INTERNATIONAL ARBITRATION 1/3LY
AN INTERVIEW WITH MICHAEL EVERY 03
A S I A C A N NO LONGER E X PEC T T O E X POR T I T S WAY T O GROW TH EXPORT- LED ECONOMIES ARE S TRUGGL ING WI TH FALL ING DEMAND AND POL I T I C AL RES I S TANCE , SO WHERE DO THE OPPORTUNI T IES FOR FUTURE GROWTH L IE? WE SPE AK TO MI CHAEL E VERY, HE AD OF F INANCI AL MARKE T S RESE AR CH , A S I A - PACIF I C , AT RABOBANK , FOR HI S V IEW. WI TH COMMENTARY FROM PE T ER HIRS T, CO - CHA IR OF GLOBAL ARBI TRAT ION AT CLYDE & CO.
In the late 1800s and early 1900s, the USA attempted to replace the UK as the world’s principal financial centre. America had become an enormous net exporter, but the US dollar was not the dominant international currency that it is today. As a mammoth exporter, dollars relentlessly flowed back into the country. The US required a new plan. To boost dollar circulation, it became a major lender, pumping the USA currency into Europe, Latin America and other regions, helping to direct trade flows through New York at the expense of London and to solidify the USA’s global financial status. Today China is facing a similar test as it deals with a slowing economy and dwindling exports. Its new lending and investment programme has similar hallmarks to the USA’s previous efforts, as it seeks to internationalise its currency, the renminbi (RMB). China is using its huge trade surplus, despite the slowdown in exports, to become a global lender. Chinese banks have become dominant players, eating into the traditional domain of the international banks. As part of this initiative, it has launched its much-vaunted ‘One Belt, One Road’ (OBOR) programme, which is intended to provide a pivotal impetus in the renminbi’s emergence and the augmentation of China’s existing trading routes. OBOR will increase China’s lending to infrastructure projects around the world, especially along the old Silk Road trading route, and boost the use of Chinese goods such as steel and China’s own labour force. “With OBOR, you can’t help but see the parallels with the USA’s previous policy and see that it is about getting the renminbi internationalised. You can’t internationalise the currency if it keeps coming back,” comments Michael Every, Head of Financial Markets Research, Asia-Pacific, at Rabobank, indicating that an export-led economy doesn’t lend itself to developing a currency on the international stage. Like the US before it, China will hope that its lending programme and OBOR initiative has the desired effect but it will recognise that infrastructure projects can be uncertain ventures at the best of times. The US itself lost money during its own lending programme, in part due to World War I and the subsequent Great Depression. China may well have to face up to the fact that many infrastructure projects are not always financially successful, says Every. “Most important is to consider that few of these OBOR projects are necessarily going to be profitable for China – infrastructure on that scale rarely is. Is this really the best use of the country’s accumulated capital from years of running trade surpluses? I’d say it’s an open question.”
MICHAEL E VERY
PETER HIRST
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