Authors: Tridivesh Singh Maini and Mahitha Lingala*
Fortune Magazine’s Global 500 list is noteworthy. For the first time, the number of Chinese companies in the list (119) nearly equals that of the US (121). If one were to add companies from Taiwan (10), the number of Chinese companies (129) comfortably surpasses that of China.
It would be pertinent to point out however, that the revenue of Chinese companies counts for a little over 25% (25.6%) of the 500 companies as opposed to that of the US which accounts for 28.8%.
In the top 5, there are three Chinese companies (all state owned); Sinopec group (ranked number 2), China National Petroleum (ranked number 4) and State Grid ranked number 5). The percentage of State Owned Enterprises in the list has risen from last year (over 80% in 2019 from 76.3% last year).
A number of Chinese banks like the Industrial and Commercial bank of China, followed by China Construction Bank, Agricultural Bank of China were also on the list.
This list, once again reiterates the point, that China’s growth has been largely propelled by a model of ‘State Capitalism’, where state run enterprises have helped China increase its clout globally.
In recent years however, a large number of private enterprises have also emerged like Ali Baba, Huawei, Xiaomi, Oppo, Dashang Group, Ping An and legend holdings have emerged.
Ping An which is a tech giant as well which feeds its data algorithms with data harvested from its close to 200 million customers stood at the 29th place on the list with an annual revenue of $163.5 Billion.Huawei telecom jumped 11 spots from last year and was at 61st place,with revenue estimated at$ 109.03 Billion.Ali Baba witnessed fastest growth jumping 118 spots and was ranked at 182.
State Capitalism vs the model of liberal democracies
State Capitalism has been one of China’s major successes, because the Chinese government has no ambiguity in backing mega projects of its enterprises overseas like Twyford factory in the Kenyan Capital, Sunshine group’s mining activities in Tanzania, and many more infrastructural projects in the African Continent and other parts of the world. One of the most important investments is that of the Chinese Export-Import Bank provided 85 percent of the funding for the $475 million Addis Ababa Light Rail.
It would be important to point out, that even private companies, a prominent example being Huawei, are not free from Chinese interference. Australia has banned Huawei from rolling out 5G network. Trump who has dubbed Huawei as a national security threat had imposed a ‘government blacklist’. Recently, while trying to relax some of the restrictions, the US did state that Huawei was still on the entity list and would need a US government license to buy American technology.
Economic growth in democracies on the other hand is not solely dependent upon state enterprises. The number 1 company on the Fortune 500 list is Walmart. If one were to look at the case of Indian companies which are there on the list, there are two private sector companies while the rest are PSU’s. While Reliance is ranked at 99. Oil & Natural Gas Corp (ONGC) a PSU ranks 160, State Bank of India (SBI), Tata Motors, Bharat Petroleum Corp Ltd (BPCL) ranked 275 and Rajesh Exports a private sector company is ranked at 495.
How Chinese companies are benefitting from BRI
A number of Chinese companies (a prominent example being shipping giant COSCO) are seeking to benefit through the Belt and Road Initiative (BRI) .
Beijing has injected massive amounts of capital into Chinese public financial institutions, which make borrowing costs very low as their bonds are treated like Chinese government debt, allowing them to lend cheaply to Chinese companies working on BRI projects. This enables the Chinese companies to outbid their counterparts to due to the inexpensive availability of funds. China’s state owned enterprises that suffered a drought for a while, due to the slowing of the domestic market, are getting a push due to BRI as they are now investing in over-sees infrastructural projects. Most of the BRI initiatives have thus far been implemented by Chinese Companies. Right now, 89% of BRI projects have been implemented by Chinese companies, with the main beneficiaries being construction and infrastructure sector companies.
Another Chinese Industry to gain from BRI, is the tech export industry. For example , Haier Electronics which is a Chinese appliance manufacturer has built six industrial parks in BRI countries.
Projects that initially started as merely China funded projects, they were later on leased or taken over by Chinese Companies, one such project is the Hambantota port. The port was built with 85% funding from the EXIM Bank of China, but in 2016, 80% of it was leased to a Chinese company called China Merchants Ports holding company (CMPort) for debt for equity swap.
Indo-Pacific and private sector
While US, Japan, India and Australia have been speaking about an alternative vision to the BRI , through the FOIP (Free and Open Indo Pacific). One of the distinguishing factors of the FOIP can be greater participation by Private players from these countries in connectivity and infrastructure projects.
The Trump administration has been supporting a greater role for the private sector in FOIP related connectivity initiatives.
Commenting on US involvement in the Indo-Pacific, US Secretary of State Mike Pompeo had stated:‘….. We want these to be commercially available projects led by the American private sector in a way that benefits the entire region and the world,”
The US Secretary of State during an address at the US Chamber of Commerce while outlining the US vision for the Indo-Pacific (which included 113 Million USD for areas such as Digital Economy, Energy and Infrastructure as well as ) while highlighting the important role of the private sector in the Indo-Pacific stated that US private companies.
The BUILD (Better Utilization of Investment leading to Development) act which received bipartisan support in the US Senate as well as House of Representatives, has helped in creating a new agency the U.S. International Development Finance Corporation (USIDFC) to replace the earlier Overseas Private Investment Corporation (Corporation) which encouraged private companies to invest in Africa. USIDFC is different in a number of ways first its budget is 60 Billion USD as opposed to the earlier 29 Billion allocated for OPIC. Second, it can make deals and provide loans in local currency which makes it more attractive.
The Fortune 500 list brings to the fore many points, one of them being that liberal democracies such as US, Japan, Australia and India, need to come up with an alternative model to that of China’s State Capitalism. While the FOIP has lacked clarity, one area where it can improve is to come up with clear aims and objectives beyond countering China (the BUILD act is a positive step in this direction). This will also help counter ambiguity surrounding the versions of Japan and US’s FOIP versions. A first step could be roping in private players from US, Japan, India and Australia into infrastructural and connectivity projects and not merely depending on governments.
*Mahitha Lingala is a student at The Jindal School of International Affairs, OP Jindal Global University, Sonipat, India
Synchronicity in Economic Policy amid the Pandemic
Synchronicity is an ever present reality for those who have eyes to see. –Carl Jung
The Covid pandemic has elicited a number of deficiencies in the current global governance framework, most notably its weaknesses in mustering a coordinated response to the global economic downturn. A global economy is not fully “global” if it is devoid of the capability to conduct coordinated and effective responses to a global economic crisis. What may be needed is a more flexible governance structure in the world economy that is capable of exhibiting greater synchronicity in economic policies across countries and regions. Such a governance structure should accord greater weight to regional integration arrangements and their development institutions at the level of key G20 decisions concerning international economic policy coordination.
The need for greater synchronicity in the global economy arises across several trajectories:
· Greater synchronicity in the anti-crisis response across countries and regions – according to the IMF it is a coordinated response that renders economic stimulus more efficacious in countering the global downturn
· Synchronicity in the withdrawal of stimulus across the largest economies – absent such coordination the timing of policy normalization could be postponed with negative implications for macroeconomic stability
· Greater synchronicity in opening borders, lifting lockdowns and other policy measures related to responding to the pandemic: such synchronicity provides more scope for cross-country and cross-regional value-added chains to boost production
· Greater synchronicity in ensuring a recovery in migration and the movement of people across borders.
Of course such greater synchronicity in economic policy should not undermine the autonomy of national economic policy – it is rather about the capability of national and regional economies to exhibit greater coordination during downturns rather than a progression towards a uniform pattern of economic policy across countries. Synchronicity is not only about policy coordination per se, but also about creating the infrastructure that facilitates such joint actions. This includes the conclusion of digital accords/agreements that raise significantly the potential for economic policy coordination. Another area is the development of physical infrastructure, most notably in the transportation sphere. Such measures serve to improve regional and inter-regional connectivity and provide a firmer foundation for regional economic integration.
The paradox in which the world economy finds itself is that even as the current crisis is leading to fragmentation and isolationism there is a greater need for more policy coordination and synchronicity to overcome the economic downturn. This need for synchronicity may well increase in the future given the widening array of global risks such as risks to cyber-security as well as energy security and climate change. There is also the risk of the depletion of reserves to counter the Covid crisis that has been accompanied by a rise in debt levels across developed and developing economies. Also, the speed of the propagation of crisis impulses (that effectively increases with technological advances and globalization) is not matched by the capability of economic policy coordination and efficiency of anti-crisis policies.
There may be several modes of advancing greater synchronicity across borders in international relations. One possible option is a major superpower using its clout in a largely unipolar setting to facilitate greater policy coordination. Another possibility is for such coordination to be supported by global international institutions such as the UN, the WTO, Bretton Woods institutions, etc. Other options include coordination across the multiplicity of all countries of the global economy as well as across regional integration arrangements and institutions.
Attaining greater synchronicity across countries will necessitate changes in the global governance framework, which currently is characterized by weak multilateral institutions at the top level and a fragmented framework of governance at the level of countries. What may be needed is a greater scope accorded to regional integration arrangements that may facilitate greater coordination of synchronicity at the regional level as well as across regions. The advantage of providing greater weight to the regional institutions in dealing with global economic downturns emanates from their greater efficiency in coordinating an anti-crisis response at the regional level via investment/infrastructure projects as well as macroeconomic policy coordination. Regional development institutions also have a comparative advantage in leveraging regional interdependencies to promote economic recovery.
In conclusion, the global economy has arguably become more fragmented as a result of the Covid pandemic. The multiplicity of country models of dealing with the pandemic, the “vaccine competition”, the breaking up of global value chains and their nationalization and regionalization all point in the direction of greater localization and self-sufficiency. At the same time there is a need from greater synchronicity across countries particularly in the context of the current pandemic crisis. Regional integration arrangements and institutions could serve to facilitate such coordination in economic policy within and across the major regions of the world economy.
From our partner RIAC
A New Strategy for Ukraine
Authors: Anna Bjerde and Novoye Vremia
Four years ago, the World Bank prepared a multi-year strategy to support Ukraine’s development goals. This was a period of recovery from the economic crisis of 2014-2015, when GDP declined by a cumulative 16 percentage points, the banking sector collapsed, and poverty and other measures of insecurity spiked. Indeed, we noted at the time that Ukraine was at a turning point.
Four years later, despite daunting internal and external challenges, including an ongoing pandemic, Ukraine is a stronger country. It has proved more resilient to unpredictable challenges and is better positioned to achieve its long-term development vision. This increased capacity is first and foremost the result of the determination of the Ukrainian people.
The World Bank is proud to have joined the international community in supporting Ukraine during this period. I am here in Kyiv this week to launch a new program of assistance. In doing this, we look back to what worked and how to apply those lessons going forward. In Ukraine—as in many countries—the chief lesson is that development assistance is most effective when it supports policies and projects which the government and citizens really want.
This doesn’t mean only easy or even non-controversial measures; rather, it means we engage closely with government authorities, business, local leaders, and civil society to understand where policy reforms may be most effective in removing obstacles to growth and human development and where specific projects can be most successful in delivering social services, particularly to the poorest.
Looking back over the past four years in Ukraine, a few examples stand out. First, agricultural land reform. For the past two decades, Ukraine was one of the few countries in the world where farmers were not free to sell their land.
The prohibition on allowing farmers to leverage their most valuable asset contributed to underinvestment in one of Ukraine’s most important sources of growth, hurt individual landowners, led to high levels of rural unemployment and poverty, and undermined the country’s long-term competitiveness.
The determination by the President and the actions by the government to open the market on July 1 required courage. This was not an easy decision. Powerful and well-connected interests benefited from the status quo; but it was the right one for Ukrainian citizens.
A second area where we have been closely involved is governance, both with respect to public institutions and the rule of law, as well as the corporate governance of state-owned banks and enterprises. Poll after poll in Ukraine going back more than a decade revealed that strengthening public institutions and creating a level playing field for business was a top priority.
World Bank technical assistance and policy financing have supported measures to restore liability for illicit enrichment of public officials, to strengthen existing anticorruption agencies such as NABU and NACP, and to create new institutions, including the independent High-Anticorruption Court.
We are also working with government to ensure the integrity of state-owned enterprises. Our support to the government’s unbundling of Naftogaz is a good example; assistance in establishing supervisory boards in state-owned banks is another. We hope our early dialogue on modernizing the operations of Ukrzaliznytsia will be equally beneficial.
As we begin preparation of a new strategy, the issues which have guided our ongoing work—strengthening markets, stabilizing Ukraine’s fiscal and financial accounts; and providing inclusive social services more efficiently—remain as pressing today as they were in 2017. Indeed, the progress which has been achieved needs to continue to be supported as they frequently come under assault from powerful interests.
At the same time, recent years have highlighted emerging challenges where we hope to deepen and expand our engagement. First, COVID-19 has underscored the importance of our long partnership in health reform and strengthening social protection programs.
The changes to the provision of health care in Ukraine over recent years has helped mitigate the effects of COVID-19 and will continue to make Ukrainians healthier. Government efforts to better target social spending to the poor has also made a difference. We look forward to continuing our support in both areas, including over the near term through further support to purchase COVID-19 vaccines.
Looking ahead, the challenge confronting us all is climate change. Here again, our dialogue with the government has positioned us to help, including to achieve Ukraine’s ambitious commitment to reduce carbon emissions. During President Zelenskyy’s visit to Washington in early September we discussed operations to strengthen the electricity sector; a program to transition from coal power to renewables; municipal energy efficiency investments; and how to tap into Ukraine’s unique capacity to produce and store hydrogen energy. This is a bold agenda, but one that can be realized.
I have been gratified by my visit to Kyiv to see first-hand what has been achieved in recent years. I look forward to our partnership with Ukraine to help realize this courageous vision of the future.
Originally published in Ukrainian language in Novoye Vremia, via World Bank
Russia, China and EU are pushing towards de-dollarization: Will India follow?
Authors: Divyanshu Jindal and Mahek Bhanu Marwaha*
The USD (United States Dollar) has been the world’s dominant currency since the conclusion of the second world war. Dollar has also been the most sought reserve currency for decades, which means it is held by central banks across the globe in significant quantities. Dollar is also primarily used in cross-border transactions by nations and businesses. Without a doubt, US dollar’s dominance is a major reason for the US’ influence over public and private entities operating around the world. This unique position not only makes US the leader in the financial and monetary system, but also provides incomparable leverage when it comes to coercive ability to shape decisions taken by governments, businesses, and institutions.
However, this dynamic is undergoing gradual and visible changes with the emergence of China, slowdown in the US economy, European Union’s independent policy assertion, Russia-US detachment, and increasing voices from across the world to create a polycentric world and financial system in which hegemonic capacities can be muted. The world is witnessing de-dollarisation attempts and ambitions, as well as the rise of digital or cryptocurrencies at an increasing pace today.
With Russia, China and EU leading the way in the process of de-dollarisation, it needs to be argued whether India, currently among the most dollarized countries (in invoicing), will take cue from the global trends and push towards de-dollarisation as well.
The dominant role of dollar in the global economy provides US disproportionate amount of influence over other economies. As international trade needs a payment and financial system to take place, any nation in position to dictate the terms and policies over these systems can create disturbances in trade between other players in the system. This is how imposition of sanctions work in theory.
The US has for long used imposition of sanctions as a tool to achieve foreign policy and goals, which entails restricting access to US-led services in payment and financial transaction processing domains.
In recent years, several nations have started opposing the unilateral decisions taken by the US, a trend which accelerated under the former president Donald Trump’s tenure. He withdrew US from the JCPOA deal between Iran and US, aimed at Iran’s compliance with nuclear discipline and non-proliferation. Albeit US withdrawal, other signatories like EU, Russia, and China expressed discontent towards the unilateral stance by the US and stayed committed towards the deal and have desired for continued engagements with Iran in trade and aid.
Similarly, the sanctions imposed on Russia in the aftermath of the Crimean conflict in 2014 did not find the reverberations among allies to the extent that US had wanted. While EU members had switched to INSTEX (Instrument in Support of Trade Exchanges) which acts as a special-purpose vehicle to facilitate non-USD trade with Iran to avoid US sanctions, EU nations like Germany continue to have deep trade ties with Russia, and EU remains the largest investor as well the biggest trade partner for Russia, with trade taking place in euros, instead of dollars.
Further, despite the close US-EU relations, EU has started its own de-dollarization push. This became more explicit when earlier this year, EU announced plans to prioritize the euro as an international and reserved currency, in direct competition with dollar.
Trajectories of Russia, China, and EU’s de-dollarisation push
Russia has emerged as the nation with the most vigorous policies oriented towards de-dollarization. In 2019, the then Russian Prime Minister Dmitry Medvedev had invited Russia’s partners to cooperate towards a mechanism for switching to use of national currencies when it comes to transactions between the countries of the Shanghai Cooperation Organization (SCO). It must be noted that in Eurasian Economic Union (EAEU), which functions as a Russian-led trade bloc, more than 70 percent of the settlements are happening in national currencies. Further, in recent years, Russia has also switched to settlements in national currencies with India (for arms contracts) and the two traditionally strong defence partners are aiming at exploring technology as means for payment in national currencies.
Russia’s push to detach itself from the US currency can also be seen in the transforming nature of Russia’s foreign exchange reserves where Russia for the first time had more gold reserves than dollars according to the 2018 data (22 percent dollars, 23 percent gold, 33 percent Euros, 12 percent Yuan). As per the statement by Russian Finance Minister in 2021, Russia aims to hold 40 percent euro, 30 percent yuan, 20 percent gold and 5 percent each of Japanese yen and British pound. In comparison, China holds a significant amount of dollar denominated assets as forex reserves (50 to 60 percent) and has the US as its top export market with which trade takes place mostly in US dollars. Moreover, Russia has also led the push by creating its own financial messaging system- SPFS (The System for Transfer of Financial Messages) and a new national electronic payment system – Mir, which has witnessed an exponential rise in its use.
While China-Russia trade significantly depends on euros instead of their own national currencies (even though use of national currencies is slowly rising), instead of pushing the Chinese national currency Renminbi (RMB), Beijing is aiming towards establishing itself as the first nation to issue a sovereign digital currency, which would help China to engage in cross border payments without depending on the US financial systems. Thus, for China, digital currency seems to be the route towards countering the dollar dominance as well as to increase its own clout by leading the way for an alternate global financial system operating in digital currencies. It needs to be noted here that EU has succeeded in internationalizing the euro and this can be seen in the fact that EU-Russia trade as well as Russia-China trade occurs predominately in euros now.
Will India follow suit?
Indian economy’s dynamic with dollar is different than other major economies in the world today. Unlike China or Russia (or EU and Japan), which hold dollars in significant amounts, India’s reserve is not resulted by an export surplus. While others accumulate dollars from their earnings of trade surplus, India maintains a large forex reserve even though India imports less than it exports. In India’s case, the dollar reserves come through infusion of Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI), which reflects the confidence of foreign investors in India’s growth prospects. However, accumulation of dollar reserves through this route (which helps in offsetting the current deficit faced in trade), India remains vulnerable to policy changes by other nations’ monetary policies which are beyond India’s own control. For instance, it has been often highlighted that a tightening of the US monetary policy leads to capital outflows (capital flight) from India, thus impacting India adversely.
New Dehi has resisted a de-dollarization push for long. Back in 2009, when Russia and China had started the push via BRIC mechanism (Brazil, Russia, India, China grouping), it was argued that New Delhi would not like to upset Washington, especially after the historic US-India civil nuclear agreement was signed just a year before in 2008 -for full civil nuclear cooperation between the two nations.
Further, currency convertibility is an important part of global commerce as it opens trade with other countries and allows a government to pay for goods and services in a currency that may not be the buyer’s own. Non-convertible currency creates difficulties for participating in international market as the transactions take longer routes for processing (which in case of dollar transactions, is controlled by US systems).
Just like Chinese renminbi, Indian rupee is also not yet fully convertible at the exchange markets. While this means that India can control its burden of foreign debt, and inflow of capital for investment purposes in its economy, it also means an uneasy access to capital, less liquidity in financial market, and less business opportunities.
It can be argued that just like the case of China and Russia, India can also look towards having a digital currency in the near future, and some signs for this are already visible. India can also look towards having an increased share of euros and gold in its foreign exchange reserves, a method currently being used by both China and Russia.
An increasing number of voices are today pointing towards the arrival of the Asian age (or century). With China now being the leading economic power in the world, US economy on a slowdown, and emergence of an increasing polycentric structure in world economy, the dominance of dollar is bound to witness a shake-up. In order for global systems to remain in sync with the transforming economic order, structural changes like control over leading economic organisations (like IMF and World Bank) will become increasingly desirable.
With an increasing number of nations now looking towards digital currencies and considering a change in the mix of their foreign exchange reserves, a general trend is now visible even if it would not mean an end to dollar’s dominance in the immediate future. As the oil and gas trade in international markets also start shifting from dollar, geopolitical balance of power is expected to witness a shift after decades of US dominance.
Major geopolitical players like China, Russia and EU have already started their journey to counter the dominance of dollar, and the strings of US influence on political decisions that come with it. According to Chinese media, Afghanistan’s reconstruction after US-withdrawal can also accelerate the global de-dollarization push as nations like Saudi Arabia might look for establishing funds for assisting Afghanistan in non-dollar currencies. So, conflict areas highlight another avenue where de-dollarization push will find a testing arena in coming times.
India has several options for initiating its de-dollarization process. Starting from Russia-India transactions, trade with Iran, EAEU, BRICS and SCO members in national or digital currencies can also become a reality in near future. Considering India’s present dollar dependence, whether US sees India’s move towards de-dollarisation as a direct challenge to US-India relations, or accepts it as a shift in the global realities, has to be seen.
*Mahek Bhanu Marwaha is a master’s student in Diplomacy, Law and Business program at the OP Jindal Global University, India. Her research interests revolve around Indian and Chinese foreign policies and trade relations.
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