East Asia: Trade Regime critical for Economic Stability and Political Security


East Asia: Trade Regime critical for Economic Stability and Political Security

by  EAF Editorial Group

What the Trump Administration will ultimately do to the shape of the global trade regime is difficult to foretell but there’s no question that it will change it forever, even if there is strong global push-back against Trump’s threat to unravel trade agreements and carry a protectionist stick.

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The trade regime, and the way in which it encourages open trade and international interdependence among those who sign on to its rules, is not simply an instrument of economic policy strategy that can be changed without political consequence. For most countries, and certainly those in East Asia which are so dependent on open trade to sustain their basic livelihood, the trade regime is a critical instrument of political security.

Trump has already signed executive orders to withdraw the United States from the Trans-Pacific Partnership (TPP) and renegotiate the North American Free Trade Agreement (NAFTA). What appeared noisy campaign rhetoric has been transformed into concrete action.

Trump’s withdrawal from the TPP is no big deal in itself: with the exception of what it promised in terms of liberalisation of the Japanese economy, the economic effects of the deal that was on the table were oversold. Even renegotiation of NAFTA may have more limited economic consequences than have been threatened. But these steps, together with the threat of punitive tariffs on imports from China and Mexico, plus a total retreat from multilateral or regional trade agreements, tears at the core principles upon which the US supported postwar economic order had been built.

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POTUS Donald J. Trump and China’s President Xi

Anyone who says that a switch of this magnitude and direction in the trade policy strategy of the world’s largest economy and second-largest international trader is of little consequence is seriously delusional. The old certainties that brought prosperity and a significant measure of stability to world affairs for nearly three-quarters of a century after the Second World War are under serious threat.

A world in which the defining characteristic is a lot of bilateral trade agreements rather than one in which multilateral and regional frameworks are predominant imposes costs on business and consumers alike because of the need for compliance with different rules of treatment across different trading partners. It also injects a different tone into international politics. These concerns are what motivates the argument for regional and global trade regimes that govern international flows of goods and services through unified rules and standards.

The broader the framework within which trade can take place, the greater will be the scope for division of labour and the higher the gains from international trade. Bilateral trade deals can’t replicate the gains from regional and multilateral agreement, and they will unhelpfully cut across global and regional value chains. As the largest centre of production networks, East Asia has much at stake in the push back against an open, global rules-based trading system and the regional arrangements that support it.

While the direct economic costs of Trump turning America’s back on the TPP and other measures might be relatively small, the systemic costs are much larger.

As Shiro Armstrong and Amy King write in this week’s lead essay, Trump’s executive order to withdraw the United States from the TPP agreement in the Asia Pacific ‘is a strategic turning point in the open economic order. It is a blow to furthering reform for some members, a lost opportunity for the United States to write the rules of international commerce, and more worryingly a sign of the United States turning its back on the global economic system it helped create and lead’.

How can East Asia, which includes China and Japan — the world’s largest and fourth-largest trading nations — stand against the corrosion of a global trading order that is so central to their common economic and political interests?

The economies of East Asia must, of course, stand quietly firm in global and regional forums and in all their bilateral representations to the United States against the undermining of the global trading system, giving strength to those forces in America that can help to shape much better outcomes than the present circumstances threaten. But, through their own commitment to collective liberalisation and reform, they can also help to lead the system back from the brink.

With major multilateral trade deals at the WTO now too difficult and bilaterals only able to make slow and incomplete progress towards freer markets, Armstrong and King observe, all eyes now turn to Asia’s Regional Comprehensive Economic Partnership (RCEP) agreement. It is the most important initiative on the global trade scene.

Image result for flags of asean member statesASEAN is the hub of RCEP Agreement

RCEP comprises the 10 Southeast Asian members of ASEAN as well as Australia, China, India, Japan, New Zealand and South Korea. Though, as Armstrong and King say, there are many misconceptions about the RCEP enterprise.

‘The first misconception is that RCEP is China-led. But China is a spoke and ASEAN is the hub of the arrangement. RCEP was built to consolidate ASEAN’s five separate free trade agreements with China, South Korea, Japan, India and Australia–New Zealand. And the RCEP idea and its guiding principles were crafted not in China, but in Indonesia. ASEAN centrality has ensured that RCEP has incorporated Asia’s other large power — Japan — and reflects Japanese preferences as much as those of China. Originally, China wanted to limit core membership of Asian cooperation to ASEAN plus China, Japan and South Korea. Japan wanted a larger membership, involving Australia, New Zealand and India, to help provide a counterweight to China’.

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In the end, ASEAN centrality and the interests of Australia and India in the region meant a broader and representative group ideally placed to take the lead collectively on global trade.

‘With the world trading system under threat’, as Armstrong and King conclude, ‘it is time for leaders in Asia to step up and push for opening markets and deepening reforms to enhance economic integration, not just with each other but with Europe, the United States and the rest of the world’.

*The EAF Editorial Group is composed of Peter Drysdale, Shiro Armstrong, Ben Ascione, Ryan Manuel, Amy King and Jillian Mowbray-Tsutsumi and is located in the Crawford School of Public Policy in the ANU College of Asia and the Pacific.

http://www.eastasiaforum.org/2017/02/20/east-asias-agreement-to-keep-the-world-economy-open/

The State of Asia Pacific Free Trade


February 11, 2017

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Number 370 | February 10, 2017
ANALYSIS

The State of Asia Pacific Free Trade

By Eduardo Pedrosa

On January 23, three days after taking office, President Donald Trump issued a memorandum to permanently withdraw the United States from the Trans-Pacific Partnership (TPP), fulfilling one of his campaign promises. The decision came amidst rising concerns about the future of globalization. Since 2006, the Pacific Economic Cooperation Council (PECC) has been undertaking an annual survey of policy experts to provide insights into the debate about free trade and globalization. The belief that the best route to growth is through freer trade is under siege, with accusations from seemingly opposite poles of the political spectrum, that globalization only benefits the top ten or even 1 percent of citizens of a particular country.

Trade-skeptic sentiments are strongest in high income economies. As seen in the PECC survey, respondents from high income economies like the United States gave the lowest assessment of the political environment for freer trade with a net favorability rating of only +16 percent, compared to +41 percent in emerging economies. While the decision to withdraw the US from the TPP may have been driven by opposition to this particular trade deal rather than free trade generally, it will nonetheless hamper attempts to modernize trade rules already out of synch with commercial reality.

In place of the TPP, the Trump administration has said that it will pursue a series of bilateral deals, an approach that runs counter to a trend to consolidate multi-member trade deals in the Asia-Pacific region.  The Regional Comprehensive Economic Partnership (RCEP) negotiations, for example, are an attempt to consolidate ASEAN’s existing bilateral agreements, and the Pacific Alliance (PA) consolidates a series of bilateral agreements among Latin American economies.

The reason for this consolidation was that the “spaghetti bowl” of bilateral agreements was making it harder and more costly to do business, especially for smaller firms. Much of the increase in global trade in recent years has come from the emergence of global value chains. These international chains of production require components to cross borders multiple times. Global value chains have led to a significant reduction in the prices of goods such as cars and mobile phones, making them more affordable for consumers. However, complex rules of origin in bilateral deals made them hard to use and hence costs were passed on to the consumer.

The introduction of more border taxes will raise costs for consumers, and is unlikely to create the kinds of jobs people hope for. Where businesses choose to base production depends on a variety of factors – proximity to the market, availability of skills, ease of doing business, and the applicable tax regime. The current uncertainty over policy is adding to the economic volatility evident since the 2008 Global Financial Crisis, with businesses taking a ‘wait and see’ attitude towards hiring and capital expenditure. One reason for this attitude is uncertainty and negative expectations for future global growth. Increased trade frictions are likely to lead to even greater caution from members of the corporate sector, encouraging them to keep even more cash on their balance sheets. Concerns about protectionism are rising dramatically, with 32 percent of respondents to the PECC survey selecting it as a top five risk to economic growth compared to 16 percent two years ago. North Americans were the most worried about the impact of rising protectionism on their economies with 52 percent of respondents picking it as a top five risk to growth (making it the 2nd highest risk).

“If progress is made on trade deals such as the RCEP and PA, businesses will view the economies involved as beneficial locations to operate.”

If progress is made on trade deals such as the RCEP and PA, businesses will view the economies involved as beneficial locations to operate because of lower costs, a predictable trade environment, and proximity to the world’s fastest growing markets. A fifth of North American respondents to the PECC survey thought that the RCEP would have a negative impact on their economy – echoing a concern from an earlier era about ‘drawing a line down the Pacific.’ This uncertainty about transpacific cooperation comes at a critical juncture – over the next 5 years the Asia-Pacific is expected to account for almost two-thirds of all global growth.

The PECC survey results also give some indication of the challenges to freer trade today. Respondents were asked to rate different factors that influence attitudes toward freer trade: income inequality, job security, failure to communicate the benefits of trade, slower global economic growth, and sustained political leadership. Two findings stand out: First, North American respondents were much more concerned about all factors compared to all other survey respondents; and second, there are problems with perceptions about trade (the failure to communicate) and other deeper problems such as rising income inequality and job insecurity.

While a lot of energy and time will be expended on the future of globalization, the critical question is: where are jobs and growth going to come from? Over the past 4 years two-thirds of the region’s growth has come from the services sector, compared to 28 percent from the manufacturing sector. At an average of 57 percent of total output, the services sector in the region’s emerging economies is smaller compared to 80 percent of total output in more advanced economies. Moreover, the way in which services are being delivered is changing – 70 percent of respondents to PECC’s survey thought that digital trade, e-commerce, and the internet economy would be very or extremely important to the future growth of their economies.

While tariffs and border taxes have come down from an average of 17 percent to less than 6 percent, many of the barriers that remain are regulatory in nature. Two-thirds of respondents to PECC’s survey selected transparency, multiple layers of authority, and predictability of regulations as serious or very serious impediments to services trade. These issues are not easily dealt with in the context of trade negotiations – for the most part they are not designed with foreign trade in mind, but are put in place to protect other concerns such as consumer safety. A forward-looking trade agenda needs to find ways to reduce the burden on businesses to allow them to grow – creating jobs and lowering prices.

The Asia-Pacific is undergoing a period of historic change and its trajectory, now more than ever, is unclear. Given the large populations and rising incomes, it is most likely to remain the center of global growth for decades. While the Asia-Pacific policy community remains committed to freer trade, there are significant differences on the domestic political economy of freer trade. A trade agenda that addresses the concerns of those negatively impacted by trade will be critical to continuing the forward momentum in making free trade more desirable and sustainable.

About the Author

Eduardo Pedrosa is the Secretary General of the Pacific Economic Cooperation Council (PECC). He can be contacted at Eduardo.Pedrosa@PECC.org
The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.

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Grow-Up, Mr. Trump–You are not Robinson Crusoe


January 4, 2017

Comments from Paul Krugman

Grow-Up, Mr. Trump–You are not Robinson Crusoe

For the past couple of months, thoughtful people have been quietly worrying that the Trump administration might get us into a foreign policy crisis, maybe even a war.

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Trump with Michael Flint (National Security Advisor) and Steve Bannon (White House Chief of Staff)

Partly this worry reflected Donald Trump’s addiction to bombast and swagger, which plays fine in Breitbart and on Fox News but doesn’t go down well with foreign governments. But it also reflected a cold view of the incentives the new administration would face: as working-class voters began to realize that candidate Trump’s promises about jobs and health care were insincere, foreign distractions would look increasingly attractive.

The most likely flash point seemed to be China, the subject of much Trumpist tough talk, where disputes over islands in the South China Sea could easily turn into shooting incidents.

And while there may be an element of cynical calculation in some of the administration’s crisis mongering, this is looking less and less like a political strategy and more and more like a psychological syndrome.

The Australian confrontation has gotten the most press, probably because it’s so weirdly gratuitous. Australia is, after all, arguably America’s most faithful friend in the whole world, a nation that has fought by our side again and again. We will, of course, have disputes, as any two nations will, but nothing that should disturb the strength of our alliance — especially because Australia is one of the countries we will need to rely on if there is a confrontation with China.

Donald Trump: Americans apologise to Australia after US President’s phone call with Turnbull

But this is the age of Trump: In a call with Malcolm Turnbull, Australia’s Prime Minister, the U.S. President boasted about his election victory and complained about an existing agreement to take some of the refugees Australia has been holding, accusing Mr. Turnbull of sending us the “next Boston bombers.” Then he abruptly ended the conversation after only 25 minutes.

Well, at least Mr. Trump didn’t threaten to invade Australia. In his conversation with President Enrique Peña Nieto of Mexico, however, he did just that. According to The Associated Press, he told our neighbor’s democratically elected leader: “You have a bunch of bad hombres down there. You aren’t doing enough to stop them. I think your military is scared. Our military isn’t, so I just might send them down to take care of it.”

White House sources are now claiming that this threat — remember, the U.S. has in fact invaded Mexico in the past, and the Mexicans have not forgotten — was a lighthearted joke. If you believe that, I have a Mexico-paid-for border wall to sell you.

The blowups with Mexico and Australia have overshadowed a more conventional war of words with Iran, which tested a missile on Sunday. This was definitely a provocation. But the White House warning that it was “putting Iran on notice” raises the question, notice of what? Given the way the administration has been alienating our allies, tighter sanctions aren’t going to happen. Are we ready for a war?

There was also a curious contrast between the response to Iran and the response to another, more serious provocation: Russia’s escalation of its proxy war in Ukraine. Senator John McCain called on the president to help Ukraine. Strangely, however, the White House said nothing at all about Russia’s actions until Nikki Haley, the United Nations ambassador, issued a condemnation late Thursday night to the Security Council. This is getting a bit obvious, isn’t it?

Oh, and one more thing: Peter Navarro, head of Mr. Trump’s new National Trade Council, accused Germany of exploiting the United States with an undervalued currency. There’s an interesting economics discussion to be had here, but government officials aren’t supposed to make that sort of accusation unless they’re prepared to fight a trade war. Are they?

I doubt it. In fact, this administration doesn’t seem prepared on any front. Mr. Trump’s confrontational phone calls, in particular, don’t sound like the working out of an economic or even political strategy — cunning schemers don’t waste time boasting about their election victories and whining about media reports on crowd sizes.

No, what we’re hearing sounds like a man who is out of his depth and out of control, who can’t even pretend to master his feelings of personal insecurity. His first two weeks in office have been utter chaos, and things just keep getting worse — perhaps because he responds to each debacle with a desperate attempt to change the subject that only leads to a fresh debacle.

America and the world can’t take much more of this. Think about it: If you had an employee behaving this way, you’d immediately remove him from any position of responsibility and strongly suggest that he seek counseling. And this guy is commander in chief of the world’s most powerful military.

Thanks, Comey.

This column has been updated to reflect news developments.


China’s Quest for Regional Community


February 3, 2017

China’s Quest for Regional Community

by Zhang Yunling, Chinese Academy of Social Sciences

http://www.eastasiaforum.org/2017/02/03/chinas-neighbours-and-the-quest-for-regional-community/

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China’s Xi and Indonesia’s Jokowi

China’s meteoric rise has put the spotlight on the relationships it shares with its neighbours. Distinct national interests and the substantial social and political diversity in the region make the development of a regional community a complex and delicate task.

China shares land borders with 14 countries and has eight maritime neighbours. But to truly understand China’s relations with its neighbours, one must go beyond geography and consider how history, culture, geopolitics and geo-economics have shaped, and will continue to shape, these relationships.

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President Duterte of  the Philippines and China’s Xi Jinping

Serious consideration must also be given to competitive national interests in the evolution of these increasingly interdependent relationships. The rise of China presents new challenges and opportunities for the development of neighbourhood relations and regional strategies. The close involvement of extra-regional powers, such as the United States, Japan and India, serves to further complicate China’s relationships with its neighbours.

China and its neighbours have a shared interest in maintaining a peaceful and friendly relationship. If mishandled, all sides will suffer. This is the implication behind the Chinese leadership’s call for a ‘community of shared interests and common destiny’ with its neighbours through a number of new initiatives. This new, grand strategy is underpinned by China’s growing confidence in its ability to shape the regional environment. It reflects a new mode of strategic thinking on how to position China among its neighbours and how to understand the new importance of China’s neighbouring regions.

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President of China Xi Jinping and Cambodia’s Prime Minister Hun Sen

China has developed initiatives to enhance regional ties, but the political, social and economic diversity among China’s neighbours is immense. Relations are further complicated by conflicts of interest between the neighbours themselves, as well as by intervention from extra-regional powers, which engage in overt and covert competition in the region.

As China’s influence rises, its neighbours’ distrust grows. Some of them worry that China’s harbours ambitions for regional hegemony. Maritime and territorial disputes, over the exclusive economic zones in the East China Sea and South China Sea in particular, have resulted in rising tension between China, Japan and some ASEAN members. There has been widespread concern that confrontations may lead to a military conflict. The announcement and implementation of the United States’ ‘pivot to Asia’ strategy, which stokes US–China competition in the region, has amplified these difficulties.

China’s rise has triggered complex reactions among its neighbours. In some cases, it has exacerbated existing disputes. When China was weaker, disputes were more likely to be shelved — China often lacked the capacity to address them, and neighbouring countries considered their relations with China to be a lower priority.

As a rising power, China will naturally expand its interests and exert its influence. This could lead to competition and conflict, particularly with the United States. As a result, a growing sense of anxiety has emerged among regional states that fear that a strong China would seek regional hegemony at their expense.

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Malaysian Prime Minister Najib Razak with President Xi Jinping

Disputes among nations, including territorial disputes, should — for the sake of all involved — never be resolved by resort to war.

Traditional Chinese culture advocates peace and harmony, commends defusing contradictions, pursues reconciliation and believes in the tactical principle of subduing enemy troops without resorting to war. The time for China to display this ‘culture of harmony’ may be arriving.

The concept of harmony has shaped Chinese culture and politics for centuries. In September 2011, the Chinese State Council Information Office incorporated these values into China’s foreign policy by releasing a white paper entitled ‘China’s Peaceful Development’. This report outlines the core values that should define China’s strategic rise to global prominence, with an emphasis on the concept of a ‘harmonious’ culture.

The Chinese leadership has recently called for building a ‘community of shared interests and common destiny’ among China and its neighbours, based on the guiding principles of ‘amity, sincerity, mutual benefit and inclusiveness’. But realising this communal dream will depend on the will and wisdom of both China and its neighbours.

Both sides have made great efforts made to develop the China–ASEAN relationship. The China–ASEAN Free Trade Area and strategic partnership is just one example of an attempt by both parties to build a cooperative framework based on good will and real interests. But tensions in the South China Sea, especially in light of the Philippines’ unilateral action through the Permanent Court of Arbitration in The Hague, hamper progress. And the United States’ military presence pours oil on the fire.

Fortunately, China and ASEAN have reconfirmed their commitment to a peaceful solution based on negotiations, and the Philippines’ newly elected president, Rodrigo Duterte, supports this approach. Both China and ASEAN recognise that cooperation, rather than confrontation, will lead to the best outcome in handling the dispute. Such an agreement could be based on consultation and negotiation, focusing on easing regional tensions and finding the best way to allocate resources.

The process of regional cooperation helps to build up a sense of community spirit and shared interests. One of the most important changes for East Asia is that the foundation of regional cooperation is now based on a multilayered structure ranging from bilateral to regional-level mechanisms, such as the ASEAN+3 and +6 frameworks and the East Asia Summit.

China has so far played an active role in promoting this kind of regional cooperation, showing that what a rising China wants is to build and reinforce the regional community — not a China-dominated ‘Middle Kingdom order’.

Zhang Yunling is Professor of International Economics and Director of International Studies of the Chinese Academy of Social Sciences.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Managing China’.

Singapore’s George Yeo on Trump, Xi and The Future of US-China Relations


Singapore’s George Yeo on Trump, Xi and  The Future of US-China Relations

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In a recent speech in Hong Kong, former Singapore foreign minister George Yeo gave an expansive view of US-China relations amid uncertainties about how President-elect Trump would handle the relationship. This is an edited version of his remarks.

The Chinese have no wish to play the US’ role in the world. The Chinese view is that you can be an Islamic theocracy, you can be a Sultan, you can be Salafi, that’s your problem so long as you don’t hurt me. If you hurt me, I may have to hurt you. But I have enough problems looking after my own family. How can I interfere in your family’s matters? I got enough headaches of my own.–George Yeo

Sino-US relations are probably the single most important set of relations in the world today, and they are complex.

We have on January 20, a new United States President. I think Mr Donald Trump has to be taken seriously, despite all the jokes made about him and some of his remarks.

So you get remarkable comments like that made by (Secretary of State nominee) Rex Tillerson that the US should prevent China from accessing what China takes to be her islands in the South China Sea – which must lead to war. I don’t think he’s that ignorant, or that unreasonable.

His remarkable achievement was not in defeating Hillary Clinton. It was in defeating a whole line of Republican candidates, many of whom were pretty credible. But one after another they were toppled, and that’s because he was able to plumb deep and tap upon a deep undertow of dissatisfaction and disaffection.

But that’s American politics. He has assembled an impressive group of people to help him. And right now they speak with divergent voices because they’ve got to clear US Senate approval and everyone has to play to the gallery.

So you get remarkable comments like that made by (Secretary of State nominee) Rex Tillerson that the US should prevent China from accessing what China takes to be her islands in the South China Sea – which must lead to war. I don’t think he’s that ignorant, or that unreasonable.

Donald J. TRUMP: Not be disregarded

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We do know that Mr Trump has certain deep instincts. He sees a lot of problems in American society. He wants to reinvigorate it. So trade has to be fair, in his mind. I’m not sure it’s going to help just by arm twisting automobile companies to manufacture in the US, because the global economy is much more complicated than that.

But it does win him applause from the gallery, and some things we must expect him to do for political reasons. As he himself has said, he’s from Wharton, so he can’t be stupid. And he’s not. To think that he is would be a serious miscalculation.

He says, ‘Look, we got to deregulate’. He wants to simplify the tax code and reduce the general level of taxation. He wants to revamp infrastructure in America, much of which has gone to disrepair. And that’s the right direction to go. He wants to control the borders better. Again, he may have made outrageous remarks, but the deep intention is, ‘We’ve got to have a handle on illegal immigration, and also to control conduits which may bring in radicals and terrorists’.

But there are two things which are troubling. One, it is easy to spend, it’s easy to reduce taxes, people would cheer you. But how do you cover the deficit?

The other area which is a bit troubling is what appears to be a very deep conflict between Mr Trump and the intelligence agencies. He has become very distrustful of them. And he takes a practical approach towards international security. Must we interfere in Syria? Was it right – Iraq, Libya, and the cornering of Russia? Maybe this is driving them into the arms of China. Does it make sense?

There are many people whose entire careers are formed on certain perspective and he’s challenging them. It’s important to get past the common criticisms against Mr Trump, quoting him against him, laughing at some of his inanities, and ignoring his deep purposes. I think it’s much more important to look at his deep purposes because he’s not a man to be disregarded.

XI Jinping: Restored Leadership Authority

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President Xi Jinping ,China’s Brilliant Internationalist and Global Networker–Do Business, Not Make War

On the Chinese side, President Xi Jinping has been absolutely remarkable. He could not have done what he did without (his predecessor) Hu Jintao refusing to stay on in the Central Military Commission for two years. His enemies already showed their hand before he took over.

So with the People’s Liberation Army (PLA) behind him, he cracked down on the internal security apparatus. Having subdued that quadrant, he turned back to tackle corruption within the PLA itself. And after that, he set about cleaning up the Communist Party Youth League. In less than four years, he has done much to restore the moral authority of China’s leadership.

China is a very unusual country. It has always been governed as an administrative state, one where all lines report to the emperor – for administration, for intelligence, for policing, for military matters, water control and so on. So they have developed a bureaucratic class of people, very smart people, who are rotated around, so that their loyalties are never to the provinces they come from, but to the centre.

When China’s core is healthy, the management, the governance of the country is a matter of administration, almost like a company. It’s logical – what are the problems, what are the needs, you draw a plan, you find the money, you have control measures, and you implement.

Today, it is the only major country which can exercise a national will. They have already built more high-speed rail infrastructure than the rest of the world combined. They want to double it. And 80 per cent of Chinese cities will be linked by fast rail. It’s completely transformed the sense of distance, on a continental scale.

And they’re now using big data for governance. If you read the Economist, it says it’s just a way of controlling the lives of individuals. Yes, it could also do that, for political control. But it is much more than that. What they are in fact doing is to use the revolution in IT to govern human society in a way which has never been done before.

And that is breathtaking. Using big data now, they are monitoring the health, of say, Peking University, or a province in China, or an ethnic group, or a generation of people. There are just too many Chinese for anybody to monitor individually. But they get a shape of what is healthy and what is not.

The Future of US-China Relations

Last July, RAND Corporation published a report called ‘War with China: Thinking through the unthinkable’. It said that if there’s a war today, the US would be bloodied but China would be pulverised.

In a war 10 years from now, however, the US will also be bloodied. There must be strategic thinkers who say, ‘Look, it’s better to fight now, better not to wait’. The Chinese know that, but they are saying: “Must we be in this Thucydides Trap, where big power relations are a zero sum game?” They say no. Prepare for the worst, but let’s work on a new pattern of big power relations.

The US fears that China will behave in the same way when it becomes the biggest economy on Earth. A clash then becomes inevitable, in the way that there was an inevitable clash between the US and the former Soviet Union.

But China is not like that. This is a civilisation which has deep instincts of its own past and of its own nature. And because of that, China will never harmonise with the rest of the world. Whether we’re talking about cyber space, cultural policy or capital markets, China will never harmonise with the rest of the world.

Yes, there will be normal traffic, but there’s always a semi-permeable membrane, which ensures that what is good gets in, and what is considered subversive cannot get in. And because it cannot harmonise with the rest of the world, for that is in the nature of the Chinese civilisation, a large part of the US’ worry about China is not justified.

The Chinese have no wish to play the US’ role in the world. The Chinese view is that you can be an Islamic theocracy, you can be a Sultan, you can be Salafi, that’s your problem so long as you don’t hurt me. If you hurt me, I may have to hurt you. But I have enough problems looking after my own family. How can I interfere in your family’s matters? I got enough headaches of my own.

So they take a very detached approach to the internal policies of other countries. The Western view is, ‘Hey this is amoral’. But does the West really want China to be a proselytising power, a missionary power? Because if it is, it’s going to purvey a different set of values. And this leads to an inevitable clash.

The Chinese are very serious when they talk about a new pattern of big power relations, though this has been pooh-poohed by many commentators. The problem is a lack of understanding about the nature of Chinese civilisation.

Many people say it’s just a matter of time before the renminbi will be internationalised. It’ll never be completely internationalised. Because if it’s completely internationalised, China will lose control of its own economy. I don’t believe anyone governing China would ever allow this loss of control over its own financial system.

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Jared Kushner and Henry Kissinger

So does Trump understand any of this? I don’t know. But he consults (former US Secretary of State Henry) Kissinger, and Kissinger understands. And I’ve been told that he has asked Kissinger to tutor Jared Kushner (the son-in-law and confidante of Mr Trump), which cheered me, because I think Kushner would play an important role within the inner circle. And if on the important issues he has regard for Kissinger’s views, then the risks would be managed.

If there’s a miscalculation, if there’s an escalating series of accidents which get out of control, and there’s a major conflict between China and the US, I think all of us here will have a miserable time. The injuries on both sides of the Pacific would be almost beyond imagination.

There is therefore a huge incentive for all of us, in ways small and big, to help build little bridges that promote understanding.

http://www.todayonline.com/commentary/trump-xi-and-shape-us-china-relations-come-george-yeo