Since last year, the global economy is still muddling along. I read carefully Federal Reserve Chairman Yellen’s announcement a few days ago. QE (quantitative easing) will stop in October, but very low interest rates will continue for a considerable period of time because there is slackness in the labour market. Her statement was very carefully crafted, reflecting the fact that, while the US is showing growth, it is still fragile and somewhat uncertain. And while in the US, QE is being turned down, in Europe it is just being started, also in October. And for good reason because the European economies are in the doldrums. The conflict over Ukraine and the stand- off with Russia have not helped. And now, our common revulsion against what is happening in Syria and in Iraq.

In Japan, the third arrow is still finding its mark but Prime Minister Abe’s leadership and determination are impressive. We have got to wait and see. In the meantime, developing Asia, despite many problems, continues to do well. We are seeing slower growth but higher quality growth.

Developments in China

China, of course, is the big drama. Last year, we talked about the anti-corruption struggle. At a Politburo meeting in June this year, President Xi Jinping described it as a life and death struggle and reminded everyone of what Zhu Rongji said, when he became Premier, about preparing a hundred coffins - ninety-nine for those he was going after and one for himself. In fact, it is remarkable how, within a relatively short period of time, President Xi Jinping has been able to take over command. His authority is no longer in question, both domestically and internationally, and he has set a different tone. Economically, the measures have dampened the economy’s growth and, for multi-nationals, China is becoming harder. For Chinese companies, China has also become harder. But the organic vitality is still unmistakable. Before the Global Financial Crisis, for my company, for our China business, 80% consisted of taking things out from China to the developed world. After the Global Financial Crisis, two-thirds of our China business consisted of bringing stuff into China. So while high brands have become less popular, mass consumption and mass fashions have become more important and this is happening all over China.

Sino-India relations

Xi Jinping has just left India and his visit to India bears careful analysis. Under Prime Minister Modi, there is a new spirit in India and he may have a honeymoon of maybe two years. He knows that he must move fast because his campaign slogan was “good times are coming”. As everywhere, the electorate is impatient and fickle and, already in many local elections, the BJP has lost ground. Prime Minister Modi knows that the economic agenda is critical to his long-term agenda of strengthening India and taking it to the front ranks of major countries in the world. The way he has managed relationships with China has implications for all of us. We read how President Xi Jinping was the first foreign leader to congratulate Prime Minister Modi when he became Prime Minister. Now, let us remind ourselves that who is the first to congratulate Prime Minister Modi depended not on who called first but whose call he wanted to receive first. Prime Minister Modi decided that for various reasons, he will receive the call from President Xi Jinping first.

When Prime Minister Modi went to Japan, he was very careful to show that he was not going to get involved in some coalition against China. So in Tokyo, he repeatedly made cooing noises towards China. Xi Jinping went first to Ahmedabad. Modi was celebrating his 64th birthday and along the banks of the Sabarmati River, there was a big party with vegetarian food served, and great warmth. President Xi Jinping responded in kind, promising industrial estate investment in Gujarat. But it was in Delhi where the formal statements were made by both leaders, and I would strongly recommend that you read those statements because they say a lot about what is happening between two countries which together make up 35-40% of the world and probably provide a higher proportion of global brain power.

Among various things – like 20 billion dollar worth of investments in five years, the more-than-doubling of trade in five years, China investing in railroads and infrastructure and in manufacturing, and cooperation in the peaceful use of nuclear energy - there was a curious agreement that an important place of pilgrimage in Tibet, the homeland of Lord Shiva, called Kailash Mansarovar, would be accessible via an obscure mountain pass which is of strategic importance, called the Nathula Pass, squeezed between Sikkim and Bhutan. For Indian strategic thinkers, that pass is of absolute importance because it can break India from its eastern portion. When Indira Gandhi, many years ago, moved the Indian Army into Bangladesh, she waited till winter time when that pass was filled with snow and China could not intervene. China has agreed that there will be a second pilgrimage route to Kailash Mansarovar through the Nathula Pass. This means India is now envisaging an opening of a new major channel of communication across the high Himalayas to China. There are big implications. If Prime Minister Modi succeeds in his plans for economic development, and he has a good five year term ahead of him, the relationship between China and India will be transformed. And as they themselves said in Delhi, “If both of us agree on any issue, the whole world has to take note”. India and China are both ancient civilizations and this re-encounter between them will have the greatest importance in the years to come.

State of Southeast Asia - Thailand and Indonesia

Southeast Asia is in between. We have both China and India growing organically, and Southeast Asia is benefiting powerfully from their growth. In fact, there are some reports that Southeast Asia received more foreign investment than China last year, partly because China itself is investing in Southeast Asia. We are seeing here a new growth surge powered by two major trends. One is that coastal China has become expensive and factories are relocating either inland to cities like Xi’an, Chengdu, Chongqing, Wuhan, Kunming where logistics are still difficult, or into Southeast Asia where logistics are simpler. The other is Japanese businesses diversifying into Southeast Asia from China. In North Vietnam, between the border and Hanoi, Samsung and Foxconn have invested billions of dollars into electronics manufacturing facilities. The road connecting Vietnam to China between Hanoi and Nanning is being improved - on the Chinese side, it is all highways, six lanes, and, on the Vietnamese side, a highway is being built. Philippines, Cambodia, Indonesia are positive stories too.

Let me touch on two countries in Southeast Asia —Thailand and Indonesia. In Thailand, some of us look askance at the army moving in again. We should look deeper than that. Thai society is going through a critical transition in its history because the King is aging. And unlike in 2006, when the army stayed on a year and dismounted with the deeper problems largely unresolved, this time around, the Thai army has decided to hang around for a few years to make sure that during the transition, nothing will fall in between. A civilian government has been formed with soldiers changing their uniforms to civilians, so that does not really count. But by the end of next year there will be new elections, but under a new constitution. The Thais expect that under the new constitution, the army will continue to play a special role. Western countries will sniff at all this but for countries in Asia - in ASEAN, for India, China and Japan - they will take a different view. For us in business, it is worth our while to stay invested in Thailand because long-term stability is good for Thailand and good for Southeast Asia. Democracy, if it does not deliver good government, may have to be attenuated here and there in order that good government may be achieved. But of course, it must not, in resolving the shorter term issues, create longer term problems.

In the case of Indonesia, it is a story where democratic arrangements have developed a remarkable stability. Last year, Jusuf Kalla, now Vice President-elect, addressed us. The Jokowi-Jusuf Kalla combination will create a new situation in Indonesia. Watch how they handle the reduction of fuel subsidies. If it is watered down, that will signal a bad start. If it is decisive, if despite uproar and demonstrations, they still follow through, then invest in Indonesia. Because it will show determination, that many problems of infrastructural bottlenecks, of regulatory reforms, of cronyism will be tackled. But these are things before us and by the time we meet again next year, the picture will be clearer.

On the whole, I think we have reasons to be bullish about ASEAN. If you add together China, ASEAN, India, that is half the world’s population. Are there problems? Yes, of course, there are problems, there are problems everywhere, but problems of a very different kind from the problems in the Ukraine or in the Middle East. We are very fortunate that Singapore is smack right in the middle of the happier half of the World. What are the possible problems? There are two levels to consider. At one level, we have to worry about big power relations - Sino-US relations, Sino-Japan relations, maybe Sino-Vietnam relations - but they all turn on Sino-US relations.

Sino-US relations

In the US now, there is growing concern about China’s growth and one can sense, reading the media and the journals, that anti-China sentiments are on the rise. And in dark rooms, dark thoughts are being nursed. So too on the China side. But among leaders, there is recognition that the relationship is too important, the interdependence is too great, the cause of a fall-out too dramatic, for that relationship to be mismanaged. Over the South China Sea, there could have been a possible triggering point in the last year but, since then, the temperature has calmed down. Between Vietnam and China, one must distinguish the relationship between foreign ministries and the relationship between the communist parties. Between foreign ministries, there is a stand-off, but between the two communist parties, which are the two oldest communist parties in the world, the relationship remains profound. Recently, the Vietnamese sent one of their top leaders from their communist party to China. He met Xi Jinping. I noticed the visit was reported in a positive way in the Chinese media. So I think there are reasons not to be too pessimistic about the South China Sea.

The relationship between China and Japan is dependent on the relationship between China and the US. During Susan Rice’s recent visit to China for the strategic dialogue, which my good friend Bob Zoellick initiated some years ago, Xi Jinping’s repeated statement that China will make relentless efforts to push forward what the Chinese called the”新型大国关系” or “The New Model of Big Power Relations”, is not to be questioned. China knows that if that relationship falters, every other calculation will have to change. And from the US side, the US needs China to solve many of the world’s problems - Ukraine, the Middle East, Ebola virus, the role of the US dollar in the world. Occasional hiccups and accidents could happen in the East Asian Sea or the South China Sea – like the Hainan spy plane incident in 2001 - but so long as at the strategic level, between the leaders, they maintain calm and strategic discipline, the overall relationship will be okay. On balance, although from time to time, there could be anxious moments, the picture in Asia is not bad. And it is partly for this reason that the Singapore Summit will grow in importance.

The disintermediation of hierarchies

But there is a second set of problems at a different level, which arises not from geopolitics but from the effect that technology is having on all hierarchical structures. The recent referendum on Scotland is an example of this. What is the pressure? The pressure is, with the disintermediation of hierarchies, there is a pressing need for greater devolution of power everywhere and for leadership to become less hierarchical and more inspirational. And everywhere, for the same deep reasons, middle classes are becoming unhappy, because despite all their efforts in working hard, in being responsible, they are competing against computers, algorithms and new suppliers from the developing world. We see this in the West, we see it in Hong Kong, we see it in Singapore, we see it in Britain, we see it in Spain, we see it in Eastern Europe — it is a global phenomenon. Governments are under pressure to take from the rich to help these middle classes. But that is a 20th century solution which will not work because capital and talent will flee.

And in the end, to face this challenge, we cannot avoid the moral question of the growth of inequality. In the end, the problem of mass unhappiness among global middle classes is a moral question of what it means to be a member of a community. There is growing desire for greater autonomy all over the world. Many feel that far away - in Beijing, in Tokyo, in Brussels, in London — the leaders live in their own world, they do not know local circumstances, how ordinary people live, the hardships they have to go through. Many do not understand why they are unhappy and so they listen to those who provide simple explanations, who make simple appeals — and that can be dangerous. These are questions which we, who are in business cannot close our eyes to. I remember early this year, in Davos, a message from the Holy Father. Klaus Schwab had invited him to speak. He sent a cardinal there to deliver a speech reminding everybody that, yes, it is good to meet and to talk about business and to promote growth, but please do not forget, in the end, what is it all for? It is for the human being. Let us not neglect that moral dimension.

The essay is an excerpt of a speech given at the Singapore Summit ("Global-Asia Confluence") held on 20 September. 

Photo from George Yeo Facebook

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