Weaponisation of finance over geopolitics a concern, says GIC’s CEO

[SINGAPORE] Given the shifting geopolitical landscape’s major impact on security, trade and supply chains, Singapore’s sovereign wealth fund GIC’s CEO Lim Chow Kiat is worried that this might eventually hit financial markets.

“Once you touch that financial plumbing, I think there will be a lot of unintended consequences, and the cost will be significantly higher than what we have seen on the trade side,” said Lim, who was speaking on Wednesday (Nov 19) as a panellist at the Bloomberg New Economy Forum.

He was responding to a question on the extent to which the global economy was entering into a new era in which globalisation, trade and technology are increasingly under pressure from geopolitical forces – particularly the US and China – trying to split the world into rival blocs.

Lim said that the disruptions to trade, security and supply chains that arose as a result of these changes have been costly. The imposition of US tariffs on the rest of the world has essentially led to a need to rebalance investment savings across countries.

“Essentially, I think the Chinese need to increase their consumption. The Americans need to reduce their construction. But it’s a very difficult balance to achieve. Trade is a symptom of that,” he said.

Having to rewire supply chains is also expensive, as traditional production locations, logistic routes and distribution networks have been in place for many years.

“Many of the parts are already in place for decades. To try and shift that is going to be very costly and actually very risky, because the disruption in one part can send shockwaves into the whole chain,” said Lim.

He expressed his hope that financial markets would be spared this adjustment process.

“There’s enough wisdom that a big part of that global financial system is a global good, a public good. So be very careful in rewiring that,” said Lim.

He also brought up other concerns arising out of this fragmentation in global trade, and how it would affect how GIC would allocate its capital.

As the corporate use cases of artificial intelligence increase, incumbent companies with an existing base of customer data might also have an advantage over smaller startups.

“We do see kind of what people might call a K-shaped divergence – the big ones will get bigger, the tech (firms) will have an advantage over other non-tech (firms),” he added.

The current geopolitical tensions arose out of this perception that the world’s economy is a zero-sum game, said Zhang Lei, chairman of renewable energy company Envision.

However, he added that technological innovation is the way to improve productivity.

“To break through the zero-sum game actually is to make the pie bigger, rather than dividing the pie,” said Zhang.

One way to make the pie bigger is through deeper integration of the wider Asian region, said Georges Elhedery, CEO of HSBC.

This intra-Asia trade could contribute an additional 1.8 per cent to the region’s gross domestic product, helping to mitigate the impact of tariffs, which are estimated to shave off 0.5 per cent of GDP, he said.

For decades, China’s major role in global trade was to produce goods for the American economy. But the world’s second-largest economy is now manufacturing for the regions beyond the US, and particularly for Asia.

“What we’re seeing more recently is Asia buys Asia. We’re seeing China manufactured in the world, as opposed to for the world,” said Elhedery.

“This Asia-buys-Asia trend has supported a lot of intra-Asia trade within this region. It supported a lot of foreign direct investment in this region. It supported a lot of employment in this region.”