2016 Asia: The Experts Forecast

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NEW YORK – Asia Society

15 December 2015


TOM NAGORSKI: Good evening everyone, sorry for the slight delay. I’m Tom Nagorski, the Executive Vice President here. Welcome to the year end edition of our ‘Asia, Beyond the Headlines’ series and our ‘Asia 2016 Experts Forecast’.

 

What I want to do tonight before we get started, two things. Frist of all to take a moment since we are almost at year’s end, to thank all of you for supporting our programs, for coming to our programs. It really means a lot to us and, on behalf of all of us at Asia Society, we wish you all the best of the holidays and for 2016. 2016 being of course what bring us here tonight to look at Asia in the new year, with not only the three great prognosticators who are in your programs but a special guest you may have caught a glimpse of coming in tonight. A little gift from the Asia Society for the holidays and that’s why we have five seats on this stage not four. But as promised, and as is something of a tradition here, before we start – a quick look at predictions we made a year ago. It’s only fair to look at and be honest about how we did. We made these – I made these in concert with our colleagues here but I take full blame and responsibility for what I forecast and what you’re about to see before we get to the professionals.

 

We did fifteen predictions for 2015 in Asia. Number one was that finally the Trans-Pacific Partnership, the TPP, would get done and that, as Josette Sheeran said, it would be transformative. It is and it was so we get a point for that. It’s going to not really go as well going forward.

 

We then went to Afghanistan. Personally, I find it hard to predict bad news. I think it just feels a bit unseemly so we thought that good news in Afghanistan might continue with Ashraf Ghani there. I think we described him as a game changer. We can proceed right through that. That has not gone, sadly, very well. Hard pressed to find people who think that the situation there either in terms of the violence or the causalities has improved.

 

Number three. Having predicted a year before that the Iran deal would get done we decided to try again, double down on that one. And I’m going to read this whole thing because this one we got. It’s not everything John Kerry wanted, it’s filled with things that infuriate the Israelis and other oppoents of the deal. But the nuclear deal is signed, Iran’s economy gets a near instant boost. Good.

 

Number four. We forecasted Aung San Suu Kyi would get on the ballot in Burma and win the Presidency. And generally speaking the tenor of that was right, her party won a landslide but she did not. The Constitution has not changed, she was not on the ballot. She will help choose the President but that doesn’t count.

 

We had two predictions – numbers five and six – on economic growth in Asia. That China would fall short of seven per cent, India would clear that benchmark. Good on both counts so we get two points there.

 

Number seven. Another bad news item. That North Korea would conduct its first nuclear test in years with a big rebuke from the Chinese. That may still happen this year, we have a few days left, but it hasn’t yet so no points on that. Ian says there’s hope.

 

Number eight. The wreckage of Malaysian Airlines Flight 370 would be found. Parts of the wreckage have been found, not the entirety.

 

Number nine. We’ve had so many unforeseen, unanticipated crises in the year prior we thought we had better predict one unforeseen, unanticipated crisis. We chose a major cyber attack in Asia. And delighted to report we were wrong. That hasn’t happened.

 

Number ten. That a record number of Asians, which would mean five, would win Nobel Prizes. Close but no cigar. Four winners.

 

In the Philippines we predicted good news on the typhoon front. They’ve had good news on this front and we’ve done a lot of good work in that country on disaster preparedness. We thought they’d have both fewer typhoons and better preparedness. I don’t think we deserve a point but we’ll take it. The internal team here was charitable.

 

While in the Philippines, that APEC would see a little bit of a rapprochement between China and the Philippines. Well APEC was held in Manila but that really didn’t happen. That brings us to our last three, which were all from the world of sport.

 

Ruchir Sharma, in deference to you we talked about this last year, we thought that India would retain the global cricket crown. Too bad.

 

We had two from the Women’s World Cup and I was really really proud of the first one because there are a lot of teams in the Women’s World Cup and we had US and Japan in the final so that was good. Being the Asia Society, we thought, let’s go for Japan in the final. We’re not unpatriotic but there it is, as you know, that was not close.

 

We’ll do sixteen for ’16. I’m smart enough now to wait til this event is over and get some really good ideas before we do it again.

 

You know from your fliers for the program, who is on our stage tonight. Or you know three our of four as I said. Ruchir Sharma is Managing Director, Head of Emerging Markets at Morgan Stanley, great to have you back. Ian Bremmer – CEO of the Eurasia Group and the Harold J. Newmann Distinguished Fellow here at the Asia Society Policy Institute. This fellowship is named for Hal, our trustee here at the Asia Society, great that you are all here. Our own Josette Sheeran – President and CEO of the Asia Society. So this is also the one time of the year where I get to interview my own boss. And here is the surprise, home for the holidays, President of the Asia Society Policy Institute and former Prime Minister of Australia – joining us is Kevin Rudd. So thank you all and we’ll get started.

 

While we were coming in because Kevin was a late add, we had a prediction from his home country that really goes out on a limb. Kevin do you want to just read this because there is an election in your country next year.

 

KEVIN RUDD: My prediction for 2016 in Australia is that I will not be the Prime Minister of Australia. And I’m quite happy about that.

 

NAGORSKI: Alright, we can book that one. Thank you all, this is really – I know a lot of organizations do this, we don’t brag too much here but I can’t imagine that there at that many moderators who have a foursome like this on their stage. What we wanted to start with and I hope my head doesn’t get in the way, I mentioned last year’s event and there were some statements and forecasts made that were not only close to spot on but also have relevance still today. I mentioned the TPP deal, let’s go back if we can to see what Josette Sheeran said on this stage one year ago.

 

(VIDEO PLAYS)

 

NAGORSKI: I guess the question now is, we have this profound this which was really in doubt a year ago – fair to say there was some disagreement on this panel and in other circles about whether this deal would get done at all – and now, just the other day there was an article in one of the papers here that there’s not even going to be a vote until late next year.

 

JOSETTE SHEERAN: I get a second chance at this? I served as a US trade negotiator and the amazing thing about trade is that it embodies all the hopes and fears of the public and humanity and the way we think about the world. I do worry because maybe I hope we haven’t missed a window here, to really push that through the Congress and get that done. I hope not. And I would say I’m still going to predict that at least between the election and a new President taking office that TPP will come to the fore but in this world where I think Christine Lagarde called the economy the new mediocre and we need now a real jolt to the global economy. Kevin and I were just in Europe and we were in the airport in Frankfurt transiting when they announced that Schengen Rules are off. That we had to show our passport to go from country to country in Europe and we see this closing down of borders and that affects the mentality about trade. If people are fearful, if they’re hateful, if they’re doubtful – all of those things affect the mood. I’m hoping that we can keep this momentum for TPP. I said it was a good deal, I really think it was vitally strategic for the US to have a foresight to put that together. Travelling quite a bit in Asia, I think things are pulling apart and trust is pulling apart. TPP works in a counter direction and I think it’s really important for the global economy, global stability that the US launched that initiative and that it has gone as far as it has. So I think it’s even moved up in strategic importance in my mind.

 

NAGORSKI: Big question for you, Kevin, as a former leader of another nation watching all this play out and imagining – I mean, we hope Josette is right, I personally will go all in and say I hope Josette is right about the prospects for this. But how does it look when a deal goes through after years and years of negotiations and comes to this point and really – while there are some issues (I think Malaysia is another country where there may be some domestic opposition). But it’s no exaggeration to say that we world and certainly these nations in Asia that are a party to TPP are just going to be watching our country for months now and maybe a year to come and it may go down. This is not a deal that really works if the US is out of it. So what does it do – apart from TPP itself – the image of the United States, the Congress in all the rest of the world?

 

RUDD: I think it leads to a lot of collective head scratching across Asia and across the world. That’s because foreigners are not huge students of the American Constitution. You folks are, we are not. And therefore, when you do go through something which is the equivalent to the birth of the elephant – namely, the negotiation of the Trans Pacific Partnership – and then it runs into one ginormous procedural hurdle called the American Congress or the Senate. People do scratch their heads. That’s one thing. But it is part of a broader challenge I think of America’s future. That is, the critique emerges around the world that America’s governance prospectively becomes more ungovernable. Forget about all the metrics on American power – that is, the size of the economy, the robustness of the military, the dynamism of its economy, innovation and the rest. The big question that kicks around the world a bit is the nature of US domestic politics. I come from a country which actually has an equally robust tradition of politics. We just knock each other out. It’s one of the reasons I won’t be Prime Minister at the end of next year. It’s no Pollyannaish view that says somehow American politics can attain a civility which allegedly existed back in Washington’s day. If you know about the fights between your founding fathers over every piece of innovation in the American Congress at the time, it’s not a unique period in history. But the difference between 1792 and 2015 is that you’re the world’s superpower. The world, therefore, looks with huge interest, anxiety and concern about how do you line it up in terms of America’s future in the world. As I said, all the other elements – the economy, innovation and the rest – people can see America reinventing themselves. But some of our Western democracies – and I don’t single out America here – need to understand how to reinvent our democracies in a way in which they become more functional.

 

NAGORSKI: The nature of this event, by the way, is that we’ll have to jump around. We could spend the whole of the time on this issue. I mentioned that we had quotes from our other panellists from a year ago. Ruchir Sharma, given that he is a great prognosticator of global economies particularly in what we still call the ‘Developing World’. We asked you to forecast growth rates in India and China. Let’s have a listen to what you had to say.

 

(VIDEO PLAYS)

 

NAGORSKI: We’ll come I hope to your forecast. We picked this one out because it isn’t really a forecast or a prediction, but someone in the audience at the end of the program a year ago just asked what the panel thought the US should be doing on Syria and that was your answer. I just thought, given that the refugee problem was really a pretty low boil issue a year ago and you were so strident and almost angry about it and look what happened since. What does it make you think when you listen to that and what’s gone on since then?

 

IAN BREMMER: The good news is that you look at the number of editorial cartoonists that have shown the Statue of Liberty in various amounts of disarray over the last months. It does show that this is an issue that is driving a lot of concern but we are much farther from being able to resolve it. Some of that is Paris. Some of that is San Bernadino. Some of that is the nature of the GOP debate which you are missing – the incredibly interesting undercard. That was clearly a tough decision on your part.

 

Who took the lead? It was the Swedes a year ago because no one was paying attention to it. Turns out it’s Merkel. Should the Germans be happy or not happy that Merkel took the lead with nobody else following her? Nobody else in Europe, not the United States. She went to Turkey. She went to Ankara to basically say we’ll give you $3 billion, we’ll help fast track you into the EU as long as you keep the two million refugees there. You think that’s going to work in Germany? You think that is remotely plausible in the Europe that we see today? No, Schengen is dead. The idea of an open Europe. The idea of a Europe based on something higher than economic union but common principles, rule of law, democracy is something that is farther away today than at any point since the Marshall Plan. The United States is playing no role in this whatsoever. I’m delighted that we’re leading the world in humanitarian aid, Japan of course is number two. But our interest in actually leading by example on this issue is zero and we will see that play out starting at nine pm with the main event at the GOP debate. Looking ahead to 2016 I feel very comfortable saying this is going to be an unmitigated disaster.

 

NAGORSKI: So here’s a question, because part of the point that you so eloquently made a year ago, Ian, is the Statue of Liberty argument about the United States but also it can apply to other countries. There’s also been a lot written about the economic imperative, or at least the economic gain that comes. You’ve made a prediction that really hasn’t been in the ether at all which is that you think there is going to be, what you describe as a depopulation problem around the world – that for all the years and years of predictions about Malthusian overpopulation, that something else is in play. And that refugee flows might actually be a help or an answer. Do you want to talk a little bit in this regard?

 

RUCHIR SHARMA: There’s been so much talk about why this has been the weakest economic recovery in the world since 2008. There have been lots of explanations given for it, from the debt crisis to post traumatic stress disorder. We went back and did a lot of work on this to figure out why it is so weak in the seventh year of expansion. We came up with a pretty, I’d say, unusual culprit – that the single biggest change that has happened in the last decade is that the working age population of the world is falling off a cliff. To be able to grow you need two factors: more people and productivity. On both those fronts we are seeing a decline but particularly in working age population because population growth of the world has basically halved compared to its post war levels, to average. You’re talking about two per cent population growth in a year, that’s down to about one per cent. The working age population is falling even faster because people are getting older across the world.

 

So this is a very big reason as to why in the global economy today the numbers look a lot slower than what they used to look 10 or 20 years ago. Two per cent is sort of the new three per cent, as it used to be. I think this is one thing that is a big deal in Europe. Take the case of Germany, it’s a very economic strong case to make as to why Germany needs more immigrants because Germany has the lowest birth rate of any country in the world. You need in fact more than a million people to come into Germany every year just to keep the labour force from shrinking. Demographic is a huge driver of economic growth – it’s not destiny – but it is necessary if not sufficient condition for economic growth and that’s something which is a big imperative in Europe. If the debate is going to shift out there from just shutting more people from coming in – fine, that may be the right thing to do from a political or cultural standpoint – but from an economic standpoint there can be no argument. That is an unmitigated negative for Europe’s growth and even here if they are going to do that. In that regard, you have to say that Australia’s success story in the last 30 or 40 years, a lot of that has to do with immigration in terms of the number of people who have come in there and added to the workforce growth in Australia. But even there the sentiment is turning one can detect. I’d say Australia and Canada are the two poster children of the world in terms of how to augment economic growth by having very good immigration policies in general.

 

NAGORSKI: Want to jump in there Kevin?

 

RUDD: I think that certainly the orthodoxy in Australia over the last 10 to 15 years is – and it’s enshrining an earlier orthodoxy as well – is what we call the three Ps. Population, Participation (that is workforce participation) and Productivity. Get those three right and, frankly, you have to screw up in the Departments for the economy to fall apart or for growth to go through the floor. On one of those pillars, the one that you’ve just mentioned, we’ve had a very robust continuing practice since the end of the last World War of large scale, what we call in Australia, ‘orderly migration’.

 

I’ll give you a small example of dimensions today: we’re a country of 24 million, in any given year we would have a quarter of a million new migrants (that is people who go through an orderly assessment from countries right around the world – broadly about 40 per cent European, 60 per cent from the rest of the world. Then we have about another quarter of a million people who are on one form of work visa or another who tend to end up staying. So that’s about half a million. Then on top of that you have the kids on working holiday visas – anyone under 25 from 30 or 40 countries around the world – that’s about another quarter of a million. So in any one year we have about three quarters of a million people through our migration system, in there participating in the workforce. And two-thirds of that number, frankly, are staying. It is a core reason why the average growth rate, by and large even during the Crisis, was able to keep up with a ‘3’ in front of it rather than just with a ‘2’ in front of it.

 

But the subsidiary question which Ian has spoken to is, how do you manage the politics of large scale unanticipated migration through refugees crises around the world. I’ve got a few thoughts on that if you want to take the conversation there further?

 

SHEERAN: Just to jump in on that, and I think Kevin, you’re leading the question to what is the core of this question – which is, the world does not handle large-scale flow of immigrants well. What the world has learned to do very well is a controlled process for assimilating immigrants or immigrants that come from warzones or elsewhere. If you have spent a lot of time in places like Somalia and the Middle East where Jordan and neighbours of Syria have done an excellent job in hosting more and more refugees. This whole crisis started when the World Food Program, which I used to run – the rations for the refugees were cut in half because a very minor budget globally in the scheme of things was not funded for food. We see anywhere in the world if people have shelter and food you can handle an orderly process of migration – it’s been done for thousands, millions of refugees. In this flow, there was panic in those camps. People started to move because they thought that they would starve.

 

I’d just point to that we had Ban Ki-Moon here talking about Syria, I think about a year and a half ago. I said that it was almost criminal that it was funded at 16 per cent of the humanitarian needs of the refugees. People didn’t have blankets, they didn’t have food, they didn’t have tents. The world knows how to do this and the real tragedy here is that we didn’t do it and negotiate entry over many years for people and help keep them safe. We could have tracked this crisis, who can handle tens of thousands of people at your border without any process of assimilation? I can understand why it was a crisis for Europe and we have to say many of the neighbours of Syria didn’t step up to the plate unlike Jordan which has. We have to be early on these crises to handle them and the world knows how to do that.

 

BREMMER: Josette is completely right of course and the Gulf States – I mean, where were the Gulf States in all of this? They claim that they had all these guest workers that were making a difference but in terms of the refugees there was nothing. I certainly agree that this could have been so much easier if it could have been handled over time, like so many things in the world. But when I look at Europe, and I look at France or Germany even, and its ability not just to bring refugees in but also to integrate them into societies – there has been a problem there. You add a few things with France that really matter in particular – 7.5 per cent of population is Muslim, largely young males, unemployment through the roof, living in slums, not integrated into French society. France, with a very strong feeling of secularism and anti-religiosity which makes it hard to be Muslim or anything as a serious practicing member of a religion in France. And the French taking by far the most aggressive stance militarily into the Middle East, North Africa, Mali and all the rest over the last few years – this was going to be a problem.

 

This was already playing into a National Front that was going to that was going to do much better, and now over the course of the last few weeks has done dramatically better. It’s almost a version of French democracy where effectively the two centrist parties said, “Okay, you don’t run there, you don’t run there, so we can keep Front National out.” That’s not the way democracy is supposed to work. You think this will help the National Front’s numbers? I promise you it will, because the people feel like they’re being manipulated. That’s never a good thing. Even in Germany, which has done by far the best in terms of large scale migration, you look at Turkish guest workers who are generally more educated, more willing to integrate than the Syrians that were coming over. A lot of them have gone back because they felt like they can get a job, they can get a lot of money but Germany was not particularly welcoming. There was a lot of violence and there’s been some riots. The growth of the far right in Germany – just look at the Alternatives for Germany Party, which actually split in two and from nothing, with no leaders whatsoever is no polling at 10 per cent again. This is shocking if you’re Merkel. I agree completely with Josette’s point that the money wasn’t there when we could have done so much better. This crisis didn’t need to be where it is. Absolutely true. But don’t let the Europeans off the hook for the fundamental challenges that the notion of nation actually means in these countries, to not being capable of responding to these issues.

 

RUDD: I will shut up after this but because it’s such an important question I’d like to throw in a few more thoughts on it. Because, as Ian correctly reflected just now, whether we like it or not this is beginning to rewrite the fundamental politics of Europe and possibly beyond to a destination we are uncertain of. We’ve seen this tactical response as you said by the major parties in France and the Front National coming back and not winning one of the 13 regions on offer. But here’s the point, in my judgement: I talked before about orderly migration to countries like Canada, Australia and the rest. You in the United States have been doing that too over a long period of time. We’re great beneficiaries of it – we come from everywhere. I’m just the eighth generation descendent of your average English or Irish criminals. The only reason any of us ended up there is because you won the Revolutionary War, otherwise the British would have kept sending criminals to Savannah, Georgia. I could have ended up as Governor of Georgia. Anyway, that’s history but we had a long practice of this stuff happening.

 

It’s disorderly migration which, frankly, goes to the heart of peoples’ anxieties. Added to the fact that Europe’s historically a source of emigration and not with much recent experience of immigration, it’s not as adapt as we settler societies are from around the world at welcoming in the latest wave from wherever. So here is my point. We’ve reached such an inflection point on this in European and, prospectively, global politics – this requires a fundamental rewrite of the way in which the international community handles asylum seekers and refugees.

 

Four quick points. One, if crisis breaks out we have a massive global collective interest in managing that and preventing it from becoming full scale conflict and war. The doctrine of prevention of crises has to be much more to the centre of the international community’s response to political tumult than it is now rather than what happens one, two – or in Syria’s case – four or five years down the track. People will flee, that’s what they do and if it was you or me we’d be fleeing too. Second point is, let’s just say you haven’t managed it and you’ve therefore got this massive burden being experienced by neighbouring countries – in this case Turkey, Jordan and Lebanon. Basically the response of the Collective West over the last four or five years has been, “Not in my backyard, I don’t care.” Those countries between them have had 4.6 million Syrian refugees. 4.6 million. I mean, Germany and politics there is under pressure because just under 1 million have arrived in Germany. Imagine if you’re Jordan.

 

NAGORSKI: And we’re at 20 000.

 

RUDD: It just puts it into context. So therefore, if you’re a neighbouring country and there are three there – we have an immediate international obligation to provide massive levels of assistance there and then for them to cope with the burden. The third point is this, Josette’s observation now is kind about the absolute failure of UNHCR and the UNFP to handle the events in Syria and neighbouring states reaching a crisis in June of this year.

 

SHEERAN: Failure to have the money to handle this.

 

RUDD: Yeah, they were there but, frankly, the call to arms across the international community was either not made effectively or certainly not responded to effectively. So for the sake of half a million or a million bucks, people in those camps decided there and then, “We’re not going to be fed, they’ve cut our rations. Winter is approaching and if we don’t move we’ll die.” The failure then to deal with the problem in neighbouring countries where you have these massive resident populations then produces the consequence. Third element is pretty straightforward. Let’s just say all of that doesn’t work, you then move in to transit countries where people are starting to move. The fact that we’ve not, across the Schengen boundaries, had systems of reception centres, processing centres to handle people humanely as they arrive and then establish over a period of time who are bona fide refugees and who are economic migrants. That has created the double compounding of the problem on the road from Lesbos and across the Mediterranean.

 

Finally, it’s this – let’s just say out of this million or two that have arrived, half are bona fide refugees, maybe a bit more. We should have the wit and wisdom as the international community, all as signatories to the International Convention of 1954, to at this stage have a global burden sharing agreement based on the size of our populations and economies to then share whatever the world dishes out on a give yearly basis. So that voters across the world say, “Yeah, it’s a pain in the neck, we’ve got to pay for this and put up with social disruption here, but everyone is sticking their hand up.” And they are the four points that form the absolute core of the future reform of the international refugee system. If we don’t do that, we’re all heading in the direction that Ian was talking about before.

 

NAGORSKI: That last one, I mean, it seems to stand the test of common sense but it’s just given all the things here and in so many places, it’s a tough one. Again, a subject we could spend a lot of time on. I’m just mindful of – we don’t need to show the clip, I’m just going to tell you what Ruchir Sharma said one year ago about global growth. We were talking about this idea that these paradigms of China as the great economic powerhouse in Asia was slipping a little bit and that India was on the rise. Ruchir said that not only would that paradigm shift and India would eclipse but that that would become the new paradigm and might last for years. Ruchir, to come to something you’ve said much more recently in some editorials, you are, I think it’s fair to say, not at all bullish now on the Chinese economy and have gone so far as to say that the next global recession is very likely to be “Made in China”. Do you want to tackle that, and I think there are some people here who might want to disagree with you which would be fun?

 

SHARMA: My entire thing is that when you look at it, recessions follow expansions just like night follows day. You get some excess built up in some part of the world and you end up getting a recession that is the cleansing mechanism and a new cycle begins. In post-World War Two history, if you look at it, there’s been a global recession once every eight years or so. We define a global recession as when the global economy goes below two per cent or so, because some economies will always be growing faster than that. Everyone thinks of a global recession as 2008, but that’s really the extreme version of one – that was a massive financial crisis. You had much milder versions in 2001 and 1991 and so on and so forth. The fact is that we are in the seventh year of global economic recovery out here, so for me this is a aging cycle and it’s time to start looking as to what the risks can be in the next couple of years which could possibly tip you again over into a global recession.

 

This year is turning out anyway to be the weakest year for the global economy since the expansion began, with the economy growing at 2.5 per cent or so. You can sort of feel this pain everywhere in terms of what’s going on. The US has been relatively resilient but in many other parts of the world things are really bad. I mean, Brazil is suffering for example its biggest downturn since the Great Depression. The Brazil economy this year is going to be down 4.5 per cent, it’s going to be down 3 per cent last year. Brazil was the big star of the last decade, which everyone celebrated, down 7 per cent in a flash. Russia down 3 per cent or so. In China’s case, the true growth rate I think no one really believes the official numbers of 7 per cent. It’s just that you say you’re going to grow it 7 per cent and you grow at 7.0 per cent – it never really works out that way. Most people think that the economy there is growing at possibly a rate of 5 per cent or so based on independent indicators which are out there. The pain of that can be felt everywhere, all the commodity exporting countries, et cetera.

 

The problem really in China, to put it briefly, is this – that the country has taken on far too much debt in the last five to seven years to try to grow. Until 2008, China’s debt profile was quite stable. Up to last decade, I was a big optimist on China as well. What’s changed my mind in the last couple of years really, is that the amount of debt that China has taken to grow in the last five to seven years, is the largest amount of debt that any developing nation in history has ever taken. The consistent predictor for financial crisis and economic troubles in the world has always been if a country takes on too much debt over a short span on time. That’s gotten every country into trouble. Now what the trouble will be is very hard to define. Something of a financial crisis or something of a Japan type thing where for years and years you can have no growth because too much debt just clogs the system up. In some regards a crisis is almost better because, like in the US, it kind of cleans the system. It’s very painful but then you move on with the next stage. Give the debt overhang in China, which is there and the fact that even today debt in China is still growing twice as fast as the economy. This was not the case until 2008. That, to me, makes me really worried that some sort of financial accident could possibly happen in China in the next couple of years or so.

 

Given the impact of the Chinese economy on the global economy, therefore, I come to the conclusion that the next global recession could well be ‘made in China’ because until the last decade there was no other economy which could cause a global recession apart from the United States. So every global recession originated from the United States. But really what has changed in the last few years is that China has become a big economy. In a way that’s a good thing, but there is a downside to that also which is that if something happens in China that could lead to problems elsewhere. That’s an idea that the world is not used to. The US economy has been the premier economy in the world for a century and it has suffered a dozen recessions, a Great Depression and still been a great economy. But in China’s case people are so scared about what if China grows at 3 or 4 per cent for a year? What’s going to happen politically? We don’t know. It’s the unknown out there that I think people are really scared about, that’s the concern out there. But that is really my brief thing about China.

 

NAGORSKI: So a sign that China has made it is that they can really mess things up globally, right? Ian, you a year ago said, and I’m paraphrasing now obviously, that people have been forecasting doom and gloom in China for some time, bubbles bursting all the rest. I think you were fairly bullish then. How do you react to what Ruchir has to say?

 

BREMMER: First of all, we’ve got to recognize that we’ve got the Indian guy on the panel who last year said India is going to grow faster than China, this year is saying next recession is going to be made in China. So clearly the Chinese media is going to be coming after this guy in a fairly big way relatively soon. But leaving that aside.

 

NAGORSKI: I think they’re here actually.

 

BREMMER: I know, that’s why I said it! I love Ruchir and I think his work is stellar and his history and his record has absolutely lived up to that.

 

NAGORSKI: I feel a ‘but’ coming.

 

BREMMER: No! Not a ‘but’. And I have questions for him. He didn’t say it was coming this year, he said that he thinks that is where the next recession is most likely to come from. Given that China has this outsized impact on the world that’s only growing and growing, given there is so little transparency around Chinese data and so many pieces of it, certainly the level of uncertainty and volatility going forwards is going to grow. I accept that. I guess there a couple of things I’d want to ask Ruchir. I’m a political scientist, he’s an economist. Number one, you yourself said, it goes usually every eight years but this has been a particularly anaemic cycle so, as a consequence, would not one expect it would take longer this time around? Number two, the fact is that the Chinese have an enormous amount of political influence over their economy, they’re still state capitalists. You can’t short the Chinese market. To what extent is the Chinese government much more capable than other governments heretofore, mostly the United States, to actually slowing down being the driver of a global recession? Yes, even greater influence later on but it means that you’re probably wronger for longer until you go back and say this is actually what drove it. Third point, and again these are questions, to what extent I’m wondering – trajectories are always interesting, every eight years roughly – but what are the things that are happening in the global economy right now that would make you believe that that cycle might be compressing or getting longer by itself? Leaving aside the fact that this was an anaemic recovery. Thinking like, roll of technology, extraordinary productivity around energy, the fact that the middle classes are going to become growing in equality, the fact that technology is increasingly not just making American companies vast amounts of money so much faster but also taking jobs away. I’m wondering just how you think whether or not in the next 10, 20, 30 years if you had to go back from 2050 would you expect that that recession cycle would become more compressed or more elongated and why?

 

SHEERAN: I think you’ve lost control of this panel, Tom.

 

SHARMA: I’d be very happy to answer these questions just briefly. First thing I would let you know Ian that as a practitioner versus an academic I have to put my money where my mouth is. If I’m wrong about China’s thing I have very serious consequences on my business.

 

NAGORSKI: Not to mention you have to come back here next year –

 

SHARMA: That’s a small price compared to the billions you lose if you’re wrong. I keep saying that in the academic world you can forecast for as long as possible because no one will hold you accountable for what you had to say at some point in time apart from here. The single biggest thing is I was talking about practitioners. We don’t count. The key thing is this, having a negative view on China has been the single most profitable thing this decade. That is settled. It’s led to being short commodities, it’s led to Brazil being a disaster – Brazil was the big celebrated poster child of all the academic world et cetera, that nothing will go wrong with this – it’s been a disaster. The fact is that being negative on China has been the most profitable trait. India doesn’t matter as far as the global equation is concerned, it’s too small to matter. Being negative on China has been the most important money-making opportunity this decade. If you were long on the other side you’re in big trouble. Whereas betting on the resilience of the United States has been the single biggest money-making opportunity on the other side. So basic trait, as we say in our language: long on the United States, short on China. That’s been the biggest trait this decade. So that’s where you have to put your money where your mouth is and I would still say that is the relative bet going forward as to how we see it.

 

Regarding this great Chinese ability to handle everything, and they have all the resources in the world et cetera. Sure they do. If it was that simple they’d be able to – this year has been a really bad advertisement for that. One has been the stockmarket bubble and the way they handled it. This has been a terrible advertisement for how you handle a stockmarket, which is to try to engineer it up without any growth in profits and then the entire thing melts down.

 

RUDD: We’ve handled all our stockmarket problems remarkably sophisticatedly compared to that?

 

SHARMA: I mean, in terms of the fact that everyone still believes in the US stockmarket as some sort of indicator – I think no one believes in the Chinese stockmarket as reflecting anything. I think it’s fair to say that in terms of how it is.

 

RUDD: So why is it significant?
SHARMA: In terms of why is it? No, I’m saying it has significance in terms of how much you can control. That if the stockmarket was totally under control you wouldn’t have this boom-bust cycle in China. The entire thing is how much can the Chinese government really control. I mean, a lot of the growth in China in last 20 or 30 years has happened because the private sector. The private sector in China has emerged remarkably and the share of the government has declined. In the last four or five years that has kind of changed a bit but that’s what has really happened. Then you have the entire currency valuation which was not handled well in August. Which is what the entire world sort of said. Listen, I have great faith and great respect for what the Chinese leadership has done in the last 30 years in achieving one of the most powerful economic miracles in history. And it has been transformative. But the fact that China can achieve whatever it wants and get whatever growth it wants any single year, that to me is a bit of an illusion. I don’t agree with that.

 

SHEERAN: I’m going to make a prediction on this that I’m going to regret next year. I’m just talking to myself next year – I’m going to regret this. I don’t think we can count out the Chinese consumer. The number one talking point of the US government with China is that people have got to spend money, we’ve got to see demand in China, we’ve got to see the rise of the consumer in China and this is a voracious consumer base. We’re seeing that rise right now and I’m going to predict that Time Magazine’s Person of the Year could be the ‘Chinese Consumer’ as a game changer in all of this. Because the rise of that demand in China is something that we’ve been demanding as trade negotiators, as in the global economy, and it’s happening. I don’t think we can predict where this economy will go with that dynamic happening.

 

BREMMER: I’m going to predict that if that happens, Time Magazine will get their first interview with Xi Jinping. And otherwise, they will not.

 

NAGORSKI: Before we leave this subject, just to go back. Billions rest on this. Do you want to hazard a number: China’s GDP, India’s GDP for the year ahead?

 

SHARMA: Here’s the problem in the entire world – I’ll tell you why. It’s simply that, here are the two countries with the most fuzzy GDP numbers that they publish. We love to talk about GDP numbers et cetera – nobody in my community, I can tell you, believes China is growing at 7 per cent actually. There is not one indicator – yes the consumer is doing well, but everything else is doing much worse than that. No electricity consumer, very little growth taking place in the manufacturing sector, virtually nothing. So nobody believes that number. India’s numbers used to be okay but that is this entire India dicta, which is if it ain’t broke you fix it until it is.

 

(LAUGHTER)

 

They had the GDP numbers, they changed the methodology and now they claim they are growing at 8 per cent a year and none of us believe that number either.

 

SHEERAN: What do you believe, what’s your gut feeling?

 

SHARMA: My gut tells me that in the next couple of years, China’s grow rate will have another stumble down as they try to grapple with the debt problem and that will cause a global recession. I’d say that with probably more than 50 per cent probability there will be a global recession in the next couple of years which will be caused because of the debt problems in China.

 

SHEERAN: Under 4 per cent?

 

SHARMA: Yes. I think that to have a growth rate of under 4 per cent for a year or something is entirely feasible. That is not to say I don’t believe in the rise of China, this is that the US economy has been the premier economy for a century as has had twelve recessions in this period and a Great Depression.

 

SHEERAN: What’s the India number?

 

SHARMA: As far as India is concerned – it is fuzzy – but I’d say the true number is a very steady 6 per cent type of economy as far as India is concerned. It’s not the next economic miracle but it’s a steady growth story.

 

RUDD: Well you’ve had the economists speak and Ian has spoken as a political scientist. I’m a sinologist so I study some porcelain. Therefore, I will now prognosticate on the Chinese economy. One, I disagree with the proposition that China will “be the cause of the next global recession”. I think there are ample existing global challenges which have got little to do with China at present, one of which is simply the appalling state of global trade which is not an exclusively Chinese phenomenon but the product of, frankly, a set of global trade negotiations which have gone nowhere in a decade. And we don’t yet have a TPP in operation which represents only a slice of the global economy. Two, we have got a problem globally in terms of what technology is doing in terms of the displacement of labour in a manner that represents a quantum change from previous periods in economic history.

 

Let’s just leave that to one side for a bit. On the Chinese growth rate, folks that I know in China that study the other barometers which are called the (CHINESE) measures of the economy – electricity supply, exports, imports – things that have external barometers beyond the central bureau of statistics in China. They’d tell you that the economy in China is currently running at about 4 per cent. But what I have noticed in recent times is that the Chinese, for internal political and economic reasons – namely to ensure continued social stability – have calculated a long time ago that they need a real growth rate of around 6 per cent in order to ensure basic social stability. Providing enough new jobs out there in the community for those emerging into the labour force, sufficient although modest increases now relative to the past in average incomes and still bring enough people out of poverty. The practical question is how do you get from 4 per cent to 6 per cent? And the conclusion I think reached in Beijing in the course of the last six months is that it ain’t happening easily because globally it is a tough time on trade which directly affects Chinese manufacturers. But therefore, the only way to do that is to relax monetary policy – they’ve done that on four to five occasions but with only negligible or marginal effect I should say. Now what you’re beginning to actually see is a fiscal reinvestment in infrastructure across the country of some order of magnitude. I would predict north of 1 per cent which is under way as we speak. The mathematics I think will actually add up to a growth rate north of 6 per cent. That is my robust prediction, quite apart from the central stats. That’s what I’d describe as the porcelain view of the world.

 

SHARMA: Can I make one point here if you don’t mind? Which is, you spoke at the outset about the importance of people as well in Australia. Here is one statistic about China which should make you think about why 6 per cent is not possible – this is the first year where the working age population in China actually shrank. The first time this has happened. They’ve been seeing a decline in their population growth rate but now the thing is shrinking, the working age population. We looked at 700 cases of this in the last 50 years – there has not been one economy that has grown at a sustained pace of 6 per cent with negative working age population growth.

 

RUDD: Except, the counter point to that my friend is as follows. You’ve still got more than 100 million people out there in the countryside who are radically underemployed, haven’t been brought out of poverty yet and haven’t affected the workforce. Your point, statistically, about aging of the workforce or the decline in the working population is true but frankly it’s got at least another decade plus to run while a whole bunch of people move from the countryside to the cities and effectively enter the workforce for the first time. My final point on the economy is – yes, manufacturing is down; yes, there is a problem in terms of the state owned enterprise sector – but on the positive side of the ledger you have now a significant explosion in the services sector which is much more labour intensive than manufacturing. Secondly, you have a modest continuing increase – as Josette said before – in private domestic consumption. On top of that you start to see other emerging positive structural changes in the economy as well. So it ain’t smooth sailing but that’s why I would come in for a number in real terms north of 6 per cent.

 

NAGORSKI: We’ve got to leave that one for now. I’ll take the iPad which has all the questions coming in. One more question before we come to the room and whatever is coming in from outside. Which is – well I know Kevin and Josette were both at Paris for the climate talks – there’s a place where the talks we’ve just been having and the climate deal come together. We’ve had several predictions come in on social media before this event about really the pollution issue and the climate issue in Asia. One of which is that the slowing of the economy in China – Ruchir’s point – and the growing fury over the nasty pollution there would combine to actually see a significant clearing of the air around Beijing. So a sliver lining there. And from our own Jackson Ewing here at Asia Society, “The trans-boundary haze in South East Asia (that’s a great phrase) will be met for the first time with an effective response.” Josette, Kevin: do we see any good news on this front beyond the Paris Deal itself?
SHEERAN: Just first, I would really put in two separate categories the haze over China and climate. Because what we’re seeing is what we saw in the US in the beginning of the Industrial Era and elsewhere, where they have tools that can fix that that are not necessarily dependant on a global deal. I think I just saw that jars of air from Europe are selling and a company started as a joke in Canada that sells jars of air from Banff and they’ve totally sold out their first 40 000 jars and they’re making all sorts of money so there is all sorts of opportunity here. I would just say in the climate talks, there is so much the world can do and something was accomplished there. The world stook together and it’s moving in the right direction. The mood there was very positive and it showed that countries could work together. But 6 per cent of the global economy is energy subsidies which are huge distortions. These kind of things – countries must get real about taking out the distortions that are driving behaviours, we have to get those numbers right if we want to fix the problem and I think that there is a lot that can be done. The question is with so many important elections happening in the world whether this will happen.

 

BREMMER: I just want to say that, first of all, I remember back in 1992 I was in Budapest and I bought a small tuna fish like can that was empty but sealed called the ‘Last Breath of Communism’. It only goes to show you that if there is a market for anything it eventually comes to China.

 

SHEERAN: And the Chinese consumer.

 

BREMMER: And the Chinese consumer – you’re point. I was at APEC, I didn’t go to Paris, but I saw the Philippines complain pretty bitterly to Indonesia and the Indonesian Vice President there because Joko decided at the last minute not to come for reasons unbeknownst to anybody there. Also, when he came to the US and said I want to do TPP and the White House hadn’t been briefed beforehand. Like, literally nobody knew. Joko has issues. His abilities to respond and actually deal with bid structural stuff in Indonesia just doesn’t seem to be happening, as much as people like him. I did think – the thing the really excited me about Paris (and Kevin was in Paris, he read the whole damn deal, he knows everything about it), the thing that excited me about it was the fact that in an environment where the governments have taken so long to actually do anything, the private sector is starting to make a real difference. It’s Bill Gates and it’s Mike Bloomberg and it’s a lot of CEOs who are saying, “We can actually direct cash.” Non-state actors are going to become more important. As much as we’re talking about ISIS and Boko Haram and Anonymous and all of this which is the negative side of this, we’ve got to start talking about the positive side of this and I think climate (particularly around development of technology around renewables) that’s going to become eventually a really good story.

 

RUDD: Four bullet points because you’ve got other questions to go to. But yes, I’ve spent a fair bit of time in Paris in the last couple of week. Point number one, the final agreement to ensure that Greenhouse Gas emissions cannot result in a temperature increase in excess of 2 degrees. That is major, including the additional language about 1.5 degrees this century compared with average temperatures globally in the pre-Industrial Age. Having been myself in the room for negotiations in Copenhagen and worked on language there, this takes that language somewhat further. You might say, “That’s a piece of paper, what does it matter?” Well no it’s a piece of mathematics actually. The mathematics and the science says that if you go beyond 2 degrees you’ve got a big problem of possibly irreversible climate change and the consequences that we’re all familiar with.

 

Secondly, where the science gives rise to the mathematics is that it establishes what is the accumulation of greenhouse gas emissions you can have up there. 450 parts per million being the answer. So, that’s great – what do they then do about it? The second element of the Paris Agreement is what they call, ‘Independently Determined National Commitments’ (only we bureaucrats could come up with that name). I hate to admit it but this was an Australian innovation in Copenhagen which we thought was temporary but it’s become permanent. But here is where it is useful – every country comes to Paris and subsequent conferences of the parties with their statement of what they intend to do to reduce their own greenhouse gas emissions. That gives you two opportunities. One, to do the mathematics again. You add it all up, does it amount to the level of reductions you need in greenhouse gas concentrations to keep the temperature down? If not, and you can measure that through a system of measurement and verification and reporting, then you bring people back to increase their emissions reductions targets for the future. So I think that’s the second big one.

 

The third one, I partly alluded to, is that it also allows you – once the maths and the science doesn’t add up, if people are not honouring the deal – is requires them now as the international community to come back in three years’ time and to work on the numbers one more time. So I give it about 7.5 out of 10 against the range of possibilities. Copenhagen, a 4 or 5 out of 10, in terms of the substance so to agree with Josette, I think it’s trending in the right direction and with a price on carbon and with innovations in technology behaviour changes and it has been led by our best firms in the world in the absence of a formal carbon price.

 

SHEERAN: Can I just add to both these points? The US is almost at Kyoto levels just through innovation and moving from coal – you know, you see shale and I think OPEC really played that card wrong, it didn’t smash the shale industry, it’s there. You see the US through technology, through innovation, through shifting to gas from coal really meeting some of these targets. I think there’s so much potential but it does involve the private sector really coming on board, not only with these investment vehicles and these innovation vehicles, but also with new technologies that can really get these numbers right. And the trade deal that would open up to trade in environmental and energy friendly goods and take all the tariffs off all of those – that’s really important.

 

NAGORSKI: I have about ten more questions but I’m not going to ask any of them because there is 150 people in the room. I you raise your hand, if you have a question – while we get a microphone, the first hand is at the back there. I’ll share, since we were talking about the GOP debate, we’ve had a prediction come in over Facebook and it’s from Fred Ingbritson (I hope I haven’t butchered your name, Fred): “Donald Trump will become President, causing an exodus of boat people to Asia.”

 

(LAUGHTER)

 

If you could say your name and if there is someone in particular you’d like to direct your question to?

 

AUDIENCE MEMBER: Sure, my name is Lauren Surkitt and this question is for the entire panel. It’s tied to a trend that was really hinted at but was not directly spoken to, and that’s urbanization. So whether we talk about climate change and the fact that before the countries came together, 360 regions and cities came together and pledged climate action. Or whether we look at the fact that several city mayors from the US – in contrast to their governors – came out and said, “We’ll take refugees.” Cities are really becoming significant actors and I wonder whether the panel thinks the role of cities will be in Asia in the coming year?

 

NAGORSKI: They were very active in Paris, weren’t they?

 

RUDD: A quick answer from me is the more the merrier, and the more the better. And they were very active in Paris. Also, if you look at the structure of the Paris Agreement it actually provides space within the agreement for the actions of civil society, private corporations and subnational governments. The latter has a whole lot of logic to it because subnational governments usually regulate such things as their local urban car pollution standards and the monitoring of it around the world. That all, frankly, adds up.

 

SHEERAN: I could just say, you’re absolutely right and it affects not only climate and the environment but also global growth and GDP. So 440 cities, most of which most people in this room would not have heard of will be half of global GDP growth in this decade from 2010 to 2020. If you look at the newly predicted kind of mega, star cities rising in the world, Kearney’s Report from 2014 predicts two from ASEAN. So that we’re going to see Jakarta as number one, Manila as number two. We’re seeing the new Übers of the world, the new Amazons of the world being born not just in Silicon Valley and not just in China anymore but really out in Nairobi and in cities throughout the world. I think cities are the great determiner of opportunity going forward.

 

I just want to put in a plug for Asia Society here, we started I think nine years ago, the ‘Pacific Cities Sustainability Initiative’. That brought together cities throughout the Pacific Rim in discussion about innovations at the city level to deal with resilience and climate change and innovation. We’ll hold our next one in June in Jakarta. This really, when these mayors come together, this is where you feel the real movement on these issues and we’ve done a similar effort at the provincial level with California meeting with provincial leaders in China and I think in India the key is really to go beneath the central government and really deal with the big cities and provinces if you want to see innovation and change. I really agree.

 

NAGORSKI: Let’s go to another question. While the microphone finds you I’ll just tick off another couple, we haven’t talked much about elections except for the one here (and Australia) but there’s a lot of predictions coming in that the DPP in Taiwan – I don’t think this is going out on a limb – will be the big winner in January and that’s going to impact cross-strait relations. I know Ian said that that might be a bigger thing to worry about than the South China Sea. And there’s a lot of forecasting about a country a lot of us have been to this year – that Myanmar will continue as a piece of good news with the transition there as the President is named. Sorry for the digressions, sir?

 

AUDIENCE MEMBER: Will China honour patents, or will innovators be facing poorly enforced patents and patent incursions?

 

RUDD: My attitude is that IP protection in China represents its single largest impediment to innovation domestically. This is leaving aside the entire international community argument. I sit as a Co-Chairman of the World Economic Forum, Global Affairs Committee on China. Our project for the last year and the year ahead is on Chinese innovation policy and what we discover in our reflections is this problem of enforcement of IP protection within China actually causes the exit from China of a whole bunch of innovators. It is a core problem for China’s economic future, unless it is dealt with effectively.
BREMMER: I completely agree with that and here’s a twist. So I was in Abu Dhabi at this meeting with the WEF and I went for the hell of it to go spend an hour with the Global Agenda Council on Technology and I wanted to ask them, all these CEOs and bankers, “Don’t you see China as the biggest problem out there in terms of IP?” And they said, “No. We actually think the United States is a bigger problem than China.” This particularly from companies that are upset by the idea of saying anything that could expose them on the negative side with the Chinese who have much more control over their market makes it a lot harder to actually put pressure on the Chinese.

 

NAGORSKI: Sorry, could I ask – a bigger problem in what respect?

 

BREMMER: As a bigger problem in terms of the NSA, in terms of the regulatory process, surveillance. That’s what they’re worried about, not the wonderful Chinese who of course we want to invest in and make them as happy as possible. It’s not that they don’t privately recognize everything Kevin just said, it’s that your ability to actually drive that as a conversation in the near term just isn’t there. The way you’re going to fix IP ultimately in China is much more likely to be from the internal Chinese private sector who say, “Look, we don’t want to get ripped off from other Chinese.” But it’s very far before they are suitably powerful and secure that they’d be able to drive that.

 

SHEERAN: If I could just add. Who is the number one patent and IP violator in the ‘80s? It was Japan. Countries get an interest in protecting because they become innovative. China is evolving into an innovative society and an innovative place. If you go to Silicone Valley, they’re now seeing innovations come from China that are not just copies of what was happening. I think the whole perception of China’s capacity to add to thought – Asia accounts for half the patents in the world today. I’ve spent many years negotiating IP with China with the US government I finally decided to go talk with the Haier Corporation which is one of the biggest in China. They filed for hundreds of patents. I went there, they had patented the world’s first sweet potato washing machine.

 

NAGORSKI: Just what we always needed.

 

SHEERAN: When I asked them about IP violations they were so angry, they said that in Thailand and in Myanmar people were stealing and copying their products, producing cheap versions. The CEO was so upset about it. I thought, this will be the future when China has more at stake in protecting. So as you know there is a whole regime of laws. They are very cryptic and very hard to navigate and the courts are very difficult to press claims in. I think that will change as China gets a bigger stake, just as Japan has become a protector of innovation. We see it over and over again as countries emerge to be more innovative.

 

NAGORSKI: If we can take a question just a couple rows back there?

 

BREMMER: It scares me that we live in a world where there is a patent on a sweet potato washing machine.

 

SHEERAN: There’s the real one and a cheaper version. And a refrigerator that downloads your emails by the way, that is patented.

 

RUDD: A fridge that downloads your emails?

 

NAGORSKI: As Josette said, I have lost control of this panel.

 

RUDD: Who wants a fridge that downloads their emails?

 

AUDIENCE MEMBER: Manesha Sharma, thank you for your panel. I have a short comment and then a question which is really a choice of two words for each of you that goes back to the refugee crisis. When you talk about India and China, which as you specifically said is not a large global economic player, the only comment I would make is that romantic notion of millions of people moving successfully from the villages to the cities and becoming economically viable has not necessarily played out. We have to discount that for the ability to generate equality and the types of jobs.

 

RUDD: My reference was to China. I made no reference to India.

 

AUDIENCE MEMBER: Well the models, the data again shows that romantic notion, those millions of people aren’t all as useful as one would say. My question, going back to the refugee crisis, if you had to pick between two words ‘sovereignty’ and ‘humanitarianism’ – just between those two – each of you what would you pick?

 

NAGORSKI: That’s a tough choice, I mean is it even – I won’t get in the middle. Ruchir, do you want to start.

 

SHARMA: I think that for me the humanitarian and the economic dovetail. It’s pretty simple: humanitarianism.

 

RUDD: To begin with, it is a false binary as you know. That’s why you’ve put it in the way you have. The truth of it is we both belong to nation states and we are global citizens at the same time. Therefore, the challenge where the rubber hits the road on all of this is on the decisions taken by governments as each crisis emerges and whether they have the best intergovernmental mechanisms for handling it. I outlined my plan for how you would do that better In the future.

 

SHEERAN: As the panel pointed out, yesterday’s citizen is today’s refugee. It’s the story of most of the world and the pattern of the world. The reason the world has developed systems post-World War Two to deal with this is just for this reasons. We actually know how to do it well so we’re not posed with that sort of question but just seeing millions come out of Somalia and into Dadaab and the effort there. Dadaab is the third largest city in Kenya and it’s just Somali refugees and there’s a constant flow as they get placed around the world. We can do this even in Darfur – 4 million people a day there have been kept alive as the situation gets resolved. The world has to expect there will be disruptions. We have to get very good. I think countries have to get very serious about funding the humanitarian part so it doesn’t become a crisis of sovereignty beyond what countries can handle.

 

BREMMER: Structurally, around the world sovereignty and humanitarianism are both eroding very quickly. One of those is fixable – humanitarianism. The other is not – sovereignty. Therefore, I chose humanitarianism.

 

NAGORSKI: The gentleman on the aisle?

 

AUDIENCE MEMBER: Thank you guys for a great discussion. I want to ask about a region that hasn’t come up so far which is Central Asia. This week we’ve had the SCO meeting in China. Russia and China are increasingly talking about combining the Eurasian economic community that Russia’s been pursuing with the One Belt One Road initiative. And recently there has been a bit of progress with the TAPI pipeline which would over the long-term increase India’s interest in the region. Assuming those are all things that will play out in the long-term, is there anything we should be looking out for in the next year in Central Asia? Thanks.

 

NAGORSKI: It’s big question and you’ve thrown in some acronyms that, frankly, I’m not all that familiar with. Who wants to jump in?

 

SHEERAN: I will. Central Asia is the spine of the book between Europe and Asia and it’s always been a vital flow of trade and commerce until post-World War Two, the Soviet Era, where all the trade was really linked to the Soviet Union. Now you really see an opening of that. I think this One Belt One Road initiative that China has put on the table and put money behind – the US also has a Silk Road initiative but we don’t have money behind it – I think this opening of the flow of trade and opportunity can bring Central Asia back online and I think it’s a very important part of the equation not only for energy and hydropower and all of those things but also just to re-establish the flow. The SAARC region, where India, Pakistan, Sri Lanka are, is the least traded area in the world. If you could reopen that I think it would do wonders for global growth.

 

NAGORSKI: You mentioned the world ‘Eurasia’ – this is the man from the Eurasia Group.

 

BREMMER: Not that that’s relevant anymore, but nevertheless. Russia and China are the big piece of this. Russia-China is on the one hand becoming much more strategically important and they certainly do want to work together on many aspects. But the Russians are more desperate, that’s never good with the Chinese because they will squeeze you for every commercial cent that you possibly have. We see this playing out – the oil and gas is just not being as collaborative as the Russians want, precisely because prices have gone down and the Chinese are being much more problematic. But I thought it was really interesting to see this strategic rash up that they announced between the two largest aluminium companies in the world a couple of weeks ago. Where the Chinese said that they’re going to reduce production to start collaborating with the Russians and bring prices down. We already talked about – Josette said that OPEC, the Saudis and others really misplayed the US. OPEN doesn’t have any power anymore, of course. But on the commodities side we might start seeing the state capitalist countries becoming more important. I go back to what Kevin said about trade, this is becoming a serious issue. Let’s watch Russia-China on strategic sectors.

 

RUDD: I’d take one slightly broader view on Central Asia which is, the classical Western geostrategic response to Chinese-Russian collaboration – real or imagined – is that this is a bad thing. To offer an heretical counterview in part, it’s as follows. When you look at the enormous problems of economic and strategic instability in the belt of countries from western China across to the Middle East and remember this is now ISIS central in part with tentacles of terrorist evolution in surrounding areas. What is the missing element? The missing element is sustainable long-term economic growth. Frankly, my view in terms of One Belt One Road – or its dreadful acronym, OBOR, which I have now christened as a new Death Star – but the concept and substance of it, frankly, I don’t have a big problem with. Because what that wide region lacks, particularly a country of 200 million people in Pakistan, is growth and sustainable growth. If you don’t have sustainable growth you don’t have jobs, particularly for a whole bunch of emerging young males who don’t have stuff to do – frankly, the path to militant Islamism is a very short one indeed.

 

NAGORSKI: We have to leave it at that, I’m mindful of the hour. Not just because that’s when we said we’d be done but because of course that item on television that people might be rushing home for. There is a last word that I can’t resist that has come in over the iPad from Jonathan Carp, who is from Savannah, Georgia. You made a remark, Kevin, about Savannah some time ago and here it comes: “Just a light hearted comment on Kevin Rudd’s remark about Savannah from a native son, Britain did send criminals to Savannah. Imprisoned debtors were amongst the first settlers.” (It just shows, people are listening out there.) “That said, we would welcome him as State Governor.”

 

(LAUGHTER)

 

One more time, happy holidays to everyone and a big thank you to our guests.