“I don’t think we’re heading into a Chinese century”

The financial world is in turmoil. How bad will it get?
Humanity essentially needs three things: cheap goods, cheap labor and cheap energy. Over the past 30 years this has worked very well: China provided cheap goods and labour, Russia provided cheap energy. China became the workshop of the world, its share of global goods production rose from 3 to 26 percent.

Why is this over now?
China no longer wants to provide cheap labor. The population is ageing. If the Chinese don’t want to grow old before they get rich, then they need to take care of their domestic economy and raise wages dramatically.

And the cheap energy from Russia is also a thing of the past.
Right, that’s why the comparison doesn’t work anymore. The result is the inflation we suffer from today. And that, in turn, has forced central banks to raise interest rates in a short period of time.

What are the consequences for the real economy?
It is increasingly dominated by emerging markets. After all, 80 percent of the human population lives there.

So you agree with German Chancellor Olaf Scholz that we are living at a turning point?
We are at a very important turning point for humanity. You see, a decade ago, the majority of the clothes I wear now would have been labeled “made in China,” not to mention the electronic devices. Today I have a smartphone made in Vietnam – it’s amazing, by the way – my suit is from Turkey, my shoes are from Indonesia, my shirt is from Bangladesh, and my underwear is from Pakistan.

The West wants to at least partially free itself from its dependence on China. Where’s the problem?
I don’t think it will happen that soon. The West and China are still interdependent. However, sentiment has cooled noticeably, particularly between the US and China.

There is already talk of a new Cold War.
This is economic nonsense. The Soviet Union was never as powerful economically as China is today. China has also become an important economic player in emerging countries. Just think of the so-called “Belt and Road Initiative”.

Western companies such as Apple are therefore trying to switch to other emerging countries such as Vietnam.
This is the opportunity for these countries. Elon Musk wants to build his next Tesla factory in Mexico. Bangladesh is experiencing an unprecedented economic boom. I am convinced that emerging countries will become more important to the global economy than they have been for a long time.

Well, there’s a bad saying: Brazil is the country of the future – and always will be. Doesn’t that also apply to most other emerging markets?
You certainly have to be very careful to distinguish which countries will make it and which will not. As Leo Tolstoy writes at the beginning of his novel Anna Karenina: “All happy families are equal, every unhappy family is unhappy in its own way.”

Which are the happy and which are the unhappy families or emerging countries?
For example, a very unhappy family is Zimbabwe. The country was on a beautiful road until the turn of the century. Venezuela has the world’s largest oil reserves, an educated population and is close to the United States. In fact, the country should become the biggest success story in the world. Like Zimbabwe, it failed because of disastrous policies.

What do we learn from this?
Resources and tourism are not enough to get on a path that leads to prosperity.

And what are happy families?
The classic example is, of course, Singapore. In the sixties it was still very warm and very poor. Today it is still very hot, but one of the richest countries in the world. Poland is also an incredible success story – and of course China. There it has succeeded in liberating approximately 750 million people from the worst poverty.

Can you quantify the success of emerging markets?
Certainly. In the 1960s their share of the world economy was about 20 percent, now it is 60 percent. In that sense, emerging markets have done very well in recent decades.

There is a lot of fear in the financial community right now. This means that all investors flee to “safe havens”. The main port is still the US. That means the dollar is strengthening, especially since the Fed has also raised interest rates. A strong dollar has always been poison for emerging markets in the past. Why should it be different this time?
When central banks started raising interest rates a year ago, it was rumored in the financial community that Indonesia’s currency would be crushed. Do you know which currency has lost the most against the dollar recently? The Japanese yen. However, most emerging markets have weathered rate hikes reasonably well so far.

How do you explain that?
Today, emerging countries in particular tend to pursue very prudent fiscal and monetary policies. While many Western central banks have been printing money like crazy, most central banks raised interest rates early and aggressively to avoid inflation. It is mainly the wealthy G7 countries that have allowed their currency to degenerate.

China has also accumulated a lot of debt.
Yes, but the Chinese have now cleaned up. Over the past five years, they have made great efforts to repair the damage caused by massive bubbles, especially in the real estate sector. As a result, the Chinese central bank was the first to lower its policy rate again. We in the west, on the other hand, are sitting on a huge mountain of debt that we are trying to pay off through inflation.

Is that a reason why many emerging countries no longer look to the West but to the East?
Partially. However, I do not believe that we are heading for a Chinese century. I believe in a century of emerging economies.

Why?
The West wants to decarbonise its economy and switch to electricity. What does he need there? Huge amounts of copper, cobalt, lithium, etc. Most of these commodities are in emerging markets. We, on the other hand, have invested in digitization. We now have many apps that allow us to order many goods. What we no longer have, however, is cheap labor and cheap energy. For that we need the emerging countries.

The emerging countries, for their part, increasingly have to choose between going with the West or with China.
Despite all the bellicose tones, China is still very closely linked to the West. Just think of the dependence on semiconductors. Without economic ties to the West, the Chinese government cannot fulfill its promise to the people, in short: you renounce democracy and we will provide you with growing prosperity.

The war in Ukraine has shown that trade relations can break down very quickly.
Russia mainly supplied oil and gas. Thanks to a mild winter and quick action, this dependence was overcome surprisingly quickly. However, economic ties with China are much more complex.

Yet there is increasing talk of a war between the US and China.
I can only emphasize once again: I do not believe in it. A military invasion of Taiwan would be very difficult, and the Chinese can now look in real time at the problems the Russians have in Ukraine. Essentially, therefore, I am optimistic.

And that means concretely?
That China will also realize that it still needs the symbolic relationship with the West. We don’t have to be best friends for that.