The world’s monetary fund and the largest e-commerce platform have chimed in together to call for restraint as the governments of China and the US edge closer toward a trade war, attributing humanity’s prosperity to globalisation and unfettered global commerce.
“In the mid 19th century, 90 per cent of the world’s people lived in extreme poverty,” the International Monetary Fund’s Managing Director Christine Lagarde said at a dialogue with Alibaba Group’s co-founder Jack Ma Yun during the Boao Forum in Hainan.
“In 1990, it was 37 per cent and today, it is about 10 per cent,” a general rise in living standards due to free, unfettered global trade, she said.
The US and Chinese governments are engaged in a tit-for-tat dispute over the size of their trade gap in China favour, which US President Donald Trump attributed to unfair practises that he has pledged to correct through imposing tariffs. China has responded in kind, imposing tariffs on US imports.
The dialogue between the two comes a day ahead of possible reform and market liberalisation measures that Chinese President Xi Jinping may announce at Boao’s commencement.
The services sector, long a source of grievance by foreign companies operating in China, needs to lower its barriers to entry and cross-border investments, she said.
“There are a lot of barriers in the service industry, and there’s a lot of upside to be had,” Lagarde said. “We need fewer barriers, more trade, and more sectors covered by openness,” she said, adding that commerce is a major factor that reduces poverty through enhancing productivity and spreading innovation.
World economies should adhere to the multilateral rules of trade that have already been agreed upon, even if particular industries are certain to be hurt by the process of free trade, Lagarde and Ma said. There should be mechanisms to improve the rules and provide support policies to relieve the pain for the affected industries, they said.
“If trade stops, the world stops,” said Ma, whose Alibaba is also owner of the South China Morning Post. “In the past 30 years, [globalisation and trade] have not been increasing enough, that’s why developing nations and young people have not benefited from [them],” he said.
Asked if he thinks China’s economic reform and opening – that created the so-called China economic miracle in the past 40 years – could sustain its momentum in the years ahead, Ma said he is “very confident China will open more”.
He also said China “needs to import more” to allow its middle class of more than 300 million people to continue to improve their quality of life, partly by letting other nations produce and supply China with some of the goods and services needed.
“I don’t think China’s resources today – based on our land, water and environment – can afford 300 million middle-class people seeking a better life,” Ma said. “We can buy a lot of great stuff from all of the world.”
At the Boao leaders’ dinner on Monday, the two also exchanged views about how innovation and new technologies have not only brought about financial advancements – and arguably, more financial stability with their adoption — they’ve also created new challenges such as the attrition of individual privacy and complications in the ability by regulators to detect the harm lurking behind innovation.
“The technological revolution is coming, whether you like it or not,” Ma said. “(But while) we embrace the good things brought on by technology, [we have to recognise that] today’s technology could challenge the stakeholders of yesterday.”
Internet finance and blockchain technology are two examples, he said. Both of these technologies, Ma argued, would help bring more transparency to financial transactions if used in the right way. While Ma did not elaborate, many proponents of blockchain have argued that the immutable, irrevocable nature of recording data and transaction history on the distributed ledger technology will improve financial transparency.
Lagarde, on the other hand, argue that regulators must be prepared to “fight fire with fire”, and be more articulate with the potential applications of technology to devise better regulatory framework for their use.
“If you believe that blockchain is a threat to stability, or to the regulatory environment that you have built, you have to actually use those technologies to re-establish the regulatory framework within which you operate,” she said.
Throughout the evolution of how money is transferred within a financial system, there have always been people who are looking out for profiteering opportunities, and the same is happening to blockchain today, Lagarde said. “People have dealt with cryptocurrencies like currencies, which they are not.”