The World in 2019
Why Xi Jinping is worried about 2019
Several important anniversaries loom. The Communist Party is nervous
THIRTY YEARS ago, as 1989 approached, political storm-clouds were gathering over China. Bitter divisions had emerged within the leadership over how far and how fast to pursue economic reform. Inspired by the Soviet Union’s liberalising leader, Mikhail Gorbachev, some people in China were daring to suggest that their own country should loosen up, too. The calendar for the coming year included big anniversaries of political events in China’s modern history. Many intellectuals were awaiting those dates with excitement, hoping the occasions would provide them with a pretext to air their grievances about the party’s record in power.
The run-up to 2019 is far less febrile. But once again, anniversaries loom. The Communist Party is nervous.
This may seem odd. Since 1989 China has grown enormously in wealth and influence. The party is firmly in charge. Yet the security forces will be on full alert. Censors will work round the clock to scrub any unapproved references to the anniversaries. That will not be easy: the list of anniversaries that fall in years ending with 9, and that have sensitive connotations for the party, has grown. At its top is the date of the bloody suppression of the pro-democracy protests in 1989 that were the culmination of that heady mood three decades ago.
As in 1989, it will not be easy for the censors to ensure political conformity. That is because some of the anniversaries are ones that the party itself likes to commemorate, so it cannot simply ban all mentions of them. Take May Fourth. That day in 2019 will mark 100 years since the student movement that led to the party’s founding in 1921—much, then, for the party to celebrate. But in 1989 the 70th anniversary of the May Fourth Movement was a huge inspiration to the protesters in Tiananmen Square. They described themselves, not the party, as the true inheritors of the patriotic and pro-reform spirit of the students in 1919. There is little sign of campus unrest today. But China’s leaders know that moods can be fickle. In 1988 Chinese dissidents lamented that students seemed more interested in playing mah-jong than in politics. How wrong they were.
The 70th anniversary on October 1st of the founding of the People’s Republic will be another occasion that the party and the public could interpret in different ways. Early in 1989 Fang Lizhi, a prominent Chinese dissident (who died in exile in 2012), wrote that the anniversaries that year on May 4th and October 1st would be “eloquent symbols of China’s hope and despair” that would show how the “naive sincerity” of Chinese people at the start of Communist rule in 1949 had been “betrayed”. Few Chinese would put it so starkly now. Many express pride in their country’s growing international clout. But in regions populated by ethnic minorities, October 1st will be less of an occasion for cheer.
Security will be intense across Tibet and Xinjiang to prevent those who chafe at Chinese rule from expressing their discontent. In March it will be 30 years since the imposition of martial law in the Tibetan capital, Lhasa, after riots triggered by the anniversary of the uprising in 1959 that prompted the Dalai Lama to flee to India. Expect the 60th anniversary in 2019 of the Tibetan leader’s exile to be tense.
Perennial paranoia
As usual, censors will erase almost any mention of the Tiananmen Square protests, the 30th anniversary of the crushing of which falls on June 4th. China’s leader, Xi Jinping, has shown no interest in reviving any memories of that regime-threatening episode. For all his swagger on the world stage, Mr Xi acts at home as if the party is still in danger. He has presided over a sweeping clampdown on civil society with the arrests of many lawyers, ngo workers and rights activists. “Colour revolutions” that have toppled other authoritarian regimes appear to haunt him. He has shown no inclination to ease the brutal campaign, launched in July 1999, to eradicate Falun Gong, a quasi-Buddhist sect that once had millions of followers. Attempts to mark this date by the faith’s diehard adherents in China (and supporters abroad) will add to Mr Xi’s anniversary woes.
Especially in a year so resounding with historical echoes, Mr Xi will do nothing in 2019 to relax his vice-like controls. Instead, as a trade war rages with America, he will redouble his efforts to prevent unrest at home. He well knows that dissidents in China have long used patriotism as a cloak for attacking the establishment, as protesters did in both 1919 and 1989. So the party will be on guard lest public anger with America turn against Mr Xi and the party itself.
WHY XI JINPING IS WORRIED ABOUT 2019 / THE ECONOMIST
COULD CHINA TURN INWARD? / PROJECT SYNDICATE
Could China Turn Inward?
Notwithstanding the 90-day trade truce on which US President Donald Trump and Chinese President Xi Jinping recently agreed, tensions between the world's two largest economies remain high. But while both countries may be tempted to turn inward, there are five reasons why they would be wise not to.
Jeongmin Seong , Jonathan Woetzel
SHANGHAI – On the face of it, China and the United States both look as though they would be relatively insulated if trade tensions continue to escalate. China’s exports to the US account for only 4% of its GDP, and its imports from the US amount to just 1% of GDP. In the US, with its large, domestically driven economy, the equivalent figures are 1% and 3%. But putting aside these headline numbers, a retreat from globalization by the world’s two largest economies would nonetheless entail significant costs.
True, China has been rebalancing away from exports: domestic consumption contributed to more than 60% of its GDP growth in ten of the 15 quarters since 2015, and up to 80% in the first half of 2018. In many consumer categories, China is now the world’s largest market. In the first quarter of 2018, it overtook the US as the world’s top box office. And it also now accounts for 30% of global auto sales (and 43% of unit sales of electric vehicles) and 42% of global retail e-commerce transaction value.
Moreover, the McKinsey Global Institute finds that while the world’s exposure to China in terms of trade, technology, and capital increased from 2000 to 2017, China’s exposure to the world peaked in 2007, and has declined ever since. As recently as 2008, China’s net trade surplus accounted for 8% of its GDP; by 2017, it had fallen to 1.7%. That is less than either Germany or South Korea, where net exports generate 5-8% of GDP.
Following a sustained period in which China drove global growth, it seems as though its great “opening up” is losing momentum. After China joined the World Trade Organization in 2001, it cut tariffs by half, bringing them down to 8% as of 2008. Yet, by 2016, they had edged back up to 9.6% – a rate that is more than double the US and EU average. At the same time, China’s barriers to foreign capital inflows to services remain high. And the government appears to promote the growth of local companies, not least through its “Made in China 2025” plan, which sets guidelines for domestic companies in 11 of 23 high-priority subsectors.
Still, these trends do not necessarily mean that China is closing itself off from the world. In fact, there are five reasons why an increasingly autarchic China is unlikely. For starters, China remains dependent on foreign technology, with half of its technology imports coming from just three countries – the US (27%), Japan (17%), and Germany (11%) – between 2011 and 2016. More to the point, these numbers have barely budged over the past 20 years, despite China’s efforts to boost innovation at home.
Second, were China to close itself off, it would damage its neighbors’ economic prospects, thus destabilizing its own immediate region. For example, according to a recent OECD analysis, Malaysia, Singapore, and South Korea could lose 0.5-1.5% of GDP each as a result of reduced US-China trade. This, in turn, would set back China’s ambitions to be the region’s trade anchor.
Third, with a turn inward, China would start to miss out on investment and know-how from the multinationals currently operating in its economy. As of 2015, there were 481,000 foreign enterprises in China (more than twice as many as in 2000), employing around 14 million workers. About 40% of China’s exports are produced by foreign companies, or by foreign-domestic joint ventures. Moreover, foreign firms produce 87% of electronics in China, and 59% of machinery. Not by coincidence, those are the sectors most affected by the current trade dispute.
A survey conducted by the American Chamber of Commerce in China reinforces concerns about the impact of escalating trade tensions on foreign investment. Already, 31% of US firms say they may delay or cancel investment decisions, 18% may relocate some or all of their manufacturing outside China, and 3% may even exit the Chinese market altogether.
Fourth, a reduction in trade could sap the reform momentum China needs to iron out the many inefficiencies in its domestic economy. For example, China’s efforts to position its financial system to manage the risks associated with high debt levels will be sidelined if it is forced to provide more liquidity to the economy to make up for trade losses. Likewise, China’s inefficient state-owned enterprises – whose return on assets is only 30-50% that of private-sector companies – need to be overhauled as part of a broader agenda to boost productivity. But if the economy comes under pressure, those efforts, too, could be delayed for fear of undermining employment.
Finally, and more broadly, there is ample evidence showing that global interconnectedness is good for growth. MGI finds that global flows of goods, services, capital, people, and data over the past decade have boosted world GDP by around 10% above where it otherwise would have been.
A reversal of China’s great opening up would hurt not just China, but everyone – including the US. Losing access to Chinese markets, capital flows, exports, and talent would result in higher prices and slower growth, whereas the benefits of reduced levels of competition to US industries are less clear. Chinese imports have cut the price of US consumer goods by an estimated 27%.
And firms in the US would take a direct hit from higher tariffs in trade, given that 77% of China’s exports to the US are intermediary and capital goods used to produce finished products, according to the McKinsey Global Trade Database.
Turning inward may be tempting for China, but the economic costs of doing so would be significant. One hopes – perhaps against hope – that the 90-day truce on tariff increases lasts, so that an enduring trade agreement can be forged.
Jeongmin Seong is a senior fellow at the McKinsey Global Institute in Shanghai.
Jonathan Woetzel is a McKinsey senior partner, a director of the McKinsey Global Institute, and co-author of No Ordinary Disruption: The Four Global Forces Breaking All the Trends.
IN CHINA, MANUFACTURERS FEEL THE HEAT OF THE TRADE WAR / GEOPOLITICAL FUTURES
In China, Manufacturers Feel the Heat of the Trade War
By Phillip Orchard
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BIG BUYERS BEWARE THE NEW TRUSTBUSTERS / THGE WALL STREET JOURNAL
Big Buyers Beware the New Trustbusters
Growing industry concentration and better data have been fueling concerns about companies’ ‘monopsony’ power over labor and suppliers
By Paul J. DaviesBig Buyers Beware the New Trustbusters/ Photo: Peter Oumanski
When Apple AAPL +0.53%▲ cut production for its current lineup of iPhones in November, the share prices of its huge network of suppliers tanked. Around the same time, Amazon was making a decision on where to put its secondary headquarters, ending a feverish effort by U.S. cities to win the retailer’s favor.
The power of large companies has never been more apparent. It isn’t just technology: The market share of the biggest companies in many industries has risen dramatically over recent decades. Top companies are much more profitable than others, and some think they are harming competition.
Regulators are increasingly focusing on the power that these companies have over their workers and suppliers, and companies appear to be aware of the risk. This helps explain big wage increases this year by Walmart WMT +1.49%▲ and Amazon, which boosted its minimum hourly rate to $15, following criticism that the retail giants use their scale to give staff a raw deal.
Both the Justice Department and the Federal Trade Commission are now looking more at labor issues in merger cases, according to David Wales, antitrust partner at Skadden, Arps, Slate, Meagher & Flom in Washington, D.C. “It has come up in a couple of pending investigations where the staff has asked the parties to answer questions about the impact of the merger on labor,” Mr. Wales said, adding this is the first time he’s seen this happen.
So far, no antitrust case has been brought on behalf of labor, and very few challenges have been made in modern times on the broader grounds of a company’s buyer power over labor, goods or services. But this appears to be changing. The Justice Department’s case against the merger of health insurers Anthem and Cigna last year included its first-ever citation of their increased buyer power over doctors and hospitals as a stand-alone argument. That deal was ultimately blocked on traditional concerns about customers, however.
In the U.K., where supermarkets have attracted much political criticism for their treatment of suppliers, competition authorities are examining supplier effects as part of their review of Walmart’s deal to sell its British unit, Asda, to a top-three rival.
For decades, the main yardstick in antitrust cases has been consumer welfare, which often boils down to prices. If merging companies can show evidence that prices won’t rise, regulators assume an industry remains efficient and competitive.
But while low prices can be achieved through efficiency and scale, they can also come from weakening suppliers. Some companies have even cited a greater ability to squeeze suppliers in antitrust defenses, according to Scott Hemphill, a law professor at New York University.
Concern about dominant buyers or so-called monopsonies—as opposed to dominant sellers or monopolies—has bubbled up from the academic world to become a leading theme of the Federal Trade Commission’s current hearings on whether antitrust practice is working. Such hearings are rare: The last set was in the mid-1990s.
Suppliers’ reliance on large individual customers has grown in several industries. Since 1978, listed U.S. companies have had to disclose whether any customer accounts for more than 10% of revenue and, if so, how much. A recent study of this data by Nathan Wilmers of MIT Sloan School of Management found that for manufacturers, wholesalers and shipping companies, these dominant buyers have grown to represent 20% to 25% of sales, from less than 10% in the early 1980s. He also links the rising share of purchases made by big retailers, such as Walmart, with falling wages at suppliers.
Long-stagnant wages have focused academic attention on monopsony power. In the U.S., better data from government sources and online job sites in just the past few years have allowed labor economists to show that competition among employers is far weaker than was long assumed.
The argument even reached central bankers and economists at the Federal Reserve’s annual retreat in Jackson Hole, Wyo., this summer. Some in attendance, such as economist John Van Reenen of MIT Sloan, argued rising industrial concentration is due to “superstar” firms beating out lesser rivals and that it is too soon to worry about their ability to abuse market power. Others, like economist Alan Krueger of Princeton University, were more concerned that concentration is a problem.
It matters whether a dominant, highly profitable company is very efficient or simply exploiting a powerful position—whether it is a superstar or just supersized—because pressure for more intervention is building. Companies can help their case by paying staff better. But investors need to wake up to the risks.
Bienvenida
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
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Lao Tse
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History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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