Martin Jacques: When China Rules the World

Martin Jacques joins the Financial Safari to discuss When China Rules the World. This September 2012 conversation examines the changing global economy, China’s influence, and the arguments behind his book. Call 800-661-7383 or text PLAN to 600-700. Transcript Automatically transcribed from this episode; timestamps are approximate. 00:00 Welcome back into the Financial Safari, your weekly show aimed at educating you on all aspects of your money, your finance, and your financial decision-making. And, of course, we are living in an ever-more global economy. And there are certain factors that go into how this economy and, in fact, how the world will be shaped into the coming years, decades, and century. And Mr. Martin Jakes is here with us. He is the author of When China Rules the World, The End of the Western World and the Birth of a New Global Order. Mr. Jakes, thank you for joining us. My pleasure. Now, first question, is it really that serious? Do you feel that the end of the Western world and the birth of a new global order really is upon us? 00:45 Well, I think that, I mean, it's not a fact, but it's, of course, a process. And by the end of the Western world, of course, I don't mean literally the end of the Western world. I mean the end of a world which has been overwhelmingly shaped by the West over the last 200 years. I think that situation is already just beginning to shift. And Western power, in that sense, is in decline. So each culture, Mr. Jakes, really has a centricity about it where that culture's history in their books is the most important history and what they focus on. How does the strong sense of superiority rooted in China's history promise to resurface the 21st century and reshape the Chinese thought of superiority? 01:41 Yeah, well, of course, this is absolutely crucial question is what is the nature of China? How do the Chinese think? What is the sort of legacy of history, if you like? And I think the Chinese approach to these things is very different from the Western history. China actually has not and never has been a particularly expansionist power, except on its own sort of landmass, if you like. It's never tried to colonize anywhere. And it's never tried to project its power in maritime forms. So I think the way China is likely to influence the world, and it will undoubtedly seek to influence the world, it'll have major global interests and it will have power, huge power, I think, economically, which will spill over into all sorts of forms, political, cultural, military, and so on over time. 02:35 But I think that unlike the West, the Chinese view of themselves is essentially, you know, theirs is a great civilization. This is the oldest civilization. It's had many great periods, which indeed it has. And it is this side, this what I'll call sort of cultural pride, this sense of Chinese civilization being the greatest civilization, this notion of Chinese superiority, I think, which will probably be the most distinctive feature of Chinese global power. In other words, when people worry about Chinese military power, I think they're largely barking up the wrong tree. I don't mean that China isn't going to develop significant military power. Of course it is. But I don't think that's, as it were, going to be its calling card. 03:23 Its calling card is going to be, in that sense, much more cultural. How does the size and population, the sheer mass of China, play into this? Well, I think that this is crucial because the reason why China is going to become dominant, and there is not economically dominant, and there's nothing the United States can do about it, in my view, over the coming decades to prevent this situation. It's going to happen. And the reason it's going to happen is because, you know, you had a remarkable situation for 200 years, from 1800, and the British Industrial Revolution, when China did not economically take off. And when the circumstances arrived in which it was able to economically take off and have its Industrial Revolution 200 years after the British, 04:16 then it was inevitable that with a population of 1.3 billion people, it was going to be an economic colysis. And that is exactly what it's going to be. So this was something which was long postponed, but once it happened, was inevitable. So they're quickly catching up, though. How do you see China affecting the shape of our economy moving into the future from here? What, do you mean the American economy? Correct. Well, I think that so far, the relationship between the American economy and the Chinese economy has been pretty interdependent and symbiotic. I mean, what China specialized in was a very cheap end production, and it's that essentially which make up the great bulk of China's exports to the United States. 05:05 Now, I think over time, that's going to change because, obviously, China is going to steadily move up the value chain and make more sophisticated products. It'll take time, but it will happen. And as that point arrives, then China will become more competitive with the United States. But, you know, in the modern world, I think that the process of globalization, the growing interaction, exposure of various economies to each other and so on. So new forms of interdependency will be established between the United States and China. I don't think that's anything particularly to angst out about. I think that America will respond to that and hopefully we'll be able to adjust to it. 05:53 And how about the strength of the U.S. dollar versus the strength of the Chinese currency and the yen? Is that of concern to you into the future? Well, certainly it's an area where we're going to see a big change. I mean, looking at it broadly speaking, I mean, I think the dollar is no longer able to sustain its reserve currency role in the way that it was in the past. I think that the American economy vis-a-vis the total global economy is no longer strong enough to sustain it without quite a lot of difficulty. And that difficulty, I think, will increase. Meanwhile, the renminbi, the Chinese currency, which hitherto has not been convertible and has not been available, 06:39 the Chinese have just started to set in motion since the end of 2008, making it available outside its own borders for the payment of trade. And that means, in the first instance, I think China will pay for a significant range of its imports from developing countries in the renminbi and vice versa. And I think that that spells the decline of the dollar in trading terms because, you know, I mean, the HSBC has estimated that – I don't know whether this has come true, but I noticed it's estimated that between 2013 and 2015, half of China's trade with the developing world – and remember, half of China's total trade is with the developing world – half of that trade with the developing world will be paid for in the renminbi. 07:26 Well, I assume now the great majority of that trade is paid for in the dollar. So, I mean, in the medium term – not in the next 10 years, but in the medium term – I think that the renminbi will progressively replace the dollar as the dominant global currency. So certainly something to think about as we are looking out into the future of this new global economy. And you mentioned this symbiotic relationship that America and China and our two economies have had and the development of more sophisticated products coming out of China. Now, to me, it seems like they've already developed many sophisticated products. I'm, of course, in a radio studio here, and I'm looking around at all the technology, and I think at least 90 percent of this stuff was probably made in China. 08:15 And I'm not sure if you heard about this, but recently the new iPhone 5 was released. And, of course, that is largely produced in China. I heard through the news outlets that five colleges in the city that the iPhone 5 is produced in actually suspended classes and sent their students to go have an internship at the plant and at the factories, the production outlets that the production outlets that the iPhone 5 was produced at. What advantage is this type of compulsory workforce that China can mobilize over the American workforce? Well, I don't think it needs any compulsion, actually. I think that the Chinese workforce is very, very curious and very, very anxious to learn. 09:07 I mean, it embraces the possibilities of the future with an enthusiasm which, I'm afraid, leaves us in the West in a rather poor light. It doesn't require compulsion. I mean, you know, the truth is that the Chinese are absolutely enthralled by their transformation. And so, you know, enthrallment breeds enthusiasm and commitment, and that's what you've got. But the point I want to make is that this kind of production for Apple, for example, which is basically done in – I mean, the major supplier is Foxconn, and that is, you know, a major employee in China. But it's actually a Taiwanese firm. That basically, you know, when you look around your studio and say, well, you know, this is made in China and that's made in China, often by subsidiaries of overseas companies, including American. 10:00 And, you know, so that in a way, the characteristic form of Chinese contribution so far to global production has been as a component manufacturer supplying major foreign multinationals and, most importantly, American. Now, what I mean by rising up the value chain is the rise of Chinese firms and the rise of Chinese patents, Chinese innovations and so on. Now, that is not – I mean, there are Chinese firms operating in the United States, but they're not – you know, they're not yet major players. And we're going to see a big change. I mean, a firm like Huawei, which is a very sophisticated telecommunications producer, is an example of this. 10:47 Solar Panels is another example. The biggest firm in the world, Suntech, is a Chinese firm. Likewise, wind turbines. So you can – or high-speed rail. You know, they're getting into high-speed rail in a big way. So you're seeing the rise of new forms of production by Chinese companies as opposed to either Western or Japanese multinationals or being sort of subcontracted to them. So that's the big shift. Those are all initiatives – And that's, I think, what we're going to see. Those are all initiatives that we are trying to push heavily here in America. It seems that we're behind the curve then. Well, I think that in some areas that might be true, and in some areas it's not true. I mean, you take an area like infrastructure. 11:34 Now, because the United States, like Europe, by the way, has hugely neglected its infrastructure. So your infrastructure, you know, if you go to the airports in the States or the railways or what have you, railway stations, you know, they are a tribute to the past, not a testimony to the future. Now, if you go to China, you know, you get, you know, airports – there are countless very modern airports, fantastic expressway systems. You know, they've already got the largest high-speed rail system in the world, and soon they will have a network larger than the rest of the world put together. Now, in that sort of area, then there's no question China leads the United States. And indeed, I think, with great benefit, the United States would use Chinese know-how and Chinese companies and so on to help modernize the infrastructure and even provide funding for it. 12:33 I mean, because America is short of money. That, I think, would be a perfectly reasonable thing for the United States to do. So it sounds like you are enthusiastic about the effects of China on the evolution of our global economy into the future. Yeah, I mean, look, how can we not be? This was a country that was dirt poor. It comprises 20 percent of the world's population. It lived in great poverty. So to see the transformation of one-fifth of humanity from a situation of really serious poverty, but, you know, to a situation where they are rising up to a situation of relative material well-being, with all that that means in terms of expectation of life, lifestyle, and providing markets for the rest of us and so on, 13:21 that has got to be a good thing. And so you feel like China has evolved and is coming a long way and is certainly making progress. What effects do you foresee this to have on the American economy in the coming decades? Well, I think it's going to pose a great challenge to the American economy. I mean, so far China's been so behind the United States that it was almost like chalk and cheese. You know, China was the supplier of very cheap manufactured goods, consumer goods and so on, to America. Now, when China – as China becomes a more sophisticated economy and a more variegated economy with some very advanced aspects to it, as well as this kind of grunt, low-value grunt phenomenon that we're very used to now, 14:12 then this is definitely going to pose a challenge to the United States. But, you know, I think that's going to be difficult. People are going to suffer from it in the United States, but it's also going to provide a challenge and therefore a source of stimulus to the United States. Oh, you know, I mean, it's going to persuade America it needs to do this, it needs to do that. It can't carry on with this dilapidated, antiquated infrastructure. It needs to do something about it. And where will the lesson come from? The lesson comes from China. So I think it could have a very stimulating, positive effect. You know, that's what competition does, isn't it? And the main thing is that the competition is economic competition or, you know, cultural competition and so on, and not military competition. We do tend to thrive and advance in the face of challenge and adversity here in America. 14:59 So certainly this is something that we will need to be looking at certainly a little closer into the future. And I enjoyed the insights in your book. Again, it's When China Rules the World, the End of the Western World, and the Birth of a New Global Order, Mr. Martin Jacks. Where is the book available? Where can people pick it up? It's been available since 2009 in hardback. It's sold incredibly well in America, actually. And what's happened now is I've just produced a new edition, which is in paperback form. So, you know, it's much cheaper. And you can get it from, you know, any decent bookshop will have it. And, of course, you can get it on, you know, Amazon, Barnes & Noble site and so on. So it's readily accessible and well-known. So, you know, all good bookshops at Amazon, Barnes & Noble. 15:46 All right. Thank you for being here on the Financial Safari. We certainly appreciated the time and the insights that you provided us in the book. Thank you for being here. Thank you very much. Take care.