China’s importance will remain even as globalisation retreats

James Crabtree
The bestselling author and journalist talks about the retreat of globalisation, what the pandemic means for China's role in the region, and its long-term implications on the Belt and Road Initiative
An interview with
Associate Professor of Practice at the Lee Kuan Yew School of Public Policy, Singapore

The bestselling author and journalist talks about the retreat of globalisation, what the pandemic means for China’s role in the region, and its long-term implications on the Belt and Road Initiative

In the first part of this conversation with Unravel, James Crabtree, journalist and author of The Billionaire Raj, and an Associate Professor of Practice at the Lee Kuan Yew School of Public Policy, talked about the socio-economic implications of the growth outlook for Asia, and the changing relationship of people with their governments in the context of the long-term efficacy of Asian small state conservatism, among other things.

In this second part, he speaks to Siddharth Poddar and Shivaji Bagchi of Unravel about the potential geopolitical impact of the pandemic in Asia, the changing role of China, the implications of the pandemic on the Belt and Road Initiative and globalisation more broadly, and the Indo-China spat.

Unravel: Are we already seeing some implications of the pandemic on the geopolitical landscape in the region? What do you think could be some implications going forward?

James Crabtree: The obvious implication is the role of China in the region. The shock of the pandemic has focused attention on China and hardened divisions around the world. It has meant that the US, the European Union and India have become much more sceptical of China’s role. I think it’s had a much more ambiguous effect in Southeast Asia where you haven’t seen any comparable feeling or pushback against China. It has deepened divides around Asia and the rest of the world about the change being brought about by China’s rise.

There’s also going to be a divide within Asia itself – between East Asia which extends to some extent to Southeast Asia which is coping with this reasonably well, and South Asia which is coping with it rather poorly. South Asia has always been the poorest part of the continent, and I think there will now be a deeper divide between the prosperous East and the struggling South of Asia as a result of the pandemic.

Unravel: With the pandemic, we are hearing a lot less about the Belt and Road Initiative (BRI). Over the past three or four years there’s been a lot of discussion around the BRI and its implications for countries both in terms of economic and infrastructure development, as well as in terms of the fiscal risks it can bring. Do you think owing to changing perceptions of China and what some see as increasing belligerence on the part of China, there could be an impact on how BRI is perceived among other countries? In other words, in your view, is there going to be a greater degree of scepticism around the BRI?

Mr Crabtree: No, I think it’s a mixed picture. Clearly, it’s much more difficult to do the kind of things that BRI has grown famous for, so a lot of big projects that were undertaken are getting delayed. It’s hard to get Chinese workers in and out of countries to build bridges and railways. A few countries that are BRI recipients are faced with a fiscal crisis, which means they can’t repay their loans. They don’t want to start new projects because they don’t have any money. All of this makes the BRI look like a growing concern and that it is going to be in trouble.

It makes greater strategic sense for China to push forward with the BRI. There are also some elements of the BRI which had previously been more theoretical like the Health Silk Road, which could now become much more important.

But I actually think the opposite may be true in the long run. For starters, as the geopolitical fallout of the virus intensifies and China finds that its economy is increasingly decoupled to some degree from the West and from emerging markets like India, it’s going to become more important from a Chinese perspective to develop these new trading relationships with the broader BRI partners in Southeast Asia or Central Asia, and even Africa and beyond.

It therefore makes greater strategic sense for China to push forward with the BRI. There are also some elements of the BRI which had previously been more theoretical like the Health Silk Road, which could now become much more important. Clearly, China has the potential soft power avenue. And having dealt with the pandemic much better than the US and many other countries, China has shown how to deal with this crisis with admirable efficiency. It is also the world’s preeminent exporter of medical equipment, so going forward China should definitely take on a bigger role.

Separately, China is going to find itself as a provider of funds. While it’s more difficult for China to provide lavish amounts of funding at the moment with its economy struggling at home, nonetheless when countries like Sri Lanka or Kazakhstan or Pakistan need finance, you know that China will be a lender of last resort. And so, although it looks like the pandemic might be very problematic for the BRI, over the longer term I think it’s likely to become even more important.

Unravel: You say that China could be increasingly decoupled from Western economies and perhaps emerging economies such as India, which ties in with what you’ve recently written about the pandemic sending globalisation into reverse. Do you see this—and the changes being seen to supply chains—last over time?

Mr Crabtree: There’s a profound long-term change that is being accelerated by COVID-19, which is to send an earlier model of close global integration into a form of decline. To be fair, that had already started happening. The model of globalisation that was pioneered in the 1980s and 1990s reached its peak during the Global Financial Crisis and had been sort of coasting along after that. In a sense, this pandemic is sending it into a fuller form of decline.

People are finding the old globalisation model less and less acceptable. So, some degree of decoupling and disentangling is now inevitable, and indeed, actually desirable.

That means that companies were already beginning to disentangle from some of these long, complicated trading relationships which tended to flow through China. That said, China is still heavily integrated into both the American and European economies.

One other thing that we’ve seen due to the pandemic is that people are finding the old globalisation model less and less acceptable. So, some degree of decoupling and disentangling is now inevitable, and indeed, actually desirable if economic geopolitical relations between the US and China are going to deteriorate further. They may be better off with a ‘good fences make good neighbours’ kind of approach, in which there’s less neutral interdependence.

There was a lot of talk earlier in the pandemic about ‘making everything at home, from medical equipment to pharmaceuticals’, and that there must be a mass movement for reshoring. I don’t think that there is realisation yet about how profound a change that would be and how difficult it would be to execute. In the end, this will not be an abrupt and sudden stop to globalisation. What it means is that some of these relationships will gradually decline and the form of globalisation that we may have will be more local and regional, of course a little bit more reshored, and a little bit more shaped by geopolitical realities in which China becomes less central to many of these economies gradually.

Unravel: In the midst of all of this, what do you think the wider economic implications of the India-China spat will be on Asia, and on these countries themselves?

Mr Crabtree: I doubt an adverse economic effect on the rest of Asia in the short-term unless the crisis deteriorates very substantially. But yes, the situation between India and China can be destabilising for the rest of the region. Most of the rest of Asia wants India to rise quickly to become a counter-balance to China. So, if you’re stuck here in Southeast Asia, then you welcomed a world in which you had other options to counter-balance a rapidly rising China. Which is why the region has been keen for India to also emerge as a big and important player. That hasn’t happened as quickly as many people would have liked.

India at the moment has a great opportunity, especially geopolitically, because many countries who are worried about China want to build better ties with India. Even economically. But India has shown a rather ‘scrambled egg’ approach in developing the conditions that would make that possible.

Now if we get to a point where China and India have a very serious deterioration in their relationship, obviously that makes the rest of the region less stable as well. But unless there’s a major military confrontation, I don’t think that it really impacts the rest of the region economically. It could have a material impact on India’s economy. Much of that depends on India’s own choices. India is toying with the idea of taking quite a nationalistic and protectionist stance against China. That I don’t think will be too problematic. The real risk for India is if it then carries that approach over into its other trading relationships with the rest of Asia and beyond. It could be very damaging for India if it turns inward just at the moment it’s meant to be turning out. All the rhetoric aside, as you can see, there is already news of de-escalation between the two sides.

India at the moment has a great opportunity, especially geopolitically, because many countries who are worried about China want to build better ties with India. Even economically, at least in theory, this could be the moment where India is able to take many of the jobs and the manufacturing processes that were being done mostly in China. These could all be moved to India. But India has shown a rather ‘scrambled egg’ approach in developing the conditions that would make that possible. And even though geopolitically it would become more acceptable for many countries to move manufacturing to India, there are a lot of questions on whether or not that is going to be possible economically. 

Unravel: More broadly speaking, the Indian government was already talking about the importance of self-reliance and buying locally manufactured products, which can be seen as a push toward import substitution. This standoff with China has arguably made it easier for the government to actually implement some protectionist measures…

Mr Crabtree: I mean that’s the risk. As I say, you’ve got to do something to signal to China that you’re unhappy. You don’t have very good military options and so doing something economic seems sensible. But you must be careful in what you do, to avoid taking steps that ultimately will damage your own economy and not hurt the Chinese very much. That’s a difficult calculation. I mean to my mind banning TikTok won’t do anything much, but it’s a high profile and symbolic thing to do. That seemed reasonable enough.

What I am more worried about is whether this nationalistic approach towards China will then spillover into the way that India deals with everybody else. That I think will be quite damaging. 

The first part of the conversation can be read here.

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Associate Professor of Practice at the Lee Kuan Yew School of Public Policy, Singapore

James Crabtree is a Singapore-based author and journalist, and an Associate Professor of Practice at the Lee Kuan Yew School of Public Policy. His best-selling book, The Billionaire Raj: A Journey Through India’s New Gilded Age, was released in mid-2018. It was short-listed for the FT / McKinsey book of the year. Prior to academia, James worked for the Financial Times, most recently leading coverage of Indian business as Mumbai bureau chief, between 2011 and 2016. He is now a columnist for Nikkei Asian Review, and also a non-resident fellow at the Asia-Pacific programme at Chatham House.

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