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Welcome to Trade Secrets. Today we look at the progress of something we’ve looked at before: China’s role in debt crises and as a participant in global governance in general. Since it’s pretty much the only topic anyone here in London talks about publicly, I’ll also take a look at the late Queen Elizabeth II and her spectacular one-off policy intervention, taking on Prime Minister Margaret Thatcher.
As always I’m at firstname.lastname@example.org or open DMs on Twitter @alanbeattie for thoughts or questions. Today mapped waters looks at new global estimates of forced labor as the EU has plans to ban products made under these conditions.
The danger to China in the crisis lending game
In July, I argued that the global system, if you can call it that, for resolving sovereign debt defaults was unsatisfactorily ad hoc. In particular, China has become a major bilateral lender without participating in creditor roundtables to work out write-offs fairly and equitably. Well, what you know, just 10 days later (I’m not claiming causation), China announced that it would join Zambia’s plurilateral debt write-off negotiations, after having been a major lender to Zambia’s economy for decades. .
So, does China occasionally show a pragmatic tendency to use plurilateral systems when they are useful to do so – and especially to avoid taking all the blame when things go wrong? Not so fast. My colleagues at the Financial Times just revealed that China has also secretly provided emergency loans to a number of troubled countries, including Pakistan, Argentina and Sri Lanka. These are essentially countries that have previously received long-term funding under China’s Belt and Road Initiative (BRI) and are now in problematic debt. This is a big deal, because while China has provided long-term development loans for decades in more or less direct competition with the World Bank, it is generally wise to shy away from the uncertainty and unpopularity that comes with displacing the IMF as a crisis lender.
Secret emergency funding to bail out bad loans from the BRI without any precondition to try to address the underlying issues is not a cheery development. It means throwing good money after bad and potentially putting the debtor in even more trouble, impoverishing both borrowers and other creditors. It also appears to be poor coordination between different institutions in China, something that experts have always warned is an underestimated phenomenon. Just when you thought global governance was getting a little better and authorities pragmatically working out issues among themselves, you realized it’s never that easy.
When the Queen went to battle for the Commonwealth
One of the reasons for the Queen’s popularity was undoubtedly her steadfast refusal to comment publicly on political issues, which is a truly impressive feat after seventy years of reign. (I tried and it worked for about half an hour.)
A famous exception as her views escaped into the public domain was her strong opposition to Prime Minister Margaret Thatcher who blocked the British Commonwealth of Nations from imposing trade and other sanctions against apartheid in South Africa in 1986. Result: Lots of public pressure on Thatcher and a partial U-turn.
It’s quite something for the Queen to care so much about the Commonwealth that she sided with a bunch of foreign governments against her own. To be fair, it’s not hard to argue against taking the organization seriously, as Thatcher did. It is a group of governments with vastly different levels of development, and indeed democracy, and not much success in encouraging the latter among its members. It doesn’t offer privileged trade access to the UK (or each other’s) markets as it used to: the UK that joined the European Communities in 1973 provided that. The occasional monomaniac dreamer goes on and on about a trade deal with CANZUK (Canada, Australia, New Zealand, UK), but that idea leads nowhere. Unlike France with its former colonies, the UK does not still control the currencies of the Commonwealth countries and does not intervene in their politics as easily.
Still, it’s clearly worth it for Commonwealth members, four of whom are relatively recent carpenters (Mozambique, Rwanda, Gabon and Togo) were not even British colonies. It provides technical assistance for trade and development, and it does a good job of aid. The Heavily Indebted Poor Countries (HIPC) campaign that wrote off sovereign debt to governments, the IMF and the World Bank in the late 1990s had its roots in part in the “Mauritius Mandate”, a call for debt relief made at a Commonwealth summit.
As decolonization fades into the past, so does the Commonwealth’s original rationale for managing the process. But a forum for developing and developed countries to discuss important issues seems more or less worthwhile.
In addition to this newsletter, I write a trade secret column for FT.com every Wednesday. Click here to read the latest news and visit ft.com/trade secrets to see all my columns and previous newsletters.
The EU is about to ban all products made with forced labour, although officials admit it will be difficult to identify them, Javier Espinoza and Andy Bounds report from Brussels.
This net will be cast wider than that of the US, which earlier this year imposed a blanket ban on all imports from China’s Xinjiang province, where allegations have been made of human rights violations against Muslim Uyghurs and other minorities. But detecting violations at every stage of the production process will be difficult for EU Member States, especially if countries do not cooperate. Services — including trade, transportation and hospitality — account for the bulk of forced labor internationally.
There are 28 million people around the world in forced labor situations, an increase of nearly 11 percent since 2016, a joint report by the International Labor Organization, Walk Free and the International Organization for Migration, announced today. Migrants make up about 5 percent of the total global workforce, but account for 15 percent of adults engaged in forced labor, the data shows.
“Banning the importation of products made with forced labor is a step in the right direction, but it must be a clear and transparent process that protects those who have been exploited,” Katharine Bryant, Walk Free’s head of policies and programs, told Trade secrets (Georgina Quach).
Freight costs are generally: back down to last spring’s levels before the big wave of post-lockdown, giving support to Team Transitory (of which I am one) in the shipping debate.
The details of the International Energy Agency China’s massive dominance of the solar energy supply chain.
The Economist looks at what the European energy market could be reformed to deal with crises.
The Times of India explains why Delhi stayed out of US new Indo-Pacific trade initiative.
Trade Secrets is edited today by Georgina Quach.