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Developing economies must not succumb to export pessimism

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The writer is a professor at Ashoka University and former chief economic adviser, government of India. Josh Felman also contributed to this article

Developing countries have been given new marching orders by western economists: your successful export-led model of growth is dead, please find an alternative. If their counterparts in the developing world follow suit, the consequences are clear: without open markets, developing countries’ prospects will shrink.

Consider some important history. The new export pessimism is, of course, not new at all. In the 1960s, Raúl Prebisch and Hans Singer invoked it to argue for industrialisation through import substitution. They noted that developing countries tended to produce commodities, and argued that commodity prices inevitably trend downward. So they insisted that an export-based development strategy would simply not work. Many developing countries consequently focused on their domestic markets — and fell further behind the west.

Meanwhile, the east Asian tigers — Singapore, Hong Kong, Taiwan and Korea — ignored the fashionable consensus and promoted their manufacturing exports. When they succeeded, China followed, using exports to catapult itself from underdevelopment into a superpower in one generation. The hyperglobalisation of the late 1980s brought golden years for developing countries: for the first time in centuries, the poorer countries as a group started to catch up.

This historic progress is now under threat. China’s success has spawned a populist revolt against globalisation, convincing western intellectuals that the advanced world’s political capacity for open markets has been exhausted. This is the claim that developing countries are being asked to accept. Call it export pessimism, mark two.

But there are at least three reasons why developing countries should not succumb to export pessimism. First, the reports of globalisation’s demise have been greatly exaggerated. It is true that world exports of goods have declined to about 21 per cent of world gross domestic product from about 25 per cent before the 2008 financial crisis. But global exports of services have continued to increase, rising to about 7 per cent of global GDP from 6.5 per cent.

Covid-19 could accelerate the growth of services exports. After all, the pandemic is encouraging distanced activities, as opposed to those that require physical contact. Physical shops are being replaced by ecommerce, which can be designed and serviced in developing countries. Similarly, if western companies are going to allow employees to work permanently from home, they can as easily — and more cheaply — be located in developing countries.

Even if global manufacturing exports continue to stagnate, exports of most developing countries can still grow rapidly, as long as they gain market share. This is quite feasible: China’s wages are rising as it becomes richer, causing it to lose competitiveness in low-skilled work. Already, its share of global low-skill exports has declined, allowing other exporters to fill the gap.

How much space will be created for developing countries? Shoumitro Chatterjee and I recently calculated that China still over-exports “low-skill goods” such as textiles, clothing, leather and footwear. One indicator is the enormous difference between its share of the developing world’s exports of such goods (over 45 per cent) and its share of the developing world’s supply of unskilled labour (25 per cent).

China will continue to cede space for geopolitical reasons. Multinationals are slowly exiting the country, insuring themselves against the risk it could be isolated by its trading partners. As a consumer, China could also become a bigger market for low-skill consumer goods. In effect, it would do for poorer countries what the west did for China — provide a ready market for its goods. This, of course, would require Beijing to become less protectionist. 

Is there any guarantee that any of these factors will actually lead to export success for poorer countries? No: they will still have to do the hard work of creating the conditions for businesses to compete effectively in global markets. But the opportunities are there.

Western economists, academics and policy advisers must keep those opportunities alive, pushing their own countries to sustain open markets, arguing against protectionism globally, and nudging China in the right direction. At the very least, they should not be purveyors of this export pessimism disguised as pragmatic resignation. If this intellectual dereliction of duty leads to tragic consequences for the poorer parts of the world, they will bear some responsibility. 

 



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Emerging Markets

Regulators close ranks on crypto

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Regulators are continuing to step up their scrutiny of cryptocurrencies, with central banks and South Korea’s tax authorities demonstrating fresh concerns.

In a report published on Wednesday, the Bank for International Settlements, the global body for central banks, argues that digital tokens such as bitcoin have few redeeming features and “work against the public good”. It also dismissed stablecoins — a link between crypto and conventional assets — as an “appendage” to traditional money.

Perhaps unsurprisingly, the BIS did endorse the development of digital currencies backed by central banks, saying they could be a tool to achieve greater financial inclusion and lower the high costs of payments. “Central bank digital currencies . . . offer in digital form the unique advantages of central bank money: settlement finality, liquidity and integrity,” it said.

In contrast, bitcoin wasted energy and cryptocurrencies were “speculative assets rather than money, and in many cases are used to facilitate money laundering, ransomware attacks and other financial crimes”.

South Korea has acted against the financial crime of tax evasion, with more than Won53bn ($47m) of bitcoin, ethereum and other cryptoassets confiscated from 12,000 people. Officials said it was the largest “cryptocurrency seizure for back taxes in Korean history” and noted that local exchanges had allegedly been used to conceal assets because they did not collect the resident registration numbers of account holders. Many of South Korea’s 60 crypto exchanges are battling to meet regulatory conditions to operate beyond September.

This week’s #techAsia newsletter asks whether the death knell is being sounded for cryptocurrencies. That could be the case in China, where it is scaling up tests of its official digital renminbi, and appears serious about stamping out the crypto industry on its soil. Bitcoin fell below $30,000 on Tuesday following the latest regulatory crackdown, but it has recovered to be worth more than $34,000 today.

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China bolsters ties with Myanmar junta despite international condemnation

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Trade and diplomatic ties between Myanmar and China are normalising in the face of intense domestic opposition and international condemnation of the military junta that seized power in February.

Beijing has strengthened relations with Myanmar’s military leaders despite a series of violent attacks against Chinese business interests in the country after Aung San Suu Kyi’s government was toppled.

Yun Sun, an expert on Myanmar-China relations with the Stimson Center, a US think-tank, said Beijing had already made a “fundamental assessment” that Myanmar was moving into another prolonged period of military rule.

“I think the Chinese can see that this military coup is successful and is here to stay,” she added.

The resumption of state-level engagements and economic activity signals that Myanmar is reverting to its traditional economic reliance on China. The country has used its larger neighbour as a buffer against international sanctions and divestment by foreign investors, who have announced plans to quit the country or shelved projects.

Since the coup, 875 people have been killed by the junta and 6,242 arrested, according to the Assistance Association of Political Prisoners (Burma), a human rights group. The country’s economy and public services were severely disrupted by mass protests in the three months that followed the putsch, and have only partially recovered.

The resumption of bilateral trade will fuel the widespread suspicion among anti-coup resistance groups that China was prepared to support the new military regime.

The cumulative value of China’s imports from Myanmar for the first five months of the year was $3.38bn, up from $2.43bn in 2020 and $2.56bn in 2019, before the coronavirus pandemic, according to official Chinese customs data.

Exports to Myanmar for the same period have not recovered to the same extent, however. By the end of May, goods valued at $4.28bn had been shipped to Myanmar, compared with $4.56bn and $4.79bn in the two previous years.

In a further sign of strengthening diplomatic relations, Chen Hai, China’s ambassador to Myanmar, met coup leader and military commander-in-chief Min Aung Hlaing in Naypyidaw, the capital, in June. In a subsequent statement, Chen referred to Min Aung Hlaing as the leader of Myanmar.

China was among the countries that abstained in a UN general assembly vote last week calling on the international community to halt the flow of arms to Myanmar and release Aung San Suu Kyi and other political detainees. 

Beijing had good relations with the government of the deposed leader, who is in detention facing multiple criminal charges. However, it has refrained from criticising the military, fanning anger among the mass protest movement that sprang up after the coup. 

Beyond being Myanmar’s biggest trading partner, China also has strategic infrastructure investments in the country, including energy pipelines that give Beijing a critical link to the Indian Ocean.

James Char, a Myanmar expert at the S Rajaratnam School of International Studies in Singapore, said many people in Myanmar still blamed the Chinese government and business interests for complicity in supporting the military’s decades of rule before the transition to democracy.

“The Chinese, themselves, are very clear about [public sentiment in Myanmar],” Char said.

Attacks on China-linked businesses in the wake of the coup culminated in an explosion at a Chinese-backed textile factory west of Yangon on June 11, according to reports from local Myanmar media, as well as junta-controlled information services and Chinese state media.

Beijing’s wariness of inflaming Myanmar protesters would probably slow Chinese direct investments and the resumption of planned larger-scale developments that formed part of President Xi Jinping’s Belt and Road Initiative, analysts said.

Additional reporting by Sherry Fei Ju in Beijing



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Australia calls Great Barrier Reef warning politically motivated

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Australia has labelled a draft decision by the UN’s World Heritage Committee to include the Great Barrier Reef on its “in danger” list as politically motivated.

The committee, which is chaired by Tian Xuejun, China’s vice-minister for education, and selects Unesco World Heritage sites, proposed adding the world’s largest collection of coral reefs to the danger list because of the damaging impact of climate change and coastal development.

The designation could ultimately lead to the reef losing its World Heritage status, although officials said listing was intended to prompt emergency action to safeguard a living structure that stretches 2,300km along Australia’s eastern coast.

But Sussan Ley, Australia’s environment minister, said the government had been “blindsided” by the committee’s finding and alleged there was a lack of consultation and transparency. She added that Canberra would challenge the draft decision.

“When procedures are not followed, when the process is turned on its head five minutes before the draft decision is due to be published, when the assurances my officials received and indeed I did have been upended, what else can you conclude but that it is politics?” she said.

That the World Heritage Committee is chaired by a senior Chinese official has stoked suspicions in Canberra that it had been singled out over its diplomatic and trade clash with Beijing.

China-Australia relations have soured following Canberra’s call last year for an inquiry into the origins of Covid-19 and Beijing’s imposition of tariffs on Australian wine and barley imports.

Ley said she and Marise Payne, Australia’s foreign minister, had already spoken with Audrey Azoulay, Unesco director-general, to complain about the draft decision.

But scientists downplayed the suggestion that the “in danger” listing was politically motivated. Three mass bleaching events in five years demonstrated the need for the government to do more to tackle climate change, they said.

“I’m seeing some press coverage saying this is all a plot by China not to buy wine, lobsters and to screw the Barrier Reef. I think that’s pretty far-fetched given that the draft decision released overnight will be voted on by 21 countries,” said Terry Hughes, professor of marine biology at James Cook University.

The controversy will heap further international pressure on Canberra, which has been pressed by the US, UK and others to commit to a national target of net-zero emissions by 2050.

In a draft decision due to be voted on next month, the committee urged Canberra to “provide clear commitments to address threats from climate change, in conformity with the goals of the 2015 Paris Agreement, and allow to meet water quality targets faster”.

It noted the loss of almost one-third of shallow-water coral cover following a “bleaching” event in 2016 — a process linked to warmer than normal water that can lead to a mass die-off of coral.

The row over the “in danger” listing occurred at a difficult time for Australia’s conservative coalition, which is embroiled in internal squabbling over climate policies.

On Monday, Barnaby Joyce, a climate sceptic and supporter of coal mining, ousted Michael McCormack to become leader of the National party, the junior coalition partner to the Liberal party, and Australia’s deputy prime minister. Joyce is expected to oppose any move to commit to net zero by 2050.

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