Cherry-picking the TPPA

November 25, 2015

Cherry-picking the TPPA

by Tan Siok Choo

Dato Mustapha Mohamed

Malaysia is fortunate that TPPA negotiations were led by International Trade and Industry Minister Datuk Seri Mustapa Mohamad – one of a handful of ministers who are intellectually competent, diligent and who are intellectually competent, diligent and without a whisper of corruption.-Tan Siok Choo

CONCLUDED on October 6 this year, the Trans-Pacific Partnership Agreement (TPPA) promises to usher in a new era of free trade among 12 countries that collectively contribute 40% of the world’s gross domestic product (GDP).

These countries include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, the United States and Vietnam.

TPPA signatories have promised to cut or eliminate 18,000 tariffs on a vast number of goods and services. Tariffs ranging from 2% to 11% will be abolished for Malaysian made exports including wood products, palm oil, rubber, car spare parts as well as electrical and electronic goods.

Services covered include information and communication technology, retailing, entertainment, electronic payments systems and software.

Comprising 4,500 pages and 30 chapters while weighing a hefty 100 pounds, the TPPA offers thousands of issues for proponents and opponents to cherry pick.

Malaysia is fortunate that TPPA negotiations were led by International Trade and Industry Minister Datuk Seri Mustapa Mohamad – one of a handful of ministers who are intellectually competent, diligent and without a whisper of corruption.

Mustapa announced MPs will debate and vote on the TPPA at a special sitting of the Dewan Rakyat in January 2016.

Underscoring the remote possibility the TPPA will be rejected, the first reading of Budget 2016 last Monday received 128 votes in favour, 74 against and seven abstentions by PAS members of Parliament.

Two PAS MPs weren’t present in the Dewan Rakyat, three PAS MPs voted against Budget 2016 while suspended DAP MP Lim Kit Siang was unable to vote.

Could dislike for some TPPA clauses prompt BN MPs to risk giving the opposition a victory on this issue? This is unlikely. Mustapa succeeded in ensuring bumiputras, small and medium enterprises and those from Sabah and Sarawak will continue to be preferential suppliers for up to 40% of state-owned enterprises’ (SOE’s) annual purchases.

SOEs include Permodalan Nasional, Tabung Haji and MARA.Similarly, Petronas can continue to give priority to Malaysian enterprises to supply goods and services up to 70% of its annual budget for upstream businesses in the first year of the TPPA and scaled down progressively to 40% in the 6th year of the trade pact.

A major contentious issue in the TPPA is pharmaceuticals. Leading generic medicine manufacturer Mylan has warned it would be prohibited from doing business in TPPA member countries. By disallowing generic drugs, the TPPA could keep prices of drugs in this country higher for a longer period until patents expire.

Malaysian AIDS Council’s policy manager Fifa Rahman said a 12-week treatment for Hepatitis C using the generic version of Sofosbuvir costs RM750.06 to RM1,579.07 compared with an exorbitant RM357,000.


Writing in The Malaysian Insider, Joseph Stiglitz, a Nobel laureate in economics, and Adam Hersh, senior economist at the Roosevelt Institute, said economists at the UN Conference on Trade and Development have forecast joining TPPA would make Malaysia a net loser because its trade balance would fall by US$17 billion annually.

Sectors that would be hurt by the TPPA include iron and steel, aluminium, mineral fuels, plastics and rubber, Stiglitz and Hersh say.

Challenging the belief that intellectual property rights promote research, Stiglitz and Hersh noted after the US Supreme Court invalidated Myriad’s patent on the BRCA gene, a burst of innovation resulted in better tests at lower costs.

Another controversy is the investor-state dispute settlement (ISDS) system. Using arbitration to settle disputes rather than the courts, foreign investors will have new rights to sue governments for instituting regulations that diminish investors’ profits.

Instead of forcing manufacturers of harmful products like asbestos to shut down and compensate their victims, the ISDS could hit taxpayers twice – paying for the illnesses caused and compensating manufacturers for their lost profits, Stiglitz and Hersh argue.

Although tariffs will be abolished for Malaysia’s major exports like electrical and electronic products, will Malaysians be the biggest beneficiaries in a sector dominated by US and Japanese multinationals?

For products like palm oil, the campaign alleging plantation companies destroy the habitat of orang utans is a bigger barrier than high tariffs.

Hopes the TPPA will reduce corruption could be stymied by Malaysia’s high threshold exempting construction companies from competitive bidding for five years for contracts valued under 63 million Special Drawing Rights (SDRs) or RM374 million. After 21 years, the threshold will decline to a still hefty SDR14 million (RM80 million).

Kelana Jaya MP Wong Chen noted other TPPA countries accepted a much lower threshold of 5 million SDRs (RM30 million); only Vietnam’s threshold of SDR 65.2 million (RM387 million) is higher than Malaysia’s.

In summary, TPPA’s benefits must be spelt out in greater detail and more convincingly.

Opinions expressed in this article are the personal views of the writer and should not be attributed to any organisation she is connected with. She can be contacted at

The Rights and Wrongs of the Dismal Science

November 22, 2015

NY Times Sunday Book Review

The Rights and Wrongs of the Dismal Science

by David Leonhardt*

ChicagonomicsHe believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich — who suffer from “indolence and vanity” — to help the poor.

Which leftist economist was this? None other than Adam Smith, the inventor of the “invisible hand” and the icon of ­laissez-faire economics today. Smith’s modern reputation is a caricature. He was a giant of the Enlightenment in large part because he was a careful and nuanced thinker. He certainly believed that a market economy was a powerful force for good. The exchange of goods and services, as he explained, could lift living standards and free 18th-century Europeans from the tight strictures of tradition and government. Yet he did not have a religious faith in the market. Smith was a classical liberal, in the European sense of the word, who emphasized the essential equality among human beings.

Lanny Ebenstein’s mission, in “Chicagonomics,” is to rescue not only Smith from his caricature but also some of Smith’s modern-day acolytes: the economists who built the so-called Chicago school of economics, chief among them Milton ­Friedman. From their home base at the University of Chicago, these economists became influential around the world. They provided much of the intellectual ballast for the free-market revolution of the late 20th century. They advised Ronald Reagan and Margaret Thatcher, became gurus to reformers in post-Communist Eastern Europe and elsewhere and inspired others in China, India and the rest of Asia.

Milton Friedman

As the list of their protégés makes clear, Friedman and his allies were politically conservative, pushing against state control of industry much as Smith had. But Ebenstein argues that the message of the Chicago school has nonetheless been perverted in recent years. Many members of the Chicago school subscribed to “classical liberalism,” in Ebenstein’s preferred term, rather than “contemporary libertarianism.” Classical liberalism manages to grasp two different ideas: The state’s economic role can — and often has — ­become too large, but that does not mean its role should be as small as possible. Indeed, the state can become marginalized to the point of undermining the larger goals that Smith, Friedman and others championed, including freedom, prosperity and equality.

Ebenstein, the son of a political scientist who taught briefly at the University of Chicago, has written 10 books on economic and political history, including biographies of Milton Friedman and Friedrich Hayek. With this book, he joins a group of detractors of modern-day American conservatism who are sympathetic to many of the ideas of conservatism but harshly critical of how it is now practiced.

“Contemporary libertarianism too often denotes cranky obscurantism, intolerance, irrelevance and, frankly, poor scholarship and the manipulation of data, although these are not always the case or unique to it,” he writes. “There is no reason to compromise on anything. They are utopians working toward and often living in a mythical land, ‘Libertania.’ ” Anyone who watched the House Republicans devour their own leaders — and prevent Congress from functioning — will recognize the description.

The radicalization and nihilism of much of modern American conservatism is worrisome for many reasons, not least the important role that actual conservatism has played in recent decades and could play today. Friedman, after all, was a deeply creative thinker who shaped numerous policy successes, as did many of his brethren. (Although, Ebenstein notes, Friedman himself tilted toward zealotry in his later years.) The rise of market economies in Asia has led to perhaps the most rapid and widespread decline in poverty in human history. Friedman also argued for the end to the military draft, for flexible currency exchange rates and for a negative income tax to combat poverty, which became the earned-income tax credit.

Dani RodrikDani Rodrik, a Harvard economics professor, has written a much less political book than Ebenstein has, titled “Economics Rules,” in which he sets out to explain the discipline to outsiders (and does a nice job). Yet in surveying the larger “rights and wrongs” of economics, to quote his subtitle, Rodrik has diagnosed the central mistake that contemporary libertarians have made: They have conflated ideas that often make sense with those that always make sense.

Some of this confusion is deliberate. By pushing for less government, regardless of the situation, contemporary libertarians act as a kind of lobbyist working on behalf of the affluent. Less government tends to mean lower taxes for the people with the most money to lose to taxes. Less government also means cuts to schools, and health-insurance and retirement programs on which the affluent do not depend.

But not all of the analytical errors of libertarianism are so cynical. Some stem from the honest intellectual mistake of confusing a good idea with the good idea. Because Rodrik’s focus is economics, he frames this mistake in terms of theoretical models, which are a central tool of both social science and natural science. Rodrik compares them, somewhat impishly, to fables, but he means the comparison as a compliment to both.

“What are economic models?” he asks. “The easiest way to understand them is as simplifications designed to show how specific mechanisms work by isolating them from other, confounding effects. A model focuses on particular causes and seeks to show how they work their effects through the system.” A fable, similarly, trades complexity and comprehensiveness for a clear but still true lesson.

The trouble comes when economists — and the rest of us — try to make such a lesson universal. Universality has its place in the physical sciences but rarely in the social sciences. “We cannot look to economics for universal explanations or prescriptions that apply regardless of context,” Rodrik writes. “The possibilities of social life are too diverse to be squeezed into unique frameworks.”

The lure of universality is not a uniquely right-wing phenomenon, of course. The left and center suffer from it, too. Liberals, for instance, can slip from believing that government is often necessary into believing that it is inherently effective — and defend public schools and anti-poverty programs that ill serve the poor. Centrists sometimes leap from the reasonable judgment that neither political party has a monopoly on the truth to the unreasonable one that the truth on any one issue lies roughly halfway between the extremes.

That last point has a particular relevance to modern American politics, and to the problems Ebenstein describes. While all political ideologies (not to mention all human beings) are susceptible to over learning a lesson, the damages from that mistake come mostly from the right half of the spectrum in the United States today. The political right has spent five years wrongly predicting hyperinflation and, in the process, kept the federal government from doing more to combat unemployment. There are similar stories about climate policy, tax policy, health care and even voting rights and voter fraud.

Reducing complex issues to their essence is unavoidable. The alternative is an often paralyzing level of detail. Rodrik cites a story by the Argentine writer Jorge Luis Borges, “On Exactitude in Science,” about a mythical empire in which the mapmakers could not tolerate any oversimplification.

Ultimately, they created a map as large as the empire itself, which is no more useful than a map consisting of a single tiny dot — or an economic philosophy that offers only one answer, no matter the question. As Rodrik says, quoting an adage often attributed to Einstein, “Everything should be made as simple as possible, but no simpler.”

*David Leonhardt, a writer and editor at The Times, previously wrote the paper’s Economic Scene column.

A version of this review appears in print on November 22, 2015, on page BR25 of the Sunday Book Review with the headline: Market Correction.

The Fed’s Mixed Signals

November 8, 2015

The Fed’s Mixed Signals

by Kenneth Rogoff

Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is This Time is Different: Eight Centuries of Financial Folly.

Nothing describes the United States Federal Reserve’s current communication policy better than the old saying that a camel is a horse designed by committee. Various members of the Fed’s policy-setting Federal Open Markets Committee (FOMC) have called the decision to keep the base rate unchanged “data-dependent.” That sounds helpful until you realize that each of them seems to have a different interpretation of “data-dependent,” to the point that its meaning seems to be “gut personal instinct.”


In other words, the Fed’s communication strategy is a mess, and cleaning it up is far more important than the exact timing of the FOMC’s decision to exit near-zero interest rates. After all, even after the Fed does finally make the “gigantic” leap from an effective federal funds rate of 0.13% (where it is now) to 0.25% (where is likely headed soon), the market will still want to know what the strategy is after that. And I fear that we will continue to have no idea.

To be fair, deciding what to do is a very tough call, and economists are deeply divided on the matter. The International Monetary Fund has weighed in forcefully, calling on the Fed to wait longer before raising rates. And yet central bankers in the very emerging markets that the IMF is supposedly protecting have been sending an equally forceful message: Get on with it; the uncertainty is killing us.

Personally, I would probably err on the side of waiting longer and accept the very high risk that, when inflation does rise, it will do so briskly, requiring a steeper path of interest-rate hikes later. But if the Fed goes that route, it needs to say clearly that it is deliberately risking an inflation overshoot. The case for waiting is that we really have no idea of what the equilibrium real (inflation-adjusted) policy interest rate is right now, and as such, need a clear signal on price growth before moving.

But only a foaming polemicist would deny that there is also a case for hiking rates sooner, as long as the Fed doesn’t throw random noise into the market by continuing to send spectacularly mixed signals about its beliefs and objectives. After all, the US economy is at or near full employment, and domestic demand is growing solidly.

While the Fed tries to look past transitory fluctuations in commodity prices, it will be hard to ignore rising consumer inflation as the huge drop of the past year – particularly in energy prices – stabilizes or even reverses. Indeed, any standard decision rule used by central banks by now dictates that a hike is long overdue.

But let’s not make the basic mistake of equating “higher interest rate” with “high interest.” To say that 0.25%, or even 1%, is high in this environment is pure hyperbole. And while one shouldn’t overstate the risks of sustained ultra-low rates to financial stability, it is also wrong to dismiss them entirely.

With the decision about raising rates such a close call, one would think that the Fed would be inclined to do it this year, given that the chair and vice chair have pretty much told the market for months that this will happen. The real reason for not hiking by the end of the year is public relations.

Let’s suppose the Fed raises interest rates to 0.25 basis points at its December meeting, trying its best to send a soothing message to markets. The most likely outcome is that all will be fine, and the Fed doesn’t really care if a modest equity-price correction ensues. No, the real risk is that, if the Fed starts hiking, it will be blamed for absolutely every bad thing that happens in the economy for the next six months to a year, which will happen to coincide with the heart of a US presidential election campaign. One small hike and the Fed owns every bad outcome, no matter what the real cause.

The Fed of course understands that pretty much everyone dislikes interest-rate hikes and almost always likes rate cuts. Any central banker will tell you that he or she gets 99 requests for interest-rate cuts for every request for a hike, almost regardless of the situation. The best defense against these pressures is to operate according to utterly unambiguous criteria. Instead, however good its intentions, the net effect of too much Fed speak has been vagueness and uncertainty.

So what should the Fed do? My choice would be to have it explain the case for waiting more forthrightly: “Getting off the zero bound is hard, we want to see inflation over 3% to be absolutely sure, and then we will move with reasonable speed to normalize.” But I also could live with, “We are worried that if we wait too long, we will have to tighten too hard and too fast.”

Throwing out the rulebook made sense in the aftermath of the 2008 financial crisis. It doesn’t anymore. And today’s lack of clarity has become a major contributor to market volatility – the last place the Fed should want to be.

It’s wrong to vilify the Fed for hiking, and it’s wrong to vilify it for not hiking; if it is such a close call, it probably doesn’t matter so much. But, at this critical point, it is fair to ask the Fed for a much clearer message about what its strategy is, and what this implies for the future. If Fed Chair Janet Yellen has to assert her will over the FOMC for a while, so be it. Somebody on the committee has to lead the camel to water.

Politics is a danger to good data…

November 4, 2015

Politics is a danger to good data, but…

by Angus Deaton
The word data means things that are “given”: baseline truths, not things that are manufactured, invented, tailored or spun. Especially not by politics or politicians. Yet this absolutist view can be a poor guide to using the numbers well. Statistics are far from politics-free; indeed, politics is encoded in their genes.–Angus Deaton–2015 Nobel Prize In Economics Awardee
Angus Deacon- PU

The word data means things that are “given”: baseline truths, not things that are manufactured, invented, tailored or spun. Especially not by politics or politicians. Yet this absolutist view can be a poor guide to using the numbers well. Statistics are far from politics-free; indeed, politics is encoded in their genes.

This is ultimately a good thing.We like to deal with facts, not factoids. We are scandalised when politicians try to censor numbers or twist them, and most statistical offices have protocols designed to prevent such abuse. Headline statistics often seem simple but typically have many moving parts. A clock has two hands and 12 numerals yet underneath there may be thousands of springs, cogs and wheels.

Politics is not only about telling the time, or whether the clock is slow or fast, but also about how to design the cogs and wheels. Down in the works, even where the decisions are delegated to bureaucrats and statisticians, there is room for politics to masquerade as science. A veneer of apolitical objectivity can be an effective disguise for a political programme.

Just occasionally, however, the mask drops and the design of the cogs and wheels moves into the glare of frontline politics. Consumer price indexes are leading examples of this. Britain’s first consumer price index was based on spending patterns from 1904. Long before the second world war, these weights were grotesquely outdated. During the war, the cabinet was worried about a wage-price spiral and the Treasury committed to hold the now-irrelevant index below the astonishingly precise value of 201.5 (1914=100) through a policy of food subsidies.

It would, for example, respond to an increase in the price of eggs by lowering the price of sugar. Reform of the index would have jeopardised the government’s ability to control it and was too politically risky. The index was not updated until 1947.

In the US, the poverty line was set by multiplying by three the cost of a basket of recommended foods, with the science of food and nutrition heavily invoked. Yet this too was essentially a cover for a line that had been determined before the scientists were sent out to construct the cloak of objectivity.

Last year was the 50th anniversary of the subsequent war on poverty, declared by the administration of President Lyndon Johnson. According to official measures, there has been little progress. In 1988, President Ronald Reagan said: “The federal government declared war on poverty and poverty won.” Yet, if the US consumer price index is “corrected” as recommended by the Boskin Commission in 1996 — which argued that quality improvements were being understated — real incomes rise more rapidly, and poverty goes down. Poverty lost after all.

The same is true if we use not the consumer price index but the implicit price deflator of consumption in the national accounts. When important conclusions depend on details of price index construction, there is no check on arguments according to political prejudice.

For global data on poverty or hunger, there is no state; no one’s well-being depends on the numbers

These examples show the role of politics needs to be understood, and built in to any careful interpretation of the data. We must always work from multiple sources, and look deep into the cogs and wheels. James Scott, the political scientist, noted that statistics are how the state sees. The state decides what it needs to see and how to see it. That politics infuses every part of this is a testament to the importance of the numbers; lives depend on what they show.

For global poverty or hunger statistics, there is no state and no one’s material well-being depends on them. Politicians are less likely to interfere with such data, but this also removes a vital source of monitoring and accountability. Politics is a danger to good data; but without politics data are unlikely to be good, or at least not for long.

The writer is a professor at Princeton University and winner of the 2015 Nobel Prize in economics

Copyright The Financial Times Limited 2015.

Economics: Paul Krugman and Larry Summers on secular stagnation and demand

November 3, 2015

Economics: Paul Krugman and Larry Summers on secular stagnation and demand

by Larry Summers

Larry Summers

Paul Krugman suggests that I have had some kind of change of heart on secular stagnation and converged towards his point of view, citing the publication of the transcript of a 2011 debate that we both participated in. I certainly appreciate the gravity of the secular stagnation issue more than I did a few years ago, given the continuing decline in global real interest rates. But I think Paul exaggerates the change in my views considerably.

(Full transcript available here).

The topic of the debate was: “North America faces a Japan style era of high unemployment and low growth”. Paul argued in favour. I opposed the motion — not on the grounds that the US economy was in good shape, but on the grounds that our demand deficiency problems should be easier to solve than Japan’s.

Quoting from my response to Paul’s arguments:

You’re right the United States has a serious demand deficiency. You’re right that not enough is being done to contain that demand deficiency. You’re right that we will suffer needless unemployment and stagnation until more is done to address that demand deficiency… My thesis is that as serious as that problem is, it is dimensionally much less than the problems that Japan faced in four respects. Japan’s problems were different in magnitude, different in the depth of their structural roots, different in the relative perspective they had — relative to the rest of the world — and different in the degree of resilience their system had for adapting to them…

…It will take time. There are steps that need to be taken but we are a society that works. We are a society whose principal problems — we all up here agree — can be addressed by a change in the printing of money and the creation of infrastructure.”

Paul responded in part by saying:

The question is, are we going to be stuck in a state of depressed demand of the kind that Larry has talked about. Larry and I agree that that is what has been happening… I think Larry and I agree almost entirely on the economics, on what needs to be done.”

I think we have both been focused on demand and the liquidity trap for a long time. There are, though, two areas where I have had somewhat different views from Paul. I believe that  structural issues are often important for demand and growth. I have often asserted that “business confidence is the cheapest form of stimulus,” and quoted to President Barack Obama Keynes’s famous 1938 letter to Roosevelt:

“Businessmen … are … at the same time allured and terrified by the glare of publicity, easily persuaded to be ‘patriots’, perplexed, bemused, indeed terrified, yet only too anxious to take a cheerful view, vain perhaps but very unsure of themselves, pathetically responsive to a kind word. You could do anything you liked with them, if you would treat  them (even the big ones), not as wolves or tigers, but as domestic animals by nature, even though they have been badly brought up and not trained as you would wish… If you work them into the surly, obstinate, terrified mood, of which domestic animals, wrongly handled, are so capable, the nation’s burdens will not get carried to market; and in the end public opinion will veer their way.”

Second, I have never related well to Paul’s celebrated liquidity trap analysis. It has always seemed to me be a classic example of economists’ tendency to “assume a can opener”. Paul studies an economy in liquidity trap that will, by deus ex machina, be lifted out at some point in the future. He makes the point that if you assume sufficiently inflationary policy after this point, you can drive ex ante real rates down enough to stimulate the economy even before the deus ex machina moment.

This is true and an important insight. But it seems to elide the main issue. Where is the deus ex machina? Where is the can opener? The essence of the secular stagnation and hysteresis ideas that I have been pushing is that there is no assurance that capitalist economies, when plunged into downturn, will over any interval revert to what had been normal. Understanding this phenomenon and responding to it seems the central challenge for macroeconomics in this era.

P Krugman

Any analysis that assumes restoration of previous equilibrium is, from this perspective, missing the main issue. I was glad to see Paul recognise this point recently. I suspect it will lead to more emphasis on fiscal rather than monetary actions in depressed economies.… 11/2/2015

Putting Economics First

October 26, 2015

Putting Economics First

by Bunn Nagara

Xi  and Mrs Xi visit the Queen and The Duke of EdinburghDespite Britain’s role as the closest US ally, its leaders have surprised the world by surging forward in relations with a rising China.

FOR centuries, relations between Britain and China have been undulating, rising rather more than declining. In that time, Britain has been more ­anxious to penetrate Chinese markets and forage for what China has to offer than the other way round.

The super-gala treatment that President Xi Jinping and Mrs Xi received in London ­during the week was not necessary to prove the point, but it helps. There was Xi, royally seated next to the Queen, in the gold-trimmed horse-drawn royal carriage parading through London and shown on television screens around the world.

 The visiting presidential couple also lodged at Buckingham Palace, the Queen’s official residence, during their trip. Clearly, this was no ordinary state visit.

The Queen called the visit “a defining moment”, Prime Minister David Cameron called it “a golden era”, and Chancellor of the Exchequer George Osborne called it “a golden decade” for their bilateral relations.

An array of gilded items were spread among the vast gilt-edged dining chairs for Xi and his host, the Lord Mayor of London, at the second banquet after the Queen’s.

Gold, the auspicious colour in Chinese culture, went well with the red of the carpet and the Chinese flag.And Britain was only too happy to oblige.

This was Xi’s first state visit, coming a full decade after his predecessor’s, Hu Jintao’s. But British leaders had been somewhat more proactive.

Only a few years ago, hiccups in relations occurred after British officials stumbled over such sensitive issues for China as the Dalai Lama. After the ruffles were smoothed over came the slew of mega business deals.

Britain wanted to ensure those deals were on and Xi’s state visit would seal them, so Osborne was dispatched to Beijing last month. To make doubly sure he made a side trip to Xinjiang, the alleged epicentre of China’s human rights violations, to talk trade rather than human rights.

China critics condemned that move. But it paid off for Britain in Xi’s high-powered four-day visit and all that it represented and contained.

On Tuesday, China’s Central Bank issued its first offshore renminbi bond in London. On the same day, Cameron appointed Chinese tycoon Jack Ma to his business advisory group. The next day, deals were signed amounting to £40bil (RM260bil), generating nearly 4,000 jobs in Britain. And this was only the beginning.

Critics tend to underrate the importance of business success for both Britain and China. They are perhaps the most enduring of the world’s major trading nations, Britain historically and China in the past and the future.

Even before becoming “the workshop of the world”, Britain had embarked on a glo­bal empire that would span centuries. It lost its sparkle after the Second World War and decolonisation.

British interest in East Asia had centred on China, particularly trade with China. Even its presence in Borneo – Brunei, Sabah (British North Borneo) and Sarawak – were only as a staging post for trade with China on sailing ships and steamships.

The British phrase “not even for all the tea in China” is a measure of one’s resistance to temptation. And tea was only one of many traded items from China.

With the colonial period, parts of China were tugged and torn by European, Russian, US and Japanese imperial powers. China fought and lost two “opium wars” and suffered unequal relations with Britain.

Then they agreed on the return of Hong Kong to China in 1997. But even decades before that date, the buzz in Britain was what would happen to Hong Kong after the “handover”.

Hong Kong had long been known as the world’s classic capitalist enclave, while in the 1990s the West still regarded China as a communist state.

Hong Kong was in quiet panic, as celebrities and stars worried what would happen to them and their work under communist rule.

Many contemplating migration purchased homes abroad from Vancouver to Kuala Lumpur. Jackie Chan bought a luxury condominium in Damansara Heights.At the time, an Englishman from off the streets in central England put that crucial question to me: What would happen after China “takes over” Hong Kong? I replied that Hong Kong would instead take over China in many ways that mattered. Soon after 1997, Deng Xiaoping’s credo of “it’s glorious to be rich” was abundantly clear throughout the land, often excessively so.

In time, anxieties over the handover were soothed, and it ceased to be an international issue. After moving to the United States and working in Hollywood, Chan returned to Hong Kong and even began work in China itself. His trajectory has been instructive and symbolic. So his presence as an invited guest at a reception for Xi in London’s Lancaster House on Wednesday evening said it all.

While London and Beijing are only too happy to see their relations on the upswing again, their critics have been at work. They have called Britain’s grand welcome for Xi fawning and embarrassingly servile.

Western criticism comes from two broad angles: the US and Europe. Both are not without their own self-interests.

In the European Union, Germany has been an early and the most extensive investor in China. Then earlier this year, Britain stole a march on all other Western countries by signing up as an early co-founding member of the China-led Asian Infrastructure Investment Bank (AIIB). After that, other US allies joined in: several EU countries including Germany, as well as Australia, New Zealand and Singapore. The US, which tried hard to stop the trend, had only Japan and Canada as recalcitrant holdouts for company.

Many Western and pro-Western countries are happy enough to do business with China in the lead, in the process helping China grow. This is despite strategic thinkers knowing that the AIIB is also a means for extending China’s reach through Central Asia and Russia to the West.

This takes the form of the infrastructure-­heavy Maritime Silk Road and the One Belt, One Road projects offering connectivity between East Asia and Europe. They possess both economic and strategic advantages.

US critics of Britain’s close partnership with China have something of an identity crisis. They have a long list of complaints against Beijing, yet they cannot stop their own corporations doing increasing business with China.

Worse still, the glittering welcome accorded to President and Mrs Xi in London compares too favourably with the one in Washington just weeks before.

Beyond some formal diplomatic niceties, President Obama reportedly threatened to impose sanctions on China. He also remains committed to the largely military “rebalancing” in China’s backyard, while keeping China at bay with the Trans-Pacific Partnership proposal dividing East Asia.

Whether the British or US approach to working with China is better, and for whom, also depends much on which is more enduring. Britain had presided over a global empire for centuries. China, a global superpower before, has millennia of experience to draw on.

Both countries share the approach of making trade their primary purpose, with any political or military posture being secondary to protect those economic interests.

The US in contrast opts for a forward military posture abroad, with any economic interest secondary by comparison. And despite Pax Americana being only 70 years old, it is already showing signs of wear.

Bunn Nagara is a Senior Fellow at the Institute of Strategic and International Studies (ISIS) Malaysia.