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Will China become the centre of the world economy?

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China’s economy has developed at an extraordinary rate.

In Europe and the US, the mood has been shifting sharply and quickly.

China is so huge that it comprises different realities at the same time.

The global economy itself is starting to somewhat fragment.

China’s economy has developed at an extraordinary rate over the last 40 years across so many areas. The size of its domestic market, the technical prowess of its leading companies, even the feats of exploration in space and its growing military might have astounded the rest of the world. But Martin, the key question now is will China become the centre of the global economy?

There is no doubt that China’s growth up to this point and its continuing growth mean that it will be a major player in the global economy forever more. But there are reasons to doubt that it will be the centre, the unique centre of a global economy, partly because other parts of the world will not be keen to let it and partly because the global economy itself is starting to somewhat fragment into a more regionalised rather than a globalised economy.

I went to China as a student nearly 40 years ago. And it was a place completely different from the high-tech economic superpower that we see today. There was rationing of grain, cotton, and several other basic commodities. And a train from Hong Kong to Beijing took over four days to arrive. The same journey today would take about nine hours.

The best statistic I think to put this extraordinary change into context is average GDP growth. And since 1979 to the end of 2018, China’s GDP growth averaged 9.5 per cent a year. Martin, is this unique as far as you know in history?

I think it is unique in the following sense. There have been other countries that have racked up higher growth rates for a little bit of time. But you’ve never seen anything of this size.

Go back 2,000 years when everyone was equally poor. The point of gravity, the centre of gravity of the global economy basically followed population size. And then with the Renaissance and the Industrial Revolution, you saw Europe and then later North America forge ahead.

In the last 40 years, it’s been moving back towards Asia, into Asia and towards China. But in a sense, it’s really just getting back to what used to be the normal state. Still kind of extraordinary that they’ve done it so fast, even if it’s a return to normality, as I call it. But James, how did they do it?

To start with, in the late ’70s, they began a programme of market reforms that really overhauled the entire communist command economy. By the early to mid ’90s, they began to really put an accent on attracting foreign direct investment. But I think the really key change in China came, again, probably in the mid ’90s, when China began to allow the sons and daughters of farmers to migrate from the village to these big factory towns.

I would say that the Chinese Communist Party has sort of proved that capitalism works, capitalism and freeing up the movement of labour. But let me add one other aspect of this, which is how the western high-income countries were pursuing globalisation at the time, because in the ’80s and the ’90s, you saw a big push for more liberalised global trade. So globalisation was taking place at the behest and led by the high-income countries. But China could just slot straight into that.

A big part of the answer to the question we’re asking, whether China will become the centre of the global economy, is whether that development model can continue to work, because what strikes me is that with all of this success, China is still a relatively poor country. Isn’t that right?

Absolutely. In fact, China currently ranks 61st and the world in terms of countries by their average per-capita incomes. On an aggregate basis, China is still very much a developing nation. But it’s a very anomalous country as well, because it’s got all of this high-tech prowess. It’s got this amazing infrastructure. It’s a very different type of economic beast, I think, from the type of developed country that we can see elsewhere in the world.

Let’s look at Chinese average income compared to the world leader, the US. And we can see that while it was very poor before this whole economic revolution happened, it’s still not rich.

China is so huge that it comprises different realities at the same time. The Chinese middle class numbers these days about 400m people. That is, obviously, greater than the entire population of the United States. But there’s also about a billion Chinese that are much less well-off.

Economists call this the middle income trap. You get to a certain point, fast growth. And then you kind of stagnate before you’ve pulled everyone into the middle class. I mean, one reason why people think that happens is because getting from poor to middle income is a very different process from getting to middle income to high income.

Chinese consumers last year spent about $7.3tn. That, by the way, is greater than the entire GDP of the Japanese economy. But now I think we’re entering a very different phase. And that one is characterised by China’s emergence as a technological power.

I think that’s crucial, James, because one thing that economics and economic history show is that if there’s a way out of the middle income trap, it’s by changing from a growth model based on accumulating labour and capital to a growth model led by technological development and technological progress.

China is likely to be and really already is a middle-income country that leads the world in many areas of technology. Let me just put some flesh on those bones. Let’s just count the sectors in which China is either a global leader or at least close to the cutting edge, wind and solar power, online payment systems, digital currencies, aspects of artificial intelligence, such as facial recognition, quantum computing, satellites and space exploration, 5G telecoms, drones, ultra-high-voltage power transmission. China really is kind of at the cutting edge of a lot of important technologies in the world.

So maybe I can ask you, James, if you agree that there’s a very conscious strategy here among Chinese policymakers to make the world more Sinocentric?

China is driving its standards-setting processes around the world precisely to do as you describe, to try to ensure that the latest technologies around the world are at least partly or largely dependent on Chinese technologies.

It looks to me like the intention is there to be the unique global centre. The big question, though, is whether the rest of the world is going to play ball and let that happen. It’s not often fully appreciated that the globalisation we’ve seen in the last few decades, it’s still quite regionally organised.

In this chart that look, it looks at different economies, weight in the global trading system and the main trading relationship, what we really see is three hubs, one centred on Germany, one centred on China, one centred on the US. And if we look at the more complex kind of trade relationships, global value chains where inputs cross borders many times, it looks even more regional. So I think that this is actually the direction we’re going, that we’re probably going to see even more intensification of trade relationships at regional level, but not necessarily that much more deep trade or deepening of trade happening between the three big blocs, the EU, the US, and China.

It’s certainly true that China is putting a big accent on expanding its trade and investment relationship with southeast Asia, which, I think, it increasingly sees as a backyard market as it were. Also, China would be very reluctant to in any way give up its US market or the European market. I mean, these are huge drivers of China’s export growth.

So we’ll see what sort of choice China is given about this, because it’s very clear that in Europe and the US, the mood has been shifting sharply and quickly. And I think the fact that global trade in itself is moving to more, towards more complex value chains and more services trade and digital trade, that also is going to strengthen the political aversion to integrating with China. So this is why I think that while China will, as I said, forever more be a major part of the global economy, we are probably looking more at regional dominance than becoming the unique centre of one homogeneous global economy.

I think the scenario that the world splits into three or more regional trading blocs is certainly not conventional wisdom at the moment. And if the world was to move into that direction, it would suffer huge disruptions. There would be protectionism, the decoupling of supply chains, and several other reversals as well. However, sitting here in Hong Kong, I can see the pressures that might lead to such an outcome building up. So I think the key point right now is that unless the EU, the US, and China can sort out their differences, we could see the regionalisation of global trade becoming a reality in several years’ time.



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'It’s more than sport – every day we are fighting for our rights to be equal’

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French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court



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Emily Dean on how allyship amplifies the female experience on film

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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.



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Crimea ‘water war’ opens new front in Russia-Ukraine conflict

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When a cyclone drenched Crimea in rainfall last month, rivers burst their banks and thousands of people in the Russia-annexed peninsula had to be evacuated from the floods.

The silver lining to the deluge was that the rains also filled Crimea’s depleted reservoirs, temporarily alleviating a crisis brought on by an extended drought and a Ukrainian blockade of the Soviet-built canal that previously provided up to 85 per cent of the peninsula’s water supplies.

Moscow’s struggle to supply Crimea’s 2.4m residents with fresh water has become a flashpoint in an undeclared war, seven years after Russian troops seized Crimea from Ukraine. An even longer conflict between Kyiv and Russian-backed separatists in eastern Ukraine has claimed more than 14,000 lives.

Russia has accused Ukraine of “genocide” over the building of a concrete dam across the North Crimean Canal, in addition to the existing sandbag and earth dam that was built in 2014. Kyiv fears that Moscow is plotting a military incursion to secure water flows from the nearby Dnipro river.

Coupled with surging food prices and international isolation because of western sanctions, the water shortages threaten to undermine President Vladimir Putin’s promise of a better life for Crimeans under Russian rule.

Though state-run pollsters claim Putin remains more popular in Crimea than on average across Russia, the patriotic fervour that sent his approval ratings to record levels after the 2014 annexation has long since subsided.

Map showing Ukraine and the North Crimean Canal, Crimea

“The water reserves and fields have dried up,” said Viktor, 47, a Crimean who regularly travels to Ukraine for work. “Each year it’s getting worse and worse. We didn’t have this problem before annexation,” he said, adding that most Crimeans blamed Ukraine for the crisis.

A $3.7bn bridge across the Kerch Strait linking Crimea with mainland Russia has become a conduit for trucks ferrying water for locals to take away in plastic containers. Popular Black Sea tourist resorts can turn on their taps for just a few hours a day during peak droughts, while the canal has filled with grass and weeds.

Crimea’s agricultural output has fallen owing to a lack of irrigation, making it all but impossible to grow water-intensive crops such as rice.

Construction of the canal began in 1957 after the Soviet Union transferred the arid peninsula to the Ukrainian Soviet Socialist Republic to manage rebuilding after the second world war. The waterway allowed for the cultivation of arable land and helped transform Crimea into a haven for tourists.

“The canal symbolises the stupidity of the Kremlin in occupying Crimea. They didn’t weigh the consequences at a moment of electoral euphoria that was fed by their own propaganda,” said Oleksiy Reznikov, Ukraine’s deputy prime minister in charge of reintegration policies for the occupied territories.

“Why didn’t you think about water?” he asked.

The North Crimean Canal is seen with a low level of water
The severely depleted North Crimean Canal previously provided up to 85% of the peninsula’s water supplies © Pierre Crom/Getty

Workers collect potatoes on the North Crimean Canal
Workers collect potatoes on the North Crimean Canal. Ukraine blocked the irrigation channel after Russia’s 2014 annexation of Crimea © Pierre Crom/Getty

Russia, while pressing Ukraine to reopen the waterway, has launched a Rbs50bn ($680m) programme to bolster Crimea’s supplies, repairing crumbling infrastructure, drilling wells, adding storage and desalination capacity.

Russian prosecutors last week filed a lawsuit in the European Court of Human Rights accusing Ukraine of “flagrant violations” over the issue. Crimea’s governor plans to file a separate complaint demanding up to Rbs1.5tn in compensation.

“Kyiv has essentially used Crimea’s infrastructure dependence on Ukraine, which came about in the Soviet era, as a weapon of mass destruction against all Crimeans. The water blockade is an act of state terrorism and ecocide, but the international community is failing to notice the Kyiv regime’s crimes,” Sergei Aksyonov, the peninsula’s governor, said in written comments to the Financial Times.

Reznikov said Russia, as the occupation force, was responsible under the Geneva Conventions for securing water and other basic needs for local the population. Ukraine has filed its own multi-billion-dollar claims against Russia, citing losses caused by what it describes as an illegal land grab.

With tensions rising, Russia deployed tens of thousands of troops and advanced weapons to Crimea this spring, as well as to the border of the two breakaway eastern regions where Moscow-backed separatists have battled government troops into an eighth year.

Col Kyrylo Budanov, chief of Ukraine’s army intelligence unit, said Russia was looking to seize the canal as well as adjacent territory to connect Crimea with the breakaway regions. Russian troops could advance on Nova Kakhovka, the Dnipro river town where the canal begins.

Some Crimean Tatars, an indigenous ethnic group whose members largely opposed Russia’s annexation, have set up a makeshift camp near the dams to make sure the water flow does not resume.

A Crimean Tatar activist on the North Crimean Canal
A Crimean Tatar activist enters his base on the North Crimean Canal. Tatars have set up camp to make sure the water flow does not resume © Pierre Crom/Getty

A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka
A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka, a village on the North Crimean Canal © Pierre Crom/Getty

“It will be a full-scale war,” said a 55-year-old activist who gave his name as Alibaba. He said he and his fellow activists were willing to take up arms to defend the blockaded canal. “There will be nowhere to hide in these fields. Let them try,” he added.

At the Kalanchak border crossing near the new dam, Russian and Ukrainian troops have dug trench positions a few hundred meters apart.

Tensions have also flared in the Black Sea, not just with Ukraine but also with western navies. Russia fired warning shots in the path of a British destroyer sailing through contested waters off Crimea last month. Sevastopol, Crimea’s largest city, is home to Russia’s Black Sea fleet.

Moscow has insisted it would not go to war over Crimea’s water supplies, even as it conceded that Ukraine was unlikely to restore them. “All these hysterical statements from Ukrainian politicians are completely baseless — they’re just stupid, aggressive propaganda aimed at inciting hatred between the Russian and Ukrainian people. There won’t be any ‘water war’,” Crimea governor Aksyonov said.

Reznikov, the Ukrainian minister, said Kyiv was ready to provide Crimea with humanitarian assistance, including drinking water, which it already does for the separatist-run eastern territories, but no request had been made.

“For Russia to admit they’re weak is very difficult . . . it would amount to an admission that they made the wrong decision,” he said.



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