Decoupling would be ‘disaster’, says AIIB chief

Globalized economy is a win-win for all participants, stresses head of multilateral development bank

The world should watch out for the risks of major economies sliding toward decoupling, which has been more about rhetoric than action so far, Jin Liqun, president of the Asian Infrastructure Investment Bank, said as the COVID-19 pandemic has strained multilateralism and fomented anti-globalization sentiments.

As head of a multilateral development bank focusing on infrastructural connectivity, Jin is outspoken in discussing the “catastrophe” that decoupling would bring.

He will discuss the case for increased multilateralism at the Peterson Institute for International Economics on Tuesday, following his speech at the 2021 Aspen Security Forum two weeks ago, where he strongly argued for multilateralism and highlighted the importance of strong China-US trade ties.

It is “crucial” to forewarn of such a global catastrophe and get the public to fully appreciate the impact of decoupling on their livelihoods, Jin said.

“Man-made disasters did not happen because people did not know the consequences of their irrational actions; rather they did not foresee the magnitude of such disasters and even cynically made them happen,” he told China Daily in an interview.

Research has shown that delinking the world’s top two economies would have far-reaching consequences.

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

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

In addition, if future flows of Chinese tourists and students are reduced by half from their preCOVID levels, the US would lose up to $30 billion a year in service trade exports, according to the New Yorkbased research group.

“There should be no market for those who are trumpeting decoupling, whatever their motivation,” Jin said.

He noted that, so far, decoupling has been more talk than action, and the AIIB, which promotes infrastructure development in Asia and beyond, is “a little bit distant” from the scenario, but if decoupling does materialize, that “definitely would have huge implications for the countries we support”.

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 participants, and multilateralism is the answer to many social and economic woes.

In the US, some in the middle class have seen their incomes stagnate in recent years, while those in developing countries are rising. This has prompted them to question the concepts of multilateralism and globalization.

“It’s easy to find a captive audience in a middle class whose living standards have stagnated. But on the other hand, you should understand that the wealth of the developed countries, including the US, has been increasing in absolute terms,” Jin said at the Aspen Security Forum.

But rather than globalization, it is the lack of domestic policy adjustment and inadequate income redistribution that are responsible for the social problems, according to Jin.

“Not surprisingly, decoupling will erode economic efficiency and make matters worse,” he said.

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

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 incomes rise in low-income countries, he said.

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

It will take years for their trading partners in Asia to get anywhere closer to the level of advanced economies in terms of the standards or quality of key products.

Jin said the AIIB has been doing business with major financial institutions in the US and Europe, and 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.

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,” Jin said.

Jin Liqun