Geopolitics

Michelle Bachelet's Bum Luck And Bad Choices

The return to office of Chile's first woman President has been a veritable disaster. It is only partly her own making.

Bachelet in Arica, Chile
Bachelet in Arica, Chile

-Editorial-

SANTIAGO — Chilean President Michelle Bachelet swept back into power with high expectations and oodles of popular support. But just 14 months after returning to office, she is widely regarded as a disappointment, with an approval rating of just 29%, a reform agenda that has failed to generate much enthusiasm, and an economy that has fallen short of the kind of growth rates Chileans expect. With luck, the economy may grow 3% this year.

And now the government is dealing with a crisis of probity, or worse, of credibility, which began with a harebrained land deal involving the president's son, Sebastián Dávalos. The scandal eventually led Bachelet to ask all of her ministers to resign, and ultimately dismiss five. She moved four other ministry heads to new cabinet posts.

Bachelet's plummeting popularity is only partly due to her own actions or her government's performance. It is also the result of external factors that have affected all commodities exporters in the region. Chinese demand for raw materials has fallen, sharply reducing the price of copper, which accounts for 20% of Chile's gross domestic product (GDP) and more than half its export earnings. Copper reached a historic peak price of $4.5 a pound in early 2011 before starting a steady decline to reach $2.5 in early 2015. That, rather than the government's economic policies, is the biggest reason for Chile's economic slowdown.

That's not say the Bachelet administration has managed the economy well. Like Brazil's Dilma Rousseff, Bachelet, a veteran of Chile's Socialist Party, distrusts markets and the business community. She appointed a finance minister incapable of engaging with the private sector and, even when his incompetence became apparent, refused to replace him. Like Rousseff, she is not one to let go of staunch allies.

Michelle Bachelet with Dilma Rousseff during an official visit in Brazil — Photo: Roberto Stuckert Filho

Bachelet's first major reform was to raise taxes on company profits from 20% to 25% and eliminate tax exemptions on capital saved for investment. The tax hike was hardly excessive. It was reasonable, in fact, especially as the additional revenue its generates will be spent on education and healthcare services, things Chile urgently needs to improve if it wants to cut inequality.

The conservative opposition has opposed practically every reform the president has introduced. Unfortunately for Bachelet, the general public — even people who voted for her — haven't shown much enthusiasm for the changes either.

The problem isn't so much the content of the reforms but the way the Bachelet administration and its allies went about implementing them. The governing coalition, with majorities in both legislative chambers, approached the reforms initially with a fervor bordering on arrogance. The election promises might as well have been celestial revelations. Even Lenin used to say that the revolution could move forward or back in keeping with needs. But this government seemed like it wanted to take a backhoe to the past and start anew. Until now, that is. The crisis sparked by the president's son has forced the government to ease off the accelerator.

A family affair

Several months before Bachelet's return to office, Sebastián Dávalos met with the vice-president of the Bank of Chile, a billionaire named Andrónico Luksic, who approved a $10 million loan for a company that is worth no more than $10,000. The company, called Caval, is half-owned by Dávalos' wife, Natalia Compagnon, who used the loan to buy and then quickly resell (for a $5-million markup) agricultural land that was in the process of being rezoned for housing, insider information the couple presumably knew about.

The scandal broke in early February and had an immediate effect on public opinion. The allegations were particularly jarring given Bachelet's campaign pledge to tackle privilege and inequality. The president was also criticized for her initial handling of the matter: she waited several weeks to respond and, when she finally did, wasn't as critical of her son as many hoped she would be.

Then came another case of corruption, this time involving irregular campaign financing. One of the many politicians linked to the scandal was then Interior Minister Rodrigo Peñailillo, a Bachelet protégé. The minister, known for his careful speaking style and Armani suits, also failed to read the public mood. He dismissed the allegations against him and refused to step down.

Michelle Bachelet soaking up support — Photo: Gobierno de Chile

But Chileans wanted his head. Ultimately, Bachelet gave it to them. Realizing finally just how much the affair was harming her government, she first asked for the entire cabinet's resignation. Three days later, on May 11, she sent Peñailillo and four other ministers packing. Critics point to the way she initially announced the cabinet shakeup — during a sit-down interview with a popular talk show host, as opposed to in a press conference or official television address — as another mistake.

Time to listen

The new cabinet shows that the government has not so much abandoned as tempered its reformist zeal. The new interior minister, Jorge Burgos, is from the more moderate Christian Democratic party, while the new finance minister, Rodrigo Valdés, had a successful career in banking and is seen as business-friendly. The private sector welcomed that appointment.

The change shows the government is pausing before the next set of reforms. The country is expecting labor reforms, though one hopes the president understands that these would give more power to big unions representing the interests of the workers of big firms, who today are few in number.

Then there is the planned constitutional reform. One can always write a new constitution, but subsequent consultations, debates and legislative processes take time and resources. Perhaps in her two remaining years, Bachelet should focus on the educational reforms that could help create a more prosperous and egalitarian Chile.

One hopes she understands that advancing without seeking agreements is a childish attitude, characteristic of the most leftist members of her coalition. Let us hope too that she listens to her new finance minister. If she does, she may yet end her second presidential term with more personal popularity and better economic growth. Revamping her cabinet was a good decision. Too bad it took falling cooper prices and her son's opportunism to make it happen.

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Future

How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

SIPA Asia/ZUMA
Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.


For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.

https://www.lesechos.fr/idees-debats/editos-analyses/la-chine-est-desormais-une-fenetre-sur-notre-futur-1347064
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