[Caixin.com] (Author CDF Insight) November 01, 2019
Britain will still trade mainly with Europe after Brexit, but Brexit also brings opportunities for future economic and trade cooperation between China and Britain
Text | Jin Keyu London School of Economics and Political Science Professor of Economics
Recently, the EU has again extended the deadline for Brexit negotiations to January 31 next year. How will Brexit affect the future China-EU and China-UK trade patterns? At the 2019 China Development Forum, Associate Professor Jin Keyu of the London School of Economics and Political Science accepted our exclusive interview.
Jin Keyu believes that Britain will still trade mainly with Europe after Brexit, but Brexit also brings opportunities for future economic and trade cooperation between China and Britain.
Regarding the impact of economic globalization, she believes that the network relationship of economy and technology has reconstructed the vertical hierarchical relationship of the past. The relationship between major powers needs to be redefined. The focus now is on becoming a connected component and becoming part of a very close network. Any behavior that undermines this network will hurt everyone
Britain’s main trading partner after Brexit will still be Europe
CDF: How will Brexit affect future Sino-British relations?
Jin Keyu: This opens up potential cooperation opportunities between China and Britain, because Britain needs a very friendly trade environment now more than ever. I think Britain is very interested in cooperation with China in trade and investment. We also see that despite the recent turmoil, China’s investment in the UK continues. So this is an opportunity.
Nevertheless, we all know that trade is highly correlated with distance. If distance increases, trade decreases. Britain’s main trading partner in the future will still be Europe, no matter what. But in China’s foreign projects, such as the “Belt and Road Initiative”, Britain can be more proactive in the fields of technology, finance and other cooperation.
CDF: How will this change Europe? Will the relationship between the EU and China, and the relationship within the EU, change? Will the EU be more unified in terms of political and economic policies?
Jin Keyu: China used to see London as the gateway to Europe, but now that has changed, this will definitely have a negative impact on London. When China considers Bond Connect, Stock Connect and other financial interconnections, they will ask, Paris or Frankfurt? Before that, the answer was undoubtedly London. China will do more business with Europe rather than London.
I think Brexit will have a significantly smaller impact on Europe itself. All of Europe’s past problems will still exist, political problems, economic coordination problems, these problems will exist whether the UK is a member of the EU or not. But it does involve a larger issue, which is that it is not feasible without a political, fiscal and banking union, even from an economic perspective alone. This has nothing to do with whether the UK leaves the EU.
Economic Networks Replace National Relations
CDF: You mentioned earlier that economic networks are replacing national relations and redefining the world pattern. How do you understand this change?
Jin Keyu: Everything is a network now. Technology is a network, and it is built on networks. Even the English language is a network, and the supply chain is a network. We are in a network age.
There is an interesting analogy, dating back to Florence in the fifteenth century, when the Medici family was not the most powerful or the richest, but they were the most connected in the family network.
Because they were at the center of the network, they won great glory, reputation, and political influence. Network relations have replaced these hierarchical relations. Horizontal networks have replaced vertical networks or vertical relations, and we must understand this.
So when we talk about great power politics, what does it mean to be a great power? Does it mean that you make the rules and other countries follow them? Like the United States? It is no longer like this. The focus is on the connected components, on being part of a very tight network. Any behavior that disrupts this network will hurt everyone, including himself. So we need to redefine the meaning of great power relations.
CDF: China is the center of the manufacturing network, so is there a certain asymmetry between China’s economic strength and international influence?
Jin Keyu: Emerging market countries generally lack a say and a strong voice in the international system and architecture because they do not exist and do not participate when the rules are made. But in fact, they account for half of the world’s economic size. So this is not only a problem for China, but also for many other developing and emerging market countries. Of course, as we see the situation in China, as the economic size increases, other influences will also be stronger, such as political and geopolitical influence.
But then again, China is still not a real economic power because it is still very low in real income. As you can see, when the WTO is coordinating disputes, it is clear that emerging markets have not played an important role in setting the rules of the game. The WTO did not expect emerging markets to actually graduate. That’s the problem. That’s China’s problem. The WTO said, we make the rules because you will always be a developing country. But then a big country graduated and they didn’t know what to do. So developing countries need to speak up together.
Carefully distinguish where the government is effective and where it is inefficient
CDF: How do you evaluate China’s development model?
Jin Keyu: I think the first element of China’s development model is the unabashed use of state capacity, state resources, and state coordination capabilities. But we must be very careful to distinguish where this is effective and where it is not so effective.
It is very effective in creating a friendly business environment. China has done a very good job in this regard, attracting foreign companies and establishing a suitable environment, which is also conducive to the thriving of domestic companies. In addition, providing infrastructure, basic education and health care. The Chinese government’s ability, competence and efficiency in this regard are rare in other developing countries. This is also envied by many countries. Give private entities a basic environment to enable them to take advantage of this environment and thrive. So I think state capacity is very critical.
In addition, including before 1979, the government also played a big role in developing industry, improving literacy and public health. In 1949, India and China started at the same level, and by 1979, China was far ahead in many indicators such as welfare.
What are the areas where the government is not so effective? We have historical experience from China and other countries, which is to pick winners, pick strategies, and bet on industries.
There is no reason to believe that the government is more capable or has more information than the private sector in this regard, or can do better than the market decides. So we have to be very nuanced about what the state can and cannot do.
Industrial policy in some sectors may not be viewed from an economic perspective but from a security perspective. This should not be ignored. But I think that from an economic perspective, at least the research and data tell us that industrial policy is mixed.
Industrial policy combined with other policies may be more effective than one policy or just opening up. Because many countries have different results after trade liberalization. It is the combined impact of a series of policies. But industrial policy alone has not been proven to be effective, either in China or in the past in Japan, South Korea and other countries.
Just like opening up trade, you must first ensure that a large number of jobs are guaranteed and that they will be transferred to high-tech industries rather than staying in a low-tech, low-productivity balance. This is a combination of a series of policies.
Overall, letting the market decide who will be the winners and in which areas to trade may be a better choice.
- CDF Insight is an in-depth original interview column launched by the China Development Forum. This article was interviewed and proofread by Xia Tian, and edited by Si Lu
