Hank Paulson’s warning
Bloomberg New Economy
Hello! The fourth annual Bloomberg New Economy Forum is continuing in Singapore and runs through Nov. 19.
Learn more here and read our wrap of the news here.
Today we look at the thoughts of Hank Paulson, the highlights of the conference and how China’s property market crunch is making it difficult for local governments to cut debt.
Paulson’s Warning to Washington and Beijing
Little more than 13 years ago, Hank Paulson was in the thick of the fight to save the global economy from a disaster unseen since the Great Depression. The Great Recession snuck up on Wall Street, and Paulson, as U.S. Treasury Secretary, was a critical figure in stanching the flow of blood just in time.
Now, the former Goldman Sachs chief executive officer sees another global threat coming, but this one isn’t sneaking up on anyone.
Speaking Thursday at the Bloomberg New Economy Forum in Singapore, Paulson warned that the world is headed for a “very dangerous place” if Washington and Beijing don’t stabilize their relationship.
Hank Paulson, chairman and founder of the Paulson Institute, addresses the Bloomberg New Economy Forum in Singapore on Nov. 18. Photographer: Bryan van der Beek/Bloomberg
The week began with cautious optimism that both sides were finally stepping back from the brink rather than racing toward it. The virtual summit between U.S. President Joe Biden and Chinese President Xi Jinping, while cordial, seemed to some like an anomaly to the now-expected jingoism and saber-rattling that for years has marked ties between the two countries, be it about trade or espionage, Hong Kong or Taiwan.
One video chat isn’t enough, Paulson said. “We need more certainty around how the U.S. and China are going to compete, where we’re going to cooperate, and how we’re going to manage conflict,” Paulson said.
Apart from a military confrontation, he warned that the threat of economic decoupling was having a destabilizing effect on the global economy.
“Wholesale financial decoupling is impossible, and partial decoupling is likely to make the U.S, China and the world more susceptible to financial crises,” said Paulson.
While the New Economy Forum has heard many warnings about how all stand to suffer from an intensifying U.S.-China rivalry, there’s hope that economic and scientific cooperation — in the realms of medical technology and the fight against climate change — could help Washington and Beijing find the road back.
China Vice President Wang Qishan speaking at the New Economy Forum in Singapore on Wednesday. Photographer: Bryan van der Beek/Bloomberg
China Vice President Wang Qishan, technically second-in-command to Xi, vowed Wednesday that Beijing will continue opening up to more foreign investment.
“China cannot develop in isolation of the world and nor can the world develop without China,” Wang said at the forum. “China will not waver in its resolve to deepen reform and expand opening up.”
Wang used an appearance at the forum last year to call for a shift away from protectionism, telling the audience that countries “must rise above exclusive blocs and reject the zero-sum mentality.” This year, he sounded a more conciliatory note.
Wang Huiyao, an adviser to the Chinese government and founder of the Center for China and Globalization, a non-government think tank, seemed to indicate in an interview on Bloomberg Television that momentum was building for more cooperation.
While there’s clearly competition between the U.S. and China, he said, Chinese officials hope that “healthy competition” is possible.
National security concerns are of course interwoven with the economic, but small steps on both fronts back from the “precipice” Henry Kissinger warned of Wednesday remain steps in the right direction.
—Andrew Browne
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Check out the latest Stephanomics podcast from the NEF
Watch our video wrap of today’s events
The Forum Highlights
Gates on Covid | Pandemic deaths and infection rates may dip below seasonal flu levels by the middle of next year, as long as new dangerous variants don’t emerge in the meantime, Bill Gates said.
Blair on Brexit | Former U.K. Prime Minister Tony Blair plans to propose a solution to Britain’s standoff with the EU over Northern Ireland, and warned of the risks of a U.S.-China conflict over Taiwan.
HSBC on Hong Kong | HSBC Chief Executive Officer Noel Quinn said he currently has no plans to visit Hong Kong, which has a strict but widely criticized quarantine policy, defending the city’s efforts to focus its post-pandemic reopening on China.
Gene therapies | Gene-based therapies could skew to a subset of the global population unless businesses and governments work harder to collect enough gene data from more backgrounds and communities, according to Francis deSouza, the chief executive officer of Illumina.
The Singapore side | Many in the U.S. see Beijing as “a serious problem” while many Chinese believe Americans want to “stop their emergence,” Singapore Prime Minister Lee Hsien Loong said.
Food warning | Food prices will likely stay elevated in 2022 as disruptions to the global supply chain persist, according to Cargill CEO David MacLennan, citing labor shortages. Gro Intelligence CEO Sara Menker said costlier food is a problem for the world.
No Bayer breakup | Bayer’s CEO said the conglomerate will continue to run its three main business units under one roof, even as investor interest in the potential for splits among large diversified companies has intensified.
Mastercard and Amazon | Mastercard will continue to develop its relationship with Amazon, vice chairman and president of strategic growth Michael Froman said.
Need-to-Know Research
A trawl of 30 years of market and company data shows that the world's biggest firms are doing great — but that might not be such good news for everybody else.
According to Bloomberg Economics, increasing corporate power has contributed to falling tax payments and — not unrelated — rising profitability.
In 1990, the median effective tax rate for the top 50 was 35%. By 2020, it had fallen to 17%.
Over the same period, the median profit margin rose from 7% to 18%.
Read the report here
Economic Scene
China’s property market crunch is making it difficult for local governments to cut an estimated $6 trillion of hidden debt even as Beijing shows more determination in cracking down on the problem.
Beijing, Shanghai and Guangdong province are planning trials to eliminate the off-balance sheet borrowing that local authorities use to raise funds for spending.
Although there were no details, it’s likely the pilot programs could eventually be rolled out to more of the 31 other regions in the country.
Read more here
On #EconTwitter
NEF delegate Ian Bremmer sees the world economy from the window of his plane…
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