Looking to 2020: Two main risks to the business landscape

Stock traders, such as these on the trading floor of the New York Stock Exchange, will need to be alert to the key risks of global climate change and geopolitical tensions

| By Professor Danny Quah |

How will 2020 unfold for the business community? What forces will be paramount?

I reckon 2020 will be a rocky year for business, certainly compared to 2019 just past.

What forces will matter? Two: global climate change and geopolitics.

What can we do about the challenges we face? Understand their twists and turns, but stand ready to do what businesses have always done, which is to provide society what it needs.

Businesses’ contributions to society

The ingredients that make for business success in society have remained unchanged for centuries: first, a clear vision of what is gainful for society overall; second, a reliable mechanism to communicate that vision; and third, a stable facilitating environment that allows investment in and completion of those business projects that deliver the goods.

Societies' wants evolve through time, but this social-wide business model has remained invariant. At different points in history, societies' most urgent priorities have evolved from developing capacities to feed and nourish and protect ourselves; to transforming our physical environment; and to communicating across distances.

Local used to be the space for action; today, that action space is global. In primitive times feeding and protection were intensely personal or at best familial; today, feeding and protection depend on managing global supply chains and global climate change. Communication used to be about physically carrying information from one point to another by pigeon or horseback; today, it is about transmission at the speed of light across digital networks that span the globe.

What does all this mean for the Asian business landscape in 2020? Two large external changes will impose on Asian businesses’ traditional set of considerations. The first is global climate change; the second is geopolitics, or in the near-term US-China relations. I anticipate that year 2020 is when navigating these large changes will take more than normal dexterity.

2019 was quite a good year for markets and the economy

After all, normal dexterity still made 2019 a pretty good year overall. True, the US-China trade war had inflicted pain and exchange restriction for over a year, and compared with the 2017 peaks, direct investment flows were down 60 per cent and trade down 9 per cent between the two superpowers. True, the International Monetary Fund (IMF) warned that the global economy in 2019 was at its weakest in over a decade. True, central banks around the world by 2019 already had interest rates low, and thereby faced extremely limited space for expansionary manoeuvre, should that be required.

Nonetheless, over 2019 the global economy still grew 3 per cent overall, and many in Asia were heartened by talk of the diversion of US import demand and foreign investment towards other economies, away from China. In the view of financial market participants these substitution effects must have dominated considerations of potentially declining incomes. By the end of 2019 global stock markets had ended up with their best performance since the 2008 Global Financial Crisis.

Stock Market Screen.jpg

Sea of green: Winners generally outnumbered losers on global stock markets last year

Brexit-focused UK showed the FTSE 100 up 12 per cent. Respectable rise though that might have been, the UK's performance only carved out a lower bound. Japan's Nikkei rose 18 per cent; Eurozone stocks were up 25 per cent; the MSCI World Index increased 24 per cent.

No one was left behind: the US' S&P 500 including dividend reinvestments showed returns of 33 per cent while China's CSI 300 stock index increased 36 per cent. For all the talk of technological bifurcation, the US tech-heavy NASDAQ was up 35 per cent, led by Apple's rise of 84 per cent. And the target of the 5G international security debate, China's Huawei, had its 2019 sales increase 18 per cent year on year to a record US$122 billion.

None of these sounds bad at all. But is 2020 when all of it changes?

Climate concerns

On the climate change front in 2019, cyclones in March and May wiped out cities in Mozambique, displacing millions into homelessness. In June, India suffered its worst water crisis ever. In August Brazilian wildfires consumed large chunks of rainforest. In September Hurricane Dorian became the most powerful storm yet to hit the Bahamas. In October wildfires struck large parts of California.

Over the year the weather in Australia got hotter and drier, exacerbating the annual bushfires to a level that professionals consider the worst in memory. Across Australia 11 million hectares have undergone bushfire, destroying over 2,000 homes. The US space agency NASA estimated that this bushfire season has been so severe it alone has already released more than half the carbon dioxide emissions tonnage that Australia produced in all of 2019.

These will all have profound repercussions on the global supply chain, and on the migration patterns of humanity. Today, addressing global climate change in a sensible collective way will need to figure across all of Asia's business projections.

Cautious outlook for geopolitics

In geopolitics the situation is equally grim. Following the initial wave of enthusiasm over starting to replace China in exporting to America, the year 2019 was when many Asian states discovered they could not quite so easily walk into those exporting shoes.

On Vietnam's seeking to replace China in steel exports, the US slapped on 400 per cent steel export tariffs and put Vietnam on a watchlist for potential currency manipulation, even as Vietnam itself saw its highways and ports grow ever more congested from inadequate infrastructure.

Indonesia's "cumbersome local rules" and "poor infrastructure" dispirited global chain players like Sharp as they sought to relocate their factories to the nation. So too India disappointed with its inadequate infrastructure, outdated labour regulations, and lethargic bureaucracy.

UN Peacekeeping.jpg

Although China deploys a large number of UN peacekeepers, it has been unable to shake off the perception that it is seeking to reshape world order for its own purposes — and this further complicates the US-China relationship

US-China relationship

But 2020 will also be when the US-China relationship and geopolitics more generally become ever more sharply pronounced. The world is now realising how the US is not just dissatisfied with China for the simple mercantilist reason that China runs a trade surplus against it — the trade imbalance seems now woefully simple and direct to repair.

Instead, the entire US establishment has shifted focus to geostrategic rivalry and Great Power Competition, to take on those it says would "threaten America's experiment in democracy" and challenge America's position as Number One in the world.

China, in this collective American view, is exactly such a threat and challenge. China shows disdain for human rights, free speech, and rule of law, and instead is seeking to "shape a world consistent with their authoritarian model"; is pursuing "veto power over the economic, diplomatic, and security decisions of their neighbours"; and is "using predatory economics" and debt-trap diplomacy to intimidate those around them.

Outside China this kind of language is seen now not just in US Defense Department technical documents or speeches to a partisan base, but instead appears in publications such as the Atlantic Monthly, the New Yorker, and Reuters World News.

Within China, the language is no better, and feeds off American rhetoric. China's communications to the rest of the world on its actions have been woefully unpersuasive.

China will continue to carry the charge of debt-trap diplomacy no matter how much it might point to how Hambantotta in Sri Lanka — the poster-child of that debt-trap argument — actually had its port facilities as the fruit of Danish and Canadian engineering and planning, not Chinese; that Sri Lanka itself actually intends to put its own regional naval command in Hambantotta; that India had actually turned down the Sri Lanka financing option that was put to it before China took it up; that the US actually remains a bigger creditor for Sri Lanka than is China. All this is to no avail.

Similarly, the perception that China is a revisionist power seeking to reshape world order for its own purposes will remain despite how China is the second-largest funder of the UN; that it deploys 2,500 UN peacekeepers, more than all the other permanent members of the UN Security Council combined; and that in the last two decades it has supported 96 per cent of the UN Security Council resolutions against nations judged to have violated international norms. At the World Trade Organisation, it is the US that is blocking the appointment of members of the WTO appellate court, and it is the US that has nearly four times more complaints registered against it than China.

Stabilising actions needed by the US and China

We will go a long way towards enough peace and stability for global business again to function well if we get two actions.

First, the US must try to accept the reality of China's economic success, and learn to work with China's significant presence in the world. Those parts of America's success that drew on soft power — on getting others to admire it — have historically been about supplying the structures that other nations need, not only about muscling one's own way through. Accepting China's place in the world, given the financing and engineering needs of so many other nations, is the natural continuation of that trajectory of American success.

Second, China needs to understand how, on a number of very large issues, it continues to be viewed as a threat to the international system and has no rigorous response in its favour. In Xinjiang a million Uighurs are indeed interned in centres; China is indeed using AI and Big Data to scrutinise and nudge to social improvement the actions of over a billion people. China must try to understand the outrage the rest of the world feels even as it seeks ever better control and stability.

Can the US and China resolve their differences, can the world's geopolitics regain balance? It has long been popular to point out that it is the great powers that do what they will; the rest of us suffer what we must. That might well be a fallacy, given how the world is today. But whether or not small states can affect the outcome for geopolitics, we will not thrive if we don't understand its process.

These problems in geopolitics and global climate change I have described are large and difficult. They are challenges that no nation state in the world — middling power, small state — can evade, no matter whether we think we can proactively help work towards a solution.

My own belief is that indeed we can help, but that requires research and understanding, both on the science and social science surrounding global climate change and geopolitics.


About the author

Prof Danny Quah.jpg

Professor Danny Quah is Dean of the Lee Kuan Yew School of Public Policy at NUS, where he is also the Li Ka Shing Professor in Economics. His research interests include international economic relations, where he takes an economic approach to world order  with focus on the global power shift and the rise of the East. Prof Quah was previously Assistant Professor of Economics at the Massachusetts Institute of Technology, and then Professor of Economics and International Development at the London School of Economics, where he was also the Head of Department for Economics.


Looking to 2020 is a series of commentaries on what readers can expect in the new year. This is the second installment of the series. 

Click here to read about Professor Tommy Koh's global outlook for the year.