THE NEW

November 5, 2018
ECONOMY
ISSUE

The world as we know it

is about to change

A passion for technologically
driven progress.
F or more than a century, ExxonMobil
has pioneered technological solutions
to help solve some of society’s greatest
challenges and provide the energy to
support–and advance – its progress.
In the future, technology will be key to
addressing the dual challenge to help meet
the growing energy needs of 21st century
economies while addressing the risks of
climate change.
ExxonMobil’s culture is rooted in
science and innovation. We employ
more than 2,200 Ph.D. scientists and 19,000
engineers in our operations and research
and technology divisions around the world.
Each year, we invest around
$1 billion on R&D.
For instance, ExxonMobil is working
with Synthetic Genomics, Inc., to grow
algae that can produce oil at large scale.
These next-generation biofuels can grow
in salt water, meaning they won’t stress
fresh water supplies or compete with food.
A recent breakthrough saw the partnership
develop an algae strain that more than
doubles expected oil production.
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We’re also pioneering carbon capture
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ExxonMobil is a world leader in developing
this technology, with a working interest in
about one-fourth of the world’s current
carbon capture capacity. We capture more
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 ROOM TO GROW
The Singapore Strait, as seen
from the Marina Bay Sands
SIM CHI YIN/MAGNUM PHOTOS
O
n a recent trip to Singapore,
I found myself counting cargo 3
ships in the Singapore Strait as
I stared out the window of a new high-
rise in the Marina Bay Financial Centre.
The view to the southeast is still unob-
structed; several blocks between the
building and the bay haven’t yet been
developed. That entire neighborhood,
a blank slate called Straits View, was
reclaimed from the sea in the 1990s. Now
it’s positioned to become a booming
business district—with plenty of space to
grow upward in the years ahead.
Singapore’s transformation from
bustling port to supercity in a matter
of decades is obviously an ideal out-
come when you’ve got room to run.
Fresh from its star turn in the ilm Crazy
Rich Asians, the city will play host to
Bloomberg’s New Economy Forum on
Nov. 6-7. There’s much that developing
countries can learn from Singapore’s
impressive trajectory.
As demographic trends and eco-
nomic projections make clear, places
such as Brazil, China, Egypt, India,
Indonesia, Kenya, Malaysia, Nigeria,
South Africa, and Turkey will drive
global growth in the years to come.
This issue of Bloomberg Businessweek,
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

which complements the Singapore

event, explores some of the daunting
challenges these New Economy coun-
tries face and will continue to confront
as they advance. We’ve sorted them
into seven sections: governance,
urbanization, trade, inclusion, technol-
ogy, inance, and climate.
One recurring theme of this issue
is the balance between growth and
sustainability. The talk in Chinese
policymaking circles these days is
all about “high-quality growth”; less
than a decade ago, the Asian dyna-
mo’s development model could have
been more accurately described as Forest City, a development
“unbridled growth.” built on reclaimed land
The inherent tension between these of the coast of Malaysia
two approaches often plays out on the
physical landscape. In my hometown of
Portland, Ore., the pace of urban sprawl
has been slower than in other cities,
thanks to a pioneering 1973 law on land-
use planning. Yet each time I visit, it’s
impossible not to notice the relentless
4 creep of urban spaces into rural ones.
From Egypt to Ecuador, govern-
ments are making choices about how
to ill whatever white space remains
on their maps—and they’re enlist-
ing investors and companies to help.
When the mix of policies, capital, and
technology is right, the future looks as
promising as the view from that high-
rise in Singapore. —Joel Weber, editor,
Bloomberg Businessweek

PHOTOGRAPH BY ORE HUIYING FOR BLOOMBERG BUSINESSWEEK

 jobs for veterans

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For free job training resources, visit

google.com/grow/veterans
 CONTENTS
The 155 countries that are part of the New Economy are home to almost
85 percent of the world’s population and generate 59 percent of global output

Countries on the map are sized

6 to relect the International
Monetary Fund’s forecast
of their 2023 gross domestic
product. GDP igures are
adjusted for purchasing
power parity
Forecasts are not available for Cuba,
North Korea, Palestine, Syria, and
Western Sahara

GOVERNANCE URBANIZATION TRADE INCLUSION

WhatsApp drives From Nigeria The reverberations A spree of
political factions to Malaysia from China’s latrine-building
deeper into and beyond, industrial is a case study
their bubbles new cities are policy are felt in scaling
in Brazil taking shape worldwide sanitation
9 17 31 45
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

THE COVER
Illustration by 731, based on the map below

NEW ECONOMY COUNTRIES ARE THOSE THE INTERNATIONAL MONETARY FUND DESIGNATES AS “EMERGING AND DEVELOPING ECONOMIES”

TECHNOLOGY CLIMATE FINANCE TRENDSPOTTING

Kai-Fu Lee says Why pollution Where cash is In New Economy
Chinese AI is keeps worsening in short supply nations, GDP
catching up to in Asia, and how in Kenya, will zoom from
Silicon Valley—if China and India cryptocurrency $75 trillion to
it hasn’t already are ighting it is replacing it $111 trillion by 2023
55 59 69 76
 01
GOVERNANCE
9

Democracy
in the age of
disinformation

A Bolsonaro supporter cheering the runof results on Oct. 28

 FAKE NEWS IN BRAZIL
By Shannon Sims Photographs by
Lianne Milton

For Stela Wanda Pereira

da Silva, the breaking point
10

came when her father posted

a video of a woman getting
assassinated to the family’s
private WhatsApp group,
calling it an example of
the violence that would
ensue if leftist Workers’
Party candidate Fernando
GOVERNANCE

Haddad prevailed in Brazil’s

presidential election.
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Da Silva, a 22-year-old resident of the captain, won the Oct. 28 runoff with Workers’ Party representatives running
coastal city of Salvador and a Haddad 55.1 percent of the total, besting Haddad, to the country’s electoral court claiming
supporter, did some digging and discov- a substitute candidate for the Workers’ fraud, arguing that the actions amounted
ered that the woman in the video was Party, whose former leader, Luiz Inácio to illegal campaign donations. The court
the victim of a robbery gone bad and not “Lula” da Silva, is in jail on corruption opened an investigation, but no determi-
a politically motivated hit, as her father charges. Bolsonaro’s tough-on-crime nation has been made.
maintained. When she showed her fam- message resonated in a nation where It’s impossible to quantify how much
ily that the post was fake news—from 63,880 people were murdered last year, of a lift Bolsonaro got from fake news,
Venezuela, yet—a civil war broke out, but some of his other rhetoric—including and his supporters say such claims are
with half the group’s members defend- praise of a notorious torturer from the overstated. However big the bump,
ing her and the other half taking her two decades of military rule that ended the spread of misinformation on social
father’s side. in 1985—rattled observers worried about media could pose a long-term threat
“Our family was totally divided the future of Brazil’s democracy. to democratic norms and institutions.
because of this election, so I had to The fake news lood during the cam- Politics in Latin America’s biggest econ-
leave the group,” says da Silva, who paign also prompted concerns that this omy have always been fragmented—
acknowledges that her relationship with wasn’t a fair ight. A bombshell inves- no fewer than 13 parties contested the
her father has always been turbulent. tigation published a week and a half presidency—but it’s diicult to recall a
Her experience on the platform isn’t before the runof by Folha de São Paulo, time when they’ve been this polarized.
unique, she says: “I have many friends one of Brazil’s most respected newspa-
who would prefer to leave their fam- pers, revealed that a group of entrepre- Brazil has more internet users than any
ily WhatsApp group than deal with the neurs had paid inluencers to spread country in Latin America and a long tra-
unhealthy environment they create.” anti-Haddad content from their private dition of early social media adoption.
Brazilians are among the world’s top WhatsApp groups. The report sent Remember Orkut? In the U.S., the
users of social media, leaving them espe-
cially exposed to fake news and politi-
cal inluence campaigns online. Social 11
media forums have replaced tradi-
tional media, which for decades were
controlled largely by a single Brazilian
conglomerate, Globo Group. Facebook
Inc.-owned WhatsApp, in particular,
has become the main vehicle for the
internecine spats that happen else-
where on Twitter or Facebook. Brazil is
WhatsApp’s top market, with more than
half of its 208 million people counted as
users. They cluster in family or ainity
groups whose typical fare is quotidian—
holiday plans, an upcoming volleyball
match, dinner Thursday night. But the
groups also serve as virtual propulsion
jets for political news, both real and fake.
“Brazil is dealing with a very powerful
combination right now,” says Maurício
Santoro, a political scientist at Rio de
Janeiro State University. “It’s a combina-
tion of a lack of conidence in traditional
media and easy access to alternative
Recording the revelry

social media outlets.”

This dynamic has played out against
GOVERNANCE
after the runof

the dramatic backdrop of the October

presidential election, one of the most
critical votes anywhere this year. Jair
Bolsonaro, the far-right head of the
Social Liberal Party and a former Army
 Bloomberg Businessweek
Google-owned social network was
quickly eclipsed after its 2004 launch by
rivals such as Myspace and Facebook.
But it took of in Brazil; by late 2007
there were 40 million registered Orkut
accounts there. In a book on the coun-
try’s democracy, Georgetown University
history professor
Bryan McCann
attributed the
surge to what he
termed the “Orkut
rule,” which held
that Brazilians
would use digital
media for social
purposes at every
opportunity. They
came to dominate
Orkut so much
that Google turned
over operations of
the entire network
to its oice there
12 in 2008.
Since that time, Brazilians’ ainity for
digital media has only grown, spurred
by an economic boom from about 2008
to 2011. The subsequent crash, though,
made iPhones and mobile data harder
to aford. WhatsApp, which can run on
any platform and whose data usage isn’t
always counted against data quotas by
carriers, became the de facto messaging
system nationwide. As of July, the service
had 120 million active users in Brazil,
only 7 million shy of Facebook’s tally.
This predilection has given political
debate on Brazilian social media a dis-
tinctive set of characteristics. Unlike
Facebook’s timeline feature, which
shares a user’s posts and activity with
her contacts and sometimes with the
general public, WhatsApp is simply a set
of private group conversations. Its chat
rooms are further shielded by encryp-
tion, a measure intended to increase
user security that also has the efect of
blocking monitoring eforts by outsiders.
GOVERNANCE
In the runup to the election,
WhatsApp’s privacy features turned
it into an impenetrable candyland of
misinformation. When the 24 Brazilian
newsrooms participating in Comprova—a
THE NEW ECONOMY
project of the Shorenstein Center on
Media, Politics and Public Policy, funded
by Google and Facebook—asked users to
lag WhatsApp messages that appeared
to be fake news, they received more than
60,000 submissions in two months.
“What we have here that is diferent
from the U.S. is an election mediated by
WhatsApp, a closed platform, where we
can’t measure exactly the volume or the
content of the fake news that is being
spread, much less who is responsible
for the disinformation,” says Tai Nalon,
executive director and co-founder of Aos
Fatos (“To the Facts”), a Brazilian fact-
checking group. Her organization tracks
viral fake news items and debunks them
in real time, spreading factual accounts
of the same events instead.
In one memorable instance, Aos
Fatos singled out a candidate’s claim
that 400 million Brazilians, almost
twice the country’s population, live
in extreme poverty. During the week-
end of the first
Videos that
round of voting
spread fake news
in the presiden-
about the rise of
tial election, the
communism in
group debunked
Brazil; waiting for
12 pieces of viral
runof results in
fake news that had
Rio de Janeiro
been shared a col-
lective 1.2 million times on Facebook.
One of these items—a story saying
Haddad was promoting a “gay kit” that
would spread homosexual “ideologies”
to public schoolchildren—was shared
400,000 times, by Aos Fatos’ count.
Attempts to limit disinformation by
tech companies and Brazil’s electoral
court, the TSE, a seven-person body
that hears all cases related to electoral
fraud, only scratch the surface, Nalon
says. Even after the court prohibited
the spread of the “gay kit” story, she
points out, it was
shared 100,000
times over the
“I’ve been enraged.
next week. I’ve even ended up
In June the
crying when I hear
court asked each
political party stories of how my friends felt
to sign an agree-
attacked by their own
ment not to spread fake news, but
family members”
not all of them did. Compliance was
November 5, 2018
efectively a token gesture, given the
challenges of tracing fake news to its
source. Once the campaign was in full
swing, the TSE invited representatives
from WhatsApp and Facebook to discuss
methods to prevent fake news distribu-
tion; Facebook ultimately set up what
it called a “war room” to combat fake
news, while WhatsApp banned hundreds
of thousands of accounts between the
irst round of the election and the run-
of. But the sense among most Brazilians
was that this was too little, too late.
The risk for a country so attached to
social media is that, absent effective
moderation or regulation, digital pol-
itics will become a permanent version
of the American Thanksgiving family
dinner, marked by outraged rants that
swirl a rainbow of perspectives into a
sludgy mess. Pedro Abreu, a 37-year-
old graphic designer in Salvador, has
become an outspoken critic of closed
WhatsApp groups. “I’ve been enraged.
I’ve even ended up crying when I hear
stories of how my friends felt attacked
by their own family members,” he says.
When his own mother left his family’s
group because she was ofended by what
he describes as the “candid and raw”
tenor of the political debate, he started
a group for Brazilians who’ve left their
family groups, as one might storm away
from the Thanksgiving table.
Historically, Brazilian media con-
sumers have relied on Globo, a com-
pany founded in 1925 and owned by the
family of founder Irineu Marinho, for
news. But over the years, as it grew in
size and power, its inluence came under
scrutiny. Globo’s support for the mili-
tary dictatorship set the tone for many
Brazilians, who continued to suspect,
even after military rule ended in 1985,
that the company’s
TV and radio shows
conspired to attack
candidates it didn’t
like and gloss over
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

corruption accusations against can-

didates it did, with the ultimate goal of
ensuring that the wealthiest members of
society stayed that way. (The company
disavowed its support of the dictatorship
in a 2013 editorial and has said it con-
siders democracy “an absolute value.”)
Santoro, the political scientist, says that
in this election Globo appears to have
had virtually no role in steering the elec-
torate’s opinion—the irst time that’s hap-
pened in modern Brazilian history.
The shift to social media has left
McCann, the professor who once praised
Brazil’s aggressive adoption of Orkut and
its descendants, reeling. He did, he says,
predict the rise of the right in Brazil and
the broader increase in nontraditional
media consumption, but he missed the
and debunks fake news, and spreads true

way social media, especially WhatsApp,

Nalon’s Aos Fatos checks facts, tracks

would be used to distort the information

reaching the electorate. “This is a disas-
ter,” he says. “I feel like I was naive in not
seeing this coming earlier.”
versions of the false items

Should the pattern evident in this

14 year’s elections become entrenched,
the implications for Brazil—and other
countries with social media addictions
and wobbly democratic institutions—
will be far-reaching. Michael Patrick
Lynch, a philosophy professor at the
University of Connecticut who studies
fake news, says that as people’s views
become distorted by false information,
“they start to not know what to think
or who to trust.” Over time, this break- can also abstain because they’ve moved begun monitoring campaigns at other
down of what he calls “epistemic,” or away from their registered residence. In levels of government, such as the guber-
knowledge-based, trust can threaten the runof, just over 30 percent of the natorial election in the state of São Paulo.
democracy itself. When people start to electorate fell into one of these three cat- The people behind Comprova, mean-
believe that all information is biased, egories, amounting to 42.5 million non- while, hope to keep the project going,
Lynch says, they tend to either double votes in an election that was decided by and are working to establish similar ini-
down on preexisting beliefs or opt out. 10.8 million ballots. tiatives in India, Indonesia, and Nigeria.
The electorate is then divided between The twin trends of polarization and A lot could change in Brazil by 2022,
those who dominate the discourse with apathy will place a heavy burden on though. Bolsonaro’s antidemocratic rhet-
information that supports only their company-sponsored initiatives such as oric augurs ill—not long after winning the
personal views and those who tune out Comprova and civil society groups like runof, he attacked Folha de São Paulo,
politics entirely. Aos Fatos. “For 2022, we’ll need a much saying, “This newspaper is over.” With
Evidence of the former group is abun- better way to deal with fake news,” says him in power, McCann predicts, the
dant in Brazil, but there are signs of the Aos Fatos’ Nalon, referring to the next country “will become more partisan and
latter, too. Voting is obligatory by law, presidential election. “We’ll need new atomized.” Brazilians’ shared sense of
GOVERNANCE

which in theory ensures participation in technology, and we’ll need WhatsApp national identity survived decades of dic-
the political process. But Brazilians are and Facebook to invest more in manag- tatorship, but now, he says, “the election
allowed to cast “null” and “blank” bal- ing the information on their platforms.” shows that that doesn’t really exist any-
lots, which are viewed as protest votes Her donor-funded group has expanded more, that people have totally opposed
and don’t enter into the inal tally. Some from two to nine employees and has ideas of what it means to be Brazilian.” 
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 02
URBANIZATION
17

A burst
PHOTOGRAPH BY ALEJO REINOSO FOR BLOOMBERG BUSINESSWEEK

of new cities

A university dorm in Yachay, Ecuador

 PAPER UTOPIAS
By Monte Reel

E
mbedded in the cerebral folds
of every city planner who’s ever
lived, there’s a cluster of neu-
rons that lights up like Las Vegas when
18 confronted with the possibility of a
blank slate. It started with Hippodamus,
the man Aristotle claimed was the father
of urban planning. When the Persians
destroyed his hometown of Miletus,
Hippodamus discovered a bright side to
catastrophe: The attackers had erased
all the regrettable improvisations that,
over the centuries, had made a mess of
the place. Tasked with rebuilding, he
seized his chance to impose order upon
chaos. And so the concept of the urban planned communities with plenty of
grid was born. green space. Suddenly, scores of new
Ever since, the dream of carte towns began sprawling just beyond the
blanche has proved an all-but- edges of the old ones.
irresistible seduction. Leonardo Today, it seems, we’re in the middle
da Vinci drafted detailed sketches of of another outbreak. This one is cen-
an “ideal city” after the plague rav- tered in the developing world, often
aged Milan, and a few hundred years in countries where population growth
later, Frank Lloyd Wright designed a and rapid urbanization have wholly
metropolis that solved the problem overwhelmed existing infrastructure,
of vehicular congestion via a network sometimes to the point where spending
of helicopter taxis. Every so often, time and money trying to ix the broken
this urge in city planners breaks out metropolises seems futile.
into a full-scale epidemic, such as the Here’s a taste of what’s going on,
URBANIZATION

one that spread throughout Europe and it’s by no means comprehensive.

and North America in the early 1900s. In Lagos, Nigeria—the most popu-
Known as the “garden city movement,” lous city in Africa—developers have
it aimed to counter the indignities of dredged the Atlantic Ocean to create
the Industrial Revolution by creating an island called Eko Atlantic, which
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

looking to sink their money into some-

thing meaty. “I think social media has
some role in this,” Moser adds, “because
local leaders can show off these
computer-generated models that make
everything look perfect.” In many devel-
oping countries the idea that an actively
molded future can eclipse the past is
particularly strong. “It’s really seductive,
particularly to places that were colo-
nized. It’s about starting fresh and having
a city all of their own,” Moser says.

Perhaps the boldest of these utopias is Mohsen has a Ph.D. in architecture

taking shape on an expansive, khaki- and has worked as an urban planner in
colored ield of dust between the Nile Egypt. Shortly after the 2011 revolution,
and the Red Sea in Egypt. In the past when the country was awash in opti-
couple of years, Cairo has become mism, he and some colleagues formed a
the world’s fastest-growing megacity, nonproit foundation to conceive a strat- 19
they envision as a Manhattan-style which is bad news for Cairenes, be- egy for future development—something
inancial hub for the continent. Forest cause their metropolis was already they believed had been tragically
City, a $100 billion luxury develop- mortally overcrowded. Among urban neglected. Together they drafted a
ment with room for 700,000 people, planners, an aspirational rule of thumb vision statement that called for seven
has sprouted in Malaysia. Ghana has says you should allow about 16 square diferent “capital cities” spread all over
Hope City (future home of the tall- meters (53 square feet) of green space Egypt. While Cairo would remain the
est building in Africa), and Rwanda is for every person. In Cairo, each person country’s “spiritual and cultural” cap-
promoting Vision City (free Wi-Fi and gets about 0.3 meters. ital, there would be separate hubs for
solar-powered streetlights are sketched “My vision,” says Ashraf Abdel science and education, green technol-
into the plans). Mohsen, “is to let Cairo breathe.” Abdel ogy, eco-agriculture, business and
China’s answer to what it calls “big
city malaise” is Xiongan, a high-tech
hub teeming with leading-edge compa-
nies, research institutes, and world-class
transportation that’s slowly rising a two-
hour drive south of Beijing. The project
is closely identiied with President Xi
Jinping, which means it’s unlikely to
join a long list of Chinese “ghost cities”
inanced by local governments.
The mania for new cities is partly
an outgrowth of globalization, with its
“footloose” capital, says Sarah Moser, a
MATILDE GATTONI/PHOCALMEDIA

geographer at McGill University who’s

URBANIZATION

compiled a list of more than 100 such

projects. Governments looking to attract
large-scale cash inlows have learned that
large-scale projects can attract the atten- Masdar City, Abu Dhabi, 2013
tion of investors and foreign treasuries
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

well as its largest church, along with an

amusement park four times the size of
California’s Disneyland.
Because the Egyptian government
already owned all the land at the site,
there would be no money or time wasted
in having to piece together parcels from come through a developer in the United
diferent owners. Ayman Ismail, one of Arab Emirates, but after it backed out,
the project organizers, predicted in 2015 two Chinese state companies took its
trade, world heritage, and politics that El-Sisi’s commitment to the project place. The Chinese role has since been
and entertainment. would essentially guarantee its success. thrown into doubt, leaving the Egyptian
The plan was wildly ambitious, and “It will be a cash machine for Egypt for government and local companies to
the newly elected government ignored the next 50 years,” he told reporters. lead the initial construction. The irst
it. But in 2014, General Abdel-Fattah At irst, much of the inancing was to phase—a core of government offices
El-Sisi—who helped remove the Muslim
Brotherhood from power the previ-
ous year—was elected president, and
everything changed. Exactly one day
after taking power, El-Sisi invited Abdel
Mohsen into his oice, where the two
men bent over a binder illed with the
plans for the new capitals.
20 An authoritarian ruler who gets
things done, El-Sisi was the ideal patron.
Instead of breaking ground on seven
cities, Egypt’s president wanted to
start with just one—a metropolis about
45 miles east of Cairo that would serve
as the country’s administrative capi-
tal, housing the oices of the federal
government and eventually accommo-
dating as many as 7 million residents.
This concept wasn’t entirely novel.
Washington was similarly a purpose-
built capital, and in the 1960s there
was a spate of new government seats:
Brasília (Brazil), Chandigarh (India),
and Islamabad (Pakistan) among them.
El-Sisi’s project was diferent mostly in
terms of scale; he demanded the biggest
and the best of everything.
Using the previous blueprints as
a rough conceptual framework for
the project, the Egyptians hired the
Chicago-based irm Skidmore, Owings &
Merrill LLP to draw a new master plan.
It was a beauty. Early models showed
URBANIZATION

RENE BURRI/MAGNUM PHOTOS

lush palm trees and vast parklands

stretching between towering skyscrap-
ers. At the center sat a green rectangle
twice the size of Central Park. The city Brasília, 1960
would boast Africa’s largest mosque as
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

out in Washington, he wasn’t thinking

along with thousands of housing units,
mostly apartments and some villas—is
well under way. Residents are expected
to start moving in next year, and already
government ministries have begun the
relocation process.
Even though more than 100,000 con-
struction workers have toiled at the
site, the project still has an under-the-
radar element to it. “There are people
in Egypt who don’t even know this
exists,” Abdel Mohsen says, “and many
who, when they hear of it, think it’s an
impossible dream.”
Some think it’s a foolish one, too.
They ask: Can Egypt really aford an
Emirati-style development when the
country’s per capita gross domes-
tic product is about 8 percent that of
Dubai? And what’s the long-term envi-
ronmental cost of pumping water out
to the desert to keep all that greenery
alive? And is El-Sisi trying to preempt
the possibility of another popular upris-
ing by distancing the seat of government
from the bulk of the population?
All this is fodder for debate, but one
thing everyone seems to agree on is
that the expectations for Egypt’s new
administrative capital have been set
incredibly high. Even advocates inside
the new-cities movement warn that
unrealistic aspirations can undermine a
development’s long-term prospects for
success. “You have to be realistic and
see what people really need,” says Tim
Beighton, head of marketing and com-
munications for Rendeavour Holding
Ltd., a company investing in several
of the new-city projects throughout
Africa. “You can’t go build the Hanging
Gardens of Babylon.”
To design the city of tomorrow, you
about the automobile, much less rush-
hour traic jams. And look at Brasília.
They dubbed it the “City of the Future”
in 1960, but all that brutalist architec-
ture makes it look dated today.
Just 10 years ago, the United Arab
Emirates launched an ambitious proj-
ect called Masdar City outside of Abu
Dhabi. It was slated to be the world’s
irst zero-impact city, with no emissions,
no waste, and no cars. The govern-
ment designed an electric personal
rapid transit system, or PRT, featuring
small transport pods that zip people be-
tween hundreds of station stops. Not
all of the innovations rely on modern
technologies: A 45-meter-tall tower
harvests cooling breezes and pushes
the air through the narrow city streets.
Planners predicted the city would
accommodate up to 50,000 residents
and 40,000 daily commuters by 2018.
Then came the global inancial cri-
sis, and things got real. Today about
5 percent of the city is built. Just two 21
of the PRT stations are operational,
and the site’s managers have pub-
licly acknowledged that they didn’t
anticipate that advances in electric-car
technologies would make their vision-
ary transport system almost instantly
passé. Population targets have been rad- and restaurants and clubs that occupy
ically reduced: The revised estimate is the spaces left blank.
for 3,500 residents by 2020. (Fewer than Once upon a time, even chaotic Cairo
2,000 live there now.) was considered a visionary utopia.
Just because Masdar City hasn’t lived Before the year 969, it was little more
up to aspirations doesn’t mean it’s a than an abandoned plot of land near the
failure. It serves an important function city of Al-Fustat. Then a general named
as a laboratory where the government Jawhar came along and strong-armed a
and private-sector partners can test development project that aimed to relo-
green technologies. Mitsubishi Group, cate the caliphate’s palaces to the site.
Schneider Electric, and Siemens all The plans were lovely, and construc-
have facilities on-site. tion went smoothly. One visitor in 1167
The same could be said of a lot of marveled at the city’s lush gardens and
these places: They shouldn’t be judged crystalline water channels: “It was so
according to their original intentions, beautiful, so pleasant to the eye, that
which too often get oversold to bait inves- the most preoccupied man would have
tors. Cities are organisms that undergo stopped to look at it,” he wrote.
constant evolutions, inevitably respond- And so the cycle of a city’s life
URBANIZATION

probably should have some inkling
of what tomorrow will look like. In
the 18th century, when Pierre Charles
L’Enfant designed all those statue-
bearing circles with streets spoking
ing to stresses in ways planners can’t
predict. The most vibrant part of Brasília
today isn’t the faux-futuristic corridor of
government buildings that dominated
the city plans; it’s all the neighborhoods
begins, with order eventually giving way
to chaos, until one day it begets a gener-
ation of planners who dream of nothing
more than wiping the whole mess away
and starting over. 
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Xiongan, China
PROJECTED
ANNOUNCED POPULATION KEY BACKER
○ Chinese
2017 3m-5m government

○ Located in Hebei province, Xiongan elements of the new city will be

is a pet project of Chinese president Xi
Jinping and therefore enjoys Beijing’s
full political and financial backing.
Like Shenzhen and Shanghai, it’s
been designated a special economic
zone, which means local authori-
ties will have autonomy in designing
policies to attract investment. While
greenfield development, substantial
demolition will be needed to make room
for new structures. A Morgan Stanley
report from 2017 estimated the cost of
relocating the area’s current residents
and building new infrastructure would
total about 2 trillion yuan ($287 billion)
in the irst 15 years.

In initial plans, Planners chose to locate Xiongan at the center of the emerging
Xiongan Jing-Jin-Ji megaregion, an area the size of New England that’s
had a relatively home to 120 million people. The city forms the third point of a
modest footprint triangle with Beijing and Tianjin.
22 of 100 square
kilometers. It’s now
expected to expand
to 2,000 square
kilometers.

INFRASTRUCTURE
A high-speed-train
line between Beijing
and Xiongan is
expected to be
operational by
late 2020, cutting
travel time to about
30 minutes. State-
URBANIZATION

owned China
Southern Airlines
XINHUA/POLARIS (2)

Co. plans to start

a new carrier to
serve the city.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

New Cairo, Egypt

This new administrative capital is going
up on government-owned land about
40 kilometers east of Cairo.

ATTRACTIONS
The master plan
calls for a theme
park four times the
size of California’s
Disneyland, an
airport larger
than Heathrow,
and a 91-square-
kilometer solar
farm.

23

PROJECTED
POPULATION

5m
ANNOUNCED KEY BACKER
○ Egyptian
2015 government

○ This is perhaps the most ambitious

of several megaprojects launched
by Egyptian President Abdel-Fattah El-
Sisi in an efort to reboot the economy
and leave his mark on the most-
populous Arab nation. The multiphase
project envisages transforming a capital, El-Sisi hopes to reverse a sharp to create 2 million jobs. Meeting the
URBANIZATION
SIMA DIAB/BLOOMBERG (2)

700-square-kilometer swath of desert
into a hub for Parliament, government
ministries, foreign embassies, and
major companies, easing pressure on
traffic-choked Cairo. With the new
decline in foreign investment following
the 2011 popular uprisings that toppled
the regime  of Hosni Mubarak and
ushered in several years of political
instability. The project is supposed
water demands of the new capital will
require siphoning supplies from nearby
satellite cities. Even so, the United
Nations anticipates New Cairo will have
water shortages by 2025.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Eko Atlantic, Nigeria ○ Eko Atlantic is being built on

10  square kilometers of reclaimed
land of the coast of Lagos’s wealth-
KEY BACKERS iest district, Victoria Island, under a
PROJECTED ○ Nigerian partnership between Nigeria’s gov-
ANNOUNCED POPULATION government ernment and a subsidiary of the
○ South Energyx Chagoury Group, a local conglomerate.
2008 250k Nigeria Ltd. Computer renderings depict glittering

24
PHOTOGRAPH BY ANDREW ESIEBO FOR BLOOMBERG BUSINESSWEEK (2); COURTESY EKO ATLANTIC (AERIAL)

PROTECTION FOR SOME

Eko Atlantic is ringed by an 8-meter-
high sea wall. Critics have called the
project an example of climate change
apartheid, warning that dredging
will increase soil erosion and damage
from storm surges in surrounding
poor communities.
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

office towers, luxury apartments, a

shopping boulevard, and a dedicated
electric grid—all the makings of a mod-
ern metropolis it for a country vying
with South Africa for the title of the con-
tinent’s biggest economy. The project
is meant to address two pressing prob-
lems: Lagos, with a population of some
21 million, has no room to expand. It’s
also sinking.

The Marina
District is framed
by three towers
that will house a
mix of residential
units and
businesses.
25

The sea wall has been dubbed the Great Wall of Lagos.
URBANIZATION
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Yachay, Ecuador
PROJECTED
○ The project was conceived under ANNOUNCED POPULATION KEY BACKER
former President Rafael Correa as a ○ Ecuadorian
way to transform Ecuador into a full-
fledged knowledge economy, easing
2013 125k government

its dependence on exports of bananas,

shrimp, cut lowers, and oil. (Yachay
means “knowledge” in Quechua, one
of several native languages spoken in
Ecuador.) The backbone of the devel-
opment, which carries a price tag of
more than $1 billion, was to be Yachay
Tech University, a small state-funded
institution modeled after Caltech. The
site’s remote location and funding
shortfalls, along with a change in gov-
ernment, have turned Yachay into a
white elephant. Construction of univer-
sity buildings has almost stopped, while
much-anticipated corporate invest-
ments, including a pharma-production
facility and a megafactory for electric
26 cars, never materialized.

FUNDING GAP
Starved for revenue, Correa’s government
pledged oil shipments to China in exchange for
loans. As part of the deal, Chinese contractors
Yachay’s location
were brought in to work on public projects,
in an isolated
including Yachay. Inspections carried out by
agricultural area
the current administration have revealed that
near the border
several of the buildings on the university’s
with Colombia has
campus are structurally lawed, necessitating
been one obstacle
some $50 million in repairs.
to its development.

PHOTOGRAPHS BY ALEJO REINOSO FOR BLOOMBERG BUSINESSWEEK

URBANIZATION
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Forest City, Malaysia

NOT SO GREEN
Forest City has
been touted
as an “eco”
project, despite 27
the devastating
impact of land
reclamation and
the destruction
of mangroves, as
well as the lack
of biodiversity
in its manicured
lawns and gardens.

ANNOUNCED

○ China’s leading property developer

has teamed up with a Malaysian sultan
2014 KEY BACKERS
to build a private, gated city on arti- PROJECTED ○ Country
icial islands in Malaysian territorial POPULATION Garden Holdings
waters 2 kilometers of the coast of ○ The Sultan
700k
PHOTOGRAPHS BY ORE HUIYING FOR BLOOMBERG BUSINESSWEEK

Singapore, putting the project in close of Johor

proximity to one of the world’s busi-
est shipping routes. Residential units
in the $100 billion development are
being marketed primarily to Chinese
nationals as an investment opportunity
and a chance to escape the pollu-
took oice as prime minister in May,
has threatened to block foreign buyers
from obtaining a visa. This has thrown
the project into turmoil, slowing its
progress and prompting its managers
URBANIZATION

tion that chokes the big cities on the
mainland. That’s provoked a backlash
among many Malaysians who view
Forest City as an example of Chinese
colonialism. Mahathir Mohamad, who
to rebrand Forest City as open for all.
That’s just as well since Beijing’s eforts
to clamp down on capital light have
curbed demand for the luxury apart-
ments and villas.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Rawabi, West Bank

ANNOUNCED

2010 KEY BACKERS

○ Massar
PROJECTED International
POPULATION ○ Qatari Diar
Real Estate
250k Investment Co.

28

○ Rawabi is the irst master-planned

city in the West Bank and a remarkable
political statement in the context of
ABBAS MOMANI/AFP/GETTY IMAGES (2); HIGHLIGHT FILMS /THE WASHINGTON POST/GETTY IMAGES (AERIAL)

Israel’s building spree in the occupied

territories. The $1.4 billion project was
conceived by Bashar Masri, a billionaire
Palestinian-American developer, as a Masri persuaded
means for creating jobs for Palestinians foreign brands
and to relieve a pressing housing short- including
age. The design favors pedestrians over Wrangler, North
cars, allowing for greater building den- Face, Vans, and
sity. While Rawabi is going up on land MaxMara to open
governed by the Palestinian Authority, stores in Rawabi,
the access road into the city as well as hoping to lure well-
other infrastructure traverses Israeli- of Palestinians
administered territory. Negotiations who usually travel
over water have been particularly to Jordan to do
vexed: Under the current arrange- their shopping.
ment, supplies are only suicient for
about 5,000 people. This has efectively
capped the city’s population, which
now hovers below 4,000.
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

A Roman-style amphitheater seats

15,000. The city also boasts a winery, an
equestrian center, bungee jumping, and
a zip line.

29

DESIGN OUT OF REACH?

One knock on Rawabi is
URBANIZATION

that it’s too expensive for

regular Palestinians. Prices
for residential units start at
around $70,000 and top out
at $180,000.
 03
31

TRADE
Remaking the
world order
CHINA DAILY/REUTERS

Workers inspect shipping containers in Jinzhou, China

 THE CHINA EFFECT
By Tom Orlik

32

T en months after President Donald Trump launched

the irst volley in a tarif war, the path to a future
of free and fair trade looks increasingly narrow. On
one side, rising protectionism in the U.S. threatens to
undo decades of progress in dismantling barriers to
commerce. On the other, China’s increasingly muscu-
lar industrial policy raises concerns that Beijing will
spare no efort or expense to give national champions
Chinese Foreign Trade
the edge over international rivals. Minister Shi Guangsheng signs
The origins of the current impasse go back to Nov. 10, the WTO accession documents
2001. On that date, at a meeting of the World Trade
Organization in Doha, the club welcomed China as its
143rd member. Hailing the decision, then-President
Jiang Zemin promised China would “strike a carefully
thought-out balance between honoring its commit-
ments and enjoying its rights.”
HUSSEIN MALLA/AFP/GETTY IMAGES

Behind the decision to admit China into the WTO

was a U.S. high on post-Cold War hubris. The red
menace had been consigned to the dustbin of history.
TRADE

Intellectual agreement on the beneits of free trade

appeared unchallenged. China seemed committed,
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

if not to a democratic transition, at least to a pro-

market transition. WTO entry, it was hoped, would
lock in Beijing’s reforms and bind China into the U.S.-
dominated global system.
Early results were positive. In China soaring exports
drove years of double-digit economic expansion, lift-
ing hundreds of millions of people out of poverty.
International companies tapped the country’s low-cost
workforce to cut production costs and raise proitabil-
ity. Global growth accelerated, rising to an average
of 4.5 percent from 2002 to 2008, up from 3.5 per-
cent from 1995 to 2001. Global trade growth picked up
from an annual average of 6 percent in the seven years
before China’s WTO entry to 14.7 percent from 2002 to
the outbreak of the inancial crisis in 2008.
But problems were brewing.FIG. 1 China’s overseas
sales boomed, yet its assembly lines remained depen-
dent on components imported from Taiwan, South
Korea, and Japan. Beijing policymakers worried that the 33
country risked becoming stuck in the low-value-added
end of the supply chain.
In the U.S. and Europe, blue-collar workers found
themselves displaced by low-cost imports. One study
estimated that from 1999 to 2011, as many as 2.4 mil-
lion U.S. jobs were lost to China. With automation and
a declining role for unions compounding the efect,
wages for low- and middle-income earners stagnated.
Stateside, a populist backlash gathered force, fed by
the wave of home foreclosures and layofs unleashed
by the inancial crisis. The dynamics that propelled
Trump into the White House were complex. But
blue-collar anger about free trade and the impact
DATA: BLOOMBERG ECONOMICS, INTERNATIONAL MONETARY FUND

FIG. 1 Before China China’s entry into The Great Recession

Year-over-year entered the WTO the WTO to the Great to Trump’s election
change in value Recession 50%
of exports
China World
0
TRADE

-50
1/1994 4/2018
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

of Chinese competition on U.S. jobs, as well as fear

about China’s rise as a world power, were persistent
themes in the campaign.
American presidential candidates bashing China was
nothing new: Clinton, Bush, and Obama had done the
same. With Trump, rhetoric became reality. As of late
October 2018, the U.S. had imposed 25 percent tarifs
on $50 billion in Chinese imports and 10 percent tarifs
on an additional $200 billion. Duties on the $200 bil-
lion are set to rise to 25 percent at the start of 2019, and
Trump has threatened to hike tarifs on the entirety of
China’s $505 billion in sales to the U.S.
In China, the combination of weak global demand
and local companies’ slow progress in bringing pro-
ductivity to the levels in the U.S., Japan, and Europe
dragged export growth to a standstill in the aftermath
of the inancial crisis. The country’s share of the global
market for high-tech exports, which had been rising
34
consistently from 2001 to 2010, plateaued. FIG. 2
Not content with a role as the world’s factory, Share of global GDP
100%
oicials in Beijing began a series of initiatives aimed China
at making China the world’s robotics workshop,
China
semiconductor foundry, and new-energy-vehicle
production line. Those plans, culminating in the 2015
publication of the “Made in China 2025” program, U.S.

it squarely within an East Asian tradition of leverag- U.S.

ing industrial policy to accelerate the manufacturing
sector’s advance. Even so, they rang alarm bells for
the U.S., Germany, Japan, South Korea, and Taiwan—
economies that dominate the sectors China targeted. European 50
European
Chinese competition had already displaced foreign Union
Union
companies in low-margin operations such as the man-
ufacture of clothing, shoes, and toys. If the 2025 plan
*BASED ON IMF FORECASTS; DATA: IMF, BLOOMBERG ECONOMICS

Japan
succeeded, remaining bastions of comparative advan- Japan
tage would face a fresh challenge.FIG. 2
Heading toward the 20-year mark, then, the factors
that drove China’s WTO accession have swung into Rest of
Rest of the world
reverse. The U.S. accounts for a shrinking share of the the world
global economy, while questions have arisen about the
TRADE

intellectual framework that underpinned support for 0

free trade, with a new focus on the costs for the losers. 2001 2018*
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Meanwhile, China’s 1990s commitment to pro-market

reforms has segued into an activist industrial policy,
testing the limits of WTO rules.

CHINA 2025 AND THE RETURN

OF INDUSTRIAL POLICY

“Since the beginning of industrial civilization, it has

been proven repeatedly by the rise and fall of world
powers, that without strong manufacturing, there is no
national prosperity.” Those words are drawn from the
preamble of Made in China 2025. Back in 2015, when
China’s State Council released the policy blueprint,
it didn’t get a lot of attention outside of specialist cir-
cles. Three years later, with fears about China’s sudden High-speed trains in Wuhan,
rise spurring a protectionist backlash in the U.S., it has Hubei province
started to get a lot.
Implicit in the plan is the idea that the world is in
the middle of a Fourth Industrial Revolution—a con- 35
luence of industrial robots, artiicial intelligence, big
data, and cloud computing remaking manufacturing.
In the view of China’s industrial planners, domestic
factories are “large but not yet strong.” By attempting
to gain an edge in new technologies and integrating
them into the manufacturing supply chain, China
2025 aims to solve that problem.FIG. 3
The plan identiies 10 key sectors: advanced infor-
mation technology, digital control machine tools
and robotics, airplanes, ocean equipment and ship-
ping, rail-transportation equipment, new-energy
automobiles, electric-power equipment, agricultural
equipment, new materials, and biopharmaceuticals
and medical equipment. The aim is to boost research
and development and production capacity to displace
foreign with domestic components. Add it up, and it’s
the most ambitious attempted market grab the world
has seen, with everyone from German automakers to
Taiwan’s semiconductor fabs standing to lose out.
China’s industrial planning isn’t out of line with the
XINHUA/POLARIS

TRADE

development strategy of other manufacturing pow-

erhouses. Japan’s rise to dominance in industries
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

FIG. 3

SECTOR 2025 TARGET POLICY

Advanced rail Share of revenue from Subsidies for state-owned giant China Railway
transportation equipment 40% other countries Construction Corp.; “Belt and Road” initiative

Automation and robotics Domestic market share Subsidies to manufacturers and end users
70%
New-energy vehicles Domestic market share Subsidies to electric-vehicle makers; purchasing
80% mandates for government leets

Aerospace and Domestic market share Set up Commercial Aircraft Corp. of China; prod
aeronautical equipment 10% local airlines to buy Chinese-built aircraft

Maritime equipment Global market share More funding for research projects and
and shipping 40% investment in national research centers

Advanced information Domestic market share National and local funds provide billions of yuan
technology 50% in subsidies

Power-generation Domestic market share Direct government purchases

equipment 90%
Agriculture equipment Domestic market share Subsidies and tax exemptions; establishing
36
95% national research centers

New materials Domestic market share Money for major research projects, subsidizing
90% startups, and setting up industrial funds

from automobiles to home electronics wouldn’t

have happened without the strategic vision of the
industrial planners at the Ministry of International
Trade and Industry. And while governments in the
U.S. and Europe have tended to be more hands-of,
there’s public funding for science and technology,
along with a vision—albeit often vague—for advancing
competitiveness.
What stands out in the case of China’s 2025 plan are
three factors:
○ Scale of government support. With investments
from central and local government, state banks, and
state enterprises, funding for China 2025 is consider-
DATA: BLOOMBERG ECONOMICS

able. The value of China’s mergers and acquisitions

in the technology sector involving non-Chinese com-
TRADE

panies from 2015-17 was $35 billion, almost four times

higher than in the previous three-year period. The
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Ministry of Industry and Information Technology has

allocated $1.5 billion to support target industries. In
comparison, Germany has allocated $230 million to its
FIG. 4
“Industry 4.0” program.FIG. 4 Completed overseas deals*
○ Testing the limits of fair competition. A report by Chinese companies
released in March by the U.S. Trade Representative in sectors related to the
Made in China 2025 plan
ran through a litany of charges, adding up to the ac-
cusation that China isn’t playing fair. The 215-page
document concludes that China is deploying a well- 300
inanced strategy to “displace” foreign companies and
“undermine the global trading system.”
○ China’s size and politics. Taiwan, South Korea, and
even Japan could transform themselves into industrial
powerhouses without testing the global balance of 150

power. China, with its population of 1.4 billion, has to

climb only a little further up the development ladder
to overtake the U.S. as the world’s biggest economy. As
a single-party state and a geopolitical rival to the U.S., 0
China will challenge the global order as it becomes the 2008 2017 37
economic leader.
2017 deals by sector
WINNERS AND LOSERS FROM CHINA 2025
Technology 122
Consumer, noncyclical 88
As the rapid growth of China and its East Asian neigh-
Industrials 58
bors demonstrates, industrial policy can be brutally
Communications 57
efective. But there’s no shortage of failed projects
Consumer, cyclical 24
and wasted investment to demonstrate that it can also
Energy 15
go awry. Subsidies for infant industries can kick-start
Multiple sectors 1
development. They also can lead to overcapacity, low
proits, and limited resources for needed investments.
That’s what happened in China’s solar industry and
*INCLUDES MERGERS AND ACQUISITIONS, JOINT VENTURES, AND INVESTMENTS

may be happening again in robotics.

At a macro level, China’s attempt to catch up with
global technology leaders continues to show steady
progress. Spending on research and development
rose to 2.1 percent of gross domestic product in 2016,
up from 0.9 percent in 2000. In dollar terms, only the
DATA: BLOOMBERG ECONOMICS

U.S. spends more. The country is climbing in global

rankings. In 2010, China ranked 43rd in the Global
TRADE

Innovation Index, a joint efort of Cornell University,

INSEAD, and the World Intellectual Property
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Organization. In 2018 it had risen to 17th, making it

the highest ranked middle-income country.FIG. 5
At a sector level, prospects sharply difer across the
10 areas targeted as part of the 2025 plan. In some,
such as rail-transportation equipment, China already
dominates at home and is making inroads in the global
market. In robotics and others, the gap between
domestic and global companies remains wide, and
progress toward closing it has been halting—China’s
unit purchases of industrial robots hit a record in 2017,
but domestic suppliers saw their share fall.
Three data-driven approaches provide a guide to
where Chinese companies are catching up with global
leaders and where they’re not:
○ Patent applications. In most of the sectors tar- FIG. 5
China outperforms
geted in China 2025, the country has increased its on innovation
share of patent applications over the past decade, 100%

with progress in next-generation information tech-

nology especially rapid.

Global Innovation Index score, 2018

38
○ Trade. In shipping, power equipment, and rail South Korea
equipment, China has picked up signiicant global mar- U.S.
Switzerland
ket share. In engines, medical equipment, and nuclear U.K.
reactors, it’s gained a little. Elsewhere, progress is China
Japan
more limited.FIG. 6
○ Revenue. In sales of rail equipment and new-
energy vehicles, Chinese manufacturers have already
overtaken global leaders; they’re catching up in mar- Germany

itime equipment, power generation, information

technology, and biopharma and medical products;
for the remaining sectors, the gap is wide and not
0
being closed. 0 Real GDP per $120k
DATA: WORLD BANK, CORNELL UNIVERSITY, INSEAD, WORLD INTELLECTUAL

Viewed together, these three gauges suggest con- capita, 2017

cerns about China’s activist industrial policy may be
overblown. Even so, it’s worth asking who has the most
PROPERTY ORGANIZATION, BLOOMBERG ECONOMICS

to lose if the country succeeds in its ambitions. Based

on an analysis of data compiled by the International
Trade Center—an agency of the WTO—Germany,
South Korea, and Taiwan stand out as the most ex-
posed. All have a combination of high dependence
TRADE

on exports and a substantial presence in the sectors

Made in China 2025 is targeting. German autos,
 ENERGY
FOR LIFE
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 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

FIG. 6
China’s exports as a share of the global
total in key sectors*
20% Ships
Generators, electrical equipment

Control instruments
10
Trains

Engines
Medical instruments
Nuclear reactors
Airplanes
Autos

2001 2017

South Korean electronics, autos, and shipping, and

40
Taiwanese electronics all face a competitive threat
from China’s push.
Japan, the U.K., France, Italy, and Spain are some-

*EACH EXPORT SHOWN CORRESPONDS TO A SECTOR OF THE MADE IN CHINA 2025 PLAN. DATA: INTERNATIONAL TRADE CENTRE, BLOOMBERG ECONOMICS
what less exposed. They have a lower dependence on
exports and a smaller presence in the sectors China
has set its sights on. Automobiles in Spain and Japan,
engines in the U.K., airplanes in France, and electron-
ics in Japan are among the most vulnerable industries.
The U.S. has the least to fear, because of its low
dependence on exports and relatively limited presence
in vulnerable sectors. One exception is airplanes, but
so far China’s plans to incubate domestic rivals haven’t
gotten of the ground. Ironically, Trump’s America-irst
trade policy may end up being a bigger help to China’s
other competitors than to the U.S.

ASSESSING THE COSTS OF A TRADE WAR

Relations between Trump and President Xi Jinping

started nicely enough. At an April 2017 summit meeting
the two leaders enjoyed chocolate cake, promised a 100-
TRADE

day plan to tackle trade imbalances, and made positive

noises about a joint approach to North Korea.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

The bonhomie lasted longer than the dessert,

but not much. Underscoring the change in the mood,
in May 2017 Trump appointed Robert Lighthizer as
chief trade negotiator. In the 1990s, Lighthizer—then
a lawyer in private practice—opposed China’s entry
into the WTO.
China’s attempts at conciliation, including opening the
door to foreign ownership in banking and autos, prom- Trump and Xi at Mar-a-Lago in 2017
ising greater protections for intellectual property, and
even pledging extra purchases of U.S. beef, poultry, and
liqueied natural gas to reduce the trade deicit, proved
inefective. In July 2018 the Trump administration im-
posed 25 percent tariffs on $34 billion in Chinese
exports, swiftly following that with an additional $16 bil-
lion. As of late October, the U.S. had imposed tarifs on
$250 billion in Chinese imports—almost half of the total.
And Trump has threatened higher tarifs, applied to an
even wider range of goods.
42
It would take much more to bring tarifs back to lev- FIG. 7
els triggered by the infamous Smoot-Hawley tarif act, Average U.S. tarif on
dutiable imports
which deepened the Great Depression.FIG. 7 Yet the tar- 60%
ifs are already high enough to dent China’s growth and
blunt the impact of Trump’s tax cuts in the U.S.
What happens to the global economy if the trade war 30
escalates? There are two main channels through which
it could hamper growth.
○ Real economy. Higher import costs drive up 0
inlation, squeezing the purchasing power of house- 1900 2010
holds and dragging consumption down. Businesses
respond to weaker demand by lowering investment
spending, exacerbating the downturn. In the medium
term, productivity growth slows as fewer of the bene-
its of trade openness are captured.
○ Financial markets. The trade war threatens to be
a signiicant drag on corporate earnings. A sustained
slump in equity prices would deal a blow to household
DATA: U.S. DEPARTMENT OF COMMERCE

wealth and conidence—curbing consumer spending. It

would also raise the cost of capital and dent business
CARLOS BARRIA/REUTERS

conidence, damping investment.

TRADE

Based on this thinking, we map out four possible

scenarios:
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

SCENARIO 1 SCENARIO 2 SCENARIO 3 SCENARIO 4

$250 billion
and done
The current U.S. tarifs
on $250 billion in Chinese
imports are expected to
slow China’s GDP growth
by 0.5 percentage point in
the year ahead. The impact
will be greater if the U.S. fol-
lows through on its threat
to raise tarifs on the lat-
est $200 billion tranche to
25 percent from 10 percent,
efective Jan. 1.
Because of the substantial
role imported components
play in China’s exports—
accounting for about a third
of the total—the pain of tar-
ifs will be spread around,
with South Korea, Taiwan,
and Japan also taking a hit.
Chinese tarifs cover
$110 billion in U.S. goods,
and on average are set at
a lower rate than U.S. tar-
ifs on Chinese goods. The
impact on GDP will likely
be masked by the efects of
the Trump administration’s
$1.5 trillion tax cut. FIG. 8
$250 billion plus
market slump
To gauge the efects of a
drop in U.S. equity prices
on the world economy,
we applied a global vector
autoregression model that
captures the historical eco-
nomic relationships among
33 countries.
The negative impact
of a 10 percent decline in
equity prices on U.S. GDP
growth could be as much
as 0.4 percentage point in
2019, with world output
growth slowing by 0.2 per-
centage point.
China would probably
emerge relatively unscathed
from a U.S. equity slump.
The correlation between
U.S. and Chinese stock
prices is low, relecting the
limited openness of Chinese
inancial markets to global
investors. Equity markets
also play a limited role in
China’s inancial system.
10% on
everything
What if the trade war really
escalates? NiGEM, a model
of the global economy
developed by the London-
based National Institute
of Economic and Social
Research, provides a means
to estimate the impact
on growth.
Assume the Trump
administration puts a
10 percent tarif on all im-
ports to the U.S. and the
rest of the world responds
in kind. By 2020, U.S.
GDP would be 0.7 percent
lower than if there were no
change in tarifs. Output for
China and for the world as
a whole would be lower by
0.3 percent.
The smaller impact on
China and the world relative
to the U.S. relects the fact
that, in this scenario, trade
between China and non-U.S.
nations is not afected.
10% on everything
plus market slump
Combining the impact of a
slump in equity prices and
a drag on the real economy,
by 2020 U.S. output would
be 1.5 percent lower than
if no tarifs were imposed.
Global output would be
lower by 0.7 percent.
For China, the equity
impact would again be neg-
ligible, relecting the limited
role of stocks as a source of
capital or store of wealth
in its economy and the low
correlation between U.S.
and Chinese stock prices.
43

Estimated impact
To be sure, the U.S. is not currently threatening FIG. 8 on China’s
10 percent tarifs on all imports, but rather directing its New U.S. GDP growth, in
tarifs on China percentage points
energies at China. A trade war could unfold in myriad
ways not captured here; inancial market reactions are
tough to predict, and a stimulus response from Beijing
First round ( July-Aug.) -0.2
or Washington could ofset any drag in growth. As of Sept. 24 -0.5
Even so, the costs of an escalating confrontation
could run high, and not just for China and the U.S. As of Jan. 1, 2019 -0.9
In an ideal world, such an awareness should moti-
vate nations to work together to dial down tensions Total threatened -1.5
DATA: BLOOMBERG ECONOMICS

and ind new rules of the road for the global trading
system, where commitments and rights for all partic-
TRADE

ipants are better in balance.  —With Justin Jimenez,

Qian Wan, Jamie Murray, and Yuki Masujima
 A DV E R T I S E M E N T

Enabling
Access to
Cleaner Air
Personal iltration solutions give citizens
more control over the air they breathe

Globally, the impact of poor air quality—

both at home and on the jobsite—is
More than 90 percent of the global population lives in places where air substantial. But a commitment to
quality exceeds World Health Organization limits, and the ine particles health and safety education and
they inhale cause a number of dangerous respiratory and pulmonary awareness, combined with personal
ailments. Even as countries like China and India recognize the importance protective equipment powered by
of adopting short- and long-term policy measures to meet this challenge cutting-edge science, can be a key
head-on, poor air quality still causes 8 million deaths annually. factor in economic development.

A Global Threat
Outdoor (ambient) and indoor (household)
air pollution are silent killers.

DEATHS FROM AMBIENT DEATHS FROM HOUSEHOLD — Nikki Vars McCullough, 3M

AIR POLLUTION AIR POLLUTION
Source: World Health Organization, 2016

Opportunity for Improvement

Each year, occupational accidents and work-related diseases
contribute to a loss in global GDP.

ECONOMIC IMPACT OF

–3.94% WORKPLACE SAFETY

Source: International Labour Organization, 2017

© 2018 3M. All rights reserved.

 04
45

INCLUSION
A simple way
to advance women

Schoolgirls in the village of Kachhpura in northern India

 INDIA’S TOILET REVOLUTION
By Jason Gale and
Bibhudatta Pradhan Photographs by
Anshika Varma

46

Meera Devi was an early adopter.

In 2007 the mother of three
took out a loan to pay for … not
an iPhone or a PC, but a squat
latrine, the irst in the village of
Kachhpura, located just across
INCLUSION

the river from the Taj Mahal.

Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

The majority of residents in the hamlet of 585 households used to relieve themselves
in this ield along the banks of the Yamuna River, until authorities restricted access
to improve cleanliness.

In 2013 the local government built pit latrines with cubicles for men and women. Because of the shoddy construction
and lack of running water, they quickly fell into disuse.
47

INCLUSION
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

A privy is a luxury most Westerners

take for granted but one the majority of
Devi’s neighbors—and approximately
100 million Indians—do without. Instead
they brave the elements, snakes, scor-
pions, and sometimes stick-wielding
farmers to relieve themselves in ields
“When a woman or
and forests and on riverbanks.
It’s a daily tax on personal dignity
that adds up to a huge cost for national
development. The World Bank has
estimated that India loses about 6.4 per-
cent of its gross domestic product, or
$166 billion annually, to gastrointestinal
infections and other health consequences
of poor sanitation. Chronically sick

48

Devi (right) wanted to spare

INCLUSION

her daughter the humiliation—and

disease—other village women have to
endure. Deepa, 23, is studying toward
a master’s degree in sociology at a
university in Agra.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

a young girl has to go outside, she feels

ashamed,” says Devi, 47, who’s persuaded more than 200
of her neighbors to install their own latrines.
“People would come to my house just to see the
toilet—mostly women and girls.”

49

INCLUSION
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

workers produce less, live shorter

lives, have less savings, and are less able
to send their children to university.
The burden is especially heavy on
women and girls. Most risk safety to
avoid shame, rising before the sun or
waiting until nightfall to defecate out-
doors, often with their children in tow.
Today, Devi is a toilet evangelist,
part of a grassroots movement of about
450,000 volunteers working in com-
munities across India. Their efforts
have backing at the highest political
levels. Four years ago, Prime Minister
Narendra Modi launched “Clean India,”
a $20 billion campaign that envisions

As part of its “Clean India” campaign, the government has built separate toilets for girls and boys at all primary public
schools. Unicef has commissioned a study of the sanitation drive’s efects on dropout rates for female students.

50
INCLUSION
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

51

“I couldn’t
accept any job
ofers
outside the
home,”
says Kiran Batham, 35, who
used to rise at 4 a.m. each
day and walk for a half-hour
to relieve herself in a ield, a
trip the mother of four was
forced to repeat several times
INCLUSION

a day with her children.

She and her husband had a
latrine built at their home
after seeing Devi’s.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

the largest toilet-building spree in

human history.
“The prime minister has put it at the
top of his agenda,” says Parameswaran
Iyer, who spent 13 years with the
World Bank before being lured from
Washington back to his native India
in 2016 to steer the sanitation push in
rural areas. “Public investment has
increased the conidence of the people
that this is serious.”
Clean India’s goal is to construct
110 million toilets by October 2019, a
deadline that coincides with the 150- Batham (right) has become a
year anniversary of Mahatma Gandhi’s community health worker and
birth. The freedom ighter was early to earns 1,000 rupees ($13.60) a month
grasp the privy’s disruptive potential, organizing workshops on topics
saying, “Sanitation is more important such as hygiene, breastfeeding,
than political independence.”
and vaccinations.

52
INCLUSION
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

53

INCLUSION

Batham consults with a visiting doctor. India’s sanitation crisis has created one of the world’s largest breeding grounds for
antibiotic-resistant infections that kill an estimated 60,000 newborns a year. Poor sanitation also is a leading contributor to
chronic malnutrition, which results in mental and physical stunting.
Driving World-Class Enterprise...
 05
TECHNOLOGY
55

The race for

AI supremacy
GENE BLEVINS/POLARIS

A Chinese-made robot at CES in 2017

 KAI-FU LEE
By Peter Elstrom Photograph by
Christaan Felber

The chairman and chief executive oicer of Sinovation Ventures says America’s
technology industry can’t aford to underestimate the artiicial intelligence com-
panies he’s funding in China. Lee, a Taiwan native, has spent most of his profes-
sional life in China, but he lived for a quarter-century in the U.S. before becoming a
venture capitalist, and he’s worked for Apple, Microsoft, and Google on one side of
the Paciic or the other. Lee spoke with Bloomberg Businessweek shortly before the
oicial release of his book AI Superpowers: China, Silicon Valley, and the New World
Order. His comments have been condensed and edited.
Why should Google and America’s other too many to browse, and its software The other thing the government did
AI leaders be worried about competition maximizes deliveries, so the delivery that’s been helpful is the infrastructure
from China? costs you well under $1 per order. investments. In China, the 3G, 4G cov-
A lot of people in Silicon Valley erage is better than in the U.S. Sure, in
assume if you’re a copycat, you’re What’s stopping an American quasi- U.S. cities, they’re great. But if you go
doomed for life. You’re never going counterpart such as Uber or Seamless into country areas, they’re not as good
to become a great innovator. China from doing the same thing? as in China.
has proven that wrong. Think about a It’s hard for any country to learn new
very smart, hardworking bunch of peo- tricks. The American way has been light What sorts of knock-on efects are those
56 ple with strong leadership and busi- on logistics, more into extracting rents kinds of investments having in the war
ness skills who just haven’t been in an from their software platforms and let- for AI supremacy between U.S. and
environment as lucky as Silicon Valley. ting someone else do all the ground- Chinese companies?
Being a copycat irst actually turned out level stuf. Someone such as Wang Xing My position is that China has more or
to be the best training ever. is willing to take on the really hard work less caught up in AI. The U.S. has certain
Think of it as a pyramid. For all these of hiring tens of thousands of delivery advantages, such as the best universities
copycats entering the base of the pyra- people, then managing them and mak- and, historically at least, immigrants
mid, most will not make it because they ing sure they’re eicient and on time. who want to come from all around the
never learn to build a good product. This is a messy job. world. China has other advantages,
But if you copy at the irst stage, then including more data, more support-
learn from the experience and make Maybe especially messy in China. ive government policies, and now very
your next startup better or your cur- Obviously the government hasn’t been shy good entrepreneurs.
rent product better, that’s a very formi- about trying to make things easier for tech
dable solution that Silicon Valley never companies. What are the most important What about the creepiness inherent in
thought possible. things it’s done in that regard? the state slurping up that much data
The biggest role the government and monitoring its citizens so aggres-
Is there a company that stands out? plays in China is through what I call a sively? It sounds like the road to dysto-
Wang Xing’s Meituan Dianping is one techno-utilitarian policy, which means pian science iction.
example. Here’s someone who copied letting technology companies have a The real issue facing mankind is
Facebook, Twitter, and Groupon. But try with as-yet-unproven technologies: not whether the U.S. is ahead or China
with Meituan, he igured out how to use Let them try it in some limited way and is ahead. The real issue is that AI will
technology and his business skill to turn then see what happens, and if it works, create so much wealth and so many
it into an innovative, proitable enter- let them push the limits and go into challenges—the replacement of jobs,
prise. He won the loyalty of merchants even gray areas—like letting Alibaba and privacy, security—that we really should
by building very good software. He also Tencent go into payments. Their Alipay work together on potential solutions. If
TECHNOLOGY

took control of the user experience, so
you can deliver food in a reasonable
period of time—20 or 30 minutes—and
the food will be hot when it arrives. You
can see 500, maybe 5,000 restaurants,
and WeChat services took the country
by storm. There’s no longer any room
for credit card companies. That spirit
matches the scrappy, fast execution of
entrepreneurs in China.
we don’t have good solutions, any one
of these issues can lead to disasters
larger in scale than any other disasters
in human history. We need to start pre-
paring now. 
Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

57

TECHNOLOGY
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 06
59

CLIMATE
Fighting for
air rights
SAURABH DAS/AP PHOTO

A farmer walks through smoke from the ire he set to

clear a ield at Chandhat, India
 CHINA AND INDIA VS. SMOG
By Eric Roston and
Andre Tartar
The sixth-
biggest cause
of death globally
is small-particle
pollution, chemical
specks that enter
the lungs and
60

can contribute to
cardiovascular diseases,
lung cancer, and infections.
It led to more than 4 million
deaths in 2016. Ninety-nine
percent of children 5 years
old and younger in South
and East Asia breathe
CLIMATE

unhealthy air.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

MAPPING THE MIASMA HOW THE WORLD’S CITIES STACK UP

Average PM2.5 level for Oct. 17-24, 2018 2016 average PM2.5 level in major cities*

New Delhi India 143

Kolkata India 74
Beijing China 73
Riyadh Saudi Arabia 73
Xi’an China 71
Beijing Tianjin China 69
Mumbai India 64
Chengdu China 63
Dhaka Bangladesh 57
Wuhan China 57
Chongqing China 54
New Delhi Shenyang China 54
Chennai India 49
Hangzhou China 49
Nanjing China 48
Bengaluru India 46
Shanghai China 45
Jakarta Indonesia 45 61
Hyderabad India 44
Ho Chi Minh City Vietnam 42
Lima Peru 39
Particulate matter no bigger than Foshan China 38
*CITIES OF 5 MILLION OR MORE INHABITANTS. DATA: OPENAQ, COMPILED BY BLOOMBERG; AIRVISUAL, IQAIR; WORLD HEALTH ORGANIZATION

5 276 2.5 millionths of a meter wide, or

Guangzhou China 36
Micrograms per PM2.5, is one of the most deadly
cubic meter forms of air pollution. Dongguan China 35
Los Angeles U.S. 33
Manila Philippines 29
THE BEIJING-NEW DELHI GAP Santiago Chile 29
Average daily PM2.5 levels at U.S. embassies Tehran Iran 28
Shenzhen China 27
200 Seoul South Korea 26
Hong Kong China 23
New Delhi
150 Mexico City Mexico 22
São Paulo Brazil 17
Paris France 16
100
Istanbul Turkey 15
Bogotá Colombia 15
Beijing 50 Moscow Russia 14
World Health Organization London U.K. 12
CLIMATE

standard Madrid Spain 10

0
1/2015 8/2018 New York U.S. 7
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

○ Much of China’s particulate pollution

comes from industrial facilities, especially
coal-burning power plants. In India, PM2.5 comes
not only from cars and coal-ired power stations, but
also from widely used domestic cookstoves and
the common agricultural practice of burning
CULPRIT: CARS
to clear ields.
Vehicles per 1,000 people, by Indian
state and union territory, 2015

Goa 555
Puducherry 494
New Delhi 428
Chandigarh 393
Tamil Nadu 326
Daman and Diu 315
Gujarat 302
Haryana 293
Kerala 272
D. & N. Haveli* 271 Vehicles per 1,000 people,
Karnataka 239 by Chinese province, 2016
Punjab 217
Maharashtra 215 Beijing 269
A. & N. Islands* 188 Zhejiang 246
62
Lakshadweep 177 Ningxia 211
Uttar Pradesh 174 Tianjin 195
Rajasthan 172 Shandong 193
Chhattisgarh 169 Jiangsu 191
Himachal Pradesh 153 Hebei 189
Madhya Pradesh 145 Inner Mongolia 187
Mizoram 144 Qinghai 176
Nagaland 142 Liaoning 171
Odisha 124 Guangdong 169

DATA: INDIA MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION; CHINA NATIONAL BUREAU OF STATISTICS
Manipur 120 Xinjiang 162
Arunachal Pradesh 116 Shanxi 160
Jammu & Kashmir 101 Tibet 154
Uttarakhand 101 Shanghai 145
Meghalaya 97 Jilin 145
Andhra Pradesh 90 Fujian 145
West Bengal 80 Shaanxi 143
Assam 78 Gansu 135
Tripura 75 Yunnan 134
○ India’s minister
*DADRA AND NAGAR HAVELI, ANDAMAN AND NICOBAR ISLANDS;

Sikkim 67 Henan 130

Jharkhand 62 for environment, forest, Chongqing 121
Bihar 47 and climate change has Heilongjiang 121
Hainan 120
shut down a coal-burning Sichuan 118
power plant, increased the Guizhou 113
number of street sweepers in the Hubei 113
Anhui 112
capital region to combat dust, and
CLIMATE

Guangxi 101
started an initiative to mechanize Jiangxi 101
the clearing of ields. Hunan 98
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

○ Nothing lifts a poor country’s

economy faster than heavy industry, but polluted
water and smog are the price a society pays. Eventually, those
costs—economists call them externalities—begin to undermine the very growth
they’ve brought. Government oicials are recognizing that dirty air isn’t just a
health hazard, it’s bad for business.

CULPRIT: COAL THE HIGH PRICE OF AIR POLLUTION

Share of electricity production from coal 1990 2013
80% China India
China
70 Deaths from air
pollution
India 60

50
1.6m 1.4m
40
1971 2015
Economic losses
from premature
deaths*
CULPRIT: COOKING 63
Cooking fuel use by percent
of population India China $1.6t $505b

Wood 49 27 Economic losses

Gas 29 31 from premature

deaths as a
share of GDP
Dung 8 0 9.9% 7.7%

Kerosene 3 0
*ADJUSTED FOR PURCHASING POWER PARITY (PPP). DATA: WORLD BANK; CLEAN COOKING ALLIANCE

Coal 1 29 Forgone
labor output*

Electricity 0 11
$45b $55b

○ To wean its Forgone labor

population of dirty fuel, India’s output as
a share of GDP
government has distributed more
than 700,000 solar cookers in recent
0.3% 0.8%
years and added more than 34 million
CLIMATE

residential gas connections, with

80 million more planned by 2020.
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

○ China’s bad air became a world-

wide story beginning in 2008, when U.S.
oicials started releasing air quality measure-
ments taken at the American Embassy in Beijing,
embarrassing their host nation. Traditional news
outlets and social media have provided dramatic
updates on what some of the worst air in the world
looks and feels like. This attention to the problem,
along with the worsening pollution itself, pushed
Chinese authorities to begin addressing the challenge. Power
plants switched from coal to natural gas; low-pollution
zones were established in and around Beijing;
stepped-up inspections led to tough penalties
for noncompliant polluters. As a result, for
days, sometimes weeks at a time, when
the rain falls or the great winds blow,
Beijing sees the sky.

64
2008
111
Micrograms per
cubic meter
Preparing for the 83
Olympics, the city takes 18th National Congress of the
measures to curb air Communist Party of China
pollution, including
FROM LEFT: CLARO CORTES/REUTERS; PHOTOGRAPH BY GILLES SABRIE FOR BLOOMBERG BUSINESSWEEK

closing heavy industry

sites and gas stations
*NO READINGS AVAILABLE FOR DECEMBER 2008 AND JANUARY 2009; DATA: U.S. EMBASSY

60
Beijing Summer Olympics

Average monthly PM2.5 reading at U.S. Embassy in Beijing

4/2008* 2009* 2010 2011 2012 2013

 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

Forbidden City, Beijing Beijing National Yire power

July 28, 2008 (left); October 29, 2018 (right) Stadium U.S. Embassy station

Gaojing coal-ired
power station

Beijing
Jingneng
power station

Great Hall of Huaneng power

the People station

2018 65

190
Second red alert issued

89 196 65
Beijing closes the irst First-ever “red” smog Final coal-ired power
of four large coal-ired alert leads to school and plant suspends operations
power plants factory closures

58
19th National Congress, at
93 which President Xi Jinping
Beijing closes two of the vows to “win the battle for
plants in the same week blue skies”

28
Lowest reading
on record
CLIMATE

3 2014 2015 2016 2017 9/2018

 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

○ While leaders are struggling to ix the systemic causes

of bad air, people can take steps to protect themselves. Masks and
respirators are common in Asia’s choking cities, but few can ilter out all
the particles and noxious gases hanging in the air. There are herbal med-
icines that purport to clean the lungs, as well as food, cosmetics, and
beverages that claim to counter the efects of pollution. Keeping win-
dows closed and running an air conditioner have been shown to cut
the inlux of dirty air indoors by half. But people with a personal
or family history of disease may
be better of leaving town—
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66
E-D7002-BU10- series
IND PM2.5

HAIR CARE
○ Kama Ayurveda
Bringadi intensive
hair treatment
○ Forest
Essentials hair ○ Honeywell
cleanser Move car air
puriier

SKIN CARE
○ The Body Shop
Vitamin C skin
boost
○ Dermalogica
charcoal rescue
DATA: AMAZON.IN; EUROMONITOR INTERNATIONAL, MINTEL

THE BEAUTY BUSINESS GETS DIRTY masque

○ Tresemmé
Global share of “anti-pollution” beauty Global demand for probiotic ○ L’Oréal Paris UV
Botanique Detox
products launched in Asia-Paciic ingredients in facial-care products Perfect sunscreen
and Restore
conditioner
○ L’Oréal
2015 28% 2016 8,600 tons
Women’s Serie
38% 10,400 tons
CLIMATE

Expert Prokerátin 2016 2022

Liss Unlimited The Asia-Paciic region accounts for
hair masque 90 percent of demand
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

CLEANER PROMISES ARMIES OF ELECTRIC VEHICLES

Carbon-intensity goals—the amount of CO2 emitted per unit Projected annual sales
of GDP—based on Paris pledges China India
16m
China India
60% to 65% below 33% to 35% below
2005 intensity by 2030 2005 intensity by 2030 12

2.18 0.62
1990 1990 8

0.56 0.3 4
2014 2014

0.33 0.25 0
2030 2030 2015 2040

RISING RENEWABLES
Projected sources of energy Projected sources of energy ○ Now that Indian
generation in China generation in India farmers have harvested
80% 80%
their fall crops, they
will clear their ields the
Solar 67
Solar traditional way—by burn-
40 40
ing them. The soot-thick
Wind Wind air hangs over northern India
during the winter, dramatically
Coal 0 Coal 0
exacerbating the cloud of toxins
2014 2050 2014 2050 already spewed by power plants,
factories, vehicles, and stoves.
China and India are being asked
to do something the West didn’t have
to: Modernize their economies while
reducing pollution. Both nations pledged in
the 2015 Paris climate agreement to reduce the intensity
of their greenhouse gas emissions by 2030. China’s electricity
generation from coal and its CO2 emissions are expected to peak
around 2030, more than a decade ahead of India,
DATA: UNITED NATIONS, WORLD BANK; BLOOMBERG NEF

according to Bloomberg NEF.

Clean-air policies have had a dramatic impact
on pollution in the U.S. and Europe since the
1970s. Asia’s giants are just setting out on
that journey.  —With Iain Marlow and
CLIMATE

Dan Murtaugh
How can businesses open new
corridors of international trade?

Can public-private solutions

narrow global inequality?

How can emerging economies

prepare for the AI revolution?

It will take a new community of leaders,

working together, to solve these
challenges and create a better future
for generations to come.

A new community for the new economy.

Singapore | 6-7 November

Follow live coverage and highlights:

Bloomberg.com/new-economy-forum
@NewEconForum
Bloomberg Television
 07
69

FINANCE
Bridging
the cash gap

Nairobi’s Gatina neighborhood

 CRYPTO IN KENYA
By Dune Lawrence
and Eric Ombok Photographs by
Natalia Jidovanu

70
FINANCE

Olum at her
wholesale
grocery shop
 Bloomberg Businessweek THE NEW ECONOMY November 5, 2018

At the Sifa Children’s Center, shacks made of

corrugated metal serve as classrooms for some
300 pupils, circling an expanse of dusty, hard-
packed earth that’s both playground and meeting
space. Beyond the school stretches Gatina, one
of the poorest neighborhoods in Kenya’s capital
of Nairobi. Headmaster Francis Wanjala is stand-
ing in an unused classroom studying his phone;
he’s just learned how to trade a blockchain-based
digital token.
Four years ago, Wanjala joined a local At the same time, about 20 percent of
experiment in economic development, parents now pay the fees for their chil-
agreeing to accept and use a so-called dren’s education in community cur-
community currency, paper vouchers rency. Fewer kids are dropping out,
that complement the official Kenyan according to Wanjala. “We as a school 71
shilling as a means of exchange within noticed that there were a lot of chal-
Gatina. At the start, the headmaster, lenges when it comes to paying school
and every teacher, got an allotment of fees, because most of the parents run
“Gatina-pesa” worth about 400 shillings small businesses,” he says. “Whenever
($3.93)—enough to pay for a simple fam- we have a parents’ meeting, we tell them
ily meal. They could then spend them about the community currency.”
at local businesses that had also signed Now, Gatina-pesa is going crypto,
on to use the vouchers. The school uses shifting from multicolored paper notes to
Gatina-pesa to buy vegetables, sugar, and a digital token based on blockchain, the
other ingredients for lunches. recordkeeping technology that makes
Bitcoin possible. The pilot program is
WHO’S BANKED funded by Bancor, a project based in
Share of the adult population Switzerland that operates a decentral-
With an account at a inancial institution ized cryptocurrency trading platform.
Who made or received digital payments in the past year Bancor raised $153 million last year sell-
ing its own digital token, making it one
of the splashiest of 2017’s so-called initial
coin oferings, attracting instant skepti-
Mexico cism from the many critics of crypto
DATA: THE WORLD BANK’S 2017 GLOBAL FINDEX DATABASE

Kenya euphoria. Some of that doubt seemed

South Africa justiied in July, when thieves stole some
Brazil $23.5 million from the ledgling Bancor
India Network (no customer wallets were
China breached, according to Bancor, and
U.S. $10 million was recovered). But the net-
Singapore work has processed more than $1.5 bil-
FINANCE

Japan lion in cryptocurrency trades so far.

Germany Bancor’s name is a clue to its grander
25% 50% 75% 100% economic ambitions—it’s a reference
 Bloomberg Businessweek THE NEW ECONOMY
to a currency conceptualized by John
Maynard Keynes in the 1940s to remake
the system of international trade. In
Kenya, the startup is working to prove
not only that crypto is useful for some-
thing besides speculation or illicit trade
but also that it can be the basis for inan-
cial inclusion and economic stimulus for
the poorest.
Despite the dominance of national cur-
rencies controlled by central banks, most
of us also use alternative currencies with-
out even realizing it. Think frequent-lier
miles. One of the longest-running exam-
ples is WIR Francs, which hotels, retail-
ers, and other companies in Switzerland
have used for business-to-business trans-
actions since the 1930s, helping insulate
them from currency shortages and vol-
atility. In general, though, governments
and traditional inancial institutions have
tended to view such experiments with
suspicion. The Austrian town of Wörgl
created its own vouchers in 1932, using
72 them to pay hundreds of unemployed
residents to complete projects, such as
road paving, for which the town didn’t
have enough oicial currency. The work-
ers in turn could spend their earnings
at local businesses. But the Austrian
government soon stepped in and made
it illegal.
Will Ruddick ran into similar resis-
tance after he started the community-
currency project that includes
Gatina-pesa about eight years ago. A
physicist-turned-development econo-
mist who’s originally from California,
he saw an opportunity to spur eco-
nomic activity in impoverished Kenyan
neighborhoods that were largely cut
off from the formal financial system.
In 2013 he launched the Bangla-pesa in
the sprawling Mombasa slum known as
Bangladesh. The government responded
by throwing him in jail on charges of
Ruddick, top forgery. Ruddick was able to make bail
left, rides with after two nights, and the charges were
Protus Wanzala, later dropped.
a motorbike Gatina, Bangladesh, and four other
driver who accepts communities now have their own pesa,
FINANCE
community or sarafu (the words for money and
currency as currency, respectively, in Swahili), and
payment for rides more than 1,200 businesses and schools
November 5, 2018
use them. Ruddick says the program
has brought concrete beneits to these
communities, including more students
staying in school because their par-
ents can pay the fees, better food secu-
rity because families can buy from the
local market with the vouchers, and
an increase in local trade, according to
user surveys.
The basic idea is that in communities
where cash incomes are low and often
sporadic, the vouchers can be used as
credits to keep the local commerce in
basic goods and services lowing. “We
are not trying to create a new currency,”
says Ruddick. “We are just illing a gap.”
Crucially, the system is supported by
agreement within the local community,
rather than facilitated by charging inter-
est, as in formal banking.
Elizabeth Olum, a slender woman of
30 who runs a grocery wholesale busi-
ness, has used Gatina-pesa since 2014.
“The community currency has been of
great value to me, because I am part of
a network, one family,” she says. “I have
acquired many customers, because if
someone has Sarafu and doesn’t have
enough shillings, they can pay part of
their purchase in Sarafu.”
Until now, these beneits have been
limited by geography. Olum couldn’t
buy vegetables with her Gatina-pesa
in markets in the Lindi and Kangemi
neighborhoods, which have their own
vouchers. As the number of people
and communities participating grew,
Ruddick began looking for a way to
scale up, adding liquidity and expand-
ing the market and economic impact.
This year he began working with Bancor
as its director of community curren-
cies. “I came to Bancor originally hop-
ing that they could provide a solution
for this situation we’re in: We’re start-
ing to get more and more of these cur-
rencies in Kenya. How do you link them
together?” he says.
Kenya has proven fertile ground for suc-
cessful new-money technology, leap-
frogging more developed economies
with the mobile money system M-Pesa.
Anyone with a phone can use M-Pesa to
pay for most anything in Kenya, solving
Bloomberg Businessweek THE NEW ECONOMY
Wanjala conducts one of the major barriers to produc-
a class in Gatina, tive participation in the formal inan-
where many families cial system: that millions of adults in
struggle to ind the Kenya don’t have a bank account. Last
cash for school fees year, about three-quarters of them had
a mobile money account.
In emerging markets such as Kenya,
the relatively shallow reach of traditional
inancial systems and institutions means
there’s less resistance to new finan-
cial technology, including blockchain,
according to Marina Niforos, an econo-
mist and author of a series of studies on
blockchain for the International Finance
Corp., an arm of the World Bank Group.
The new digital version of Kenyan
community currencies brings an M-Pesa-
like convenience to the complexities of
blockchain. Bancor developed the wallet
app to be simple, so it takes only one or
two clicks to do most things. The innova-
tion, invisible to end users, is the Sarafu
network token, a digital reserve cur-
rency. Now if Olum wants to venture into
the Lindi neighborhood to buy vegeta-
bles, she can pay in Gatina tokens, which
automatically convert to Lindi tokens.
To Wanjala, though, it looks very famil-
iar: “It works like M-Pesa.” Wanjala hap-
pens to have an Android smartphone,
November 5, 2018
but most Kenyans have older-model lip
phones. So Ruddick and the Bancor team
have developed a way to use the digital
tokens by dialing a code on any phone
and following a simple text menu.
From a technical perspective, the
most important hurdle is making a
blockchain system that’s workable for
small, daily transactions, such as the
sale of produce in a market in Gatina.
That would be challenging with the
original cryptocurrency, Bitcoin, which
depends on a decentralized global net-
work of computers engaged in a race
to win their owners more Bitcoin. Vast
electricity-sucking server farms in China
and Canada have been harnessed for
that task.
The new digital community curren-
cies work on a diferent open-source
system that Bancor helped to develop
called the POA Network. Transactions
on it are veriied by a group of licensed
notary publics in the U.S. who earn a
small, ixed commission for managing
the network. The community-currency 73
trades are recorded on their own sub-
network, then bundled together
and submitted to the main POA
Network to reduce transaction fees
FINANCE
 Bloomberg Businessweek THE NEW ECONOMY
(now about $0.0000019635, accord-
ing to Ruddick).
Bancor has so far put more than
$5 million into developing the Kenya
project, according to Galia Benartzi, a
co-founder of Bancor. Like many in the
crypto world, she speaks of remaking
the global inancial system. “The real
opportunity here with blockchain and
crypto is that we can build railways for
a inancial system which doesn’t rely
on so much proiteering to operate it,
which means that value can be redis-
tributed, reinjected to communities and
people,” she says.
“The community currency has been of great value
to me, because I am part of a network, one family”
Niforos, who’s also the founder of
Logos Global Advisors in Paris, cautions
74 that there are big risks to any blockchain
project at this stage. “I’m not trying to
be negative, because this is the kind of
experiment that I’d like to see happening
more,” she says. “What happens if this
protocol is unstable or it keeps having
security breaches? That doesn’t nullify
the great processes going on on the
ground. But what if they can’t guarantee
the technical platform or the governance
of the platform? Who’s responsible?
These risks need to be actively man-
aged from the start.” Such questions
could be asked of many crypto ventures.
But because Bancor users in Kenya are
especially vulnerable economically, the
stakes of getting it right are high.
Ruddick says a team of experts from
the nonproit Grassroots Economics
and local leaders work to ensure trans-
actions are functioning as they should.
For now, communities can decide if
they want to keep some of the paper
vouchers alongside the digital tokens.
And although the community curren-
cies can trade with one another on the
Sarafu network, they aren’t yet trad-
FINANCE
able for other cryptocurrencies, or for
shillings or dollars, so the prospect of
hacks or instability remains low. But it’s
November 5, 2018
there, even in a relatively closed sys-
tem. What if one community attracts
the bulk of trade for all of the now-
linked neighborhoods, sinking the
value of the others’ currencies?
Ruddick and the Bancor team are
working through all these issues, includ-
ing a way to bufer the value of one com-
munity currency if it’s sinking relative
to another, and a mechanism to build
collateral that’s tied to the currencies,
which could then be sold for regular,
oicial currency. In case the blockchain
the system is using becomes expensive
or obsolete, Bancor is developing bridg-
ing technology to allow tokens such as
the community currencies to migrate to
other blockchains.
Ruddick says going digital will make
some things simpler—no more printing
costs—and also make it easier to launch
more community currencies. The idea
is that anyone with goods and services
to trade can issue a token or crypto-
currency in what amounts to personal
credit creation. In the Sarafu network,
donors will eventually be able to buy
Sarafu tokens, injecting money into the
project, and then see exactly where that
money goes and measure the impact
by looking at the data recorded on the
blockchain. The irst trade on the Sarafu
network was for a tomato.
“This is the irst time I can really
say that something as cheap as a 5¢
tomato was actually traded in a way
that’s usable for a woman living in
poverty,” Ruddick says. This time, the
Kenyan government has been a lot more
encouraging. It recently invited him to
present the project to a government
task force on blockchain.
Wanjala has already adapted to the
digital version of the currency. “I prefer
using the app,” he says. “When people
look at the paper money, sometimes
they don’t take it seriously.”
A six-part podcast min s r s

Jo loom r s o conom cs
n n rs s s os s
n w o c s c n on oom r s
wor w n wor o r or rs
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r s on ssu s or wor
conom w c w c us

S r n c r2
List n m r c m/th -n w- c n my
 TRENDSPOTTING
By Andre Tartar
GROWTH AHEAD 2017 2023
Total gross domestic

$111.3t
product of New Economy*

$74.8t

*NEW ECONOMY COUNTRIES ARE THOSE THE INTERNATIONAL MONETARY FUND DESIGNATES AS “EMERGING AND DEVELOPING ECONOMIES.” GDP ADJUSTED FOR PURCHASING POWER PARITY AT CURRENT PRICES. DATA: IMF (GROWTH); BLOOMBERG NEF (RENEWABLES);
countries

UNITED NATIONS POPULATION DIVISION (POPULATION AND LIFE EXPECTANCY); CAPGEMINI (MOBILE PAYMENTS); INTERNATIONAL FEDERATION OF ROBOTICS, BLOOMBERG INTELLIGENCE (ROBOTS); INTERNATIONAL LABOUR ORGANIZATION (LABOR); IMF (TRADE)
GREEN ENERGY REVOLUTION DIVERGENT DEMOGRAPHICS COMMERCE GOES DIGITAL
Wind as a share of total Total population Mobile payment transactions
power generation  Emerging Asia
 Eastern Europe, Middle
40% I n dia 1.6b 200b
Turkey East, and Africa
 Latin America
Ch i
na

Germany
0.8 100
ia
India Niger
30 Indonesia
76 China
0 0
Mexico 2015 2100 2017 2018 2019 2020
U.S.
CHINA LONGEVITY INCREASES NARROWING THE GAP
AUTOMATES Life expectancy at birth Percentage-point diference
Industrial robots between New Economy
20
per 10,000 82.3 male and female labor
workers Middle-income participation rates
Japan countries 78.7
2025 23 21.7
71.1 Low-income
300

Philippines 2020
countries
150

2017 62.8
68
1
2015 2100 2017 2030
Brazil
TRADING UP
Indonesia Projected growth in imports and exports of goods and services, from 2017 to 2023

New Economy countries Developed countries

2018 2050
+36.5% +31.1% +22.3% +20.6%
Imports Exports Imports Exports

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