One World Two Systems – the second one emerging

Earlier this month three major organisations met in Ufa in Russia – BRICS, SCO and EAEU. The Presidents of nations representing over half the world’s population were present. The meetings formally created the New Development Bank with an Authorised Capital bigger than that of AIIB, based in Shanghai and headed by an Indian, chaired by a Russian.

India and Pakistan joined the SCO, Afghanistan is preparing to join and Iran’s President was actively developing his nations interest in these organisations and the overall plans to open Eurasia. (Iran’s tilt post-nuclear deal will be significant.)

They gave shape and meaning to the development of a second global system for developing Eurasia from the East to the edge of the E.U.

Already over $200 billion is being deployed to fill out the first sections of the Silk Roads to enable a land bridge to Europe, Africa and the Middle East. The new development banks are offering the core of this new system.

Some commentators suggest this plan will entail up to $8 trillion in infrastructure spends over the next 10-20 years.

Our problem in the West is that our media is not covering this in a serious and deep way. As with China over the last 35 years , every new initiative is met with cynical responses. But the reality is that the world has changed a great deal and while we may wish it was not , it is. So we better adjust to this new world and hedge our bets by altering our approaches to take this new system into account. It seems the British Chancellor of the Exchequer did just that by joining AIIB.

For those who think that TPPA and TTIP – the Pacific and Transatlantic new Free Trade Areas – can create a protected Western world, it may be that they thought that WTO would achieve that. Perhaps these two new organisations will create a circling of the wagons benefitting those on the inside and isolating those on the outside. It is quite a bet to make. I would think both systems will develop and find ways to work with each other because business follows money and opportunity. It is difficult to roll back the globalised business world.

For those in the East who think the Western system is fading, that would be a major misjudgement. Perhaps the difference between the Chinese and Russian approach is that the Chinese do recognise two critical issues. Firstly that the American led system is still very strong and expanding, and contains most of the state of the art technologies. Secondly it is better to offer a win-win outcome to the existing system so that the West feels the opportunity more than the challenge. The Germans and Japanese both took different routes at great cost to themselves and the world.

This is the time of hard negotiations. For those who think the USA is showing signs of short term policy making and is confused, I would suggest that is because they are listening to the politicians and academics. But, in my opinion, behind that there is clear thinking and two lines of thought. One line is that the USA needs to continue to lead the world and be proactive to ensure its economic power with strong military backing. A second thinks the USA needs to lead the world but first needs to mend its own economy.

Both signify the great American power that exists in the world. If the new system takes the view that it can develop and win despite the USA then they will make a big misjudgement. If the West thinks that the development plans of the East are faulted and likely to fail, then they also are taking a big risk.

So what does all this mean for policy makers and global and regional business? The 48 Group spent many years urging that China’s return be taken seriously. Even today, new Chinese moves surprise policy makers and business.

In my personal opinion our historical ways of developing British policy and carrying out trade promotion may need to be reviewed in the light of most of the high value emerging markets are within the new system. Not totally, and perhaps some will leave it, but the head of the changes is outside our control. Think of this as an octopus and we will see the challenges more clearly. Only this is an octopus which, for now, has three or four heads that seem keen to merge and coalesce. But we need to deal with the four heads and the parts and the likely coalescing points.

Thailand is starting a rail link to Southern China through Vietnam and Laos. Pakistan is starting the development of access to ,and the construction of a new port Gwadar, China and Thailand are in advanced discussions about a canal that would cross Thailand and reduce the importance of the Malacca straits, rail links from Xinjiang to Central Asia are continuing to develop, the Chinese are starting work on design of a  high speed rail link from Moscow to Kazan, which is the first part of one link from Moscow to Beijing – http://www.businessinsider.com/russia-builds-moscow-to-beijing-high-speed-train-2014-12

The Chinese may take the heavy load contracts, but the state of the art will play to the West. The Chinese will restrain themselves and many other nations firms will play their part.

One third of the contracts will cover energy, one third roads, rail and canals and ports , and one third telecommunications. One third of up to $10trillion. Yes $10 trillion.

The Silk Road express is not on Platform 5 anymore , it is en route.

Have a good Summer Break

Stephen



Categories: Uncategorized

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