Podcast: What if China’s power keeps growing?

TRANSCRIPT: What if China’s power keeps growing?

Antoine van Agtmael:

We believed in globalization, we believed that it would make the world better. I think now we're in a situation where instead of moving toward one global world, we're actually moving more and more toward two or perhaps three new power blocks.

Ian Bremmer:

Hello and welcome to the GZERO World Podcast. This is where you'll find extended versions of my interviews on public television. I'm Ian Bremmer, and on this episode, we are looking at the future of globalization and asking if the term emerging markets, one we've long used to describe nations transitioning to developed economies, still applies to much of the world. Some of them are in fact submerging these days while another one, China is today the second-largest economy in the world and soon likely to surpass the largest the United States.

So what does the world look like? As Chinese leader Xi Jinping cements an unprecedented third term in office. And how much will the future of China determine the future of our world? I'm talking with the man who coined the term "emerging markets." He's investor and expert, Antoine van Agtmael. Let's get to it.

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Ian Bremmer:

Antoine van Agtmael, it's nice to see you.

Antoine van Agtmael:

It's nice to see you.

Ian Bremmer:

So I want to start with this idea, because I first encountered you, it was a couple decades ago, as the guy that coined the term "emerging market."

Antoine van Agtmael:

Yep.

Ian Bremmer:

2022. Can we still call these countries emerging markets? Is that the direction they're heading?

Antoine van Agtmael:

They're emerging in the sense that they have a long way to go. Some people even say after the recent experience, they've been submerging, which is kind of a nasty wordplay. But of course they have evolved enormously. I mean when I started my business in 1987, what did we have? Brazil, if you take the four BRICS, which by the way at that point weren't investible.

So India was a bureaucratic nightmare, Russia was behind the Iron Curtain, China had just come out of the Cultural Revolution, and Brazil was a mess. So a lot has happened since, with countries evolving enormously, and in some cases becoming middle class countries. So to some extent they have emerged, but that's still different.

Ian Bremmer:

One thing that we can say that has been consistent over the nearly 40 years since you started on this journey, is that we were moving towards globalization. We were creating a global middle class.

Antoine van Agtmael:

We were. We were.

Ian Bremmer:

You think we aren't anymore?

Antoine van Agtmael:

No.

Ian Bremmer:

Why?

Antoine van Agtmael:

And it pains me to say that. It's like having fallen of your belief. But I think for you it was true, for me it was true. We believed in globalization. We believed that it would make the world better. And we found out that that was to some extent true. It lifted a whole group of countries, my emerging markets, out of poverty. But it also created all kinds of problems, particularly in the developed countries. And I think now we're in a situation where instead of moving toward one global world, we're actually moving more and more toward two or perhaps three new power blocks.

Asian-Chinese power block, basically Chinese-Russian power block, and an AmericaEuropean power block, with some of the other countries having to make up their mind where they're going. And by the way, the elites in many of the emerging markets are asking themselves that question. They are getting fed information that is very different from what you and I read here in the United States or in Europe, very different. And we forget that. About half the world thinks very differently from the United States and Europe.

Ian Bremmer:

When I think about globalization, I think about goods and services and people and data and capital moving faster and faster across borders around the world. When I talk to the CEOs of big multinational corporations, there are exceptions. But generally speaking, I find that those CEOs are still committed to those principles. And I'm saying that not about American or Canadian or even European CEOs, I'm talking about global CEOs. Doesn't matter what company I'm talking about.

Antoine van Agtmael:

I think that's absolutely true. They would like to believe that we're still moving towards globalization. Whereas in their everyday life, they realize that it's not always the case. I mean, take for example, China. The way an American businessman now thinks about China as opposed to the way they thought about China 20, 30 years ago.

Now, I was part of the World Bank team that helped create the Chinese financial system, which was probably one of the most interesting things I did in my life. At that point in China, people were very open, they were very eager, they wanted to get to learn. China today is much more closed, and China has also developed to have a real sense of itself as a world power. And that's very different from the way it was in the past. So while we may hope and would like to see globalization, in fact, I think we're moving in a different direction. There's another aspect, and that is we have learned for a variety of reasons that we can go into, that it's no longer just efficiency that counts, it's also resiliency that counts. And those are subtle changes, but they make things different.

Ian Bremmer:

I could play with both of those points, but maybe the first, which is China is used to be more open, is no longer as open. When you're saying China was more open, of course that was at a time there was very little American investment, western investment in China.

Antoine van Agtmael:

Right.

Ian Bremmer:

Today, there's a massive amount of investment into China.

Antoine van Agtmael:

Absolutely.

Ian Bremmer:

There's a massive amount of interdependence.

Antoine van Agtmael:

Absolutely.

Ian Bremmer:

Frankly, a lot of the low hanging fruit has been picked. China's a much more competitive field to be in, their labor is more expensive. But is this really sort of the unwinding of globalization or is it just a maturation that comes once you've actually already done all of that?

Antoine van Agtmael:

I think it's both. Absolutely it is true that the low hanging fruit or really crazy opportunities, often.

Ian Bremmer:

Yeah. The 500 million pairs of sneakers, so everyone used to say-

Antoine van Agtmael:

The ridiculous opportunities-

Ian Bremmer:

Exactly, the ridiculous opportunities.

Antoine van Agtmael:

And naive thinking, that has gone.

Ian Bremmer:

Right.

Antoine van Agtmael:

But it's more than that. And the more than that is the fact that I think China has developed a different sense of itself, and the US has become more defensive. Basically, I think we are, I believe, moving from the American century to the Chinese century, and this idea for us, in the US, to get used to the idea of becoming number two. And by the way, for China, the idea of becoming number one, those are huge transitions.

Ian Bremmer:

Now, there are so many ways that I could say, I don't necessarily agree with that. In the sense that number one, militarily the United States is this overwhelming a global power, and China's not remotely close to one. And then secondly, I would focus on all of the internal challenges that China seems to be experiencing economically right now. Some of which you've written about because of the middle income trap-

Antoine van Agtmael:

Absolutely.

Ian Bremmer:

But also the demographics are so much worse than one would normally expect-

Antoine van Agtmael:

They're not worse than ours, but they're a lot worse than they were before.

Ian Bremmer:

A lot worse than they were before. I mean China's already peaked population at a time that they're very poor. And all of the inefficiencies, the debt challenges that come with that. Why in the context of all of that, would you feel confident that it's a Chinese century? China more powerful? Absolutely. But that Chinese century, the way you framed it, implies that literally we're going to go from US number one, China, number two, and we're just going to flip them. Do you really think that's happening?

Antoine van Agtmael:

Yeah, I think so.

Ian Bremmer:

Okay.

Antoine van Agtmael:

I think that as a result of what they have done, much of which has been really something we can admire I think, there is a momentum. It's like being on a boat and steering a boat, as I just recently did. Once you're on a certain course, to move in a slightly different direction is very, very difficult. And what I think is happening is that China now has a certain momentum. You were talking about the superiority, which unquestioningly the United States still has militarily. But let's not forget that the United States hasn't really won any major conflict in a long, long time. So this military superiority as applied to being effective in specific places, let's take Taiwan for example, is not so clear.

Ian Bremmer:

I agree with that. Address the question of your confidence in, your continued confidence in China's model economically, in a way. Because I mean, what China's done for the last 50 years has been extraordinary. But so much of that has come from a different model. I mean, we look at China over the last 50 years, massive amount of surplus, inexpensive, incredibly efficient labor. None of those things are going to apply to China's growth model going forward.

Antoine van Agtmael:

This is the old Paul Krugman argument.

Ian Bremmer:

And not only.

Antoine van Agtmael:

Yeah, yeah.

Ian Bremmer:

Yes.

Antoine van Agtmael:

There have been times over the past 25 years that I've gone back and forth to being an admirer, to being a skeptic. And unquestionably, there are things that China will have difficulty with. For one, the fact that in a society where thought is controlled, and let's face it, thought is controlled in China far more than most other places, I think it is very difficult to be truly innovative, and I mean innovative at the edge of innovation. But then when I think about that, I say, yeah, that's theoretically true. But now take a look at one of the three, four major things that we have to watch, I think in the future of the world, which is nuclear fusion. Who is now number one in this area? It's China.

Ian Bremmer:

China, yeah. And you think that's close to a breakthrough? I see a lot more money as going into it as an energy source.

Antoine van Agtmael:

Well, I mean basically it's very tempting to put money into this particular area because it is possibly a remarkable solution. I mean it's like creating an artificial sun, basically. And that throws off a hell of a lot of clean energy. So the first one to win that race, and by the way, Princeton is working it, Korea is working it, everybody's working, it's not just China. But to want to win that race or to be ahead of is going to benefit from that. And I cited this as an example, and same is true for artificial intelligence, seems true in other areas. Cyber, you name it, where China's made remarkable innovative progress, more frankly than I had anticipated. So you have to give them credit. And that somehow has not stopped.

Ian Bremmer:

You would weigh China's advantages in cutting-edge technologies more heavily than you would the constraints from demographics, lack of efficiency, indebtedness, zero-COVID, all the rest.

Antoine van Agtmael:

I think that's a good way of putting it. Yes. But that doesn't deny that those challenges exist. Those challenges really are there. China is the only major economy in the world that has never gone through a really profound crisis the way we did in 2008, for example. And that's a concern.

Ian Bremmer:

That's a concern. And their willingness and ability to continue to kick the can down the road on big challenges like bad corporate debt or real estate bubbles and the rest.

Antoine van Agtmael:

And we all know what that leads to.

Ian Bremmer:

Right. And are you saying that you think that China can continue to do that for the foreseeable future, or that you have a lot of uncertainty about your China projection?

Antoine van Agtmael:

My sense is that China is better able to deal with those challenges than I had thought, and I give that to them. And that doesn't mean that, as I said earlier, there are no challenges, because they have some challenges to overcome. But I think as you put it in the balance, I think in that balance, I think their ability to do better than we might think is one that makes me, let's say, optimistic about their ability to become a true global power. In fact, the major true global power in the future.

Ian Bremmer:

Now switching-

Antoine van Agtmael:

Not that that is a prospect, by the way, that I relish, because I don't think that it's going to be a nicer world. I think it's going to be a much less nice world.

Ian Bremmer:

Switch to the other side of the equation, the American side of the equation. The US, I know that you're not happy about where the political system is going right now. On the other hand, the American political system hasn't prevented extraordinary innovation and entrepreneurship from emerging in the US, from being attracted to the United States. The US dollar today is at multi-decade highs.

Antoine van Agtmael:

It's amazing.

Ian Bremmer:

So why are you so comparatively negative about where the United States is heading as an investor?

Antoine van Agtmael:

Well first of all, we have some real problems lying ahead, not just in the United States, but in Europe and probably the rest of the world, in that I think we're entering a two, three year period of stagflation. That then is combined-

Ian Bremmer:

Stagflation, so we're talking low growth, high inflation.

Antoine van Agtmael:

5%, 6% inflation, and no growth, perhaps negative growth for a little bit, but certainly lower growth than we need to have.

Ian Bremmer:

Well, real wealth is being contracted.

Antoine van Agtmael:

Real wealth is being contracted. While at the same time, and this is one of the big problems, and I think one of the reasons why our democracy has become more fragile, is inequality continues to rise, in essence because you could say, no bless no longer oblige. I think the elite of this country and the elite of other countries have basically not taken care of the country around them, and made sure that this inequality stop rising, and in fact got brought back a little bit, which I think is required for a healthy democracy.

Ian Bremmer:

Now that's been going on for decades in the United States.

Antoine van Agtmael:

But it has become worse, I think, in the last decade.

Ian Bremmer:

But do you think the next few years, man I'm thinking about the last two years, pandemic, Russian invasion. So much of the pain of all of this disruption is on the back of the poorest countries in the world, on the back of the developing countries in the world.

Antoine van Agtmael:

Yeah. The poorest and the ones that didn't have energy.

Ian Bremmer:

Yeah, they're the ones that are heading backwards right now.

Antoine van Agtmael:

Yeah, right. Yeah. So there may be a hiatus of a few years in what I just said, but I think longer term, I think the rest of the world, including and excluding China, will outgrow the US.

Ian Bremmer:

You said before that a lot of investment, a lot of capitalism, a lot of political decision making is no longer just about growth, but it's about resilience. To the extent that's true, is it not the case that political systems that are wealthier, that have institutions that are more legitimized, that are stronger, that are more decentralized, have an advantage intrinsically?

Antoine van Agtmael:

Yeah, I think that's true.

Ian Bremmer:

So that would swing-

Antoine van Agtmael:

Yep. Somewhat. Yeah.

Ian Bremmer:

Somewhat.

Antoine van Agtmael:

I agree. I agree.

Ian Bremmer:

What's the single thing right now? If I give you a 10 year horizon, what's the thing that worries you the most?

Antoine van Agtmael:

What worries me most, I think, is that I don't see the growth of inequality, the rise of inequality in the US and other countries being brought back. And I believe that that undermines a democracy, because democracy in the eyes of many people is not doing what democracy is supposed to do-

Ian Bremmer:

Which is create and afford opportunities.

Antoine van Agtmael:

Exactly.

Ian Bremmer:

Yeah.

Antoine van Agtmael:

So that's my biggest concern.

Ian Bremmer:

Because inequality in the United States today is at its highest levels that we've seen since just before the Great Depression. And you say it's going to continue, and yet no one out there is projecting an imminent great depression. And so, does that mean-

Antoine van Agtmael:

Neither do I.

Ian Bremmer:

Does that mean that the political institutions just start eroding/imploding, in your view?

Antoine van Agtmael:

Well, I think we have seen an erosion of our political institutions. I mean, let's not forget that basically we had for four years someone running this country, or is pretending to run this country, who had ideas that I think did not move this country forward. And I think that, call a spade a spade, that the Biden administration, which by the way I think doesn't get enough credit for what it has been doing. Although I think just today his popularity figures were a little bit higher. But I think he has not been getting enough credit for what he has been doing. I think he's been trying to kind of bring that back, but it's not easy.

Ian Bremmer:

Now, if you were a kid, a young man today looking at your career ahead of you, what would you do fundamentally differently than you had back in the 80s?

Antoine van Agtmael:

It's a very interesting question. I came to this country in 1968, which was, by the way, not a great year for the US.

Ian Bremmer:

It was a violent year for the US. It was a divided year in the United States, it was Vietnam era, it was, oh my God, yeah.

Antoine van Agtmael:

And still the US had a certain glamour, it had a certain prestige. It offered something to a European kid like me. Whereas if a nephew of mine in Germany or Holland or France would say, "What do you think, uncle?Should I come to the US and make my career there? " I would probably say, I would think about that twice.

Ian Bremmer:

Really?

Antoine van Agtmael:

Yes.

Ian Bremmer:

Because I mean, if you think about where the wealth is being generated, where the top universities are, where the corporates are that everyone wants to go to... And by the way, we think about Europe. I mean companies are leaving Europe in large numbers because they can no longer afford to produce, given the energy input costs in Europe. If you are BASF or you are Volkswagen in this environment, how can you still be there?

Antoine van Agtmael:

Europe's going to have more problems over the next couple of years than we have. I agree.

Ian Bremmer:

So what is it that, I mean you're not telling your kids, oh, I think you should learn Mandarin and go to China, because you clearly don't find that life experience to be particularly attractive.

Antoine van Agtmael:

I would've told them that 10 years ago.

Ian Bremmer:

But you wouldn't today.

Antoine van Agtmael:

Yeah, no.

Ian Bremmer:

But you wouldn't today. So what would you tell them today? What are you telling yourself today? Young Antoine going off to cobble some shoes?

Antoine van Agtmael:

Yeah.First of all, I would not do Russian studies the way I did, or for that matter, Chinese studies, but I would make a real effort to understand science and technology in a way that when I started my career, I didn't.

Ian Bremmer:

Because that's what you're actually most optimistic about right now.

Antoine van Agtmael:

That's what I'm most optimistic about.

Ian Bremmer:

About sort of genetic technologies, fusion technologies.

Antoine van Agtmael:

It's not going to be-

Ian Bremmer:

The blockchain.

Antoine van Agtmael:

Regulation that's going to help us out and save us. It's going to be basically innovation and technology, and it's things like the metaverse, the blockchain, the whole area of artificial intelligence, nuclear fusion, mRNA. Those are the kinds of things where actually we have still an enormous advantage. Artificial intelligence, China is catching up, but in all the other areas, well actually also in nuclear fusion, they're catching up. But these are areas, these critical areas, we still have enormous strength.

Ian Bremmer:

Well when you say they, of course, a lot of they is private sector, and that's even true in China in some of these areas. I'm wondering, I mean the early part of this conversation we talked about your view that there is going to be this, your view there is going to be this shift in power from the United States towards China.

We start talking about what you're optimistic about, because in some ways you're pessimistic and concerned about both the United States and China as governments, as political systems. But the things you're optimistic about actually have to do with centralization, shifting to decentralization, moving away from central governments.

Antoine van Agtmael:

Yes. Yes, you're right.

Ian Bremmer:

And moving to other things.

Antoine van Agtmael:

You're right.

Ian Bremmer:

So are we really talking about a China century or are we talking about a century that doesn't belong to countries? We're talking about a century that belongs to technologies and innovators and the people in that space.

Antoine van Agtmael:

Like you, I've worked with a lot of analysts in my life, and the one lesson I always gave them is, there's a difference between analysis and wishful thinking. And what I worry about is that this embrace and this confidence in technology and innovation, is not enough. That's really my worry. Do I think it's unimportant? Absolutely not. But we cannot be seduced into wishful thinking here.

Ian Bremmer:

My point here is that it is hard to displace existing actors. I accept that. But in the same way that it's hard to displace the United States by China because it has its position in lots of institutions and with the dollar, and people are used to having supply chains in certain places, all the... They know the leaders from those countries, they're comfortable with them. But for all the reasons you're suggesting, you're saying, well actually, China's going to start to do that. Well, it's very hard to displace governments as central actors, as sovereign actors. And yet so many of the trends, so many of the things that we see expanding exponentially in their influence in the world, digital technologies in particular, are places where governments fundamentally don't exert sovereignty. And I wonder if despite all of the first mover advantages that governments have in this world, that if we were going to be surprised in 30 or 40 years time looking back at our careers, the surprise is that we bet too heavily on governments.

Antoine van Agtmael:

That could very well be the case. And I certainly would want governments to do everything to make it possible for, let's say the private sector, for individual researchers, et cetera, to be productive and to be innovative. But while I would love to see decentralization, as you call it, take the place of the role of major governments, do I realistically think that is possible in the way we are going? I have my doubts.

Ian Bremmer:

Antoine van Agtmael, it's great to be with you.

Antoine van Agtmael:

Same here.

Ian Bremmer:

That's it for today's edition of the GZERO World Podcast. Like what you've heard? Come check us out at gzeromedia.com, and sign up for our newsletter Signal.

Announcer:

The GZERO World Podcast is brought to you by our founding sponsor, First Republic. First Republic, a private bank and wealth management company, places clients needs first by providing responsive, relevant, and customized solutions. Visit firstrepublic.com to learn more.

As the world industrialized, nature suffered. Conservation has been dominated by Western voices, but in Africa, home to 30% of the world's biodiversity, African conservationists blaze a new path forward. On Africa Forward, a podcast supported by African Wildlife Foundation and produced by FP Studios, hear about green infrastructure, Africa's tremendous biodiversity, and how African LED conservation may save endangered species and the planet. Listen to season two of Africa Forward wherever you get your podcasts.

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