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Rethinking the World Order

According to economic historian Angus Maddison, in the year 1820, the Chinese economy was the world’s largest, accounting for approximately 33% of global GDP. At the same time, India’s was half that, with 16%, and a youthful United States around 1.8%. Europe ranked second in this GDP league table with 26.6%. (Here’s a link to the 200-page OECD report. If you’re interested, see p.46)

19th century Canton (Guangdong). Image courtesy Wikimedia commons.

It was around this time that British opium traders began to export Indian-grown opium to China, an act, ostensibly in support of the principles of global free trade, that impoverished both India and China. The import of opium was illegal under Chinese law, but the fading Qing dynasty was unable to stop the smuggling, principally through Canton, or Guangdong as it is known today. In this period began what the Chinese now call “the century of humiliation” where they could not compete with superior western naval power and suffered internal fragmentation. In subsequent decades, China ceded territories to Germany, to Britain, to France and to Japan. One of the few happy results of these forced occupations is that China’s best beer, Tsingtao, comes from the Jiaozhou Bay area that was ceded to Germany. Tsingtao beer was listed as the world’s top-selling beer in 2017.

Guangzhou today. Image courtesy Wikipedia

Canton street view. Image courtesy Wikimedia commons

By 1952, the picture had changed dramatically. Europe’s share of world GDP was 29.3%, the US 27.5%. China’s GDP had dropped to 5.2% and India’s to 4%. Today, nearly 200 years after the first opium war, it looks as though China is resuming its old dominance, with close to 20% of world GDP; this time as a united country that willingly trades with other countries around the world. So, contrary to what is often written in the media, maybe China’s expanding global  influence is not really so threatening. From the Chinese perspective, they are merely returning to their rightful place in the international world order. Rightful place this may be, but the accompanying geopolitical shifts are worrisome to many countries, especially Asian ones. India now wears a necklace of potentially hostile naval bases in Bangladesh, in Sri Lanka, and in Pakistan, all built and financed by China. Until Duterte came to power, the Philippine leadership worried about Chinese occupation of the Spratly islands that are claimed by six countries: Vietnam, Taiwan, Malaysia, Philippines, Brunei. China has now pre-empted the discussion by building a military base there.

The increasingly authoritarian rule of supreme leader Xi Jinping does not bode well for China. Neither does the crackdown on Uighur ethnic minorities in Xinjiang, or independence movements in Taiwan and Tibet. Meanwhile, climate change looms over the entire world, so amidst rising prosperity in the region, there are tough geopolitical questions to be dealt with in every corner of it. So here’s a toast to some schoolgirl or boy who, unknown to the world today, will come to power and find answers to some of these questions in the decades ahead.

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A FRIWAFTT* essay about Hong Kong

This posting is a bit of a FRIWAFTT (as in fools rushing in…) about the ongoing standoff between the Occupy Central/Umbrella Revolution protests (dominated by young people) and the Hong Kong government (as a proxy for the Politburo Standing Committee of the Communist Party of China).

Economic newspapers over the past several years have pointed to the rising Gini coefficient of income distribution in China. Jonathan Kaiman, writing for the Guardian newspaper in July 2014 says that China’s “Gini coefficient, a widely used indicator of economic inequality, has grown sharply over the past two decades. A Gini coefficient of zero represents absolute equality, while one represents absolute inequality. About 20 years ago, China’s Gini coefficient for family net wealth was 0.45, according to the People’s Daily website, a Communist party mouthpiece, but by 2012 it had risen to 0.73.
According to some analysts, societies that have a Gini coefficient of more than 0.40 are at increased risk of widespread social unrest. Data from the OECD gives the US the highest Gini coefficient in the G7, after taxes and transfers, at 0.39, followed by the UK at 0.34 and Italy at 0.32.”

The website socialindicators.org.hk lists the Gini coefficients for Hong Kong in 1981 and in 2011 at 0.45 and 0.54 respectively. In 2012, the Chinese government refused to release the country’s Gini coefficient to the World Bank and the UN. Using data from six surveys conducted by five universities in China, University of Michigan sociologist Yu Xie estimates China’s Gini at around 0.55 in 2012, perhaps a more accurate figure than the 0.73 of the Guardian article cited above.

China’s leadership has proved to be extraordinarily astute and capable in walking the tightrope between managing its exploding economy and keeping a firm hold on political power in the years since Deng Xiaoping’s famous maxim “it doesn’t matter whether a cat is white or black as long as it catches mice.” From the point of view of the Chinese leadership, the Hong Kong protests could prove to be a heaven sent opportunity to experiment with ways to nudge the Gini downward on the island before attempting to repeat the exercise on the mainland. If this long-term positive scenario plays out, then one should expect more turbulence in Hong Kong over the short to medium term while the necessary political nudging and jostling takes place.

*The author applies the FRIWAFTT label (fool rushing in where angels fear to tread) to himself since he is neither an economist nor an expert on Hong Kong affairs, but merely an observer with strong opinions that one is thankfully free to express in Hong Kong.

https://www.amazon.com/author/aviott

Wake up, world. China is changing.

The recent pro-democracy protests in Hong Kong have undoubtedly triggered change in China, according to Han Dongfang, a 1989 Tiananmen activist who now works in Hong Kong as a radio commentator. Since the gist of my post today comes from articles by other authors, a few acknowledgements are in order. First of all, thanks to Larry Willmore and his “Thought du Jour” blog posting on Hong Kong, reproduced in full (text in italics) below.

Secondly, thanks to Joe Studwell for his sensible and measured op-ed, published in the Financial Times of 7th October, on where the focus of the protests should lie (What Hong Kong needs is not a strategy that backs Xi Jinping, the Chinese president, into a corner, but one that resonates with his own mindset. This is why the protesters should refocus on Hong Kong’s tycoon economy, and the anti-competitive, anti-consumer arrangements that define it.) Anyone interested in Hong Kong should read the whole editorial!

And third, thanks to Han Dongfang and Quartz digital magazine for “advice from a 1989 activist.”

http://qz.com/276244/advice-from-a-tiananmen-activist-to-hong-kong-it-is-time-to-seek-civilized-solutions/

You may think, like the Heritage Foundation [and Milton Friedman!], that Hong Kong is a free market. However, except for external trade, it is not. ….Cartels are everywhere in Hong Kong. Supermarkets are a duopoly, one whose pricing power allows the chains to charge higher prices for the same products in some of Hong Kong’s most deprived areas. Drug stores are a duopoly. Buses are a cartel: high-priced, mostly cash-only, running shoddy, dirty diesel vehicles with drivers who earn a pittance. Electricity is provided by two, expensive monopolies that handle everything from generation to distribution, one on Hong Kong island and the other in Kowloon. The container ports are an oligopoly, with the world’s highest handling charges. Yet they will not supply onshore electricity to vessels, which must instead run diesel generators that pollute the city air.Joe Studwell, “Hong Kong should focus its fight on the tycoon economy“, Financial Times, 7 October 2014 (ungated link).

Joe Studwell is a freelance journalist based in Cambridge (UK). His latest book is How Asia Works: Success and Failure in the World’s Most Dynamic Region(Grove Press, 2013). He blogs at joestudwell.wordpress.com/.

Mr Studwell writes from the political left, so overlooks two features of Hong Kong that illustrate the paucity of free markets. First nearly half the population lives in public housing. Second, anyone with a Hong Kong ID is eligible for subsidized medical care in public facilities. There are 41 hospitals and 122 outpatient clinics run by the government’s Hospital Authority (HA), but only 13 private hospitals.

https://www.amazon.com/author/aviott

Echoes of a Million Mutinies: Hong Kong Day 5

VS Naipaul, in his prescient book, A Million Mutinies Now, published in 1990, painted a pointillist portrait of India, a country on the brink of an economic revolution. In it, he described the lives of scores of people from all walks of life; high and low, peasants and urban sophisticates, politicians and professionals. Based on these interviews,  he showed a multi-hued society on the cusp of economic revolution. The economic revolution did come to pass in India, and is still taking place, with periodic stutters caused by many of the factors he mentions in his book; religion, caste, corruption, gender bias, or ethnic and linguistic divides.

Meanwhile China has raced ahead economically, leaving its equally populous Asian rival in the dust and smog of its success. Some political theorists surmise that democratic institutions are a natural outgrowth of economic prosperity. If so, China is ripe for the emergence of democratic institutions, nowhere more so than in Hong Kong, which has several decades of stellar growth rates and high living standards behind it. The generation of young people leading the sit-ins have grown up in a prosperous country with unrestricted freedom to travel. They have seen the world and now are impatient with the Chinese Communist Party’s attempt to dictate terms of the “One Country, Two Systems” policy promised by Deng Xiaoping in the early 1980s. Under this principle, there would be only one China, but distinct regions such as Hong Kong, Macau and Taiwan could continue with their own capitalistic and political systems while the rest of China used the socialist system. Walking through some of the barricaded streets of Hong Kong on October 2nd, day 5 of the “Occupy Central” movement (now also called the Umbrella Revolution because of the wall of unfurled umbrellas that were used to deflect the pepper spray that police initially used against the strikers), I was reminded by posters telling protesters to stay calm and avoid violence, that today was Gandhi’s birthday.

Recycling: part of Hong Kong's revolution

Recycling: part of Hong Kong’s revolution

Recycling: part of Hong Kong's revolution

Recycling: part of Hong Kong’s revolution

CY Leung is the head of the governing Legislative Council...

CY Leung is the head of the governing Legislative Council…

Two busloads of armed and uniformed policemen arrived in unmarked buses while we were passing by the police headquarters on Lockhart Road. At the nearby Legislative Council complex, the path was barred by a a solid phalanx of policemen behind barriers. A crowd of people stood opposite the barriers, and waited and watched, continuing their vigil. The atmosphere was very calm, with a few anxious faces in the crowd. A man walked around handing out surgical filter masks in anticipation of possible police action. Some young people sat cross-legged on tarpaulins, mats or flattened cartons, chatting in groups, reading or simply resting. A father squatted beside his son, visibly proud, arm around the boy’s shoulders, deep in conversation. A family sat together sharing a picnic. One girl was obviously immersed in her homework. Jason Ng, a Hong-Kong born lawyer, writer, pro-democracy activist and blogger, spent several hours after work helping students with their homework. Jason writes: There is a renewed sense of neighborhood in Hong Kong, something we haven’t seen since the city transformed from a cottage industry economy to a gleaming financial center…. This is the Hong Kong I grew up in. See his blog at http://www.asiseeithk.com/ for more of his posts and in-depth accounts.

Larger crowds today, probably on account of the holiday.

Larger crowds today, probably on account of the holiday.

It was a sultry afternoon. A young man and woman walked past us in opposite directions, spraying people with a welcome cooling mist of water from pump spray flasks. A knot of people stood in front of the Hong Kong Shanghai Bank Corporation, listening to a young man dressed in black T-shirt and trousers speak passionately in Cantonese. Most of the listeners were older, his parents’ generation, and they heard him speak with avid interest. One old man stood beside him eyes squeezed tightly shut to suppress tears, his mouth twisted in a grimace of pain.

We got home at 8 in the evening, moved by what we had seen, and wondering where all this would end. On the news, the Communist Party was making threatening noises, in typical fashion blaming foreigners for fomenting what is very clearly a home-grown protest. I searched for literature that documents societies moving from dictatorship to democracy and found this deeply insightful paper by former Harvard professor Gene Sharp. Here is the link.

http://www.iran.org/humanrights/FromDictatorship.pdf

The most important insight I gained from a quick reading of the above paper is Sharp’s idea of permission, where he explains that for a dictatorship to work, large segments of the population must give tacit permission for this to happen. What we are seeing in Hong Kong these days is the withdrawal of this permission to dictate. I wish for millions to support this courageous and peaceful protest in Hong Kong.

Meanwhile, a Black-capped Lori feeds undisturbed in the nearby Edward Youde Aviary

Meanwhile, a Black-capped Lori feeds undisturbed in the nearby Edward Youde Aviary

https://www.amazon.com/author/aviott

Hong Kong, Occupy Central: Day 3

This is a remarkable revolution and although there are a few older leaders associated with the movement, the overwhelming impression on the streets is of a protest organized and led by the young, mostly students in their teens and early twenties. They are all polite, disciplined and determined. Meanwhile, many of the older generation, the parents and grandparents of the youth on the streets, remember the wrath of Beijing in 1989 at Tiananmen Square, and tremble at home in fear. On Day 2 of the demonstration, a remarkable thing happened. The police over-reacted to the peaceful demonstrators and tried to clear the field using tear gas and pepper spray against the young people. Within hours, many of these cautious older people were out on the streets, protesting the use of force against their children.

I spoke to a well-dressed young woman, who was among the demonstrators. She said she left her office from time to time during the working day and joined the crowds for an hour or two in a gesture of solidarity. A few companies apparently gave their employees tacit approval to join in the demonstrations if they wished instead of coming to work.

Food and water stockpiled, and trash collected by volunteers

Food and water stockpiled, and trash collected by volunteers

20140930_121958

Protests at the gates of the Legislative Council

Protests at the gates of the Legislative Council

Let’s hope for all our sakes that the people calling the shots in Beijing, the President and members of the State Council, do not follow in the footsteps of their predecessors in 1989.

https://www.amazon.com/author/aviott