Why foreign investors are losing interest in India

As prime minister, Narendra Modi’s form has disappointed

IT WOULD BE wrong to say that the only people who attended English county cricket in the 1980s were scoreboard enthusiasts, old men with flasks of cold tea and red-faced types there for the all-day bar. A few oddballs went to watch the cricket. A big draw was Graeme Hick, a Zimbabwe-born batsman and a relentless runmaker for Worcestershire. He eventually qualified to play for England in 1991. In front of bigger crowds and faster bowling, he could not reproduce his blistering county form.

In cricket-mad India, a parallel might be drawn between Mr Hick and Narendra Modi, the prime minister. Mr Modi was also the object of high hopes. He was elected with a thumping majority in May 2014 on his record in Gujarat, a well-run Indian state. But on the bigger stage, the form he showed as a state minister has often deserted him. A recent clash with the central bank, the Reserve Bank of India (RBI), that led to the resignation of its governor, Urjit Patel, is the latest—and most serious—mis-step.

The rupee fell after Mr Patel resigned. But India under Mr Modi has been one of the more stable emerging markets. The stockmarket has seemed to defy gravity, thanks in large part to domestic investors steadily switching from gold and property into shares. That buying has masked the disquiet among foreign investors, who have quietly pulled money from India. The sense that Mr Modi has blown a good chance to transform India is widespread.

The hallmarks of Mr Modi’s 12 years in Gujarat were ambitious projects run by honest civil servants. The results are tangible. The roads around Ahmedabad, the state’s commercial capital, are excellent. The water supply is abundant. Gujarat’s 18,000 villages are connected to the electricity grid. Gujarat was already a state with lots of factories and formal jobs. One of Mr Modi’s innovations was to use IT to cut through red tape for new businesses. He was project-manager-in-chief. A handful of trusted civil servants gave orders. Those further down the chain of command were held to account.

Mr Modi excels in this “project mode”, says Reuben Abraham of the IDFC Institute, a think-tank. Judged by the number of toilets installed or kilometres of road laid, his time in the top job is a success. India’s GDP growth rate of 6-7% on his watch is not too shabby. Yet for a poor country with a fast-expanding population, 6-7% growth is a baseline. A government in project mode will not lift it. “You need deeper, systemic reforms,” says Mr Abraham. Those require a coherent strategy and policymakers capable of adapting it as conditions change. This is at odds with Mr Modi’s command-and-control style.

His defenders point to some big-bang reforms. A national goods-and-services tax (GST) has replaced a mosaic of national, state and city levies that were a barrier to trade within India. The country has a newish bankruptcy code. The central bank has an inflation target and a monetary-policy committee. But these were ideas bequeathed by the previous administration. The single Modi-branded policy—cancelling high-value banknotes to crush the black economy—probably did more harm than good.

And progress has been set back by the clash with the RBI. The government pressed it to remit more of its reserves and to go easy on state-owned banks with bad debts. There are two sides to every dispute. Central bankers have a habit of standing on their dignity while dodging accountability. But Mr Patel was clearly sinned against. Mr Modi has not grasped that there is little point in a bankruptcy code to aid the clean-up of banks, or a state-of-the-art monetary policy, if the government overrides the central bank when elections loom.

The sales pitch about India’s potential was already wearing thin. “A lot of investors have tuned out,” says Dec Mullarkey of Sun Life Investment Management. The trade dispute between America and China is just one more missed opportunity. A pickup in foreign direct investment in Indonesia, Vietnam and the Philippines may be a sign that American firms are seeking to reshape supply chains to exclude China. India ought to benefit, too. But its bewildering array of labour laws and scarcity of commercial land hold back its progress as a manufacturing hub. The GST apart, Mr Modi has done little to change that.

Mr Hick could not adapt his game to more testing conditions. His poor form for England is sometimes attributed to the burden of expectation and technical flaws. Perhaps the same goes for Mr Modi in economic policymaking.

Hard-Money Men, Suddenly Going Soft

Trumpism trumps everything, even Ayn Rand.

By Paul Krugman

Andrew Harrer/Bloomberg

I have a confession to make: I have been insufficiently cynical about modern conservative economics.

Longtime readers may find this hard to believe. After all, I declared Paul Ryan a “flimflam man” back when all the cool kids were gushing about his courage and honesty, giving him awards for fiscal responsibility. (Events have settled the issue: Yes, he was and is a flimflam man.) I predicted early and often that Republican cries about the evils of debt would vanish as soon as they held the White House; sure enough, after forcing the U.S. into job-destroying austerity when the economy was weak, once in power they blew up the budget deficit with a tax cut for corporations and the wealthy, despite low unemployment.

But while I yield to nobody in my appreciation of the right’s fiscal fraudulence, I took its monetary hawkishness seriously. I thought that all those dire warnings about the inflationary consequences of the Federal Reserve’s efforts to fight high unemployment, the constant harping on the evils of printing money, were grounded in genuine — stupid, but genuine — concern.

Silly me.

It’s no surprise that Individual-1, who lambasted the Fed for keeping interest rates low while Barack Obama was president, is demanding that it keep rates low now that he’s in the White House. After all, nobody has ever accused Donald Trump of having consistent, principled views about monetary policy (or anything else). 
But it is a shock to see so many conservative voices — including, incredibly, the editorial page of The Wall Street Journal — echoing Trump’s demands.
It’s hard to overstate just how consistent and intense The Journal and others of like mind used to be in their attacks on easy money. Many commentators have noted that three years ago The Journal declared that low interest rates are bad for the economy. But that was minor compared with the newspaper’s pronouncements during the financial crisis. For example, it attacked and ridiculed Ben Bernanke for cutting interest rates in December 2008 — that is, at a time when the economy was in free fall, and desperately needed all the support it could get.

Now, you might say that the explanation for the right’s about-face on monetary policy is the same as the explanation of its about-face on deficits. That is, Republicans want pain and suffering when there’s a Democratic president, but a nonstop party when one of their own sits in the White House. And that is indeed how it looks now. But I used to think there was something more to the story.

You see, as a pundit who, well, gets a lot of hate mail, I’ve learned that the issue of whether it sometimes makes sense to print money stirs more visceral emotions on the right than anything else. Declare that Trump is a corrupt Russian puppet, and you get a fair bit of blowback, but nothing like what you get if you say that returning to the gold standard would be a bad idea, or that monetary easing isn’t necessarily inflationary. A lot of people on the right just go crazy at any suggestion that money is something to be managed, not treated as a sacred trust with which mortals must not meddle.

The only thing I know that brings comparable blowback is criticism of Bitcoin, a topic that combines some of the same libertarian derp with a hefty infusion of technobabble.
And the right’s emotional response to Fed policy — its hatred for using the printing press to boost the economy, no matter what the circumstances — always seemed real to me. I never believed that Paul Ryan really cared about the deficit, but I did believe his assertion that his views on monetary policy were derived from the denunciation of paper money as a form of looting in Ayn Rand’s “Atlas Shrugged.”

Furthermore, the view that printing money is always a terrible thing seemed extremely durable, despite an uninterrupted track record of predictive failure. People who warned about looming inflation in 2009 continued to warn about it year after year, even as it kept not happening.

Then Trump decided to pressure the Fed, and many of the erstwhile hard-money men became easy-money men overnight. I mean that more or less literally. Consider the case of Kevin Warsh, a former member of the Federal Reserve Board who was for a time considered a likely Fed chairman. Up until two months ago he was always for higher interest rates — but this week he suddenly wrote an op-ed article calling on the Fed to stop rate hikes.

There is, by the way, a reasonable case (which I accept) that the Fed should, indeed, pause its campaign of raising rates, and even that this week’s hike was a mistake. But this case should be made on the basis of fundamental economic principles, not in pursuit of short-term political advantage, and least of all because it’s what Donald Trump wants.

Yet that’s how it’s going. These days the G.O.P. is all about power; there are no principles it will adhere to if they involve any political cost. And it’s a party that belongs to Trump: What he says is the party line, on any and every issue.

Trumpism, it turns out, trumps everything else — even Ayn Rand.

A .38-Caliber Rosary

The Dangerous New Face of Salvini's Italy

Shots fired at foreigners, assaults on minorities, neo-fascist marches: Italy's extreme right wing feels emboldened by the country's new leadership. Many are pointing fingers at Interior Minister Matteo Salvini. But is he to blame?

By Walter Mayr

Photo Gallery: A Hard Right Turn for Italy

He has hardly got off the airplane before the stream of invective begins. Refugees, says Matteo Salvini at the end of a trip to Africa, "who rape, steal and deal" will be stopped by the new security decree. Italy, he fumes, has had enough of migrants "who aren't fleeing from war but who are bringing war to our country."

Not a day goes by without an incitement from Salvini. In office as interior minister since June 1, the head of the right-wing party Lega has become the voice of the government led by Prime Minister Giuseppe Conte. Salvini's motto is simple: "Italians first." His tone is combative. And the consequences can be seen everywhere.

In Macareta, black pedestrians were shot at in broad daylight. In Aprilia, a Moroccan man was beaten to death. In Caserta, youth opened fire on men from Mali. The steady stream of incidents in the summer and fall of 2018 has triggered disgust in Italy and beyond. At least 70 racist occurrences were registered in the country between June and October.

Italian President Sergio Mattarella has warned against vigilantism and a "Wild West mentality." In July, the refugee aid agency UNHCR registered its "deep concern over the growing number of attacks in latest months against migrants, asylum-seekers, refugees and Italian citizens of foreign origins." The Italian Bishops Conference noted a "climate of distrust, contempt and anger."

It seems as though neo-fascists and right-wing radicals around the country feel invigorated, as though xenophobia has become acceptable. Gad Lerner, the writer of a television series about racism, even speaks of a "fascist maelstrom to which our country is succumbing." But someone like Salvini isn't too concerned about criticism. Sitting at his desk in the Interior Ministry, beneath a painting of the Baby Jesus between Mother Mary and Saint Anne, he poses as a strongman who refuses to be cowed.

He has closed the country's ports to refugee boats, cut the number of new arrivals to a fifth of their previous total and pushed through a new law that allows for accelerated asylum proceedings and deportations.

Open-Air, Trash Incineration Facility

Racism? It is "complete nonsense" to lay the blame at his feet when some Roma girl is "injured" somewhere, Salvini says not long after a 13-month-old baby was shot in the spine by an air rifle. The child was from one of the shantytowns that Salvini visited prior to becoming interior minister -- and which he promised to flatten with a "bulldozer."

The address of the settlement on the eastern edge of the Italian capital is Via Salone 323.

GUARDED BY POLICE around the clock, the path into the "nomad camp," as many Romans refer to it, can be found behind a two-meter tall concrete wall. It is home to 614 people, half of them children, living in makeshift containers and mobile homes. The sewage system is faulty and the entire area is flooded after heavy rain. Garbage is piled high on the outskirts of the camp and it smells of excrement. The slum, cut off from the outside world and primarily occupied by Roma from southeastern Europe, is reminiscent of poverty-stricken quarters in Mumbai or Nairobi. But it is located just 15 kilometers from the Trevi Fountain.

Every seventh Roma or Sinti in Italy lives in such ethnically segregated settlements. Not least because of such treatment of Roma and Sinti, the European Commission has been investigating the country since 2012 for violations of anti-discrimination and race equality legislation. Salvini's plan now calls for such camps to be cleared. Before doing so, however, he wants to register all their residents.

The interior minister can count on the support of most of the settlements' neighbors, including those living near Via Salone. That support isn't just the product of two Bosnian Roma having handcuffed two local girls and raping them. Rather, it is primarily a reaction to the fact that for a time, the Roma settlement resembled an open-air trash incineration facility.

Italians looking to get rid of their trash cheaply and illegally with the help of the Roma would dump truckloads of garbage and plastic refuse here. Black columns of smoke in the night bear witness to the fact that the business model is still going strong. In the middle-class neighborhood of Case Rosse next door, air pollution levels have been measured that are the equivalent of those found at hazardous waste dumps.

"It is impossible to find out who is burning the stuff," a Roma camp spokesperson says innocently. "It always happens at night." Next to the entrance, camp neighbors have put up a poster reading: "Stop burning! Do you want war? We are ready."

But firing at a small Roma girl being carried in the arms of her unsuspecting mother at a playground? Who could be that vile? It turned out that the gunman was the retired employee of the Italian Senate who fired at the child from his seventh-floor balcony using a high-powered pellet gun. The toddler was taken to hospital and initially it was thought that she would be permanently paralyzed.

Explosive Atmosphere

Massive racism against Roma and Sinti -- often referred to pejoratively as "zingari" -- hasn't just emerged since the new government took office. But Salvini and his comrades-in-arms are responsible for the increasing violence, says Najo Adzovic. "This government has given the people a license to hate. The atmosphere is explosive."

Wearing a white hat, open shirt and a gold bracelet, Adzovic acts as an emissary between the two worlds in Rome. He mediates between government officials and his own people, seeks to resolve disputes between rival clans and doesn't deny "that petty crime is a problem in our camps." But he is concerned about the volatile mood in the country.

Recently, he aired his worries in an open letter, warning about a "silent Holocaust" and giving notice to Italy's right-wing agitators that they would resist. "This time, we won't allow you to transport us to the death camps."

"THERE IS NO QUESTION that racism has increased in Italy," says Luigi Manconi. "And that it is dangerous, and that it can even get worse. But you have to look at the numbers. At the beginning of the 1990s, there were 800,000 foreigners in the country. Now it is almost 6 million."

Manconi has been a state secretary and a Senator and has also made a name for himself as a human rights activist and author. These days, the white-haired gentleman heads up the National Office of Racial Anti-Discrimination. Ironically, the institute is part of the Interior Ministry portfolio under Salvini's control.

The taboo against racism was upheld in Italy longer than in other European countries, with the possible exception of Germany, Manconi says. Can Salvini be blamed for the rise in xenophobia? "What is new," he says, "is that the country is being led with a mixture of gut instinct and resentment, meaning that what used to be a tendency now appears to be official government policy."

What Manconi doesn't say, but what he knows from his own days in the Senate: Institutional racism is nothing new in Italy. Roberto Calderoli, who is still vice president of the upper house today, once said that the country's first black cabinet minister "resembled an orangutan."

'Third-Millennium Fascists'

Unsanctioned racist comments have long been a feature of Italian politics, and not just on the right-wing fringe. One state prosecutor, once celebrated for his tough stance against the mafia, later entered the leftist cabinet of Prime Minister Romano Prodi, where he said that if Italy didn't get a handle on immigration, it would soon look like "Europe's pissoir."

The fact that right-wing radical ideas have once again become acceptable in the country 80 years after the race laws passed by dictator Benito Mussolini is likely also a function of the rather conciliatory view of the country's history harbored by many Italians. Despite more than 20 years of fascist rule, no tribunal was ever held in Italy that even distantly resembled the Nuremberg Trials in Germany, during which the nation's crimes were publicly examined.

Mussolini and his accomplices were responsible for around 2 million deaths, but it is rarely mentioned. Silvio Berlusconi once joked: "Mussolini never killed anybody. He merely sent people in internal exile."

IF YOU´RE INTERESTED IN MEETING neo-fascists, you could do worse than jumping onto the subway at San Giovanni, just next to the cathedral that is the pope's official seat, and heading east. Marco Continisio is waiting at the Santa Maria del Soccorso station, a 28-year-old bearded man who is the local representative of CasaPound, the party of self-proclaimed "fascists of the third millennium."

The movement, named for the American poet and Mussolini admirer Ezra Pound, was founded in 2003 and now has more than 100 offices around the country with more than 20,000 members. In Rome, particularly in the city's east, the neo-fascists have become a significant power -- in part because they offer daily assistance to those in need in addition to getting involved and showing a presence in places where the state has long since given up.

Marco Continisio climbs into his Hyundai and begins patrolling his beat, a huge area of shabby apartment blocks, abandoned factories and decaying warehouses. Initially, the city tried to shelter refugees in the industrial wasteland and empty buildings. But the activists from CasaPound have become increasingly successful in blocking the effort.

Continisio points to a former Red Cross migrant shelter in Via Frantoio, in front of which he and his friends protested until it was shut down. He also drives out to the trash heaps surrounding the Via Salone Roma camp, where CasaPound supports the neighbors' protests. Continisio says: "The Roma are animals, without culture and without the intention to integrate."

Following a clear strategy, the neo-fascists have burrowed in to the social lining of the capital city. They have taken over control of urban district committees that were once dominated by the left, they distribute food to the needy and patrol unsafe areas at night. And as soon as illegally squatting Italians are in danger of being evicted to make way for law-abiding foreign renters, they show up in formation.

Open to Cooperation

CasaPound is challenging the state's monopoly on force -- often with state acquiescence. "We are prepared to do anything to defend the interests of disadvantaged Italians," Continisio says. "We are a radical movement." Do the neo-fascists feel that Salvini has been good for the cause? "With regards to content, we are very close to each other. His motto 'Italians first' is one we have stood for over the last 15 years. Organizationally, we have been closer in the past, but we remain open to cooperation."

To the degree his supermarket job allows, Continisio is happy to do whatever CasaPound needs from him. The group expects its members to play active roles in all areas of life -- whether in street militance or in the martial arts studio, whether in the party-oriented book shop or serving drinks.

Party leaders can be found in the evenings at Cutty Sark, a pub in the Monti quarter of Rome where the "fascists of the third millennium" are essentially the only guests. To the left of the bar hangs a portrait of Syrian President Bashar Assad next to scarves bearing the words: "To the Arms, We Are Fascists."

CasaPound leader Gianluca Iannone is also here, a huge man in knee-length cargo shorts with a Mussolini slogan tattooed across his neck. Sentenced in the first instance to four years behind bars for assaulting a policeman, Iannone says of the Mussolini years that it was "the best experience in the history of Italy."

He and his neo-fascists are tightly organized, networked internationally and well-represented on Facebook. The whole thing is controlled from party headquarters on Via Napoleone III, in the heart of the capital. CasaPound activists occupied the building illegally in 2003 and they have been there ever since -- several thousand square meters of rent-free space in a prime location.

Interior Minister Salvini declares he has more pressing issues than having the palazzo on Via Napoleone III cleared. Until 2015, his Lega party was allied with CasaPound via the joint political platform "Sovereignty."

March separately, strike together: Such is the motto that Italy's extreme right is following to gain political ground. All right-wing parties, as Umberto Eco once wrote, know how to awaken the people's need to fabricate enemies and to unite behind a strong leader -- from Salvini's Lega to the post-fascist Fratelli d'Italia to the neo-fascists of CasaPound.

IS LILIANA SEGRE RIGHT when she says that in Italy, things sometimes "sound the way the used to sound again?" The 88-year-old Jewish Auschwitz survivor, who is a Senator for life, reminded the upper house in June of the Italian fascists' complicity in the crimes of the Nazis and warned that "vigilance" was necessary.

Complicity? "Come on. Mussolini's race laws were a concession to Adolf Hitler," says Ernesto Moroni in his office decorated with steel helmets, daggers and portraits of Il Duce. Moroni is head of the organization Azione Frontale in Rome and says of the Jews: "They were Hitler's financiers and thus brought about their own calamity with their eyes open." A people that essentially voluntarily exterminated itself? "Why not? Abraham was ready to sacrifice his own son."

A bald-headed mountain of muscle with piercing blue eyes, a charming family father who has been successful in business, Moroni made a name for himself in Jewish communities around the world in 2014 as the man who sent pig heads to a synagogue in Rome and to the Israeli Embassy. Together with his comrades in Azione Frontale, he fights for "the pure form of fascism that unites all social classes and doesn't neglect the weakest." The group distributes free food twice a week. On those days, the needy gather amidst the Mussolini mementos to secure an aluminum bowl of pasta.

Once darkness falls, Moroni and the others make their "ronde" -- unarmed but in groups of six to eight men -- making their presence felt in a quarter that has the reputation for being crime-ridden. On the way, they slap stickers on the lampposts or post messages on the butcher shops and hairdressers that are run by foreigners, saying things like: "Support shops run by Italians." Moroni insists that such acts of resistance are necessary against "the invasion that we are exposed to."

A .38-Caliber Rosary

What does he think of Salvini? "He is not the savior of the Fatherland for us fascists," Moroni says. And then he sets off with other fascists to spend a bit of time in and around Predappio, Mussolini's birthplace, a town where the mayor works out of a room that was once the dictator's childhood bedroom. Some neo-fascists head to Predappio three times a year: for Mussolini's birthday, for the day of his death and for the anniversary of his march on Rome. In the town, pilgrims can buy souvenir truncheons for just five euros emblazoned with Mussolini's motto: "Believe -- Obey -- Fight." The inner circle then moves on to the religious service held in the garden of Villa Carpena, where Il Duce once lived.

The comrades greet each other there by saying "a noi" ("to us") and grasping each other's forearm. A descendent of one of Italy's oldest royal families introduces himself by saying: "I'm not an anti-Semite, but the Jews killed the son of God. Unfortunately, there's no getting around that."

Then "Padre" Giulio Tam, an excommunicated priest, pulls out communion wine and a chalice from his Opel Vivaro van and the service in honor of Mussolini can begin.

With his five-kilogram rosary from which dangle several crosses made of empty .38-caliber shells (a gift from friends), the "padre" preaches: If you want to fight back the "Islamic invasion," you have to wake up. "You have to know the enemy you wish to defeat."

Hours later, during the midday meal of tortelli stuffed with bacon, Ernesto Moroni passes out photocopied lyrics and the comrades break into song: "Giovinezza," the hymn of fascist Italy. Every time the name Mussolini is mentioned, Giulio Tam -- in his black robe with his right arm outstretched -- gives the signal for the fascist greeting. After that, and before dessert, comes a passionate rendition of the Nazi song "SS Marches into Enemy Territory" -- translated into Italian.

WHEN THE NEO-FASCISTS lose their patience, they head out to march, protesting in front of the building where the poorest of the poor are housed, those people who live in the asbestos-contaminated cement skeleton located on Via Tiburtina. The former penicillin factory serves as a hostel for the most wretched of the migrants to Italy. It has no windows, is drafty and the floor is covered with pharmaceuticals that have been left behind along with plastic trash.

Toothless old women, mothers with infants and, especially, young men from West Africa populate the ruin. More than 600 people have found shelter in the structure, and they are trapped in a vicious cycle from which they cannot escape: Without a permanent address, they are not eligible for a residence permit nor do they have access to the social system.

It would be impossible for an outsider to find his way into the ruins without the help of Mustapha Drammeh, a 25-year-old from a family of 12 children from Gambia. He's a clever young man with Rasta braids -- and has his own odyssey behind him: One that took him through the desert to Libya, by boat across the Mediterranean to Lampedusa and then to Rome via Calabria.

His belly is covered with scars from abuse suffered in Libya and he is blind in his right eye -- the result, he says, of a beating he received at the hands of Italian police during a raid. And yet, Mustafa has been luckier than others: Aid workers from Doctors Without Borders plucked him out of a camp in part because he can speak five African languages. Now, he helps out as an interpreter, including during the weekly visits to the penicillin factory by teams of white-clad doctors.

Inside, a notice hangs on a fence noting that the police have determined the structure to be "uninhabitable." Recently, Matteo Salvini himself addressed the penicillin factory, saying that he saw it as a symbol of what must change in the treatment of foreigners. "Drugs, alcohol and squalor" are standard for them, Salvini announced.

But not for much longer: "It will soon be cleared. Enough chaos. We will reestablish order and quiet."

On Monday morning, he kept his word. The building was raided by police.

Prospects for US-China Relations in 2019

China's leaders will attempt to re-stabilize bilateral ties and ease tensions in its non-US relationships. At the same time, they are likely to use the next year to form a deeper judgment about the future of US politics and foreign policy.

Kevin Rudd 
Trump Xi meeting

NEW YORK – Throughout 2018, much of Asia has been shaken by the new and increasingly unpredictable dynamics in Sino-American relations. One year ago, US President Donald Trump returned from Beijing after his “state-plus” visit, which China hoped had finally laid his anti-Chinese campaign rhetoric to rest. Twelve months later, China and the United States are caught in an unresolved trade war, and Trump’s administration has replaced US “strategic engagement” with China with “strategic competition.”

One year ago, moreover, the US, European, and Chinese economies and markets were roaring. Now, there is deep instability in financial markets, with growth slowing in China and Europe, and higher interest rates beginning to bite in America. Uncertainty over the future of the North Korean nuclear negotiations is also darkening the picture.

So what are the prospects for US-China relations in 2019? It’s probable that by March there will be an agreement on reducing the bilateral trade deficit and the import decisions that China will make to see it through. An agreement on tariff reductions by then is also possible, although its complexity may lengthen the timeline. A tariff-by-tariff approach could take a year. But if Chinese economic reformers take a more dramatic approach, by committing to zero tariffs over time and challenging the Americans to reciprocate, it could be concluded more rapidly. But this would run counter to decades of Chinese trade bureaucrats’ training to give away little, let alone be seen as giving away everything at once.

The reform of so-called forced technology transfer should be relatively straightforward. Nonetheless, reform is different from how contractual arrangements may be interpreted in practice, even in the absence of any specific technology transfer provisions.

Intellectual property protection, however, is deeply problematic. Previous agreements reached under President Barack Obama’s administration could be reconstituted. But the jurisdictional enforcement of breaches is still hopeless. One possible mechanism is to subject relevant contracts between Chinese and foreign firms to international commercial arbitration bodies located in Singapore or Switzerland, designed to deal specifically with the enforcement of IP protection.

If China objected, it might be possible to develop China’s own domestically based international commercial arbitration system. But the country would need to appoint qualified foreigners to its panel of arbitrators to build international credibility. No one has any confidence in China’s commercial courts. For its own domestic reform needs, China needs to move toward fully independent commercial and civil divisions of its court system, even if the criminal division remains subject to political control.
American concerns about Chinese state subsidies under the country’s Made in China 2025 strategy will be almost impossible to resolve. The reality is that all countries use degrees of government support for their indigenous technology industries, although China uses the most. Even if we mandated a maximum level of state support for a given firm, compliance would be difficult to measure. I am not confident of a negotiated outcome in this area. America may simply need to outcompete China by increasing public investment in research and development across the information technology and biotechnology sectors.

We should also not rule out the possibility of China pitching tariff reforms to the wider international community as well. For example, China could make a dramatic commitment to zero tariffs over time not just to the US, but to all World Trade Organization member states. This would represent an almost irresistible opportunity for China to champion global free trade and arrest the trend toward protectionism.

Such a turn by China could include approaching the Trans-Pacific Partnership’s member states for accession, in an ironic effort to outflank the US (which Trump withdrew from the TPP immediately upon taking office) in the Asia-Pacific region. When it sees a political and market opening, China can be remarkably fleet of foot. Negotiations would be difficult, but Japan’s reservations about China’s TPP accession have softened since Prime Minister Shinzo Abe’s recent visit to Beijing.

On the wider foreign policy and security front, China in 2019 is likely to “de-conflict” itself in its relations with other countries, given the core strategic challenges posed by the US. There is already some normalization in relations with Japan. Recent Japanese Coastguard data indicate a drastic reduction in Chinese incursions into the Senkaku/Diaoyu area in the East China Sea.

China also wants to de-escalate tensions with the Association of Southeast Asian Nations over the South China Sea through the accelerated negotiation of a “code of conduct.” China is also likely to enjoy a calmer relationship with India, following the bilateral summit in Wuhan in April. And China may begin to moderate its stance on Taiwan, given the poor results of Taiwanese President Tsai Ing-wen’s pro-independence Democratic Progressive Party in last month’s local government elections. This would, of course, change radically if the US proceeds with further significant arms sales to Taiwan, as is likely. Maritime incidents with the US in the South China Sea have continued, and the conflict may sharpen if the US pursues its Freedom of Navigation program more vigorously next year.

Across Eurasia, China will continue to roll out its Belt and Road Initiative. However, in recent months, the BRI has attracted less domestic political fanfare. There is already debate among Chinese officials about revising certain BRI modalities, following negative reaction to Sri Lanka’s handover to China of the Hambantota Port, and concerns over the BRI’s long-term affordability. We may therefore see less Chinese BRI triumphalism in 2019.

Moreover, China is likely to consolidate and expand its role within the existing United Nations and Bretton Woods institutions, rather than emphasizing new institutions of international governance. It will likely continue to be the WTO’s new champion, and to sustain its posture on global climate change as agreed under the 2015 Paris climate agreement. To the more sober minds in China’s foreign policy establishment, it is better to focus on the existing machinery of the global rules-based system, particularly when the US is demonstrating systematic contempt for it.

As China seeks to re-stabilize its relationship with the US, and ease tensions in its non-US relationships, its leaders are likely to use 2019 to form a deeper judgment about the future of US politics: the impact of the Mueller investigation on Trump and his administration, and whether a new president in 2020 (or sooner) would in any way change the emerging new US strategy. While they have already concluded that a deep shift in American attitudes to China has occurred, they remain uncertain about what precise form that shift is taking, and whether a fundamental shift in their strategy (as opposed to tactics) is warranted.

Kevin Rudd, former Prime Minister of Australia, is President of the Asia Society Policy Institute in New York and Chair of the Independent Commission on Multilateralism.