Escalating China-US conflict risks ‘hot war,’ warns Kissinger

The trade dispute between China and the US left both countries ‘in the foothills of a cold war,’ Henry Kissinger told the New Economy Forum in Beijing. (Reuters)
Updated 22 November 2019

Escalating China-US conflict risks ‘hot war,’ warns Kissinger

  • Former US hawk leads calls for restraint as trade dispute dominates opening day of Beijing New Economy Forum

BEIJING: The increasingly hostile stand-off between the US and China dominated the first day of the Bloomberg New Economy Forum in Beijing, with speaker after speaker returning to the possibility that tensions between the two countries could escalate out of control.

Henry Kissinger, former US secretary of state and national security adviser, told the forum that the two countries were “in the foothills of a cold war,” and that the situation could be “cataclysmic” if allowed to deteriorate further.

“China and the US are bound to step on each others toes all round the world. If the conflict is allowed to run unconstrained, the outcome could be worse than the wars last century in Europe. The weapons are so much more powerful and sophisticated. The worst-case scenario would be a ‘hot’ war,” he said.

In addition to the greater destructive power of 21st-century weapons, Kissinger highlighted the degree of interdependence between the US and China in the global economy, which contrasted with the almost total isolation of the Soviet Union’s economy in the last “cold war.”

However, he added that the situation had not yet reached a stage of such escalation.

“History does not always repeat itself,” he said.

But he saw some worrying signs in the recent legislation of the US Congress over the continuing turmoil in Hong Kong. “Congress is an institution influenced by domestic considerations and does not understand all the nuances,” Kissinger added.

Earlier the forum had heard from Wang Qishan, China’s vice president, who gave a keynote address that failed to mention the US at all, but contained lots of code words that the Chinese use when they want to obliquely criticize the policies of the Trump administration.

Qishan noted the continued rise of “protectionism, unliateralism and populism,” and warned that “globalization is facing headwinds, and liberalism is under attack,” threatening the prosperity of the global village.

“Between war and peace, there is no doubt that we should chose peace, and this is China’s choice. We reject the zero-sum game of strategy and the cold war mentality,” he said.

The Chinese policy-maker’s line was picked up by Hank Paulson, former US treasury secretary. “It should concern every one of us who cares about the state of the global economy that the positive sum metaphors of healthy economic competition are given away to the zero sum metaphors of military competition,” he said.

“It’s sad to say that the pressures in Beijing and Washington have not lessened in the past year. In fact, they are increasing. If either country tries to force a comprehensive decoupling on third countries, these others simply will not follow. We would risk isolating ourselves, the US and China, from the rest of the world.

“Decoupling in flows of goods will likely continue because the very bad idea of tariffs has been re-legitimated after taking a wallop from the dismal failures of the 1930s,” Paulson added.

Michael Bloomberg, founder of the Bloomberg information and media giant, did not attend the forum. “He made a decision to serve his country,” Paulson said. The former Republican mayor of New York is running as a Democrat in the US
presidential race.

$8bn blow to Erdogan as investors flee Turkey

Updated 09 July 2020

$8bn blow to Erdogan as investors flee Turkey

  • Overseas holdings in Istanbul stock exchange are at lowest in 16 years

ANKARA: Foreign capital is flooding out of Turkey in a massive vote of no confidence in President Recep Tayyip Erdogan’s economic competence.
Overseas investors have withdrawn nearly $8 billion from Turkish stocks since January, according to Central Bank statistics, reducing foreign investment in the Istanbul stock exchange from $32.3 billion to $24.4 billion.
As recently as 2013, the figure was $82 billion, and foreign investors now own less than 50 percent of stocks for the first time in 16 years.
“Foreign investment has left Turkey for several reasons, both internal and external,” Win Thin, global head of currency strategy at Brown Brothers Harriman, told Arab News.
“Externally, investors fled riskier assets like emerging markets during the height of the coronavirus pandemic. Some of those flows are returning, but investors are being much more discerning and Turkey does not seem so attractive.”
In terms of internal factors, Thin said that Turkish policymakers had made it hard for foreign investors to transact in Turkey. “This includes real money clients, not just speculative.
“By implementing ad hoc measures to try and limit speculative activity, Turkey has made it hard for real money as well. Besides these problems, Turkey’s fundamentals remain poor compared to much of the emerging markets.”
Erdogan allies claim international players are manipulating the Istanbul stock exchange through automated trading, and have demanded action to make it difficult for them to trade in Turkish assets.
Goldman Sachs, JPMorgan, Merrill Lynch, Barclays and Credit Suisse were banned this month from short-selling stocks for up to three months, and this year local lenders were briefly banned by the banking regulator from trading in Turkish lira with Citigroup, BNP Paribas and UBS
JPMorgan was investigated by Turkish authorities last year after the bank published a report that advised its clients to short sell the Turkish lira.
MSCI, the provider of research-based indexes and analytics, warned last month that it may relegate Turkey from emerging market status to frontier-market status because of bans on short selling and stock lending.
With the market becoming less transparent, overseas fund managers, especially with short-term portfolios, are unenthusiastic about the Turkish market and are becoming more concerned about any forthcoming introduction of other liquidity restrictions.
The exodus of foreign capital is likely to undermine Turkey’s drive for economic growth, especially during the coronavirus pandemic when employment and investment levels have gone down, with the Turkish lira facing serious volatility.