World Economy 2017 Forecast: Lost In The (Bretton) Woods

World leaders at the Sept. 4, G20 summit in Hangzhou, China
World leaders at the Sept. 4, G20 summit in Hangzhou, China
Richard Hiault


PARIS — Last year was full of surprises across the world: a spike of protectionist fever in the United States at the instigation of Donald Trump, an anti-globalization wave of populism in developed countries bogged down by mass unemployment, Britain's planned exit for from the European Union, worries about a widening inequality gap, migration crises getting worse and worse. And so on. Still, this succession of shake-ups hasn't led to any major and decisive measures to contain the world economy's downward slide.

Political and economic leaders are very much aware of this global laundry list of maladies, but they still haven't been able to find the adequate cures for much of what looks sure to continue in 2017. The "Doctors Diafoirus" of his world will continue to examine the patient and will keep wondering whether they should administer a purge, an amputation or a complete blood transfusion.

The long invoked organization of a new version of the 1944 Bretton Woods Conference to redefine the framework of a global governance is still highly unlikely. There would have to be a conflict as devastating as World War II or an even bigger financial crisis than the one in 2008 for that to happen.

For the time being, the only major international summits planned for the year to come are a G7 meeting in Italy in May and a G20 summit in Germany in July. Otherwise will be the usual sprinkling of meetings at the International Monetary Fund, World Bank, Organisation for Economic Cooperation and Development and World Trade Organization. But this is still mostly immutable ritual. All these international forums, where the crème de la crème of the elites gather, are ineffective in guaranteeing growth, security, not to mention happiness and prosperity to the whole of the international community. Recent history is there to prove it.

The diagnosis, however, is providing some much needed clarity: Global governance is on the wane. The tendency to sit down together and look for international solutions to the great issues of our time — migration, climate change, fight against poverty, financial regulation, tax evasion — founded on very specific values and interests, is about to shatter.

Formed in 2008 as the watchtower of the world economy, during the subprime crisis, the G20 has not been able to reverse this tendency. First of all, because it brings together countries that don't share the same goals. The Anglo-Saxon shareholding and finance capitalism model and the European corporate social responsibility capitalism model don't fit in well with the state capitalism of China, Russia and the Middle East.

Christophe Destais of the French international economics research center CEPII wrote in October noted how this grouping contains a fatal flaw: "The G20 works under the principle of the rotating presidency. Rotating presidencies means rotating priorities. Each country tends to set an agenda that matches its own concerns." In 2014, Australia had chosen to focus on infrastructure spending to restart the world economy. In 2016, China made reform of the international monetary and financial system the top priority. Germany, meanwhile, has put the issues of corporate social responsibility and partnerships with Africa on the table.

With each passing presidency, the G20 agenda becomes overloaded with topics to be treated by heads of states and governments over the course of just two days. Destais also noted that the massive media attention does not serve the ends of long-term solutions. "There is a strong incentive to privilege postures over searching for consensus," he said.

On some matters, not much has changed since Bretton Woods Monetary Conference in 1944 (Source: World Bank)

The G20 relies on the work done by other organizations, such as the IMF, the World Bank, the OECD, the Basel Committee or the World Trade Organization. Yet, all these organizations also have diverging interests and sometimes compete or are jealous of one another. In addition, the IMF and the World Bank are still under the thumb of their main shareholder, the U.S., which is now facing competition with similar institutions created by emerging economies under China's leadership. The World Trade Organization meanwhile is facing major difficulties in modernizing its mid-1990s regulation system, and the chances that a real breakthrough can be made at the December meeting in Argentina are very slim indeed.

And then, on top of all these obstacles, comes the Donald Trump mystery. The next U.S. President didn't fail to castigate the World Trade Organization and even threatened to pull out of it. Observers get lost in speculation over his upcoming decisions, be it on trade or on financial regulation. His rhetoric goes very much against the grain of the G20's and WTO's work of the past decade.

As a matter of fact, because of the German general election in September, Chancellor Angela Merkel moved the G20 meeting to the summer. Following Donald Trump's inauguration on Jan. 20 and the French presidential elections in the spring, there won't be a lot of time to prepare for the summit. As one senior official at the French foreign ministry admits: "2017 is going to be a particularly complicated year."

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

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

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.
Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!