Farewell to Dalu

Time flies in China – the exception being travel by car anywhere in China – indeed anywhere in Asia pretty much.

In any case time to leave Dalu and return to Canada.  But meanwhile I’ve had meetings with colleagues from the academy and think tanks in Beijing and here in Shanghai and most importantly I joined the Shanghai Conference hosted here by the Shanghai Institutes of International Studies (SIIS) in partnership with the Stanley Foundation (TSF) and my own Munk School of Global Affairs.

This just past Conference was not the first.  Indeed a year ago we worked to bring together experts from all the G20 Asian countries to examine the prospects for collaboration among the G20 Asian countries.  This year we worked to bring together experts from the Asian G20 countries plus now the Pacific G20 countries – the United States, Canada and Mexico. Mexico’s presence in particular was  valuable as Mexico will host the G20 Leaders Summit in June 2012.

This Shanghai meeting was telling.  One, we had historical memory. David Shorr our colleague from TSF was quick to note that there appeared to be maturation in the thinking of experts. A year ago experts from the region were grappling with the emergence of the G20 Leaders Summit. Was this new informal leaders summit legitimate – representative?  What was the place of this summit as opposed to the G8 or the UN or the many regional organizations?  These legitimacy questions were largely absent from this most recent gathering.  Instead there was a serious examination of the transition of the Summit from crisis gathering to permanent summit.  There was serious evaluation of the success in meting the key policy objectives, global financial reform, SSBG – Strong Sustainable and Balanced Growth, or macroeconomic imbalances in the global economy, and several other economic reforms including development and food security and food price volatility.

What were some of the bottom line conclusions? Though these several phrases hardly captures the full discussion and assessment they do help reflect G20 Summit evaluation.  First there was a strong sense among experts that the G20 risked serious underperformance.  There was a near consensus that experts feared little in the way of ‘deliverables’ or even ‘announceables’.  I must admit that I added to that view.  I argued that the G20 currently suffered from a major ‘case of distraction’ both for the French Presidency but also for European G8 members.  The distraction was evident – the European sovereign debt crisis.  This sense of distraction needs some clarification.  The continuing crisis in the Eurozone occupied growing attention for France and indeed all of Europe.  While contagion in the global economy was a real threat from possible disorderly Greek default and continuing and indeed growing volatility in financial markets, my assertion was that the crisis still represented a distraction for the G20. The key source of resolution lay with the primary European actors – France and Germany.  There lack of willingness to take critical decisions and calls for support by the IMF and the G20 kept drawing G20 attention to a serious crisis that principally needed to be addressed by Germany, France and the European Central Bank.

The attention to the sovereign debt crisis seemed to have drained energy from the macroeconomic imbalances focus of the G20.  Now our colleague Dan Drezner who joined us from the Fletcher School – and who has been highly critical – of the results of G20 coordination efforts – concluded that the macroeconomic coordination efforts were ‘Mission Impossible’.  Past macroeconomic coordination efforts had largely come ‘a cropper’ and in some cases had made matters worse than better.  But still he urged that the G20 should in fact do more if not necessarily in the global imbalances policy arena.  Later he even quietly admitted that he was impressed with the Mutual Assistance Process (MAP) efforts but still unclear about the outcomes of the coordinated policy effort.

When examining the coordination efforts of Asian G20 countries, experts still noted the dramatically limited collaboration among the G20 countries in Asia. But the fear of blocs had diminished from a year earlier and our colleague Lee Dong-hwi from IFANS in Korea urged Asian G20 countries to step up their collaboration.  As he put it, Asian countries could usefully increase ‘caucusing but without caucuses.’  In the face of global imbalances and in the light of economic circumstances here in Asia, there was growing support for caucusing without fear of generating blocs.

The Conference realized that there was a growing fear that without deliverables and in the face of the continuing global economic crisis, the G20 needed to show progress or risk being labeled irrelevant.  While many experts looked to move the G20 Leaders Summit to a more crisis prevention stance that the leaders had to balance with the need to show policy progress in a growing crisis atmosphere.  Such balancing was difficult but unavoidable.


Image Credit:  copyright Alan S Alexandroff

Back in Dalu

Beijing memories

It has probably been too long – but I am writing this post as I land at Beijing Capital Airport.  With a day of meetings ahead of me here in Beijing – mainly at Tsinghua daxue – and then on to Shanghai for a conference at the Shanghai Institutes of International Studies (SIIS), I gird myself for the traffic – Beijing Memories.

But in the end you ignore the traffic – whether here in Beijing or in Shanghai.  And you relish the vibrancy and activity.  The Shanghai Conference is titled, “Creating a More Global and Collaborative Asian and Pacific Leadership for the G20” The objective of the conference is to draw together experts and officials from the Asian and Pacific G20 countries – 9 in total – and describe and evaluate national perspectives.  The experts will key in on the big G20 questions – progress in dealing with global imbalances, arranging financial institutional reforms especially with respect the G-SIFIs (more on that in another post) and the progress in dealing with agricultural product price volatility and development.

This is the second annual conference.  A year ago we found that that there was little collaboration among the Asian G20 countries.  Now we shall see if there is much effort at collaboration in global governance issues among the Asian G20 or the Asian G20 and the United States, Canada and Mexico.


Is China Faking it?

When news about the fake Apple store in Kunming China broke out, it further reinforced the image of China as the Mecca of knock-offs. From 50 renminbi (RMB) for a pair of Ray Bans to 10 RMB for a DVD, fake goods are ubiquitous in China. Virtually every city has a fake goods market with merchants lined up in stalls, shouting ‘hello’ to the nearest foreigner and lighting bags on fire to prove the authenticity of their leather. The case of the fake Apple store reflects a copying culture that is very common and part of popular culture. The global attention the country receives elicits more laughs than shame from ordinary Chinese.

Even native brands – that target the Chinese market – struggle to find their own voice and borrow heavily from the west. Li Ning, a maker in sports apparel and active footwear, is one of the most successful domestic brands in China and competes with the likes of Nike and Adidas. It is however a mirror image of Nike. I mean literally, flip Nike’s logo and you got Li Ning Ltd. Its slogan also captures the same drive and ambition in Nike’s Just do it, with its mantra, Anything is Possible. Although in July, the company did introduce a slightly altered logo and a new slogan, Make the Change – as you can see it’s a real game changer!

China’s current development strategy relies on a number of joint ventures with foreign companies, with its main objective being to secure knowledge and technology transfers. For instance, the development of China’s high-speed railway network led to a competitive bidding war among foreign companies, among them included Canada’s Bombardier. A major criticism in the aftermath of the train crash in Wenzhou is that quality, oversight and safety were compromised as the Government sought to accelerate the expansion of high speed railways and adopt foreign technology to in turn allow Chinese companies to innovate and export the technology. The Chinese, it seems, have been successful in appropriating the technology. Chinese companies have already helped with the development of high-speed rails in India and Brazil.

In response to the widely acknowledged copying culture, the Chinese education system is often blamed for failing to breed creativity and innovation. The test-based education system (应试) creates a generation of young people who are superior test takers. Beginning with primary school, the educational experience focuses on preparing students for a series of entrance exams, the most important one being the annual National Entrance Exam (高考). The education system tends to overemphasize the use of tests to evaluate performance and rewards rote memory over critical thinking.

So, when it comes to the China threat question, the lack of innovation and the human capital and technology gap are major hurdles to the country’s rise. However on the other hand, while Lining is not likely to compete with Nike in the global market in the near future; and neither will brands like Haier or Tsingdao replace GE or Budweiser, they can potentially edge out foreign brands in the domestic market and in other non-Western markets.

Many Chinese brands are making a name for themselves in Southeast Asia and the Middle East. Years of having American cars like Jeep sell to the Chinese market has led to the growth of Chinese companies, like Chery who are seeing significant growth in the Middle East and North Africa. While I was travelling in Anji, home to a vast bamboo forest, I visited a clothing wholesaler whose wide collection of active wear, sleep wear and even business wear are made out of bamboo. I assumed they were a supplier for Chinese retailers, but a sales rep proudly explained they were well-established in Southeast Asia and had buyers in France. It was certainly ironic that the country with the largest C02 emissions is able to produce a green eco-friendly company that has the capacity to tap into the European market.

There is no doubt that fake Guccis and Burberrys are aplenty in China. But the rise of domestic Chinese brands signals an important and major step in the country’s development. And although these brands tend to be an import of western ideas rather than a distinctive approach to attract the Chinese middle class, one does have to credit them for being sophisticated replicas. And in the area of technology, the import of foreign goods may eventually lead to their demise. The Chinese are acutely aware of their global image as a factory of cheap goods and their desire to change it is just as apparent.

While both Chinese and Westerners scoff at the fake Apple store, it is easy to be dismissive and overlook that counterfeiting and copying is perhaps more of a phase in the economic growth of native Chinese firms.  It may also represent the conduit to the country’s future innovation and success.


Image Credit: Palmo Tenzin

Lamenting The Deficit in Global Governance






Just last month I was lamenting the lack of G20 coordination ( See blog post “Maybe Dan Drezner was Right ….”) and admitting that Dan Drezner might be right when it came to G20 collective action.

This weekend we were witness to continuing lack of coordination in global governance – this the G7 Finance Ministers who just concluded a meeting in Marseilles (see their G7 Statement).

Don’t look for any coordinated efforts – you won’t find them.  The most that they could do was to describe what Europe and the US is doing and then add rhetorical flourishes:

We are committed to a strong and coordinated international response to these challenges.  We are taking strong actions to maintain financial stability, restore confidence and support growth. … Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth.  We must all set out and implement ambitious and growth-friendly fiscal consolidation plans rooted within credible fiscal frameworks.  Fiscal policy faces a delicate balancing act.  Given the still fragile nature of the recovery, we must tread the difficult path of achieving fiscal adjustments plans while supporting economic activity, taking into account different national circumstances.

The problem is that officials are urging two different policy directions.  The United States is urging stimulus while in Europe the focus is on debt and the need to support debt ridden countries including Greece but also Portugal Italy and Spain.  In fact a crisis of sorts has presented itself in Europe with the resignation of the German member of the European Central Bank (ECB), Jurgen Stark.  The bond purchasing by the ECB of Italian and Spanish bonds represented a broadening of the ECB mandate that has raised alarm in Germany.  Stark had opposed bond purchasing by the ECB but he had remained loyal to the head of the ECB Jean-Claude Trichet.  His resignation poses a dilemma for Chancellor Merkel.

So the US is pushing for short term stimulus – a la the Obama Jobs Program and Europe is tearing itself apart over how to deal with sovereign debt problems.

Now this brings us back to the issue of whether Europe can overcome the current sovereign debt crisis without ejecting various troublesome euro participants – Greece and possibly Portugal.  Dick Rosecrance has bet on Europe overcoming the crisis and moving therefore to closer fiscal coordination. And Dan Drezner has kinda weighed in with the same view in his blog post  Euro-deja-vu but recognizes that he’s seen this all before:

When I woke up this morning and scanned the headlines, I knew what I was going to blog about — the stories in the press about how the European Union was, after much hemming and hawing, beginning to move towards a closer fiscal union.  I was then going to not-so-humblebrag about my own prediction that this would indeed happen. This was all going to be a great set-up to the last-minute reverse course — i.e., this Financial Times op-ed by German Finance Minister Wolfgang Schäuble in which he declared his “unease when some politicians and economists call on the eurozone to take a sudden leap into fiscal union and joint liability.”

Here’s the thing, however — if you read my eurozone blog post from this past February, you’ll see that almost the exact same dynamic played itself out six months ago.  This time the Germans are pre-emptively balking before the peripheral countries can balk in response to German calls for austerity… but you get the general idea.

So, will it be closer fiscal union in the EU?  Many smart people are betting on it.  I’m not so sure.  But we will come back to it. I generally disagree with Dick Rosecrance that the Europeans have acted before when facing a crisis.  Therefore they will respond here as well.  I am more inclined to accept that closer union is possible – but only after a number of countries are ejected from the eurozone – I think this is the Drezner line – and he may well be correct.

Meanwhile it is evident that there is no consensus on policy direction – at least if you look at the G7 Finance Ministers.  You can imagine what that means for the G20.  Finance Ministers have argued that there are different circumstances that drive policy differences by the G7 countries.  But in reality there is disagreement among the G7 on how to attack the continuing financial crisis.  It is unnerving.


Image Credit: Wikimedia Commons




The World According to Harvard – Part I






My colleague Richard Rosecrance (an occasional guest blogger here at Rising BRICSAM) has had an interesting recent debate with fellow Harvard colleague Stephen Walt.  The debate/discussion/dialogue – whatever?  ( Walt at Foreignpolicy.com Original Blog Post and  Response; Rosecrance’s Policy and Power posts  Original Response and Rebuttal) between these two well known IR scholars  has centered on two issues:  First. whether the EU has seen its best days already and whether the EU political Project is waning?; and then secondly whether the US needs to employ a balance of power strategy relying in part on the EU in order to constrain a growing rivalry in Asia with China.

Now the “World According to Harvard”, no matter which voices, always includes a large dollop of “grand strategy”.  These two Harvard colleagues don’t disappoint – lots of grand strategy.  Paring back some of the 30,000 foot language, however, Walt argues that Europe’s period of global influence is on the wane and more particularly – and he admits he may be wrong here – we’ve already seen the high water mark of European unity.  Walt suggests:

Today, European integration is threatened by (1) the lack of an external enemy, which removes a major incentive for deep cooperation, (2) the unwieldy nature of EU decision-making where 27 countries of very different sizes and wealth have to try to reach agreement by consensus, (3) the misguided decision to create a common currency, but without creating the political and economic institutions needed to support it, and (4) nationalism, which remains a powerful force throughout Europe and has been gathering steam in recent years.

While Walt then admits that these challenges may well force the EU member-states to come together, the behavior of the core actors France and Germany to date in their efforts to deal with the large and continuing debt crisis – Greece in particular – give little reason for optimism.  So Walt concludes – “Hence my belief that the heyday of European political integration is behind us.”

Now Dick Rosecrance will have none of it.  As he argues, the European Union is “the strongest economic unit on earth with a GDP larger that that of the United States.” This EU is not the Europe of the days of General De Gaulle.  And as he says in his response to Walt’s response (I hope this thread is not getting too confusing) the historical record:

…shows that far from declining, the EU overcomes its differences and continues increasing its GDP and military strength.  Steve is right that the EU is not going to become a “United States of Europe,” but it will likely evolve into a fiscal union because Germany and France remain committed to assisting weaker partners.  Further, the EU is expanding with five to ten would-be members waiting to join the enlarged Union, ultimately reinforcing NATO.

It is true that the European project has gone through periods of quiescence or lethargy only to be revived with a new accord – Maastricht or Lisbon.  But the European project through stealth has – it would seem to me – run it’s course and growing popular skepticism has replaced a facile “Europeanness” (see Andy Moravcsik at Princeton for deep analysis of European integration).  Here Walt’s rise of nationalist feeling in Europe is I think closer to the point.  European politicans have little appetite to propel the federalist project in the face of growing nationalist publics.  In the face of the sovereign debt crisis, European leaders have been unwilling to act boldly.  They certainly have been unwilling to take steps – EU bonds for example – that ramp up economic integration.  None other than former German foreign minister  and vice-chancellor Joschka Fischer raises the prospect of disintegration of the European project:

Slowly, word is getting round – even in Germany – that the financial crisis could destroy the European unification project in its entirety, because it demonstrates, quite relentlessly, the weaknesses of the eurozone and its construction.  Those weaknesses are less financial or economic than political.   … The euro, and the countries that adopted it, are now paying the price.  The eurozone now rests on the shaky basis of confederation of states that are committed both to a monetary union and to retaining fiscal sovereignty.  At a time of crisis, that cannot work.

So while Dick Rosecrance may be right that the EU in the face of this continuing debt crisis may evolve into a fiscal union I am not prepared to take a bet on it.  The past is no compass it seems to me in describing the future.

So if the EU is not likely to be the partner that Rosecrance is wishing for, what then of the US need to balance China and if so – with whom or what. Stayed tuned for Part II.

Image Credit – Wikimedia Commons