Interview: Wolfram Elsner – Chinese walls are invisible – Transcript

The Mint: Good evening, Wolfram, and thank you very much for joining us and speaking to The Mint this evening.

Wolfram Elsner: Good evening, Henry.

The Mint: I’d love to start to  explore how perceptions in the West have  changed. We remember five years ago when the future was China , all economic opportunities were there.  Now it’s  moved from being an opportunity to seeming a fret, and the whole  narrative is now about how China poses a threat to our infrastructure, our digital infrastructure, their control is dangerous, and so on. How has that switch around happened?

Wolfram Elsner: Well, in some sense it’s getting serious now. As long as China was the extended workshop for us, everything was fine and they did what we want. But they have emancipated , that is the point. And now they are  becoming number one in many respects. Somehow the media seemed to switch over to a mode of aggression,

The Mint:  one of the key lightning rods has been Trump here, is it  him picking up on things or is he inventing it? Where is it coming from?

Wolfram Elsner: No ,Trump’s motivation is not bad as such . He, of course, has expressed something that many people feel that no one has an interest worldwide  in the US that is weak. We see an ex-superpower that is extremely weak and helpless. Even China wouldn’t have an interest in having a partner that you cannot really deal with. So, why don’t they bargain with each other and talk about reindustrialisation and the Marshall Plan for the US?

The Mint: Is it the fault of China that the US is so weak? I mean, obviously Trump’s blaming China, but is that fair or unfair?

Wolfram Elsner: Well, in financialised neoliberal capitalism, the government hasn’t to say much about that. It was the big corporations, the US corporations, who have decided that all. They have shaped and established and determined the value-added chains globally. They went to China, they deindustrialised the US. So, China has only one interest: to get acknowledged again, to get appreciated again, and to get into the new historical normal; which is the old historical normal, which is 30% of the world’s GDP.

The Mint: What you’re saying is that the reason it’s weak is actually the US’s own fault in its laissez-faire hands-off approach, and Trump obviously is taking a much – or claiming to be taking – a more activist, UK government strategic variation, which of course the UK is as well and is much more a sort-of trendy thing to do. But that still doesn’t amount to the fact that China’s somehow guilty and dangerous. So, do you think the whole narrative about the dangers of security is just a ploy to reduce the competitiveness of China and strengthen the US in trade terms? It’s nothing about a real danger from China in terms of taking over our digital networks?

Wolfram Elsner: Yeah, well, I read a lot of China the last years, of course, writing my own book, and I’m writing the second book on the USA-China relations now. The most interesting books I read in the recent month were Southeast Asia books. You know, Parag Khanna’s and a political science guy at the University of Singapore, and another interesting person Kishore Mahbubani who was ex vice-president of Singapore and UN diplomat, et cetera. These people say, look, you have not understood yet. The West doesn’t understand the Southeast Asia culture. Basically, China doesn’t want to rule the world. They want to be appreciated. They want to be acknowledged and nothing more.  They are not caring for taking over the role of the US. They would by-pass without taking over.

The Mint: What about the belt and road initiative? I mean, that seems to be perceived as a colonisation type process where they fund infrastructure outside China, like they have in Africa, but then the various countries become indebted and under their sphere of influence so that there’s a sense of the Chinese empire, if you like, extending right up to the sort-of doorstep of Europe.

Wolfram Elsner: You could call it a diversification, of course, against the background of the experience China has to make with the unreliability of the US, and also more or less as far as-

The Mint: The unreliability of the US for what?

Wolfram Elsner: On unreliability of keeping contracts, of maintaining contracts.

The Mint: What  examples are there of that?

Wolfram Elsner: Well, the four times increasement of customs, for instance, within two years.  So there are quick contracts-

The Mint: You’re talking about the trade war

Wolfram Elsner: Yeah, I’m talking about the trade war. I’m talking about trying to get the Huawei vice-president into prison. What did he say? He said blowing up the value-added chains and all that. A country with that needs to diversify its international relations, of course, and here you have a whole set of transparent state-to-state agreements. It’s very, very transparent.

The Mint:  I think this is a really interesting point that I’d like to explore further. It’s a  chicken and egg, isn’t it? Because I suppose the US might say, well, look, China are building their power base and becoming more of a threat, and therefore we need to take action to constrain them. And the Chinese will say, well, the US are being more difficult and they’re no longer a good trade partner therefore we’re diversifying.  Which came first? Or was it a bit of both?

Wolfram Elsner: No, it’s a difference. It’s a difference. You look at the West in terms of Washington or Trump’s Washington , but he’s a voice for some forces in Washington. I would say perhaps the majority or minority, I don’t know, is a mode of war.  What he thinks his understanding of the economy and of international relations is a kind of end-game, cultural, final, ultimate conflict, which he says will lead to military war.  So, he’s in a war; in a misguided war-mode of everything. What the Chinese say, ‘Look, we can’t speak on everything – we don’t have an interest of a weak America. Let’s talk about everything.’ They opened a lot of industries for American companies. They have extremely helped American corporations in China to get on their feet again after Corona. That is interesting.  You can read it everywhere. So, that is the question of do we take the chance of a long-run, reliable international cooperation, or are we set on a path that shall lead to any kind of hybrid war? I used to think the hybrid war path is a path of weakness, and that is not a way that I would recommend at least to Europe and the US and Britain and Germany. We have something to give. We know what we can do. We have a good reputation in China. So why not clarify our own goals and then get into the Chinese style , or South Asian style, of looking for win-win situations and bargain everything out and cooperate.

The Mint: This requires a level of trust, doesn’t it? And quite often trust can break down because of a sort-of negative feedback loop, doesn’t it? But people take one action cause they don’t trust, and that actually leads to the other player taking action which leads to increasing distrust. So are we in a situation you think between the US and China where there’s a sort-of negative feedback looped to less and less trust and more and more likelihood of conflict?

Wolfram Elsner: Yes, I see that . That was the downward spiral among them probably. I think, again, it’s more a problem on the US side because what Trump expressed basically is the right thing. He said, ‘Look, it cannot go on with America that way.’ And that is obvious. You cannot go on for years and years financing and exploding public budget debt. You cannot live forever with 500 billions of trade balance deficit, et cetera. So again, no one, and China express it very clearly, have an interest in a weak and down-going America. They want to have a strong interaction partner. But still Trump has it got all wrong because what America needs in order to become a strong and reliable international partner and trusting partner is to set up its own capacities again – a Marshall plan 2.0. 

The Mint: If we take a  interestingly similar  dynamic in the EU between Germany and the rest of the EU, Germany is the production, same to the great exporter a bit like China, and of course it needs other states to be good consumers. The US was the great consumer for China. To have a  great exporter you need a great importer, don’t you? So, what is the problem with strength? While the US has the main international currency and can provide demand , that’s good for China, isn’t it?

Wolfram Elsner: It was, yeah. That was the old model. The old model with which China got up, in some sense. Learning from the technologies, through a joint venture et cetera, and then selling everything. And now look, the cheap production is going off from China anyway because the wages are too high now. China is now climbing up to 65 in the world rank list of GDP per capita, wages are increasing in a double digit growth rate. So, the cheap production of the West and the environmentally damaging production goes off from China anyway; they don’t want that anymore.   That goes to Vietnam and to India now.

The Mint: So, what’s the new model? I mean, presumably the US doesn’t want them to get into the higher value technology. That’s the Huawei story, I suppose, it’s trying to stop them controlling the bit of the economy that the US see themselves as dominant in. So, where does China go?

Wolfram Elsner: Well, look the dollar is dominating only in terms of the speculation sector.  What the dollar does and Wall Street does is keeping the dollar up through attracting all the surplus, speculative capital, financial, money capital of the world.

The Mint: So, the old model, as you say, was China as the production centre and the demand coming from the US .So, what is the new model? I mean, where can China go that the US will accept? Because obviously they’re acquiring to constrain China from moving into the digital economy where they still have dominance; which is where the battle is. So, what is a possible new model moving forward that will avoid conflict?

Wolfram Elsner: Yeah, well, I think what is more important is the new macroeconomic model. They had two things from the 2014/15 conferences, National People’s Congress and Party, et cetera. They said we need to go off from the GDP so GDP will not be our main goal anymore in terms of macroeconomics. They parallelly use the Human Development Index now. So, that is one interesting thing that they say: happiness is more important than the future. The other thing is macroeconomically they go off from their traditional export model and they more or less offer the traditional export model. They left that dumb model to the Germans, you know? The dumb Germans who really did it until the end and now fall into the trap. Now we suffer. Our export broke down by more than 30% last month, et cetera. The Chinese did that five, six, seven years ago already and they said, ‘Look, we go into an interior economic development.’ You can do that with 1.4 billion people . It’s not an easy thing to do, but a part of that is a huge increase of wages and tax reforms where the lower parts up to 3000 a dollar of monthly income have been reduced. If I have got reduced taxes by up to 50%, I’m getting out of poverty and all that.  This is something that the West has not learned yet and is not able still to adapt to that. On the other hand, internationally, they have that experience with a hostile US and they diversify their relations. Here you see their big position in the UN, leading to state agreements with 130 countries, transparent things, yearly meetings of the different groups of countries. All direct, transparent investment through the BRICS Bank, through the AIIV, the Asian Infrastructure Investment bank. Here you can see things that are quite transparent and there’s nothing in the world that is as well accompanied by research. Several big US institutions, Boston University, Johns Hopkins and many, many other institutes in China publish a lot of any aspect of the belt and road initiative.

The Mint: Sometimes changes in power relations can happen possibly as much by accident as where there is a void because, I mean, obviously we’re seeing the US weakening and it seems they are going to be hugely weakened by the pandemic and the chaotic response. Meanwhile, of course, the world goes on and needs stability, needs leadership, and China is obviously getting stronger, creating relationships. Is it going to be unwillingly pulled into an increasingly global role?

Wolfram Elsner: If you look at the UN decisions, for instance, decisions in the UN general assembly, you see that a lot of countries seem to wish to push China into a world leading role. If I look at this document, looked at that and analysed how they voted, how the initiatives of the West against China end up with disastrous results, they get 20 votes now for the annual China decision drafts  and they get 50, 60, 70 now against – which is an indication that something is happening.

The Mint:  What is this? This is the annual vote?

Wolfram Elsner: The West more or less annually suggest decisions in the UN general assembly to agree to China on anything. They have their 20, 22 votes only in favour and increasing votes against. 

The Mint: What is China’s sphere of power in terms of their ability to get countries to vote for them? Presumably African countries, the belt and road initiative. What about Europe as well?

Wolfram Elsner: Yeah, it has to do with the belt and road initiative, but it also has to do with the fact, for instance, as I see it from hundreds of UN documents I read, is that they invited all member countries of the UN to visit Xinjiang the Uyghur  Autonomous Republic province. You could say this is very clever, or so it is felt by many politicians, state presidents, state representatives as a strategy of trust, and China can, of course, rely on the history of South-South cooperation; they did it from 1949 on.

The Mint: This is the province where the  controversial internship of populations is happening and different interpretations of what is going on. Is that right?

Wolfram Elsner: The Autonomous Republic of the Uyghurs, yeah.

The Mint: So that was the point of Xinjiang and who was voting on what.

Wolfram Elsner: Among others. I mean, yeah, on the Uyghurs you have the same pattern, you have attempt of the West in the general assembly to sentence China and they didn’t get a majority anymore. On the contrary, 60/70 countries voted against all these countries who have sent their politicians to visit the Xinjiang.

The Mint: Does that include countries in Europe?

Wolfram Elsner: It does not because the EU politicians did not accept that invitation; they did not travel. But a lot of countries that have Muslim populations or problems with Islamistic radicalism all went there and they said, ‘Look, they have a quite relaxed -historically very relaxed – relationship between the religions, and education is probably the right thing to avoid.’ I mean, closing the Western borders so that  these people, these God’s fighters from Syria cannot come back into Xinjiang that’s one thing, and the other thing is bringing investment, infrastructure, education and language, et cetera, into Xinjiang. I mean, a traditional Muslim, of course, would not hail that automatically. It is changed now from Ürümqi, from the capital of Xinjiang. It’s a big part of the belt and road now, and that brings in Han Chinese and that brings in change and modernity, and you can drive with the bullet train to Beijing within five hours, et cetera. Not everyone would like that, of course , so you see it’s a difficult thing. 

The Mint: I suppose there are always, obviously, these points of battle and exactly what’s going on is always going to be contentious in terms of how China treats its population. You’re saying that at least there’ll always be a question, I suppose, with the people who are supporting China, whether that is based on their need for cooperation and support and the demands of the Chinese for their support, or actually an objective view of what’s going on, isn’t it?

Wolfram Elsner: Yeah, could be some kind of buying of these votes. That is always the second thought that lingers around in the media, of course.

The Mint: Everyone, all countries. The US have bought votes effectively. That is the game that more powerful countries have played for decades. Isn’t it?

Wolfram Elsner: Look, I mean with Africa, for instance, I didn’t know until last year that around 500,000 African students are studying in China. That’s the case, China is an immigration country for traditional third world countries. They have huge immigration numbers from Africa, for instance. McKinsey has done a huge study in Africa in 35 out of 37 countries or so, and they said 40% of the management of Chinese companies in Africa are Africans. 80% on the workers level are Africans. The first time Africa realises some industrialisation. They give them cheap mobile phones in order to set up a little business and for the first time they realise something like industrialisation and they get together with the African countries of the belt and road initiative with China every year. For the first time you read about industrialisation and future in industry trade between China and Africa. Why hasn’t the West done that ever in 50 years?

The Mint: It’s interesting that this story has lots of resonance for me with the story of the British empire that first went into great trading relations and started economic cooperation, but then there was local difficulties or conflicts or whatever. And in order to keep the peace, of course, then they began to move in with more power and slowly took over and eventually India became part of the empire, but it was an evolutionary process that started with trade, but with a  power imbalance. That’s where I come back to the question of China is developing all these relations and economic relations and so forth which also come with a level of power imbalance, if things start getting out of hand there could be lots of instability, lots of reasons things get problematic, and they get more and more in to being more like an empire.

Wolfram Elsner: That would be a huge danger, of course. What I see is that the entire approach is different. They do not get involved with the elites in neither Latin America nor in Africa. There is no money going to the elites, it’s direct investment in infrastructure.

The Mint: How do you know that?

Wolfram Elsner: Well, it’s quite transparent. The financial flows are quite transparent and you can read these contracts-

The Mint: But why does China get away with dealing in these countries without paying bribes when the West had to pay bribes?

Wolfram Elsner: Yeah, that is an interesting question. I mean, it has to do with the history of Southeast Asia and China, particularly their philosophy. The philosophy is Confucian , still Confucian – 3000 years old. They call it Neo Confucianism. They brought it in again, say, ‘Look, it has to do with  differences in systems’, and they don’t care of any political difference; they would finance in Syria as well as in Turkey.

The Mint: But how does this relate to the issue of bribery? I was talking last week to John Perkins who styled himself ‘Economic Hitman’, and basically he worked in Africa and other developing countries. His basic role was to persuade the African countries, the elite, to go into debt, to finance infrastructure, which created growth which benefited the elite. It was based all around elite support.

Wolfram Elsner: I just can tell you what the literature says on this. The recent literature stresses the completely different approach between finance, say the IMF on the one hand and the World Bank, with the political restrictions, interventions are conditions for giving credit, versus the policy of the BRICS Bank, of the AIIB, the Chinese Exim Bank, et cetera. They give credit on –  I just say what I read from the literature, Chinese books, in English books at the usual British and American publishers so it’s open academic books – they give credit without any political interference. That is an old thing that China has practiced from old times, 49, helping, cooperating  and not interfering. That’s why they are welcomed so much nowadays from the political elites, you may say, in Africa without bribing them;  that is their solution.

The Mint: But all banks, all lenders, look for some security that their debt will be repaid. Obviously the form of security with countries tends to be that their policies are what they do with the funds, are more likely to lead to repayment, which tends to lead to how are misguided conditions being put on the activities in those countries? What reassurance   does China look for so that they’re actually ever going to be repaid?

Wolfram Elsner: What I see is that the capital given under BRICS and under AIIB,  the Asian Infrastructure Investment Bank, one of the big three for East Asia banks doing all that in the belt and road, et cetera, they are patient capital in the sense that China is much more flexible in extending credit, in reducing the coverage which-

The Mint: My question was how do they feel that they’re going to be repaid? It’s one thing being flexible, but how do they have some assurance that they will get repaid? Or what are they looking for? If they’re not sure they’re going to be repaid, why are they lending it? And what else do they want? We know assets that have been stranded. You can have white elephants, there’s no ‘just because you invest in infrastructure doesn’t mean the infrastructure hasn’t devalued’.

Wolfram Elsner: I do not know exactly about the profit rates that they get, whether they are satisfied with lower profit rates as so, and I don’t know about the policy of profit rates that the IMF has, for instance. But I’m pretty sure that neither the IMF nor World Bank nor four big East Asian and third world banks, that are taking over now, are calculating with a narrow, private commercial profit rate. I don’t think that because there’s too much turbulence around.

The Mint: That might be fair enough, but then you have to recognise, well, what is the calculation? What are the criteria? And that’s where it comes back to influence and so on. But let’s just move on because I wanted to end with thinking  where’s this all going to end. The US under Trump seems to have an ongoing, as you say, war approach to trade, and the more China diversifies its power base, diversifies its relationships, the more they will see China as threatening while the US itself seems to be in a bad place. What’s the outlook then?

Wolfram Elsner: Well, the outlook could well be that we see serious problems for the US. We might see it collapsing in parts, you never know. We will see post-Corona re-globalisation  led through China through the belt and road countries and, as said, 130 countries around already. We will see an upcoming of Eurasia. We will see a bifurcation in Europe, where the UK, the EU, Germany and France seem not to be decided yet what to do. They’re talking about very restrictive industrial policy. They’re talking about nationalisation of corporations as soon as China comes in and wants to buy part of, say, Mercedes . So, the EU, the UN and Germany, that’s what I can judge, have, now, negative, restrictive industrial policy regulations to nationalise a company if the Chinese come in and take more than 10% or something like this. Which is all okay, I would say, even for the Chinese. I mean, Chinese investment in Germany has gone down for three years already now against that background, but, anyway, they can diversify into Eurasia and Europe. The EU and UK will have to decide what they want to do, verify their own structures and get into a bargaining.

The Mint:  You said a bifurcated Europe, so, are there parts of Europe that are much more positive about working with China? Like, isn’t Ital, part of the belt and road initiative? Is that right?

Wolfram Elsner: Yeah, they’re part of the 16 plus one. That is interesting, though. The Middle East and Eastern European countries, most of them EU members, have formed, or did form five years ago, a format with China; 16 middle Eastern European countries plus China. Switzerland has joined that format, Italy has joined that format and Greece has joined that format.

The Mint: Could this become a point of high tension within Europe?

Wolfram Elsner: It is already because in the United Nations some countries already didn’t vote. Member countries, Greece, for instance, didn’t vote together with the EU and America and the US on these initiatives and decisions that I mentioned.

The Mint: So, the US is weakening. Europe is being split. China is rising. Isn’t the inevitable consequence all that of an increasingly dominant China and Southeast Asia?

Wolfram Elsner: Of course. I mean, everyone says China is the big winner out of Corona. They did their pattern of dealing with it without taking care of the economy for two months and then made it in some certain way, a way that we cannot imitate in the West. So we going a different way. We just try to stretch why South East Asia, South Korea, China, they broke the graph. You see the graphs, they broke it, and while we tried to stretch it and reduce the growth rate, of course, yes. And so China will go its way with an increasing number of countries, that is my forecast, and they will rebuild a globalisation different from the globalisation that we know, that we have known. Europe will have to decide how far to take part. Rotterdam or Duisburg in Germany are hugely profiting from it every week. Duisburg, 2030, trains from China are to come in after 10, 11 days travel with thousands of containers. So, as the mayor of Duisburg or Rotterdam, whether they should take part in the belt and road initiative, no one has said no one has an interest of a split, global economy with the US going down on the one hand and China thriving on the other hand. That could be the future.

The Mint: Things have happened that don’t seem to be in the interests of people. These things have a momentum and could happen. Couldn’t they?

Wolfram Elsner: They definitely will happen, yes, and look, everything that happens in the West now, everyone is speaking about industrial policy now. Everyone is speaking about nationalisation of national champions incase the Chinese come in. That is negative industrial policy. If they put it forward and change it into a positive industrial policy, then it’s all – look, it’s all China style. It’s China style. You can bargain among the states, and what Trump did, the phase one trade agreement of last January, that was purely state planning of trade. So, the Chinese are , as I see it, the least to be against that. So, there’s a huge chance for Europe, and because most of the European industrialised countries still have a big reputation in China, if you speak with Chinese, they say, ‘Oh, we are learning. We would like to cooperate with the EU. They are so good. They still are good industry, 4.0, let’s take that chance and get into a self-conscious position and bargain out of a self conscious position rather than biting and bashing.’

The Mint: Well, maybe we should end with that positive potential direction. Well, thank you very much, Wolfram, and that’s been absolutely fascinating.

Wolfram Elsner: Thank you, Henry. Bye bye to London.

The Mint: Bye, bye.

 

 

Wolfram Elsner

Wolfram Elsner has been Professor of Economics at University of Bremen, Germany, since 1995. Prior to that he worked in regional economic development in Germany at the state level. He …

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