HKUST Business Review

Numerous metrics can explain the complexities of global trade, yet fundamentally, the system resembles a series of loops linking buyer and seller. Manufactured goods and commodities flow in one direction, payments travel the opposite way, and investments follow paths designed to generate returns on capital. However, escalating tensions between China and the US are set to disrupt the major trade patterns established over the past 30 years. These patterns have ushered in new prosperity for millions in developing countries, kept prices low in large consumer economies, and allowed financial markets to function effectively. Now, doubt and uncertainty prevail. Solutions must be sought through new engines of growth. In Asia, this can be achieved by building or strengthening alternative trade loops, deploying breakthrough technologies to drive new industries, and maximizing the potential created by digital commerce and innovative financial systems. A Call for New Strategies “We have seen a period of great transformation during which China became the factory of the world,” said Charles Li, former Chief Executive of Hong Kong Exchanges and Clearing (HKEX) and more recently the Founder of Micro Connect, an initiative providing financial support for small businesses that struggle to secure capital. “We are now beginning to see the impact of that on the main stakeholders’ respective systems and their domestic economic structures. It is something that has been coming for a long time, but which people did not take particularly seriously until now.” Li summarized key factors, including the “hollowing out” of the US industrial base, which has led to increasing dependence on manufacturing in other countries. This trend has boosted the profits of US importers, propelled Wall Street to new highs, and ensured that money reinvested by overseas exporters flows into US Treasuries to fund the credit cycle. China has the ability to start another ‘train’ because it has money to distribute to the lower half of the population. HKUST Business Review 23 Cover