Decouple and catastrophe awaits

The world should be on guard against the risk of major economies sliding toward decoupling, an outcome that the head of the Asian Infrastructure Investment Bank, or AIIB, warns would be catastrophic.

For now, AIIB president Jin Liqun said, there was more rhetoric than action from the advocates of decoupling. However, in comments to China Daily, he spoke of the strains that the pandemic has placed on multilateralism and how it has fomented anti-globalization sentiment.

As head of a multilateral development bank focusing on infrastructural connectivity, Jin is outspoken in discussing the "catastrophe" that decoupling would bring, and in deciphering the events that give rise to the perceptions of the globalization skeptics.

He was expected to discuss "The Case for More (and Better) Multilateralism in Times of Global Crisis" at the Peterson Institute for International Economics virtually on Tuesday.

Two weeks earlier, Jin was speaking in support of trade at the 2021 Aspen Security Forum, where he quipped: "Wine consumption in China is good news for Napa Valley."

Although the laws of economics determine that decoupling is not easy, Jin notes that politics may play a role, so it is "crucial" to alert the world to the global catastrophe this outcome would bring. He wants to leave ordinary people in no doubt on the impact of bifurcation on their livelihoods.

"Man-made disasters did not happen because people who pushed it hard did not know the consequences of their irrational actions; rather they did not foresee the magnitude of such disasters and even cynically made it happen, until it was too late," Jin told China Daily in the interview.

Research has shown that delinking of the world's top two economies alone would have far-reaching implications.

Tensions between the US and China have flared up in recent years, especially since the outbreak of the pandemic, fueling protectionism and broader debates about shifts in supply chains, reshoring and resilience.

On the investment front, if decoupling leads to the sale of half the US foreign direct investment stock in China, US investors would lose $25 billion a year in capital gains, and models point to one-time GDP losses of up to $500 billion, according to a report by the Rhodium Group released in February.

In people flows, if future flows of Chinese tourists and students are reduced by half from their pre-COVID levels, the US would lose up to $30 billion a year in services trade exports, the New York-based research group said in the report titled "Understanding US-China Decoupling: Macro Trends and Industry Impacts".

"There should be no market for those who are trumpeting decoupling for whatever their motivation," Jin said. "Public awareness of the catastrophe is a huge retardant to the prairie fire of intractable decoupling once kicked off."

Jin notes that decoupling is so far more talk than action, and his bank, which promotes infrastructure development in Asia and beyond, is "a little bit distant" from the scenario. But if economic decoupling does materialize, that "definitely would have huge implications for the countries we support", he said.

The former Chinese vice-minister of finance and vice-president of the Asian Development Bank said a globalized economy is a win-win for all of the participants, and multilateralism is the answer to a lot of woes.

Captive audience

In the US, some in the middle class feel their incomes have stagnated, while incomes have been rising in developing countries. This perception has prompted these people to question the multilateral economy or a more globalized economy.

"It's easy on the prima facia evidence to find a captive audience in a middle class whose living standard has been stagnating. But on the other hand, you should understand the wealth of the developed countries, including the US, has been increasing in absolute terms," Jin told the Aspen Security Forum.

Rather than globalization being at fault, it is the lack of domestic policy adjustment and inadequate income redistribution that is responsible for the subsequent social problems, according to Jin.

"Not surprisingly, decoupling will erode the economic efficiency and make the matter worse," he said.

It's easier to see improvements in people's living standards in China than is the case with people in the US and other developed countries. "But it's wrong to believe that this is a zero-sum game: You are going up, we are going down," he said.

Low-income economies seem to be better off－and more conspicuously so－thanks to global trade and investment. That does not mean the higher-income partners do not stand to gain in this process, Jin said.

These higher-income economies usually get a disproportionately bigger market share from the lower-income economies, due to the greater demand for their high-end products as the incomes of people in low-income countries go up, he said.

Cheaper consumer goods from China have for decades sustained the high living standards of people in the US, and China can afford to import more high-end products from the US－from aircraft to beef－thanks to international trade.

On the other hand, the increased competitiveness of China and other Asian economies in many export goods belies the staying power of the competitive edge that the advanced economies enjoy in critical sectors.

Jin said the AIIB has been doing business with major financial institutions in the US and Europe, and has invited US businesses to participate in bidding for contracts.

"So what we've been aiming at is to bring countries together, bring people together and bring the companies together to see that we all have the benefits from this," he said.

"If there's decoupling, if people don't talk to each other, if there's a real severance, I think all the benefits accruing to the United States, to China, and to many other countries would be wiped out all together."