Sunday, October 27, 2019

I doubt trade war will end soon and what we should do about it

In a forum I attended, one senior director of a large semiconductor multinational based in Penang told us not to look too much into the situation. That was May, few months later Trump increased tariffs for the same Chinese products by another 5%. For people who have been thinking that Trump is the bad guy, perhaps we should rethink. All the presidential candidates that have been asked on this topic, either they have tried to avoid this question or they have answered that they would have addressed the trade friction differently. Basically, they would also put pressure onto China.

Historians called this as "Thucydides's Trap", where it basically occurs when one up and coming super power emerges, challenging the reigning power that be, then the theory is a war can't be avoided. Thankfully, for several times war had been avoided and these seems to be avoided more recently example when US's economy exceeded Great Britain in 1900th. Today, who would allow a disastrous nuclear war where it would have a lose-lose proposition for the world.

China's GDP is expected to surpass US in the next decade and to many, it is a matter of time, not whether it will happen. China is promoting hard on Made in China 2025 policies where the plan extends up to 2049 - the 100 year anniversary of the Chinese Communist Party's reign over China. That also seems to be the date where silently China is planning for its military strength to exceed US.

Let me ask this question. Who would have expected this situation to happen even say 10 years ago? With the situation, do we think US will sit still?

If it is not Trump, the next President of United States - whether by 2021 or 2025 - does that person want to be remembered as a president where his office be seen historically as the one succumbed to another new power. Is there also a reason why China has allowed Xi Jinping to remain as president beyond the traditional 10 years?

So, are we naive enough to think that US will let this one go past them although the trend seems to put them in the losing situation.

China knows this and they can be seen to try their level best to address this. At the back of their mind though, they are willing to suffer in the short term but allowing their position to be stronger in the long run. In business, the Chinese businessmen are much short term in their actions, but when comes to the government, the Chinese government is hugely long term in their planning. US is the one which is not able to plan and act long term - because their financial and political system do not allow them to do that. Trump is up for election soon and he has to have actions that is based on that 2020 election, i.e. creating positions for his voter base while President Xi can afford to sit and wait.

Well what do we as Malaysians can expect to see and take advantage of

Two words. Trade and Technology

If we are dependent on consumption to drive our economy, I think that has been the story for the past 18 years. Today, it is much harder to drive consumption when our private debt is at 80+%. What we can hope for is the growth to be consistent while allowing other components of the GDP (i.e. Investment and Trade {Export - Import}) to drive through our economy. The government sadly has been focusing on balance of wealth - not wrong - but to drive equal prosperity, one country has to be prosperous first. How to distribute wealth when we do not have them? If we are not careful, the word prosper would not even be there as global competition today is so extreme that many countries can surpass us especially through trade.

Now Trade. We have learned about the Malacca history. Malaysia is lucky to be geographically strategic. Remember, the early days who were the ones trading in Malacca? Indians and Chinese. We happen to have those culture and people who speak the languages, hence the Indian and Chinese culture are a benefit rather than the a con. The vernacular schooling system could turn out to be an advantage rather than seemed to be a disadvantage. The only thing which Malaysia can't seem to let go is the pride factor.

Anyway, our government - past and present, know trade is important but how they do the execution is all that matters. If in the past Vietnam was at war, today it is in the most active in its investment policies. The Indonesian president seems to be inviting people of the right background to helm its important trade posts, although how it executes is key. So are China and India themselves. The Malaysian position today is not the same as the Malaysian of 25 years ago when we were knocking onto the door among the "Tiger" economies.

To claim that we can go back to our good old days of being seen as a prospective "Tiger economy" is just a saying if we do not focus on TECHNOLOGY.

Today, what US is afraid of China is not so much of its economic strength. US is more wary of China's technology prowess. The growth of Huawei and China's high-speed train technology, for example awakens many countries globally. And that country is hungry. Very hungry, and for a huge country it seems to be able to work in tandem to achieve its goal.

While we see China having its enterprise Alibaba claiming and coming here to teach Malaysians how to do e-commerce, we as a country have stagnated in our technology prowess and that area of investments especially. Just 20 years ago, the China government was hugely grappling with a new technology and phenomenon called the "Internet" as it was afraid of its effect towards freedom of speech. Today, that country is thriving out from that while we are still wondering what happened to our Multimedia Super Corridor.

To move Malaysia in the right direction, we have to revisit back what we try to do with our technology companies. While we invite Gojek here, we have to invest into a Gojek competitor. We have to do much more than giving RM300,000 to a Cradle recipient company and leave them with just the money. The worse that a Malaysian company has done is when our companies - GLCs included - having and giving more trusts to another company from abroad rather than providing a platform for our local companies to succeed. Sometimes having meritocracy in our procurement may not be a good thing especially when we do not allow our own companies to try and fail.

Malaysia today, seems to be running out of idea to expand our economy on especially the capital market - so much so that we are planning to list Petronas Carigali. Well, to list an oil and gas exploration business, we are not looking forward. We do not have the next new story.

We have to give encouragements and opportunities to more Vitrox-es and Penta. We have to give more capital opportunities to technology companies. LEAP is not doing its job given the acronym as it is too restrictive when comes to trade for example. The middlemen at the end of the day are the ones that make money as raising RM3 million can costs RM1 million.

We really have to move fast as if we are not careful, Bursa may not even be relevant.

1 comment:

aditya said...

Nice post thanks for share article. Frases