The old year is closing with falling stock prices, influenced by the rising trade war between China and the United States. Analysts are predicting a major “correction” in international markets, even if Beijing and Washington manage to sort out their trading differences.
But there are not simply losers in the changing economic mood. There are also winners. These, of course, include the short-sellers who more than anyone in recent years have turned the capital markets into a casino using investment tactics that include betting on share price falls. The original function of these markets, to raise capital for productive investment, seems a million miles away from the current shenanigans and the absurd risks they pose to overall financial stability. If there is another worldwide financial collapse mirroring the US subprime scandal, it will not simply be because sharp market manipulators have chosen not to learn the bitter lessons of only a decade ago. It could also be because virtually none of the bankers and market players responsible for a recession that damaged the livelihoods of millions of ordinary people worldwide was ever prosecuted and suffered the consequences of their dishonesty and stupidity.
But there are other winners. After the humiliating American defeat in Vietnam in 1975, Washington tried to turn its back on the Southeast Asian country. But despite the usual corruption, the Communist government in Hanoi gradually rebuilt its war-torn country so that now Vietnam has become a successful regional economic player.
One byproduct of the Sino-US trade confrontation has been that Chinese firms have begun relocating manufacturing to Vietnam, seeking to avoid any US commercial sanctions. At present “Made in China” is the ubiquitous marking on everything from electronic goods to clothes pegs. There seems nothing that the Chinese do not make. But already the stamp “Made in Vietnam” is becoming increasingly common. Hanoi has learned many lessons from Beijing and has used the dominance of its Communist party rule to order and control the economy.
If China and America broaden their trade war, other Asian countries are also likely to find themselves in an advantageous position. India, of course, is one of them. Premier Narendra Modi has done much to foster the growth of the country’s economy but India is a very different proposition to China and Vietnam. The main dissimilarity is that the world’s largest democracy has flourished thanks to a sort of constructive chaos that could never be tolerated in Beijing or Hanoi. “Modinomics” has been a fine sounding description for the premier’s policies. However, critics would argue that besides encouraging the ugly face of Hindu extremism, Modi’s main contribution has been to protect the Indian oligarchy. This has benefited from substantial loans given by state banks, many of which have not been repaid. Moreover, the big Indian groups, such as Tata, have chosen to invest far more heavily abroad than domestically, which is an indictment of their country’s still poor investment climate. This has also affected foreign investors put off by excessive and arbitrary regulation.
Modi has justified the successive ousting of two tough governors of India’s central bank as being part of a new “Indian” as opposed to international economic model. Yet it is surely a mistake to try to impose a Chinese-style command economy on the brilliant creative anarchy that is India.
