China Research

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

The Future Global Development: Hope and Concerns

December 6, 2023

Valedictory Address at the IIF International Research Conference & Award Summit (IIF-IRCAS), Delhi / India, December 2, 2023 by Prof. Hubert Fromlet, Linnaeus University/Sweden

Summary

After many years of fruitful relations with the Indian Institute of Finance (IIF), it is real honor and pleasure for me to have another speech for teachers and students at the very successful academic institution of the IIF. I am speaking also in honor of the late professor J.D. Agarwal, the founder of the IIF.

In many respects, the world has entered a period of disorder. We are confronted with wars, radicalism, political turmoil, protectionism, poverty, suffering refugees, egoism, political extremism and populism, lagging and economically weak and unstable countries – and all this simultaneously. But I also feel happy about India’s progress in the past few decades – and wish  this important catching-up country all the best for the future.

Below, I will sum up six factors of hope and ten factors of concerns (without ranking) that currently occupy my reflections a lot. Obviously, it is easier these days to put together the factors of concerns – but hope and (future) opportunities should not be neglected either. This latter conclusion is important for both financial markets and the corporate sector. We hereby touch briefly on behavioral finance and behavioral economics. Positive or encouraging psychological contributions may play an important role in bad times to develop turning points in the right direction; of course based on fairly realistic expectations.

Factors of concern

¤ The war in the Ukraine.
The Russian war in the Ukraine still goes on as a psychological (human) and financial burden, mainly for the U.S. and Europe.

¤ China’s economic and financial development.
China’s economy and the financial development remains a conundrum that creates uncertainty and concerns because of lagging transparency.

¤ China’s political development.
President Xi Jinping’s autocratic leadership style does not provide China with good predictability – neither when it comes to the economy nor to politics (e.g. vis à vis the U.S., Taiwan)

¤ The U.S. after the next presidential election.
The unpredictable Donald Trump as a possible new president scares me a lot.

¤ The political development of the EU.
The EU will have elections in its member countries in 2024 – with good chances for the extreme right as a big concern for EU unity.

¤ The economic development and reforms in the EU.
Further nationalism in the EU would impede reforms and growth.

¤ Insufficient reforms in emerging markets.
Most emerging countries still need a lot of reforms. An open question may be to what extent China’s growing political influence in many emerging countries impact on market reforms.

¤ Energy and water shortage in rich and less favored countries.
Global water shortage worries me a lot – but also uncertain and uneven global energy supply.

¤ Further increasing protectionism.
Here we have a risk of further reduced global trade expansion and economic growth. 

¤ Last but not least: turmoil on global financial markets.
Negative surprises on global financial markets may “always” be on the cards. As an obvious potential risk, I may particularly mention all the (hidden) financial imbalances in China but also potentially bursting financial bubbles elsewhere.

Factors of hope

¤ Politics – bad political leaders may be replaced sooner or later.
At least in working democracies, one may hope that bad political leaders some day will be replaced by more competent successors.

¤ Increasing global insight of climate improvement needs.
This is a factor where improvement is visible (but still too little).

¤ Global insight that education is a growth-driving need.
There is a growing insight around the world that the creation of new human capital is a main factor for stronger potential growth.

¤ Emerging markets receive growing political attention.
Here, we can currently watch an important development that does not look perfect but will gradually improve self-confidence of many emerging countries, particularly in the so-called South.

¤ Gender equality is improving globally (but still too slowly).
Progress happens in many countries. More still can be done. Nice to see that we in 2023 got another female Nobel Prize Winner with Claudia Goldin.

¤ AI means a lot of hope – but also unpredictable risks.
AI is currently expanding very quickly – creating a lot of new opportunities, particularly in medical research and diagnosis. However, AI risks should not be neglected one single day.

Altogether, 2024 will be an extremely important political year with lots of economic implications and consequences.

 

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

 

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BRICS II – another BRICK in China’s global strategy

August 31, 2023

We recently noticed the BRICS summit in South Africa. Expectations in our part of the world were not hopeful before the summit in a sense that decisions from Johannesburg would mean an encouraging injection for the global economy. However, it was recognizable that China managed to launch another brick in its global political economic strategy by establishing its de facto leadership for the new and enlarged BRICS II organization.

Democracy clearly underrepresented …

I have been watching BRIC(S) from its start in the early days of this century – i.e. before South Africa was invited to join – as quite an unnecessary organization. BRIC(S) was initially launched as a smart financial marketing idea of an American investment bank without any other logical unifying argument than putting together Brazil, Russia, India and China as the four largest emerging markets with – then – potentially good economic prospects.

Then, two of these four founding countries were not democratic (China -and at least partly – Russia), and two others could be described as democratic (India and Brazil, plus joining South Africa some years later).

Now, when BRICS II will come into force in a few months time, this previously quite balanced democratic participation in BRICS will not be maintained when the six invited new members will become part of BRICS II as well.

These six new BRICS countries are:

Iran, Saudi Arabia, United Arab Emirates (UAE), Egypt, Ethiopia and Argentina.

It is indeed very obvious that none of these invited six countries can offer democratic standards and/or economic strength. There is all reason to believe that democracy in the new BRICS II will become clearly underrepresented.

… and weak economies totally overrepresented

Another angle may be a pure economic one. Also in this context there is nothing encouraging to find – apart from currently more or less healthy macroeconomic stability in India, Brazil and the oil producers of Saudi Arabia and UAE.

So what can the 11-nation BRICS II finally offer themselves and the rest of the world? In my view not very much. There are too many internal imbalances.  May be some increase of intra-trade (mainly for oil and other commodities) could show up. An obvious disadvantage is the missing positive homogeneity between the countries.

However, one more aspect still remains to be considered in the BRICS II context: China’s global political and trade economic strategy with BRICS II as perfect tool.

Application of the old and new Chinese diversification efforts

As I have written before in this blog, China has been starting to work more ambitiously on its intensified and revised geopolitical strategy. I have followed China’s internationalization and globalization for many years and have to admit that China since the start of the opening-up reform policy by the prominent reformer Deng Xiaoping had a logical strategy in their search for enlarged international partnership through all the years.

The international reform steps in the opening-up context were during the years about FDI and more foreign investment in China, the move of Western labor force (experts) to China, increasing exchange of students with abroad both from and to China, mutual cooperation in research –> altogether different steps to improve skills, technology, products and productivity with ideas from outside China. So far about the traditional diversification objectives.

Gradually after China’s important WTO entry, Chinese political leaders also announced objectives for developing China into a technological superpower and for increasing its global political power, more lately very much by focusing on (emerging) countries that appreciate incoming Chinese investments and (expensive) financial support (https://blogg.lnu.se/china-research/?paged=3, from February 17, 2023). Thus, we also have some examples of China’s modern diversification strategy, happening to a high extent geographically.

When summing up some international/global organizations below with obvious strategic interest, you can find some obvious examples where China already is or will become the dominant player, such as:

BRICS II – certainly an organization ready for increasing Chinese influence

Belt & Road Initiative (BRI) – infrastructure projects, fully led by China

RCEP (The Regional Comprehensive Economic Partnership RCEP) includes 14/15 East Asian and Pacific nations working for free trade among each others in a longer perspective (without having the U.S. in the organization). It is quite easy to imagine that China at some point will become more active within RCEP as well.

Looking at these examples clarifies well that China wants to expand its global influence. This will happen via bilateral action or via international organizations. Strengthened global platforms will become even more important to President Xi Jinping and the CP, since China nowadays domestically performs insufficiently after many years of boom.

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

 

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My impressions from (studying) India

April 28, 2023

This is an attempt to summarize my impressions from quite a number of trips to the “continent” of India. Yes, l see India rather as a continent than representing a single country. When having noticed that India recently has surpassed China as the country with the largest population in the world and when having become aware of the enormous distances from the North to the South and from the West to the East, foreigners should conclude that India is characterized by different geographical, political, ethnical, religious, cultural, social, institutional and economic conditions. All this  in one country!

Understand and comment on these above-mentioned Indian conditions in a friendly and appreciatively way when meeting Indian business people! Foreign business people should stick closely to good relations and business deals. This conclusion looks logical and will remain valid in the long run.

Why is India gaining momentum?

India is currently receiving much more international analytical and commercial attention than a few years ago. There are several explanations for this development:

–  A lot of positive reports on India could be read more recently in the international press – partly in order to create or show a kind of contrast to China;

–  India’s status as a democracy seems to be acknowledged more carefully by current non-Indian corporate leaders;

–  India has started to plan and implement economic reform policy more ambitiously;

–  India received recently the most positive GDP outlook of all countries for 2023/2024 by several global forecasters, by the IMF as well; 

–  the Western global corporate world regards Indian companies to a lesser extent as future competitors than they do when it comes to Chinese global players;

–  China lost certainly recognition in a substantial number of Western countries by not opposing to the Russian war in the Ukraine (which India also rejected to do but India was able to apply its political bonus in the West);

–  some serious policy failures in China (e. g. the reactions on corona) may have turned global commercial attention somewhat stronger to India than ante coronam.

One may summarize as follows: The global business community still seems to judge China as more dynamic – but India still seems to be better able to attract more sympathy points from democratic countries and their corporations all over the globe – and this way also become increasingly interesting to foreign investors. Further growth potential can be explored by sizeable improvements of mainly infrastructure, institutions and education. However, necessary policy changes can take long time to be implemented.

How to meet Indian business people

Here we come to a very important issue for Western business people. When meeting Indian managers or other kinds of Indian colleagues, Westerners often feel that meetings or negotiations are handled more or less the same way in India as it is done at home or in familiar countries in the neighborhood. However, this may turn out to be a completely wrong reaction or attitude.

The other way around: Indian business culture is very different from the Western. Though not covering everything in this article, my experience from India can lead to a number of conclusions or recommendations as follows:

  1. 1. Accept the Indian rule of the game! Don’t hesitate to use or say titles!
  2. 2. Focus on communication, first on telling and showing who you are!
  3. 3. When you meet initially in India, don’t act straight forward to a deal!
  4. 4. Accept a dinner without business talk. Talk about your family!
  5. 5. For Indians, the family is very important. Take your time to listen!
  6. 6. Don’t talk about politics which Indians usually do not like to take up!
  7. 7. Don’t be very critical! Indians are rather euphoric or happy. Relax!
  8. 8. Indians are religious. Never question their religious habits / seriosity!
  9. 9. Never ask or talk about the Indian caste system!
  10. 10. During negotiatins: Never let your hosts feel any time pressure from you!

Obviously, one should look for information about how to behave in India. Sensitive topics should be avoided, appreciated topics like family, religion and knowledge about India should be preferred.

If intense commercial relations to Indian companies are planned, it would be a good idea to learn Hindi. Indians even appreciate low skills in Hindi. Do not forget that India already today is the no 5 economy in the world and will probably have moved into the third place around five years from now. The potential is enormous but necessary economic, institutional, social, environmental and educational changes should happen faster than in the past.

India will – as far as one can see today – develop into a giant market for direct foreign investors, exporters and purchasing managers.

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

 

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