I am in the U.S. this week, speaking at the State Department, Columbia University and CSIS. I intend to use the opportunity to test drive one of my favourite themes.
In a globalized world it is time to view China and the Middle East as part of the same policy challenge, rather than two distinct challenges.
How so? The growing commercial relations between the two mean that a change in one affects the other. I am thinking specifically about jobs. The rise of China has resulted in a historic shift of manufacturing from the industrialized to the industrializing world. It is a shift that is unlikely to reverse.
However, the consequences have been mixed for the Middle East. A flood of cheap imports to the region has meant factory closures in low-cost countries, such as Egypt and Syria. And that’s a problem given that two-thirds of the region’s population is under the age of thirty. And many are unemployed.
But it could all change, and for the better.
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It is easy to feel giddy about the rise of the Silk Road. But the outcome is far from guaranteed. One threat in particular might yet bring the region to its knees.
Water.
There is no escaping the Silk Road’s water shortages. The region is one of the driest parts of the planet. Yet, water is needed to run everything from textile factories in China, five-star hotels in Dubai, to washing- machines in Cairo.
Let’s start with a few figures. The Silk Road has an average of 2,260 cubic meters of internal renewable water per person. The equivalent figure is 9,300 in the United States. In fact, an abundance of water is an important, but often overlooked, reason why the United States might defy its critics and remain the world’s major power through the end of this century.
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I was recently in Malaysia and spent a valuable hour with bankers from Maybank Islamic. In the process, I learnt something about Islamic finance that has implications for the entire region.
I had assumed that the bank’s Muslim clients would be the biggest buyers of Islamic wealth products. But it turns out I was wrong. It is the bank’s ethnic-Chinese clients who are account for nearly seventy percent of sales.
How so? The bank’s Chinese clients are attracted by the straightforward design of Islamic wealth products. They are a far cry from the complex derivative products of the last few years that have made, and lost, a lot of money.
Take a “Structured Islamic Deposit”. It guarantees your initial investment, and then offers a return based on the performance of copper and wheat prices. Even a beginner can grasp the risks of investing in these two commodities.
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There are some smart people starting to wonder if the United States should be focused on Somalia rather than Afghanistan. The risks of Somalia turning into an Islamist stronghold are growing, and that’s bad news for countries hosting large Somali populations.
Last month, for instance, the Kenyan authorities arrested several Dutch-nationals of Somali origin near the Somali border. The authorities suspected the young men of trying to join extremists.
Eight of the world’s ten largest economies welcome immigrants, including Somali migrants. Immigrants have played an important role in their economic success. Yet they have also emerged as a small, but growing, security threat for those same countries.
It isn’t about to get any easier. I expect the economic crisis will result in structurally lower growth rates and higher unemployment rates across the world in the coming decade, so the challenges of dealing with large immigrant populations will grow.
This makes the world’s third largest economy, China, an intriguing exception to the rule.
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What are the main differences between the Arabs and Chinese? Religion is an easy answer. There are far more believers in the Middle East. Yet, this isn’t entirely correct, as there are also many Chinese Christians and Muslims.
A more useful way to answer the question is to examine what the Arabs and Chinese are looking at on the internet. Alexa is an internet monitoring company that ranks the Top 100 web sites in each country across the world. The results are revealing.
For a start, the Arabs tend to visit American internet sites more frequently. Google ranks number one in Egypt and Saudi Arabia. Facebook and Youtube also rank high. America might be unpopular among some in the region, but its cultural influence is equally unmistakable.
By contrast, the Chinese rarely spend time on foreign websites. Firewalls are only partly to blame. Importantly, local start-ups have built Chinese-language versions of the most popular foreign sites. They benefit from the economies of scale that the country’s 300 million internet users can bring.
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You sometimes have to shake a bottle to see what’s inside. In 2006, Israeli warplanes struck at Lebanese infrastructure. Suddenly there were stories of Chinese construction companies packing up and leaving Lebanon, and it was only then did it become obvious how many were operating in the country.
Much the same is true today. The recent unrest in China’s western provinces has underscored the extent of China’s presence in North Africa.
There are 20,000 Chinese nationals in Algeria alone, not to mention Libya and Morocco. Their numbers hadn’t attracted much attention until last week when local extremists threatened to target them with reprisals. The Chinese Embassy in Algeria went so far as to issue a warning to its nationals.
The events underscore an important point about China’s engagement with the Middle East―you won’t always read about it on the front pages of the Financial Times or New York Times. But that doesn’t mean it isn’t happening. And a quick shake of the bottle can produce often unexpected results.
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Saudi billionaire Prince Al Waleed is the emerging world’s Warren Buffet. He’s as comfortable investing in the United Bank of Africa as he is investing in Citibank. So, it was worth taking notice when the Turkish daily, Sabah, reported last week that Al Waleed intends to invest up to $5 billion in Turkey.
He isn’t the first. Arab investors have poured over $6 billion into Turkey during the past five years. Only European investors have outspent them dollar for dollar.
I can see the attraction. Turkey has a similar sized population to Egypt, the region’s other giant. But it’s twice as wealthy. The country’s annual output is worth $13,000 per person. In Egypt, it’s a far lower $6,000. Turkey also has road, rail, and air links to Europe. All of this makes for a compelling sales pitch.
I see four major changes as a result as a result of this type of intra-East investment.
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I recently exchanged books with the World Bank’s Chief Economist Justin Lin. I’ve since been reading his “Economic Development and Transition”. It explains why countries, such as China were so successful at reforming their economies whereas others, such as Russia, have struggled.
The secret recipe? Pragmatism. Now, this might sound too easy. But Lin makes an important point when he says that policies have to reflect conditions on the ground, rather than the aims of experts in Washington.
He calls it “The Golden Mean”. It’s a Confucian ideal that advises people to maintain balance and harmony with the world around them. It’s a philosophy that runs strong not just in China, but also many of Asia’s most successful economies, including Korea, Taiwan, and, Singapore.
The “Golden Mean” worked in Asia. But what might the results look like when applied to countries like Egypt, Jordan, and Syria?
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