The renminbi seems to be back in business as a Chinese tool of retaliation against US tariffs. A 1.5 per cent fall in the currency early this month in response to proposed new US tariffs was only a start. Since the middle of August the renminbi has weakened further, and the exchange rate is now 4 per cent weaker than at the start of the month. We may well see more of a ‘weaponized’ renminbi, but there are four good reasons why Beijing might be wise to think before shooting.

The first has to do with how China seeks to promote its place in the world. China has been at pains to manage the collapse of its relations with the US in a way that allows it to present itself as an alternative pillar of global order, and as a source of stability in the international system, not to mention moral authority. This has deep roots.

Anyone investigating the history of Chinese statecraft will quickly come across an enduring distinction in Chinese thought: between wang dao, the kingly, or righteous way, and ba dao, the way of the hegemon. Since Chinese thinkers and officials routinely describe US behaviour since the Second World War as hegemonic, it behoves Chinese policymakers to do as much as possible to stay on moral high-ground in their behaviour towards Washington. Only in that way would President Xi be able properly to assert China’s claim to leadership.

Indeed, China has a notable track record of using exchange rate stability to enhance its reputation as a force for global stability. Both in the aftermath of the Asian crisis in 1997, and of the Global Financial Crisis in 2008, Chinese exchange rate stability was offered as a way of demonstrating China’s trustworthiness and its commitment to multilateral order.

Devaluing the renminbi in a meaningful way now might have a different rationale, but the cost to China’s claim to virtue, and its bid to offer itself as a guardian of global stability, might be considerable.

That’s particularly true because of the second problem China has in thinking about a weaker renminbi: it may not be all that effective in sustaining Chinese trade. One reason for this is the increasing co-movement with the renminbi of currencies in countries with whom China competes.

As the renminbi changes against the dollar, so do the Taiwan dollar, the Korean won, the Singapore dollar and the Indian rupee. In addition, the short-run impact of a weaker renminbi is more likely to curb imports than to expand exports, and so its effects might be contractionary. 

An ineffective devaluation of the renminbi would be particularly useless because of the third risk China needs to consider, namely the risk of retaliation by the US administration. Of this there is already plenty of evidence, of course.

The US Treasury’s declaration of China as a ‘currency manipulator’ on 5 August bears little relationship to the actual formal criteria that the Treasury uses to define that term, but equally the US had warned the Chinese back in May that these criteria don’t bind its hand. By abandoning a rules-based approach to the definition of currency manipulation, the US has opened wide the door to further antagonism, and Beijing should have no doubt that Washington will walk through that door if it wants to.

The fourth, and possibly most self-destructive, risk that China has to consider is that a weaker renminbi might destabilize China’s capital account, fuelling capital outflows that would leave China’s policymakers feeling very uncomfortable.

Indeed, there is already evidence that Chinese residents feel less confident that the renminbi is a reliable store of value, now that there is no longer a sense that the currency is destined to appreciate against the dollar. The best illustration of this comes from the ‘errors and omissions’, or unaccounted-for outflows, in China’s balance of payments.

The past few years have seen these outflows rise a lot, averaging some $200 billion per year during the past four calendar years, or almost 2 per cent GDP; and around $90 billion in the first three months of 2019 alone. These are scarily large numbers.

The risk here is that Chinese expectations about the renminbi are ‘adaptive’: the more the exchange rate weakens, the more Chinese residents expect it to weaken, and so the demand for dollars goes up. In principle, the only way to deal with this risk would be for the People's Bank of China (PBOC) to implement a large, one-off devaluation of the renminbi to a level at which dollars are expensive enough that no one wants to buy them anymore.

This would be very dangerous, though: it presupposes that the PBOC could know in advance the ‘equilibrium’ value of the renminbi. It would take an unusually brave central banker to claim such foresight, especially since that equilibrium value could itself be altered by the mere fact of such a dramatic change in policy.

No one really knows precisely by what mechanism capital outflows from China have accelerated in recent years, but a very good candidate is tourism. The expenditure of outbound Chinese tourists abroad has risen a lot in recent years, and that increase very closely mirrors the rise in ‘errors and omissions’. So the suspicion must be that the increasing flow of Chinese tourists – nearly one half of whom last year simply travelled to capital-controls-free Hong Kong and Macao – is just creating opportunities for unrecorded capital flight.

This raises a disturbing possibility: that the most effective way for China to devalue the renminbi without the backfire of capital outflows would be simultaneously to stem the outflow of Chinese tourists. China has form in this regard, albeit for differing reasons: this month it suspended a programme that allowed individual tourists from 47 Chinese cities to travel to Taiwan.

A more global restriction on Chinese tourism might make a devaluation of the renminbi ‘safer’, and it would have the collateral benefit of helping to increase China’s current account surplus, the evaporation of which in recent years owes a lot to rising tourism expenditure and which is almost certainly a source of unhappiness in Beijing, where mercantilism remains popular.

But a world where China could impose such draconian measures would be one where nationalism has reached heights we haven’t yet seen. Let’s hope we don’t go there.

This article was originally published in the Financial Times.

Since the overthrow of the regime of Muammar Gaddafi in 2011, Libya’s multitude of armed groups have followed a range of paths. While many of these have gradually demobilized, others have remained active, and others have expanded their influence. In the west and south of the country,  armed groups have used their state affiliation to co-opt the state and professionals from the state security apparatus into their ranks.

In the east, the Libyan Arab Armed Forces projects a nationalist narrative yet is ultimately subservient to its leader, Field Marshal Khalifa Haftar. Prevailing policy narratives presuppose that the interests of armed actors are distinct from those of the communities they claim to represent. Given the degree to which most armed groups are embedded in local society, however, successful engagement will need to address the fears, grievances and desires of the surrounding communities, even while the development of armed groups’ capacities dilutes their accountability to those communities.

This roundtable will discuss the findings of a forthcoming Chatham House research paper, ‘The Development of Libyan Armed Groups Since 2014: Community Dynamics and Economic Interests’, which presents insights from over 200 interviews of armed actors and members of local communities and posits how international policymakers might seek to curtail the continued expansion of the conflict economy.

PLEASE NOTE THIS EVENT IS POSTPONED UNTIL FURTHER NOTICE.

Summary

• Libya’s multitude of armed groups have followed a range of paths since the emergence of a national governance split in 2014. Many have gradually demobilized, others have remained active, and others have expanded their influence. However, the evolution of the Libyan security sector in this period remains relatively understudied. Prior to 2011, Libya’s internal sovereignty – including the monopoly on force and sole agency in international relations – had been personally vested in the figure of Muammar Gaddafi. After his death, these elements of sovereignty reverted to local communities, which created armed organizations to fill that central gap. National military and intelligence institutions that were intended to protect the Libyan state have remained weak, with their coherence undermined further by the post-2014 governance crisis and ongoing conflict. As a result, the most effective armed groups have remained localized in nature; the exception is the Libyan Arab Armed Forces (LAAF), which has combined and amalgamated locally legitimate forces under a central command.
• In the west and south of the country, the result of these trends resembles a kind of inversion of security sector reform (SSR) and disarmament, demobilization and reintegration (DDR): the armed groups have used their state affiliation to co-opt the state and professionals from the state security apparatus into their ranks; and have continued to arm, mobilize and integrate themselves into the state’s security apparatus without becoming subservient to it. In the eastern region, the LAAF projects a nationalist narrative yet is ultimately subservient to its leader, Field Marshal Khalifa Haftar. The LAAF has co-opted social organizations to dominate political and economic decision-making.
• The LAAF has established a monopoly over the control of heavy weapons and the flow of arms in eastern Libya, and has built alliances with armed groups in the east. Armed groups in the south have been persuaded to join the LAAF’s newly established command structure. The LAAF’s offensive on the capital, which started in April 2019, represents a serious challenge to armed groups aligned with the Tripoli-based Government of National Accord (GNA). The fallout from the war will be a challenge to the GNA or any future government, as groups taking part in the war will expect to be rewarded. SSR is thus crucial in the short term: if the GNA offers financial and technical expertise and resources, plus legal cover, to armed groups under its leadership, it will increase the incentive for armed groups to be receptive to its plans for reform.
• Prevailing policy narratives presuppose that the interests of armed actors are distinct from those of the communities they claim to represent. Given the degree to which most armed groups are embedded in local society, however, successful engagement will necessarily rely on addressing the fears, grievances and desires of the surrounding communities. Yet the development of armed groups’ capacities, along with their increasing access to autonomous means of generating revenue, has steadily diluted their accountability to local communities. This process is likely to be accelerated by the ongoing violence around Tripoli.
• Communities’ relationship to armed groups varies across different areas of the country, reflecting the social, political, economic and security environment:
• Despite their clear preference for a more formal, state-controlled security sector, Tripoli’s residents broadly accept the need for    the presence of armed groups to provide security. The known engagement of the capital’s four main armed groups in criminal activity is a trade-off that many residents seem able to tolerate, providing that overt violence remains low. Nonetheless, there is a widespread view that the greed of Tripoli’s armed groups has played a role in stoking the current conflict.
• In the east, many residents appear to accept (or even welcome) the LAAF’s expansion beyond the security realm, provided that it undertakes these roles effectively. That said, such is the extent of LAAF control that opposition to the alliance comes at a high price.
• In the south, armed groups draw heavily on social legitimacy, acting as guardians of tribal zones of influence and defenders of their respective communities against outside threats, while also at times stoking local conflicts. Social protections continue to hold sway, meaning that accountability within communities is also limited.
• To varying extents since 2014, Libya’s armed groups have developed networks that enmesh political and business stakeholders in revenue-generation models:
• Armed groups in Tripoli have compensated for reduced financial receipts from state budgets by cultivating unofficial and illicit sources of income. They have also focused on infiltrating state institutions to ensure access to state budgets and contracts dispersed in the capital.
• In the east of the country, the LAAF has developed a long-term strategy to dominate the security, political and economic spheres through the establishment of a quasi-legal basis for receiving funds from Libya’s rival state authorities. It has supplemented this with extensive intervention in the private sector. External patronage supports military operations, but also helps to keep this financial system, based on unsecured debt, afloat.
• In the south, limited access to funds from the central state has spurred armed groups to become actively involved in the economy. This has translated into the taxation of movement and the imposition of protection fees, particularly on informal (and often illicit) activity.
• Without real commitment from international policymakers to enforcing the arms embargo and protecting the economy from being weaponized, Libya will be consigned to sustained conflict, further fragmentation and potential economic collapse. Given the likely absence of a political settlement in the short term, international policymakers should seek to curtail the continued expansion of the conflict economy by reducing armed groups’ engagement in economic life.
• In order to reduce illicit activities, international policymakers should develop their capacity to identify and target chokepoints along illicit supply chains, with a focus on restraining activities and actors in closest proximity to violence. Targeted sanctions against rent maximizers (both armed and unarmed) is likely to be the most effective strategy. More effective investigation and restraint of conflict economy actors will require systemic efforts to improve transparency and enhance the institutional capacity of anti-corruption authorities. International policymakers should also support the development of tailored alternative livelihoods that render conflict economy activities less attractive.

Ever since independence, the Moroccan monarchy has used political parties to legitimize the country’s authoritarian political process and structure, and to absorb social and political anger. The palace puts successive governments and other elected institutions, such as local and regional councils, at the frontline of public blame, and replaces them once they fail this function.

In a recent article, MENA Programme Associate Fellow, Mohammed Masbah, examines how the Moroccan monarchy has used this strategy with the ruling Justice and Development Party (PJD) so that the palace remains the centre of political power, while the PJD – and other political parties before it– takes responsibility for coping with the mounting socio-economic crisis.

In this webinar, part of the Chatham House project on The Future of the State in the Middle East and North Africa, the article’s author will discuss the risks this approach presents for the long-term stability of Morocco and what reforms are needed to increase citizens’ dwindling confidence in the political process.

You can express your interest in attending by following this link. You will receive a Zoom confirmation email should your registration be successful.

On 10 January 2020, Chinese scientists released the sequence of the COVID-19 genome on the internet. This provided the starting gun for scientists around the world to start developing vaccines or therapies. With at least 80 different vaccines in development, many governments are pinning their hopes on a quick solution. However, there are many hurdles to overcome. 

Vaccine development

Firstly, vaccine development is normally a very long process to ensure vaccines are safe and effective before they are used. 

Safety is not a given: a recent dengue vaccine caused heightened disease in vaccinated children when they later were exposed to dengue, while Respiratory Syncytial Virus vaccine caused the same problem. Nor is effectiveness a given. Candidate vaccines that use novel techniques where minute fragments of the viruses’ genetic code are either injected directly into humans or incorporated into a vaccine (as is being pursued, or could be pursued for COVID-19) have higher risks of failure simply because they haven’t worked before. For some vaccines, we know what levels of immunity post-vaccination are likely to be protective. This is not the case for coronavirus. 

Clinical trials will have to be done for efficacy. This is not optional – regulators will need to know extensive testing has taken place before licencing any vaccine. Even if animal tests are done in parallel with early human tests, the remainder of the process is still lengthy. 

There is also great interest in the use of passive immunization, whereby antibodies to SARS-CoV-2 (collected from people who have recovered from infection or laboratory-created) are given to people who are currently ill. Antivirals may prove to be a quicker route than vaccine development, as the testing requirements would be shorter, manufacturing may be easier and only ill people would need to be treated, as opposed to all at-risk individuals being vaccinated.

Vaccine manufacturing

Developers, especially small biotechs, will have to make partnerships with large vaccine manufacturers in order to bring products to market. One notorious bottleneck in vaccine development is getting from proof-of-principle to commercial development: about 95 per cent of vaccines fail at this step. Another bottleneck is at the end of production. The final stages of vaccine production involve detailed testing to ensure that the vaccine meets the necessary criteria and there are always constraints on access to the technologies necessary to finalize the product. Only large vaccine manufacturers have these capacities. There is a graveyard of failed vaccine candidates that have not managed to pass through this development and manufacturing process.

Another consideration is adverse or unintended consequences. Highly specialized scientists may have to defer their work on other new vaccines to work on COVID-19 products and production of existing products may have to be set aside, raising the possibility of shortages of other essential vaccines. 

Cost is another challenge. Vaccines for industrialized markets can be very lucrative for pharmaceutical companies, but many countries have price caps on vaccines. Important lessons have been learned from the 2009 H1N1 flu pandemic when industrialized countries took all the vaccines first. Supplies were made available to lower-income countries at a lower price but this was much later in the evolution of the pandemic. For the recent Ebola outbreaks, vaccines were made available at low or no cost. 

Geopolitics may also play a role. Should countries that manufacture a vaccine share it widely with other countries or prioritize their own populations first? It has been reported that President Trump attempted to purchase CureVac, a German company with a candidate vaccine.  There are certainly precedents for countries prioritizing their own populations. With H1N1 flu in 2009, the Australian Government required a vaccine company to meet the needs of the Australian population first. 

Vaccine distribution

Global leadership and a coordinated and coherent response will be needed to ensure that any vaccine is distributed equitably. There have been recent calls for a G20 on health, but existing global bodies such as the Coalition for Epidemic Preparedness Innovations (CEPI) and GAVI are working on vaccines and worldwide access to them. Any new bodies should seek to boost funding for these entities so they can ensure products reach the most disadvantaged. 

While countries that cannot afford vaccines may be priced out of markets, access for poor, vulnerable or marginalized peoples, whether in developed or developing countries, is of concern. Developing countries are at particular risk from the impacts of COVID-19. People living in conflict-affected and fragile states – whether they are refugees or asylum seekers, internally displaced or stateless, or in detention facilities – are at especially high risk of devastating impacts. 

Mature economies will also face challenges. Equitable access to COVID-19 vaccine will be challenging where inequalities and unequal access to essential services have been compromised within some political systems. 

The need for global leadership 

There is an urgent need for international coordination on COVID-19 vaccines. While the WHO provides technical support and UNICEF acts as a procurement agency, responding to coronavirus needs clarity of global leadership that arches over national interests and is capable of mobilizing resources at a time when economies are facing painful recessions. We see vaccines as a salvation but remain ill-equipped to accelerate their development.

While everyone hopes for rapid availability of safe, effective and affordable vaccines that will be produced in sufficient quantities to meet everyone’s needs, realistically, we face huge hurdles. 

This article adopts a constructive approach to examining the problem of the Indo-Pacific construct. Through reflection on the east Asian experience, it proposes an analytical framework of developmental peace as a constellation of international practices, which means that the more economic development is prioritized by states in regional processes, the more likely it is that a sustainable peace will be achieved. States participating in regional integration comprise a community of practice. On the basis of a shared understanding that development is of overriding importance and underpins security and state legitimacy, the community takes economic development as the anchoring practice; this practice embodies and enacts constitutive rules and fundamental norms for a broader set of practices in regional processes, such as peaceful coexistence and non-interference. The more economic development is prioritized on domestic and regional agendas, the more likely it is that conflicts in the security realm will be relaxed or even resolved to protect security interests. The author draws some useful implications from the developmental peace in east Asia for the Indo-Pacific construct, among which the most important include building shared understandings on the prioritization of economic development, taking advantage of the Regional Comprehensive Economic Partnership (RCEP), Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Asian Infrastructure Investment Bank, and using the code of conduct process as a vehicle and best practice to facilitate rule-making for the maritime order. Finally, the author briefly discusses the contributions of the study and limitations of the model.

This event is part of the US and Americas Programme Inaugural Virtual Roundtable Series on the US and the State of the World and will take place virtually only.

This event will take place from 14:00 – 15:00 BST.

This meeting will see the launch of the Chatham House-CAGE briefing paper ‘Human Development as Positive Freedom: A World View since 1870’. The author of the paper will argue that while substantial gains in world human development have been achieved since 1870, the main period of improvement actually occurred between World War I and 1970. He will further argue that, despite initial successes in lifting human development, the socialist experiments of the 20th century failed to sustain momentum and then (with the exception of Cuba) stagnated and fell behind prior to the socialist model's ultimate demise. Finally, he will contend that since 1970, while most OECD countries have experienced a second (later life) health transition, all developing regions have fallen behind in this dimension.

The briefing paper is the 12th publication in the Chatham House-CAGE series, published in partnership with the Centre for Competitive Advantage in the Global Economy (CAGE) at the University of Warwick.

Attendance at this event is by invitation only.

Summary points:

• Substantial gains in world human development have been achieved since 1870, but research shows that the main improvement actually occurred between the First World War and 1970.
   
• Across-the-board advances took place in life expectancy and education between 1920 and 1950, a phase during which there was a major backlash against economic globalization. This is evidence of a development puzzle: economic growth and human development do not always go hand in hand.
   
• Between 1913 and 1970 the absolute gap between most countries in the OECD and the rest of the world widened, with different regions experiencing mixed success in catching up. Since the 1970s the performance of developing regions has varied greatly.
   
• Despite initial successes in lifting human development, the socialist experiments of the 20th century failed to sustain momentum and then (with the exception of Cuba) stagnated and fell behind prior to the socialist model’s ultimate demise.
   
• Education has been the driving force behind the limited catching-up of developing regions in terms of long-term human development. In terms of life expectancy,these regions achieved significant gains only during the first (early-life) health transition. Since 1970, while most OECD countries have experienced a second (later-life) health transition, all developing regions have fallen behind.

Project: Shifting Competitive Advantage in the Global Economy 

Launch event

Human Development as Positive Freedom: A World View Since 1870
26 February 2014

 

 

Viacheslav Chirikba will offer his perspective on the situation in Abkhazia following the recent presidential elections, and the developments in Abkhazia's relations with other regional players. 

Attendance at this event is by invitation only.

This event will discuss the rise of the culture of world development. It will examine the post-war reconstruction and development projects of the 1940s through to the 1960s, including those devised at Chatham House. The speaker will argue that these projects hold valuable lessons that still apply to the current economic environment. The speaker will also discuss the key role played by Eugene R Black (1898-1992), the third president of the International Bank for Reconstruction and Development (the World Bank), who was one of the main architects of post-war reconstruction and development projects and a promoter of a ‘culture of development’.

The international community’s response to the Syria crisis has been unsatisfactory on many fronts, and humanitarian aid and development is no exception. While there has been renewed emphasis by development organizations on the importance of engaging local actors − notably highlighted in the new Sustainable Development Goals − the reality is this has been woefully lacking in practice. And Syria is simply one example of many where the failure of UN agencies and other humanitarian actors to partner with local actors has hampered the response to humanitarian crises.

Double standards

The problem is that international agencies usually have high and unfair expectations from Syrian individuals and organizations, requiring them to speak the ‘language’ of development, meet international standards, and demonstrate a wide range of expertise. However, these demands are not reciprocated by international organizations and experts being expected to have the same depth of knowledge of the local context in which they are operating. In addition, while Syrian actors are expected to be neutral, impartial and politically unaffiliated, foreign aid appears to be driven − explicitly and unashamedly − by the political objectives of the donor countries.

There is a double standard at work. In many cases, international ‘experts’ on Syria have little local knowledge, but there are no channels to measure or question their level of expertise. At the same time, including local Syrians in decision-making is seen as a threat to predetermined objectives, rather than as an asset.

Syrians could add an indispensable source of knowledge and context to international agencies, as well as add local credibility. But too often they are brought on board to be part of the humanitarian and development picture or to get their simple feedback for evaluation and needs assessment reports to satisfy donors’ requirements, rather than employed as an integral component of designing and implementing projects. Though some of this is down to a pretext of lack of capacity, it raises the question of whether there is an international political willingness and genuine organizational courage to involve Syrians at programming, decision and policy making-levels.

The importance of local

The Syrian example is not isolated. While there is now a debate to encourage engaging local actors, this does not happen in practice. The Local to Global Protection Initiative study reported that local and national humanitarian actors received only 0.2% of the overall direct global humanitarian response in 2013.

Moreover, the international humanitarian and development systems are designed, together with foreign aid policy, to be self-contained and to exclude local actors. This allows donor governments to use the systems as political tools for leveraging control. It is equally difficult for both outsiders as well as insiders to understand how the system really functions. The UN-led coordination structure is one example of the heavy international architecture that remains unable to reform itself, learn from its previous mistakes, or to engage with local actors.

And that engagement matters. The Independent Research Forum emphasized in its brief in February 2014 how engaging local researchers and implementing bottom-up participatory learning can make countries better prepared to achieve the post-2015 Sustainable Development Goals. Those goals, as well as the upcoming World Humanitarian Summit, highlight the importance of including local actors in the humanitarian and development responses.

Moving forward

Fortunately, such initiatives are creating a momentum within the development community to make radical changes through bottom-up approaches that put sustainability into practice. But if the Sustainable Development Goals want to affect real change, there will have to be a significant drive to move from rhetoric and ‘intentions’ to reality and actions. Currently it seems that the international community prefers to simply maintain the current status quo. It only takes a brief reflection on how many Syrians are included in every project or programme and how many Syrians are in positions to contribute at the policy and decision-making levels to realise the scale of the impetus required to change this system. To make that change might provide an opportunity for Syrians to restore some of the ownership to the outcomes and decisions of their conflict.

To comment on this article, please contact Chatham House Feedback

This event is part of the Inaugural Virtual Roundtable Series on the US, Americas and the State of the World and will take place virtually only. Participants should not come to Chatham House for these events.

This event is part of the US and Americas Programme Inaugural Virtual Roundtable Series on the US and the State of the World and will take place virtually only.

This event will take place from 14:00 – 15:00 BST.

This event is part of the US and Americas Programme Inaugural Virtual Roundtable Series on the US and the State of the World and will take place virtually only.

This event will take place from 14:00 – 15:00 BST.

Political leaders, policy-makers and academics routinely refer to development as an objective process of social change through the use of technical, value-free terms. Images of poverty and inequality are regularly presented as evidence of a world that exists ‘out there’ where development unfolds. This way of seeing reflects the value of scientific forms of knowledge but also sits in tension with the normative foundations of development that take European modernization and industrialization as the benchmark for comparison. The role images play in this process is often overlooked. This article argues that a dominant mode of visuality based on a Cartesian separation between subject and object, underpinning the ascendance of European hegemony and colonialism, aligns with the core premises of orthodox development discourse. An example of how visual representations of development matter is presented through images of Africa–China relations in western media sources. Using widely circulated images depicting China's impact on African development in western news media sources as an example of why visual politics matters for policy-making, the article examines how images play a role in legitimizing development planning by rendering associated forms of epistemological and structural violence ‘invisible to the viewer’.