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China’s reputation 'has taken a very big hit’: FutureMap founder

Parag Khanna, Founder & Managing Partner of FutureMap, joins Yahoo Finance’s Alexis Christoforous and Brian Sozzi to discuss how the world is reacting to the coronavirus and how international relationships will change.

Video Transcript

ALEXIS CHRISTOFOROUS: All right, I want to bring in now Parag Khanna. He is the Founder and Managing Partner at FutureMap, and also the author of "The Future is Asian." And he joins us today from Singapore. Parag, always good to see you. Thanks for making time for us.

I want to talk about China, and how the world is going to view China, that region of the world, when we come out the other side of this pandemic. Will China be as dominant as it was before all of this happened?

PARAG KHANNA: It's a great question, Alexis. And good to be back with you. And I have real cognitive dissonance when I hear, and when you see the sort of Twitter sphere full of these memes about how China is going to take advantage of America's stumbling and its handling of the coronavirus, to suddenly claim the mantle of self [AUDIO OUT] and global leadership from the United States.

Because quite frankly, the majority of the world population lives in Asia, and is China's neighbors. And every single country on this side of the planet, which again is most people in the world, know very well where this virus came from. And just because China is able to buy off a couple of South African or Brazilian diplomats and officials and to get them to say that China has been really helpful, or Italians, for that matter, it doesn't really mean that the narrative tide has shifted.

So let's remember that the suspicion of China was very, very high prior to the pandemic, because of debt-trap diplomacy around Belt and Road, and because of some of the geopolitical assertiveness that they-- and the moves that they've been making in the South China Sea. All of that is now reinforced by the opacity with which they handled the pandemic. So in terms of China's posture, diplomatic posture, or at least its reputation, that's taken a very big hit.

Now tactically, of course, if you need surgical masks, if you need ventilators, and you need that medical equipment and supplies that China is providing, this is not a time to quibble over these sorts of terminology and sentiments. And that's what we're hearing, obviously, from the United States as well. We'll take the help from where we can get it.

We'll arbitrate these kinds of rhetorical, diplomatic things later. But that later, you know, whether it comes sooner or later, is not going to be favorable to China, even if it has some kind of tactical leverage at the moment.

BRIAN SOZZI: Parag, do you think that the days of China's economy putting up 6%, 7%, 8% growth are over? And this event is a major reset to a lot of American businesses. You know, what-- why are we doing business there? It may be more costly to do business here. At least we can better control what we're producing.

PARAG KHANNA: So the first shift-- it's a great question. But the first step in the road back to America in terms of near shoring still runs through Southeast Asia, because labor costs are so much cheaper. So what we're seeing is that the foreign investment, the FDI into Southeast Asia is just behind what it is into China. China still has actually picked up in the last couple of years. It's up to about $200 billion in annual inward FDI.

ASEAN is about $160 billion. Right, so this is the Vietnam story, Thailand, Indonesia, Philippines-- these countries with far lower production costs. And they're quite open political economies. They're allowing Western manufacturers, American companies, whether it is-- well, you know, Samsung out of South Korea, Intel from the US, Apple looking at making more iPhones from India and South Asia to Vietnam.

So, you know, that is so much cheaper. And those markets are very fast-growing, let's bear in mind. So China is obviously not really growing at 6% or 7%. But some of these other economies were. And a couple of them will continue to.

We're seeing obviously that Thailand and Malaysia are going to suffer negative growth, for sure, for perhaps the rest of this year. But Vietnam, Indonesia, the Philippines-- other fairly large economies in this region are chugging along. And because the US did not join the TPP trade agreement-- and I know that, Alexis, you and I have talked about this more than enough times-- but, you know, with the US not joining TPP, that means that American firms-- who do depend to some degree, at least the larger multinationals, whether it's Apple or GM on sales in Asia-- they are going to have to make in Asia to be cost competitive in Asia, because there isn't a TPP to iron out these differences. So not joining TPP still makes it almost required or mandatory for American companies to stay out here.

So yes, backlash against China, but no, not necessarily near shoring fully to the US.

ALEXIS CHRISTOFOROUS: All right, we're going to leave it there. Parag Khanna, Founder and Managing Partner at FutureMap. Thanks, as always, and stay safe there in Singapore.

PARAG KHANNA: Likewise. Thank you.