by experts who have monitored it since the Wuhan outbreak<figure><img src="https://images.theconversation.com/files/461863/original/file-20220508-52448-bccw5d.jpg?ixlib=rb-1.1.0&rect=491%2C1228%2C6738%2C3686&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A Shanghai refuse worker shows the strain of the month-long COVID lockdown.
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-april-27-2022-garbage-2150088095">Shutterstock</a></span></figcaption></figure><p>More than two years after a deadly strain of coronavirus was first identified in the central city of Wuhan, China remains locked in a COVID crisis. Around 400 million people are currently thought to be living under some form of lockdown across the country. One of China’s largest cities, Shanghai, has been paralysed for the past month, with many of its residents hemmed in by hastily erected metal fences. The capital, Beijing, is now <a href="https://www.theguardian.com/world/2022/may/04/beijing-reopens-mass-isolation-centre-in-fight-against-covid">striving</a> to avoid a similar fate.</p>
<p>The extraordinary story of China’s ongoing, and increasingly desperate, struggle against COVID-19 combines hubris at its own early public health successes with a failure to sufficiently vaccinate its elderly people, and is fuelled by rising anti-Western sentiment over the last five years. The result is that China now faces a dilemma: either the high numbers of deaths and overwhelmed health services that would result from a rampant virus, or the rapidly mounting social and economic costs of prolonged lockdowns and stay-at-home orders nationwide. </p>
<p>But resolving China’s COVID dilemma and finding a route out of the pandemic is complicated by the difficulties of challenging a “zero-COVID” strategy so closely associated with China’s top leader, Xi Jinping. Xi is due to be re-appointed for a controversial third term as General Secretary of the Chinese Communist Party at its five-yearly Congress in the autumn. He will not want a rampant virus and high death rates to tarnish his reputation and undermine his, and the Party’s, claims that they have handled the pandemic better than other countries. </p>
<p>How did China get to this point? And what can it do to resolve a crisis that threatens not just the health and security of its people, but of the world’s largest economy – and those of the many countries that rely on its vast supply chains. At the University of Glasgow’s <a href="https://www.gla.ac.uk/schools/socialpolitical/research/sccr/">Scottish Centre for China Research</a>, we have been tracking the rollercoaster evolution of the Chinese government’s COVID strategy, and the impacts of its containment measures, since news of the virus first reached us in early 2020. Combining on-the-ground reports from researchers with reviews of policy documents and social media outpourings, this is our analysis of China’s COVID crisis – present, past and future.</p>
<h2>Groundhog day</h2>
<p>“Every day I wake up to find it is the first day of the 14-day cycle.” This is the title of a Wechat blogpost (now deleted) by <a href="https://muckrack.com/zhouweishanghai">Wei Zhou</a>, a well-known reporter, columnist and long-term resident of Shanghai. The city he shares with more than 26 million people has been under a strict COVID lockdown for more than a month now. Wei Zhou’s title refers to the regulation that states a residential compound’s 14-day lockdown period must reset to zero every time someone new tests positive. As a result, residents find themselves in a world of Kafka-esque absurdity, potentially subject to the ire of their neighbours if they test positive, unsure about what happens next.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/WVTVsnvSLeo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Drone video footage of deserted Shanghai streets.</span></figcaption>
</figure>
<p>But just as Shanghai residents may now regard every day as Groundhog Day, the Communist Party leadership might also be wondering how China can escape this pandemic – and the dilemma it has created. More than two years after the <a href="https://www.bbc.co.uk/news/world-asia-china-55628488">first COVID lockdown</a> in Wuhan, China is again struggling to contain the spread of the latest variant, omicron.</p>
<p>In a desperate attempt to avoid the socioeconomic chaos and political damage seen in Shanghai, China’s capital Beijing began eight rounds of mass testing in early May following an outbreak of cases. It has re-opened a <a href="https://www.theguardian.com/world/2022/may/04/beijing-reopens-mass-isolation-centre-in-fight-against-covid">mass isolation centre</a>, forbidden dining in all restaurants, and closed kindergartens, schools and colleges until at least May 11. The situation is fast-changing: all 6.6 million residents of Chaoyang and Haidian districts have just been told to follow stay-at-home orders, three metro lines have been suspended and six others partially closed.</p>
<p>Meanwhile in Shanghai, whose streets remain hauntingly empty despite falling infection rates, the future is unclear. Since cases began to appear in early March, residents have experienced a series of measures that demonstrate the authorities’ still-evolving approach to dealing with outbreaks. After first sealing off Shanghai, cutting transport links in and out, they rolled out mass testing across the entire population, dividing the city into two halves and preventing movement in between. They then introduced three-zone prevention and control measures that divided the city into “sealed control zones” subject to stay-at-home orders, “managed control zones” allowing people limited local mobility, and “precautionary zones” with (supposedly) fewer restrictions.</p>
<hr>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/288776/original/file-20190820-170910-8bv1s7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><strong><em>This story is part of Conversation Insights</em></strong>
<br><em>The Insights team generates <a href="https://theconversation.com/uk/topics/insights-series-71218">long-form journalism</a> and is working with academics from different backgrounds who have been engaged in projects to tackle societal and scientific challenges.</em></p>
<hr>
<p>In theory, this approach would avoid a city-wide lockdown through highly localised measures. In practice, it has done the opposite because the rules have been implemented so strictly. Despite infection rates falling steadily since mid-April, even residents in precautionary zones still need a permit to leave their immediate area and go on to the streets. Private cars require a permit to move around the city. University students in Shanghai have been notified their classes will continue online until at least the end of June. </p>
<p>At the same time as doubling down on their efforts to contain omicron, the Chinese authorities have done their best to downplay them. Local governments sometimes employ euphemistic terms while asserting they are not deploying city-wide lockdowns. The three-zone policy is an example, but while it creates confusion for residents – such that <a href="https://www.tencent.com/en-us/about.html">Tencent</a> and other online companies now provide real-time maps of restrictions in different neighbourhoods and cities – it also offers some hope of a route to fewer restrictions. In so doing, it may switch residents’ attention from criticising the government to caring about case numbers in their neighbourhoods.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="COVID fences in Shanghai" src="https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461864/original/file-20220508-52436-ccjgjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Residential buildings sealed off by COVID fences in Shanghai’s Pudong district.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghaichinamarch-22nd-2022-residential-buildings-has-2138267223">Shutterstock</a></span>
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<p>And while Shanghai’s lockdown has made the news internationally, it is far from the only place to be experiencing severe restrictions. Reliable national figures on the extent of travel restrictions and stay-at-home orders are difficult to acquire, but it has been estimated that between 45 and 87 of China’s cities, from the north-east to the south-west, may now have some form of stay-at-home order in place. Even before Beijing and Zhengzhou, capital of Henan province, went into lockdown on May 4, estimates suggested as many as 375 million people were affected.</p>
<p>The countryside is being hit too, even in less densely populated rural areas. Farmers in some parts of the north-east require “spring sowing certificates” to be able to work their fields. At least one farmer has been detained for breaking COVID restrictions while simply working alone in his field.</p>
<h2>Rising social and economic costs</h2>
<p>For some Chinese citizens, the social costs of the authorities’ stringent measures have been extremely serious – and in some cases, fatal. With stay-at-home orders heavy-handedly enforced by officials under pressure to prevent the virus spreading, we have seen numerous reports on social media of delivery drivers being confined in residential compounds, shoppers returning home to find they are unable to get back into their apartments, and children as young as two being separated from their parents and forced to quarantine in isolation centres. With highways and service areas around Shanghai closed at short notice, many drivers have been trapped inside their trucks, including one who spent two weeks on the road between Chongqing and Shanghai – a drive that should have taken two days.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/covid-china-is-developing-its-own-mrna-vaccine-and-its-showing-early-promise-176319">COVID: China is developing its own mRNA vaccine – and it's showing early promise</a>
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</em>
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<p>In some parts of Shanghai, residents have suffered food shortages. Others have been unable to seek hospital treatment because they cannot get the permits they now need for treatment of even chronic and terminal illnesses. A 98-year-old woman died while waiting for a COVID test result before she could get medical treatment for chronic renal failure, and an elderly man died because he could not get his regular dialysis treatment. A retired infectious disease expert, Dr Miu Xiaohui, <a href="https://chinadigitaltimes.net/chinese/679345.html">estimated</a> in a subsequently-censored blogpost that the excess mortality from diabetes alone during Shanghai’s one-month lockdown had been 2,141 people. </p>
<p>Suicides, mental health issues and other social problems have been reported on Chinese social media. In Shanghai, a female journalist apparently fell from a building on May 5 after her anti-depressants ran out and a district health official reportedly took his own life while at work on April 13 due to the stress of his COVID enforcement duties. Meanwhile, across China’s locked-down cities, we have seen reports that domestic violence is on the rise. The charity <a href="https://chinadevelopmentbrief.org/reports/chinese-video-on-domestic-violence-wins-international-award/">Orange Umbrella</a>, which campaigns against gender violence, published three posts on May 5 under the heading: “A Guide for Seeking Help in Lockdown”.</p>
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<p>And then there are the economic costs. In Shanghai, suspended manufacturing activities can only restart if businesses commit to “closed loop management” – a system used during the recent <a href="https://olympics.com/ioc/beijing-2022-playbooks;">Winter Olympics</a> in Beijing that creates a self-contained environment so the virus cannot be brought in. Employees are required to remain on site at all times – difficult for employers with no dormitory facilities. Production problems, compounded by difficulties transporting goods due to travel restrictions, are currently disrupting supply chains in the Shanghai area, with <a href="https://www.controlrisks.com/our-thinking/insights/china-lockdowns-prompt-domestic-shortages">knock-on effects</a> for global supply chains. </p>
<p>Within China, consumer demand is down, negatively affecting financial markets, and China’s currency, the Renminbi, has been weakened. The International Monetary Fund has revised down its economic growth forecast for China in 2022 from 5.5% last October to 4.4% in April, with some investment banks <a href="https://www.cnbc.com/2022/04/26/investment-banks-slash-china-growth-outlook-one-puts-gdp-below-4percent.html">even less optimistic</a>.</p>
<p>There are more than 70,000 foreign-invested companies in Shanghai alone. According to a <a href="https://www.europeanchamber.com.cn/en/press-releases/3431/china_s_covid_19_policy_and_russia_s_war_in_ukraine_cause_severe_disruptions_to_european_business_in_china">survey</a> by the EU Chamber of Commerce in China, 65% of responding EU companies’ logistics and warehousing and 53% of their supply chains are being “significantly” disrupted by China’s zero-COVID strategy. It reports: “Supply chains have taken a pounding … 23% of respondents are now considering shifting current or planned investments out of China to other markets – more than double the number that were considering doing so at the beginning of 2022, and the highest proportion in a decade.”</p>
<h2>Frustration, criticism and censorship</h2>
<p>As the social and economic costs rise, the Chinese authorities are encountering more dissatisfaction and online criticism than at any time in the pandemic. In Shanghai in particular, some residents have reached the end of their tether, leading to disputes with local officials in the streets, and refusals to take tests or go into centralised isolation facilities. A blog entitled <a href="https://chinadigitaltimes.net/chinese/679512.html">“Shanghainese endurance has reached the extreme point”</a>, published by the anonymous Ordinary Shanghainese, received more than 20 million hits.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Medical worker sits outside residential building in Shanghai" src="https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461866/original/file-20220508-52442-m0qeh4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A residential building is locked down by a medical worker in Shanghai’s Pudong district.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghaichinamarch-22nd-2022-residential-building-has-2138265337">Shutterstock</a></span>
</figcaption>
</figure>
<p>While the government stubbornly maintains its dynamic zero-COVID strategy, overzealous implementation by local officials has sparked outrage and a sense that the anti-COVID policies are more damaging than the virus itself. A fierce argument broke out in Shanghai, for example, when local officials tried to seal residents’ front doors to keep them in their apartments, attracting <a href="https://www.youtube.com/watch?v=uGNmxeb8NF0">widespread attention</a>. Confined to their homes, Chinese citizens can still share their experiences and frustrations online using the social media platforms <a href="https://www.chinahighlights.com/travelguide/article-qq.htm">WeChat</a>, Tik-tok and the microblogging site <a href="https://tenbagroup.com/what-is-sina-weibo-know-your-chinese-social-media/">Sina Weibo</a>. Despite government efforts to censor this content, our researchers pick up some of what is being said before it is removed, while some also reaches international audiences via Twitter in particular.</p>
<p>These netizens’ posts and videos show citizens coming together to bulk-buy food and basic necessities, as well as satirising the authorities and exposing problems. A video of an official brutally killing a pet dog inspired outrage across Chinese social media before being censored. A video called <a href="https://www.youtube.com/watch?v=5pzwkFCAv44">Voices of April</a>, a compilation of Shanghai citizens’ pleas for help and cries of distress, also went viral, as have rap songs mocking the government’s policies and slogans. Other users have <a href="https://airtable.com/shrQw3CYR9N14a4iw/tblTv0f9KVySJACSN">collated online</a> data about deaths – so far they claim at least 197 – linked to the Shanghai containment measures rather than the virus itself, using blockchain so their statistics cannot be deleted.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/5pzwkFCAv44?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Voices of April: this recording of Shanghai citizens went viral.</span></figcaption>
</figure>
<p>Residents’ online reports and opinions are mixed with those of medical researchers, local officials and COVID volunteers. These personal, family stories demystify and sometimes defy the official picture of omicron, which continues to dominate state-affiliated television, radio and social media accounts. China’s generational digital divide means older people who are dependent on traditional media for their information may typically be much less critical of the situation.</p>
<p>Despite some attempts to question how the pandemic is currently being handled, the Chinese government’s policy remains “dynamic zero” or “static management” – enforcing localised lockdowns throughout the country. But why? First, an uncontrolled spread of COVID coupled with its low vaccination rates among older people could lead to overwhelmed hospitals and high fatality rates, as was seen recently in <a href="https://www.bmj.com/content/376/bmj.o707">Hong Kong</a>.</p>
<p>But there is also a political dimension to the dilemma facing China’s authorities. President Xi has personally advocated the zero-tolerance approach and is closely associated with it. He is reported to have told the World Health Organization’s Director-General, Dr Tedros Adhanom Ghebreyesus, that he was “personally commanding” the response. He restated his commitment to the policy this year and, during the Winter Olympics in February, quoted an international athlete saying that China deserved a “gold medal” for its COVID control. </p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/silenced-in-china-the-covid-truth-tellers-and-political-dissent-164642">Silenced in China: the COVID 'truth-tellers' and political dissent</a>
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<p>Should the virus spread out of control, the damage to Xi could be highly significant in this politically important year. The 20th Communist Party Congress will take place sometime in the autumn, and a devastating spread of the virus could jeopardise Xi’s chances of reappointment. This means there is even greater pressure on local officials to prevent and contain outbreaks, and the result is the excesses that have been seen. Local officials have sometimes deployed mass testing and stay-at-home orders even when there have been only a <a href="https://chinadigitaltimes.net/chinese/680412.html">handful of cases</a> – for example, in Baotou after two cases, in Baoding after four cases, and in Shaoyang in Hunan province after just one case. Elsewhere, the city government of Qian‘an in Hebei province has demanded that its residents should <a href="https://news.sina.com.cn/c/2022-04-27/doc-imcwiwst4393803.shtml.">hand over the keys to their homes</a> to prevent them from leaving.</p>
<h2>How did China get here?</h2>
<p>When the opthalmologist <a href="https://www.thelancet.com/journals/lancet/article/PIIS0140-6736(20)30382-2/fulltext">Li Wenliang</a> warned colleagues in his WeChat group of a dangerous new virus spreading in Wuhan in late December 2019, he was silenced and reprimanded for spreading rumours. The local government covered up and played down the seriousness of the situation. Yet three weeks later, the Chinese authorities were forced to publicly acknowledge “human-to-human” COVID-19 transmission, and announce the sudden lockdown of this entire city.</p>
<p>When Li <a href="https://www.bbc.co.uk/news/world-asia-china-51403795">died of COVID</a> in early February 2020, public outrage appeared briefly to be threatening the Communist Party’s authority and legitimacy. Yet the Party managed to turn this situation around. It deployed its substantial powers to censor online criticism and generate positive (often nationalist) media narratives, calling for the Chinese nation to support its heroic doctors and locked down citizens in Wuhan.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Empty street in Wuhan, China" src="https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461867/original/file-20220508-43859-8rhuqq.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Wuhan stands empty during the first city-wide COVID lockdown in 2020.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/wuhan-hubei-china-april152020-guanggu-shopping-1705176484">Shutterstock</a></span>
</figcaption>
</figure>
<p>Many of the personal tragedies in Wuhan during January and February 2020 were widely shared on social media: the teenager with cerebral palsy who died after his carers were taken away to an isolation centre; the migrants without work and income; people dragged from their homes after testing positive. But the Party’s internet and traditional media censors and controls gradually established a more positive narrative while removing these stories and accounts of overwhelmed hospitals, morgues and crematoriums.</p>
<p>At the same time, the authorities mobilised all their resources to create and adapt containment measures, building two enormous (temporary) cabin hospitals and ensuring supplies of food, medicine and doctors into Wuhan. Travel restrictions and strictly policed stay-at-home orders, mass testing and “centralised isolation” of close contacts – though painful for some citizens – appeared to be vindicated when infections fell to zero and the number of reported deaths remained static at fewer than 5,000. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-politicians-should-be-wary-of-publicly-pursuing-the-wuhan-lab-leak-investigation-161779">Why politicians should be wary of publicly pursuing the Wuhan lab-leak investigation</a>
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<p>State-controlled media began to boast that this demonstrated the superiority of China’s political system <a href="https://mp.weixin.qq.com/s/ebEyKQ6aApUWJI4DOsVmMA">as compared with western democracies</a>. They reported the high numbers of COVID deaths in the US and Europe, building on the Party’s call in 2012 for greater national confidence, and ratcheting up nationalist and anti-western rhetoric that had been fuelled by a trade war with the US during the Trump administration. </p>
<p>After Wuhan was reopened in early April 2020, just as COVID cases were soaring around the world, the Chinese authorities moved to hone the approach they had developed. They shifted from whole-city lockdowns to a more targeted approach that restricted movement only in residential areas where cases emerged. In late-summer 2020, this “dynamic zero” approach successfully contained isolated outbreaks in Hebei and Beijing, then elsewhere during 2021. The Party-led “war against COVID” had seemingly turned the situation around. </p>
<h2>China’s key mistakes</h2>
<p>It now looks, however, as though hubris over the successful containment of COVID in 2020 and 2021 led the Chinese leadership to underestimate the importance of vaccinating the most vulnerable of its population. Furthermore, nationalist rhetoric around the pandemic has led it to rely solely on Chinese-produced vaccines.</p>
<p>As the world raced to develop COVID vaccines in 2020, the Chinese authorities pumped resources into their own vaccine development. But Chinese vaccines, which use long-established techniques, have proved less effective than new mRNA vaccines available internationally: Hong Kong scientists have <a href="https://www.scmp.com/news/hong-kong/health-environment/article/3155113/coronavirus-hong-kong-vaccine-experts-do-not-rule">recommended</a> a fourth shot of Sinovac’s <a href="https://www.who.int/news-room/feature-stories/detail/the-sinovac-covid-19-vaccine-what-you-need-to-know">CoronaVac</a> vaccine to ensure full protection. Despite this, the Chinese authorities still have not imported vaccines, instead investing in developing mRNA vaccines – yet to be approved – at home. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Elderly woman in a wheelchair in a Shanghai street" src="https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461865/original/file-20220508-14-iwo2s6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">COVID vaccination rates remain low among older Chinese people.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/shanghai-china-april-27-2022-elderly-2150088103">Shutterstock</a></span>
</figcaption>
</figure>
<p>Compounding the problems of this nationalist vaccine strategy, the authorities sought first to vaccinate healthcare workers and other frontline workers, rather than older cohorts of the population. This made sense in 2020, when infection rates nationwide were low, but as vaccinations were rolled out nationwide, we saw an insufficient push to reach the elderly. So while overall levels of vaccination seem high at around 86%, older people are still much less likely to be adequately vaccinated.</p>
<p>In April 2022, China’s National Health Commission <a href="http://www.nhc.gov.cn/xcs/fkdt/202203/82d1b154447644839760bcf25696687f.shtml">reported</a> that 44% of people aged 60–69, 52% of people aged 70–79, and 81% of people aged over 80 had not had a third (booster) dose. This means some 92 million people in China over the age of 60 are at risk of serious illness and death. In Hong Kong, which had a similar pattern (58%, 69% and 83% in the same three age groups) but used the better-performing BioNTech vaccine as well as CoronaVac, an outbreak of the omicron variant from mid-February to April 2022 led to the world’s highest-recorded death rates.</p>
<p>The reason for the low vaccination rates among older Chinese people is not well understood. However, it seems to be a combination of China’s policy of not prioritising older groups, a lack of trust in the vaccine and fears about adverse health effects of the vaccines on the elderly. More recently, the available medical resources have been concentrated on mass testing, perhaps at the expense of vaccinating people.</p>
<p>Today, the Chinese government still reports relatively low rates of COVID infections and deaths compared with many other countries around the world. Indeed, until recently, its reported deaths had barely increased since the original Wuhan outbreak was brought under control. However, official deaths in the Shanghai outbreak are creeping up: by May 7, 535 deaths caused by COVID had been declared, taking the total in China since the start of the pandemic to 5,166. But a recent <a href="https://www.bbc.co.uk/news/world-asia-china-61117738">BBC report</a> questioned the reliability of these numbers, suggesting that many COVID-related deaths were going unrecorded.</p>
<figure class="align-center ">
<img alt="Chinese President Xi Jinping" src="https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/461868/original/file-20220508-24-w4kxr5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">President Xi’s leadership is due to be extended in the autumn.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/july-5-2017-berlin-chinese-president-1155956518">Shutterstock</a></span>
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<p>Because Xi and the rest of the Communist Party leadership have made clear their priority is to minimise COVID deaths, and since they have used their low death figures to tout the superiority of their political system, officials nationwide are under pressure to keep deaths low and may be encouraged to under-count or under-report them. But herein lies another dilemma: if the Shanghai numbers <em>are</em> so low, this leaves the authorities open to criticism that its anti-COVID policies are excessive, with as many people at risk from the <em>consequences</em> of containment than from the virus itself.</p>
<p>Another challenge to China shifting its COVID policy may, in fact, be its success in communicating how deadly the virus is. In early March 2022, when some university students tested positive in Jilin Province, fellow students on the same dormitory floor were distraught – horrified they might die from COVID. Another citizen was reportedly relieved to have been diagnosed with lung cancer rather than COVID. And in Shanghai last month, some residents refused to have any contact with their neighbours who had returned from a cabin isolation centre, even after they had tested negative for the virus.</p>
<h2>Policy shift ruled out</h2>
<p>Even if COVID is contained in Shanghai, Beijing and other cities, China’s citizens face the continued prospect of restrictions being imposed at any moment. There is no indication that the Communist Party leadership intends to modify its approach, despite several high-profile medical professionals recently signalling that an exit strategy is needed.</p>
<p>On May 5, Chinese state media <a href="http://www.gov.cn/xinwen/2022-05/05/content_5688712.htm">reported</a> a speech by President Xi in which he not only reiterated the leadership’s commitment to the zero-COVID policy, but also signalled that dissenting voices had been noticed but would not be heeded. A carefully choreographed shift in policy now seems to have been ruled out at least until the end of this year.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/china-dont-mistake-xi-jinpings-crackdowns-for-a-second-cultural-revolution-167483">China: don't mistake Xi Jinping's crackdowns for a second Cultural Revolution</a>
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<p>The leadership knows that any relaxation of the zero-COVID approach is likely to result in escalating deaths across the country, particularly given the pattern of vaccinations. Its policies – reliance on vaccines developed in China, failure to ensure that more vulnerable older people were fully vaccinated – therefore look like crucial errors, and ones for which the country is now paying a high price, both socially and economically. These errors have been ruthlessly exposed by the more transmissible omicron variant.</p>
<p>Given the Communist Party’s longstanding reliance on economic growth for support, it now faces an enormous challenge ahead of the autumn Party Congress, which some think will set Xi up as leader for life. While the authorities can censor criticism and information on the economic and social costs of its strategies, the threat of major outbreaks across China’s largest cities mean the risks remain high for Xi and his party. It will be a long six months until the Party Congress.</p>
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<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=112&fit=crop&dpr=1 600w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=112&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=112&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=140&fit=crop&dpr=1 754w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=140&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/313478/original/file-20200204-41481-1n8vco4.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=140&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em>For you: more from our <a href="https://theconversation.com/uk/topics/insights-series-71218?utm_source=TCUK&utm_medium=linkback&utm_campaign=TCUKengagement&utm_content=InsightsUK">Insights series</a>:</em></p>
<ul>
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<p class="fine-print"><em><span>Jane Duckett receives funding from the United Kingdom's Medical Research Council and the National Institute for Health Research. </span></em></p><p class="fine-print"><em><span>Meixuan Chen receives funding from the United Kingdom's Medical Research Council and the National Institute for Health Research.</span></em></p><p class="fine-print"><em><span>William Wang receives funding from the United Kingdom's Medical Research Council and the National Institute for Health Research. </span></em></p>What can China do to resolve a crisis that threatens not only the health and security of its people and economy, but the future of Chinese Communist Party and its leader Xi Jinping?Jane Duckett, Professor and Edward Caird Chair of Politics, University of GlasgowMeixuan Chen, Affiliate Researcher (School of Social & Political Sciences), University of GlasgowWilliam Wang, Affiliate Researcher, Scottish Centre for China Research, University of GlasgowLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1775802022-04-07T14:06:08Z2022-04-07T14:06:08ZWhat drives Chinese migrants to Ghana: it’s not just an economic decision<figure><img src="https://images.theconversation.com/files/455511/original/file-20220331-23-v46ioh.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ghana is a popular destination for Chinese migrants</span> <span class="attribution"><span class="source">Wikimedia Commons</span></span></figcaption></figure><p>Over the past two decades, there have been <a href="https://www.tandfonline.com/doi/abs/10.1080/02589001.2011.555189">many debates</a> about China’s growing engagement in Africa. In these discussions, the more than <a href="https://journals.sagepub.com/doi/10.1177/0021909618776443">one million Chinese expatriates</a>, business people and labourers who come and work in Africa are often seen only as a byproduct of an overall <a href="https://www.proquest.com/docview/1675046298?accountid=14214&forcedol=true&parentSessionId=%2BEJwMuMR%2Bev0WixrpxBxAg%2BT9PXoypYojMmgg7UZ74I%3D&pq-origsite=summon&forcedol=true">“outbound”</a> China. And they are often studied as isolated sub-groups: expatriates of Chinese state-owned enterprises, traders, construction workers, and so forth. </p>
<p>As a result, there’s no holistic understanding of the mechanisms underpinning emigration from China to Africa. </p>
<p>What motivates these new migrants to come to Africa? Who is more inclined to make the move? How have the ongoing market and social changes within China influenced them?</p>
<p>These were questions I explored in my <a href="https://www.tandfonline.com/doi/full/10.1080/1369183X.2021.2021868">ethnographic survey</a> of Chinese migrants, based on fieldwork in Ghana between 2016 and 2019. There is currently no fixed data on the number of Chinese in Ghana although some <a href="https://www.mideq.org/en/migration-corridors/china-ghana/">estimates </a>place it at about 30,000. They are involved predominantly in trade, infrastructure and mining.</p>
<p>China’s drastic political and economic changes in recent decades, coupled with its changing positioning in the global economy, have created a distinct social infrastructure for emigration. I found that opportunities for social mobility, rather than simply economic incentives, generated emigration flows to countries like Ghana. </p>
<p>This insight is useful for sociologists and policy makers to understand migration drivers, diaspora-homeland relations, and contemporary migration in the Global South.</p>
<h2>Chinese emigration to the world</h2>
<p>Political and economic changes in post-communist China have driven massive human movement both inside and outside the country. Since the late 1970s, institutional reforms and market evolution in China have created a new “<a href="https://www.iddri.org/sites/default/files/import/publications/id_0710_b.xiang_migration%26dvpt.pdf">mobility regime</a>”. Population movements have been deregulated and even encouraged in some regions for development needs. </p>
<p>China’s rapid integration into the global economy also opened the door for outward migration. In particular, since the 2000s, Chinese emigration to <a href="https://www.tandfonline.com/doi/abs/10.1080/00207659.2016.1163991">non-traditional destinations</a> in Africa, Eastern Europe, Latin America, the Caribbean, and other parts of the global south has grown significantly.</p>
<p>A prevailing <a href="https://www.sciencedirect.com/science/article/pii/S0305750X15301625">explanation</a> is that China’s economic development gives Chinese firms and entrepreneurs competitive advantages in overseas markets, which further fuels the demand for labour migrants.</p>
<p>This perspective points out the importance of the new migrants’ economic ties to their homeland but says little about who is most likely to leave China for Africa. It doesn’t consider the industries, localities, and personal characteristics that are linked to migrants and would-be migrants. Doing this requires looking inside contemporary China, at how migrants’ aspirations and motivations stem from China’s political-economic changes and social stratification order.</p>
<h2>‘Squeezed out’ to Africa</h2>
<p>China’s state-led and market-oriented reforms yielded many problematic consequences that drove emigration. At the macro-level, after three decades of sustained growth, “<a href="https://soc.ucla.edu/sites/default/files/u281/nlr_2014_no._89.pdf">the Chinese economy</a> is becoming choked by bottlenecks: overcapacity, falling profits, surplus capital, shrinking demand in traditional export markets and scarcity of raw materials” as precisely expressed by sociologist Chin Kwan Lee.</p>
<p>Many industries are facing market saturation and intensified competition. Companies are compelled to explore overseas markets, especially underdeveloped ones. In the last decade, China’s economic restructuring and declining competitiveness in manufacturing have forced many export-oriented firms to penetrate African markets where their products match local demand. The same logic applies to industries of infrastructure, telecommunications and construction. The flow of excess capital and labour to Africa is seen as a “<a href="https://www.tandfonline.com/doi/abs/10.1080/10220461.2020.1830165?journalCode=rsaj20">spatial fix</a>”. </p>
<p>At the micro-level, contemporary Chinese society is marked by <a href="https://www.annualreviews.org/doi/10.1146/annurev-soc-073018-022516">social inequalities</a> in the distribution of income, wealth and, more importantly, opportunity. The gradual closure of ways to move up the social ladder drives individuals, especially those who are marginalised in their microcosm, to migrate in the hope of achieving their dreams in a foreign land.</p>
<h2>Africa as a new ‘social ladder’</h2>
<p>As I found in my study, venturing to Africa gives migrants an opportunity for social “reshuffling”. It allows them to get around the social and institutional barriers to achieving a “class leap” in their motherland. </p>
<p>For instance, in China, people are labelled by the <a href="https://nhglobalpartners.com/the-chinese-hukou-system-explained/">“hukou”</a>, a residency registration system that classifies people as urban or rural. But in Ghana that doesn’t apply – they are not treated differently according to that classification. Their education or family background in China is not a major determinant of social capital in Ghana. Instead, human capital and entrepreneurship are better rewarded. </p>
<p>Social repositioning brings migrants more than simply linear upward mobility in terms of socio-economic status. It also allows flexible identity conversion. For instance, some Chinese start their own businesses in Ghana with a small investment and become independent entrepreneurs over time. The migrants regard the fairer opportunity structure and more flexible space for career and identity transitions as more important drivers than incentives like wage differentials or social benefits. </p>
<p>I would therefore argue that economic motives for migration have multiple layers. What Chinese migrants in Ghana hope for is a step up in social status.</p>
<h2>Where are their journeys leading?</h2>
<p>The migrants’ initial aspirations are undoubtedly embedded in China’s stratification dynamics. But their aspirations are constantly changing, and so are their ties to the homeland. </p>
<p>In the process of adaptation and integration, incentives such as self-esteem and social acceptance are important drivers for settling in the host society. I found that many new Chinese migrants felt that life in China was a “rat race”. The anxiety and frustration of competition and inequality were not the price of achieving a better life, but a meaningless drain. Hence, they gradually let go of the “<a href="https://www.area-studies.ox.ac.uk/research-project/the-mortgage-migration">Chinese dream</a>” of higher social status that motivated their departure.</p>
<p>Some Chinese migrants choose to stay on the “new ladder” rather than return to the old one. But it’s not certain that they will become permanent settlers in Africa. In fact, they exhibit a highly <a href="https://www.semanticscholar.org/paper/Living-in-Liminality%3A-Chinese-Migrancy-in-Ghana-Ho/b6fe7124417d58ad1a440bb8a270b5e9144f54bd">floating character</a>. Many of them become circular migrants between China and Ghana, stepwise migrants to the west, or, very commonly, sojourners bouncing between various places.</p><img src="https://counter.theconversation.com/content/177580/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jinpu Wang does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Opportunities for social mobility, rather than simply economic incentives, have generated emigration from China to countries like Ghana.Jinpu Wang, Doctoral Researcher, Department of Sociology, Syracuse UniversityLicensed as Creative Commons – attribution, no derivatives.