China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

China and the U.S. election

November 3, 2020

During my many visits to China I used to get the impression that the Chinese mostly looked at the U.S. with mixed feelings – feelings that also included some kind of admiration. The American dream of developing from a poor origin to a wealthy person attracted many Chinese on micro levels. Some kind of capitalist socialism or vice versa was born in the 1990s.

Politically, China and the U.S. kept quite some distance in the new millennium all the same. Tensions continued during Bill Clinton’s presidency but his support for China’s entry into the WTO in 2001 was appreciated. This move turned out to be the main driver for China’s rise to become the largest economy in the world (in terms of total GDP and PPP), together with the simultaneously ongoing globalization. President Obama’s relations to China had a number of ups and downs as well. President Trump, finally, could be increasingly regarded as an opponent to China during the past four years.

In 1997, professor David Shambaugh wrote in Current History (September) that “China and the United States are likely to be the dominant world powers in the twenty-first century. It is imperative that these two continental giants learn to live and work together productively and cooperatively”. Altogether, the conclusion above on the two leading world powers turned out to be right – but the recommendation of working together did not really come true, particularly not in the past four years. Biden could make some difference – but probably not in a significant manner.

The Trump years of 2017-2021 – and now?

President Trumps leitmotiv of “America first” did quite some harm to China, the global economy and also to the U.S. itself, particularly due to the revival of protectionism. This is certainly a bad development. But what do the Chinese themselves feel about today’s election?

Despite many unfriendly words from the Trump-administration, the Chinese support Trump’s aversion or doubts against traditional allies such as NATO and his attempt to weaken American (Western) democracy. Chinese media also take the chance of describing the superiority of its authoritarian system, exemplified by what the official China calls the victory against the covid-19 crisis. China remains the top issue for the Chinese and certainly not the U.S. The result of the presidential election in the U.S. does not make a major difference – neither to President Xi Jinping or the Chinese people (according to my own understanding of Chinese press). However, there is no clearly visible preference for Biden either.

Competition with the U.S. will remain the keyword for the future of China – when it comes to the economy, technology, research and military power. However, in my view three possible and necessary changes may happen in the future with a President Biden: a (somewhat) stronger priority of  the environment, a (somewhat) better political predictability and a more polite style of communication between the two superpowers.

And we should not give up hope for better cooperation!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Emerging markets and covid-19: structural weaknesses and consequences

October 15, 2020

Presentation by Hubert Fromlet at LNUs
Baltic Sea Region and Emerging Market Day
Kalmar, October 15, 2020

Summary

Institutional Economics always play an important role in my lectures. In this specific context, I use to quote the “father” of New Institutional Economics (NIE), the great economist and Nobel Prize Winner Douglass North (1920-2015). North defines institutions as follows:                                                                                                    

“Institutions are the humanly devised constraints that structure human interaction. They are made up by formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, self-imposed codes of conduct) and their enforcement characteristics”.

Read the full article here, Emerging markets and covid-19

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Covid-19 – in many emerging countries primarily an institutional problem

August 24, 2020

To avoid any misunderstanding: covid-19 is a global disease and not only spread in emerging market countries. Advanced OECD countries were also badly hit by corona, such as the United States, Spain, Italy and the UK. Sweden could not either escape from covid-19 without pain. Not even Germany made it really well since the eruption of the crisis (though better than most other European countries). Norway and Denmark, however, succeeded pretty well so far – Finland even better.

Unfortunately, it can be recognized that emerging (developing) countries altogether are most heavily hit by corona infections, both in absolute and real terms. Why is that? In my view, there exist clear institutional shortcomings in the most heavily affected emerging countries, being mainly responsible for the bad outcome. But this kind of underlying weakness can also be watched in advanced countries with heavily burdening corona infections.

Quality and effectiveness of institutions play a decisive role

Nobel Prize winner Douglass North – the “father” of New Institutional Economics – probably remains the most strongly convincing economist about the decisive importance of institutions for growth and wellbeing of a country. (“Institutions form the incentive structure of a society, and the political and economic institutions, in consequence, are the underlying determinants of economic growth”). Insufficient health care – also when it comes to covid-19 – must certainly be regarded as an institutional failure.

However, if this described relationship is so logical and correct – which actually should be the case also in my own view – why are so many emerging countries incapable of managing  necessary institutional improvements? A possible (partial) answer is given by Olivier Blanchard (MIT, in his textbook “Macroeconomics”) who comes to the conclusion that low (high) institutional protection is associated with a low (high) GDP per capita. This means in other words that many emerging or developing countries suffer from insufficient financial resources.

Ten of the twelve most corona-affected countries belong to the emerging world  https://www.worldometers.info/coronavirus/ (August 21- 24, 2020)

Conclusions

¤ There is no doubt that the corona epidemic in emerging countries to a high extent can be referred to institutional shortcomings – institutional shortcomings that often can be explained by too limited financial resources for improvements. This factor should be considered more seriously by international organizations.

¤ It should not be neglected that many emerging market countries also face a large number of hidden corona cases since statistical quality still must be regarded as poor in many lagging countries. The real number of corona infections may be strongly underestimated (for example in Indian and probably also in Chinese statistics). Foreign support to developing and emerging countries could be very useful in this institutional context. International organizations should develop mechanisms that encourage and reward specific kinds of institutional progress, measured by, for example, “Doing Business” of the World Bank and the rankings of Transparency International.

¤  The EU, single EU-member countries and the UK could act more ambitiously to support improving institutions in lagging emerging countries, particularly in Africa. People in Africa need hope, driven by improved political, institutional and social improvements – including health and education with their strong institutional nexus. Hopefully, such a policy change could also give sustainable relief to the European migration problem in a somewhat longer perspective, originated by sizable institutional progress. Remember what Douglass North has been saying and writing about the decisive contribution of institutions to economic growth! There is no alternative.

¤  However, Latin America (and quite a number of emerging countries elsewhere) should not be neglected either – needing urgently a substantially improved institutional environment. “Urgently” should be stressed strongly. Institutional improvements do not come overnight.

Finally, the following question may be allowed: Could Joe Biden as a potential president give new and (relatively) unselfish incentives for institutional improvements in South/Latin America – or is that just wishful thinking?

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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