What is Smart Power?

The concept of smart power was first elaborated by Joseph Nye[1] in his book “Soft power. A Future for America” (Einaudi, 2004) in which he defines smart power as the ability to combine hard power and soft power resources into effective strategies depending on the context. Nye explains how the use of force, reward and the setting of action programmes based on them constitute what he calls hard power; while, soft power in its full definition is the ability to influence others by co-opting them through programme setting, persuasion and positive attraction, in order to achieve the desired results. Hard power exerts pressure, soft power appeals.

Soft and hard power are closely related since both are approaches to achieving one’s goals by influencing the behaviour of others:[2]

According to Wilson, the smart power approach stems from the realisation that soft and hard power are not simply neutral instruments to be exercised independently. They constitute separate and distinct institutions and institutional cultures that exert their own normative influences on their members, each with their own attitudes, incentives and expected career paths. Smart power means knowing the strengths and limitations of these instruments[3]. The large amount of investment made by China to promote its own culture around the globe is a clear example of soft power. Nye sees the establishment of hundreds of Confucius Institutes around the world and the rapid growth of Chinese international radio and televisions broadcasting as a powerful means of attracting foreign students to China. Combining the growth of its hard power with a compelling discourse on soft power, China has sought to use smart power to convey the idea of the peaceful rise of knowledge and culture[4].

Nye Joseph, Smart power, Laterza, p. 26.
Nye Joseph, Smart power, Laterza, p. 26.

In general, resources associated with hard power include tangible factors such as strength and money, while those associated with soft power often include intangible factors such as institutions, ideas, values, culture and perceived legitimacy of policies. The effectiveness of soft power in achieving certain results depends much more on the recipient than is normally the case with hard power.  But the relationship is not perfect because intangible resources such as patriotism and legitimacy have a significant impact on the military’s ability to fight and win; the threat of using force is also an intangible factor, although it is an aspect of hard power[5].

In international politics, the resources that produce soft power arise largely from the values that an organisation or country has expressed in its culture, in the examples it sets through its domestic practices and policies, and in the way it manages its relations with others; but if the contents of a country’s culture, values and policies are not attractive, the public diplomacy that conveys them cannot produce soft power, indeed it may produce the opposite. For example, as Nye mentions, if one were to export Hollywood movies full of nudity and violence to conservative Muslim countries, this would produce repulsion rather than soft power[6].

It should be specified that smart power is not just “soft power 2.0”, but is an evaluative as well as a descriptive concept. Furthermore, it overcomes the limitation to apply the concept to the United States of America, because as Nye states, smart power is available to all states and non-state actors[7]. The Centre for Strategic Studies and the Commission for International Studies have idealised the concept by stating that smart power means developing an integrated strategy, resource base and toolkit to achieve objectives, drawing on both hard power and soft power[8].

Since the term has been used by the Obama administration, some analysts think it refers only to the United States, while other scholars see it as a slogan to boost propaganda discourse, the concept can be used for analytical purposes and is in no way limited to the United States[9]. Today, the quest for smart power is not only driven by the right or wrong choices of the individual leader. Sophisticated nations have it all: smart bombs, smart phones, smart blogs, to name but a few. Any actor with an ambition to improve its position in the world seeks to build strategies around these new foundations of smartness[10].

Culture is the set of social behaviours by which groups transmit knowledge and values and exists at multiple levels, it is never static and different cultures interact in different ways and over time they influence each other[11]. This is an important resource of soft power. Culture and leadership are two sides of the same coin, because in creating groups and organisations, leaders first create culture. Once culture exists, it determines the criteria for leadership and therefore who can and cannot be a leader. For example, in different areas in the Middle East there are national, regional, local, religious, organisational, and other subcultures. Therefore, leaders face daunting challenges in understanding the cultural contexts of different countries and must also realise that their communication style has different effects on different public opinions[12].

According to Brannen, resorting to smart power is not very complicated, one has to become more aware of the available tools, and above all, re-evaluate alliances and defensive posture, in a way that has changed rapidly in recent years. Resorting to hard power is not always indispensable, as one has to think “beyond the barrel of a gun”[13].

Smart power in the 21st century is not about maximising power or preserving hegemony, but about finding ways to combine resources into successful strategies in a new context characterised by the spread of power and the rise of other actors[14]. This would consist of a strategy that relates means and ends and this requires clarity about the objectives (desired outcomes), resources and tactics for their use. A smart strategy must also answer a second question: what the available power resources are and in what contexts can they be used. In addition, it is essential to have an accurate view of the capabilities and inclinations of potential opponents. In most cases, a good understanding of the target audience is essential for calibrating the tactics used to combine power resources[15].

Antonella Valenti


[1] Nye J., Smart power, Laterza, p.17.

[2] Kennedy R., The nature and demands of Smart Power, Strategic Studies Institute, US Army War College (2013), p. 67.

[3] Wilson E. J., Hard Power, Soft Power, Smart Power, The Annals of the American Academy of Political and Social Science, Vol. 616, 2008, pp.110-116.

[4] Nye J., op. cit., pp. 24-26.

[5] Nye J., Diplomacy and Soft Power, The Annals of the American Academy of Political and Social Science, Vol. 616, 2008, p. 95.

[6] Nye J., op. cit., p. 248.

[7] Wilson E. J, op. cit., pp. 112-113.

[8] Geertz C., Interpretazioni di culture, il Mulino, 1998, p. 73.

[9] Nye J., Leadership e potere: hard, soft e smart power, Laterza, 2009, pp.108-113.

[10] Brannen S., How to make a Great Power a Smart Power, Georgetown Journal of International Affairs, Vol.10, 2009, pp. 169-174.

[11] Nye J., op. cit., pp.246-247.

[12] Craig G. e Gilbert F., Reflections on Strategy in the Present and Future, in Makers of Modern Strategy: From Machiavelli to the Nuclear Age, Princeton University Press, 1986, pp. 871-872.

China and the EU find common ground on investments: the CAI

Differences in time zone and the epidemiological emergency still underway at the global level have not prevented the signing of an epochal agreement for economic relations between China and the EU. On 30 December 2020, the online meeting between Chinese leader Xi Jinping, the President of the European Commission Ursula von der Leyen, the German Chancellor Angela Merkel, and the French President Emmanuel Macron, officially marked the signing of the Comprehensive Agreement on Investment (CAI), a bilateral agreement, in the works since 2013, for investments between China and the EU that opens the Chinese market to companies from the Eurozone countries.[1] After negotiations that lasted seven years, although it is still necessary to work on the details, Beijing and Brussels seem to have finally reached an agreement about the framework of this pact aimed at ensuring greater reciprocity and interdependence between the two economic blocs.[2] Although the approval of the European Parliament is still required, the agreement was welcomed as a success by both sides and comes at the very appropriate time, in time for the end of the German EU presidency semester, 45 years of China-EU diplomatic relations, and three weeks since the new Joe Biden administration took office.[3]

As reported in an EU note, this agreement has great economic significance, binds the two parties to a value-based investment relationship based on the principles of sustainable development.[4] Among the key sectors covered by the CAI, stands out the automotive sector, as well as that of electric and hybrid cars, to which the Asian power would be willing to open up with greater transparency and ease. Health, energy, and telecommunications would also experience substantial removal of obstacles. European companies interested in competing in the Chinese market will be able to do so independently, without necessarily join a local partner (joint venture); furthermore, there won’t be technology transfer from European companies.[5] The Eurozone countries have always denounced the severe restrictions imposed by Beijing on entering its market, especially in terms of high-tech sectors’ forced transfer of know-how and technologies to obtain the necessary administrative authorizations from the Chinese authorities.[6] China, therefore, has ensured unprecedented opportunities and conditions for its European counterparts in return for accessing the European energy market. Furthermore, renewed importance has been given to the adjustment of regulatory contexts related to the transparency, predictability, and legal certainty of investment conditions, just as environmental standards.[7] In this perspective, the CAI could represent the first step towards a broader free trade agreement with the inclusion of commitments in the sectors of public procurement and industrial overproduction.[8]

For Beijing, the signing of the CAI constitutes a reconfirmation of the openings already permitted with the introduction, in January, of the Foreign Investment Law.[9] Also, from a European perspective, the agreement lays the foundations for further strengthening the economic interdependence between the two players. According to Eurostat, in 2019 the EU exported goods worth € 198 billion to China and imported goods worth € 362 billion, with bilateral trade worth € 560 billion. In the first 10 months of 2020, the volume of EU-China trade settled at € 477 billion, 2.2% more than in the same period of the previous year. The Asian power, therefore, still represents an essential destination for European FDI, especially those of a commercial nature and in support of market action, characterized by a strong penetration capacity in foreign markets.

Beyond strictly economic reasons, the importance of the CAI also sinks into the ground of geopolitics: the signing of the pact, in fact, follows the conclusion of another important commercial agreement, the Regional Comprehensive Economic Partnership – signed between the Association of South-East Asian Nations (ASEAN) plus China, Japan, South Korea, Australia, and New Zealand.[10] The greater commercial, financial, and investment influence guaranteed by these two agreements in their regional areas clearly has a strong impact also on global geopolitics. The detente of relations that China has started – first with the ASEAN bloc and then, in the specific case of the CAI, with the Eurozone countries – not only puts Beijing back at the center of economic dynamics but above all increases its political weight. This is even more true in terms of competition with the United States;[11] the Biden-Harris administration has publicly expressed its opposition to the conclusion of the agreement, as well as reluctance about Chinese economic practices, urging “European partners to discuss US concerns more[12]. The controversial support of the European part to the agreement, therefore, seems to underline the different views with which the EU and the US have approached the Chinese dossier: Brussels while remaining within a transatlantic framework, is well aware that the center of the world growth has now moved to the East.[13] The conclusion of the CAI, therefore, is a very important diplomatic achievement for China: the Asian giant, despite being considered a “systemic rival”, remains an essential European partner, not only in the fight against Covid19 and climate change.[14]

Beijing’s enduring human rights violations have been one of the main obstacles to concluding the investment agreement. The European Parliament recently voted a resolution[15] so that the CAI would induce greater respect for international conventions against forced labor. The reference to the Xinjiang’s Uyghurs Muslim minority, concentrated in detention centers and subjected to forced labor and degrading treatments is clear right away – although Beijing defends itself by speaking of “vocational training centers”, useful to hold back poverty and extremism, considered as the main threats to national stability and security. In this regard, China has agreed to “make continuous and sustained efforts” to carry out the ratification of the fundamental conventions of the International Labor Organization against forced labor but without any specific commitment, it is therefore not excluded that, in the future, the EU can introduce new sanctions for violations carried out by the regime in question.[16]

One Belt One Road China EU
The OBOR project was connecting China with some European countries, leaving some others out. Wikimedia Commons Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0) https://creativecommons.org/licenses/by-sa/3.0/

All that glitters is not gold: the agreement between China and the EU may cause a controversy within the European Union

Net of the historical importance of the agreement, Italy has been excluded from the negotiating table. Despite signing of the 2019 Memorandum of Understanding to join the New Silk Road – Italy is the first and only G7 country to take part in the One Belt One Road (OBOR) – and the hope for future stronger Sino-Italian relations, today Italy is just a spectator and the negotiations are led by the Franco-German format.[17] Despite having invited France and Germany to greater transparency by sharing the draft agreement, Italy has not achieved any results. Above all, the presence of Macron, said Undersecretary for Foreign Affairs Ivan Scalfarotto, was considered a real setback: if the Chancellor Merkel was able to attend the videoconference as President of the EU Council, the presence of the French leader, on the other hand, has shattered the European protocol, bypassing the other member countries. The CAI thus seems to cast the specter of failure also regarding the agreement on the Silk Road concluded in 2019: “a failure – said Scalfarotto – both commercially and politically. If the Italian logic behind the signature was to increase commercial and economic relations with China, this consideration turned out to be at least optimistic, if not completely fallacious, depriving our country also of the necessary credibility to play the leading role in the negotiations”.[18] The prevailing fear is that new power relationships are emerging and Italy is seriously in danger of being ousted, especially considering the opportunities deriving from its participation in the CAI – the automotive sector constitutes 7% of Italian GDP, just as the leading companies Enel and Eni could benefit from the greater opening in Beijing.[19]

Antonella Iavazzo

[1]  http://www.xinhuanet.com/english/2020-12/30/c_139630412.htm

[2]  http://www.xinhuanet.com/english/2020-12/30/c_139630735.htm

[3]  http://www.xinhuanet.com/english/2020-12/30/c_139630412.htm

[4]  https://www.ispionline.it/it/pubblicazione/ue-cina-il-super-accordo-sugli-investimenti-28820

[5]  https://www.money.it/market-mover-della-settimana-4-8-gennaio-2021

[6]  https://www.ilsole24ore.com/art/cresce-sfiducia-le-aziende-europee-cina-allarme-i-contraccolpi-guerra-dazi-ACjg82E

[7]  https://www.china-files.com/intesa-cina-ue-su-latteso-accordo-di-investimento-bilaterale/

[8]  https://aspeniaonline.it/ue-cina-un-accordo-parziale-e-molte-questioni-geopolitiche-aperte/

[9] The “Foreign Investment Law” is a law aimed at protecting the interests of foreign investors in Chinese territory. Among the measures, it allows foreign companies to access public procurements through fair competition and the inability to use administrative sanctions and licenses for technology transfer. More info on http://www.xinhuanet.com/english/2020-01/01/c_138670986.htm

[10]  https://www.ispionline.it/it/pubblicazione/rcep-il-nuovo-motore-della-crescita-asiatica-28345

[11] ibid.

[12]  https://twitter.com/jakejsullivan/status/1341180109118726144

[13]  https://aspeniaonline.it/ue-cina-un-accordo-parziale-e-molte-questioni-geopolitiche-aperte/

[14]  https://www.china-files.com/intesa-cina-ue-su-latteso-accordo-di-investimento-bilaterale/

[15]  https://www.europarl.europa.eu/doceo/document/RC-9-2019-0246_IT.html

[16]  https://formiche.net/2020/12/accordo-ue-cina-ghiretti/

[17] https://it.insideover.com/economia/ue-cina-via-libera-a-un-accordo-storico-ma-litalia-e-stata-estromessa-dalle-trattative.html

[18]  https://formiche.net/2020/12/accordo-ue-cina-italia/

[19]  https://it.insideover.com/economia/ue-cina-via-libera-a-un-accordo-storico-ma-litalia-e-stata-estromessa-dalle-trattative.html

The Uighur genocide: a human catastrophe without answer

What happens far away from us generally does not affect us for more than a fleeting moment: while reading an article, listening to the TV news, or discussing in a party. And then, sometimes, with time or thanks to a momentum caused by a specific event, what was only brief news, non-event or an insignificant situation is on the rise and becomes unbearably visible: one cannot ignore it anymore. I believe that this is exactly what is currently going on regarding the situation of the Uighurs ’ population in China.

The Uighur case: a silent “cultural genocide”

Despite the inaction of the great heads of States, people and media start talking about the worsening situation of the Uighur minority. Big brands are pointed out, videos leak, survivors testify. Men and women lined up, blindfolded and hands tied; compelled sterilisation and even rumours of illegal organ trafficking… No one can keep ignoring the horror of what is going on in the Xinjiang region. Many NGOs are accusing China of different crimes against humanity: Human Rights Watch denounces unjustified arrests and acts of torture; exiled Uighur people talk about “ethnocide” (meaning the destruction of the cultural identity of an ethnic group, without necessarily harming people physically) and are supported by the NGO Genocide Watch which stated last July that a real genocide of the Uighur people was happening[1]. In spite of overwhelming proofs, forty-six States said they officially supported China, including a lot of countries inhabited by Muslim populations. Their announcement followed the publication of the letter addressed to the UN and signed by twenty-two countries, which was denouncing the “situation in Xinjiang”[2]. But no tangible measure has been taken, and, above all, the rule of stonewalling is widely followed: no mention, nowhere, of an “ethnocide”, even less of a “genocide”, be it “only” cultural. I am thus wondering, naive: why? Why is nothing being made? Why so many countries with a Muslim culture are indirectly supporting such a crushing of an also Muslim ethnic group like the Uighur one is? Why is no one using the exact, precise terms, so that to state tangibly what is happening in Xinjiang, and to move into action?

Collage on a wall in Bordeaux, France

What is a “genocide”?

In order to help me understand, I tried to do some research on the word “genocide” in itself, and on historical events that could fit to its definition. About this second point, I immediately make the connection with the Holocaust, the genocide of Jewish and Tzigane peoples committed by the Nazis. And of course, at school, I heard about other genocides, that of Armenian people or even that of the Tutsis in Rwanda. But that is far from enough. It is deplorable to ignore so much about such serious events, and I was dismayed when I opened the Wikipedia page which makes an inventory of all the “genocides” and “mass massacres”, forced to go through a never-ending list of names, countries and dates[3]. More distressed than enlightened, I ended up opening my good old Larousse dictionary[4], whose definition of the word “genocide” only reflects that of the “Convention on the Prevention and Punishment of the Crime of Genocide” (CPPCG) from the UN, first ratified in 1948: “In the present Convention, genocide means any of the following acts committed with intent to destroy, in whole or in part, a national, ethnical, racial or religious groups, as such: a. Killing members of the group; b. Causing serious bodily or mental harm to members of the group; c. Deliberately inflicting on the group conditions of life calculated to bring about its physical destruction in whole or in part; d. Imposing measures intended to prevent births within the group; e. Forcibly transferring children of the group to another group.”[5] Those definitions seem to rule in my favour: can be considered as a genocide a cultural destruction (“mental harm”), not necessarily a physical one. Can also be considered as a genocide a technique used to “prevent births”. In short, this is exactly what the Chinese State is currently perpetrating on the Uighur minority. Why not then call a spade a “spade”?

Holocaust memorial in San Francisco, USA.

We should obviously take into consideration that accumulating tangible proofs, certain information and in general, real truth on highly complex facts is a very difficult task. Genocides are often the result of long and intricated socio-political histories hard to understand from a foreign point of view and are still at the heart of historical debates. But we should also take into consideration judiciaries and, above all, political factors. Even when many countries, or even UN’s international Courts officially recognise an act of genocide, the international consensus is almost never reached. It is the case for most of the genocides (the Holocaust excepted). Today, debates are still strong concerning the Armenian genocide, which happened between 1915 & 1916. Only twenty-nine States officially recognise it as a genocide, and among those that still contest it can be found the United-Kingdom, Israel and of course Turkey. Likewise, no later than in 2015, Russia used its veto against a UN’s project of resolution to recognise the massacre of Srebrenica, committed in 1995 by Serbian units against more than 8 000 Bosnian men, as a genocide. Bosnian people already had to wait six years before that a Court decision state that what happened in Srebrenica was a genocide (the worse perpetrated on the European ground since the Second World War), before rejecting in 2016 the responsibility of the Serbian State. The latter waited fifteen years to finally apologise for the massacre, without ever using the word “genocide”, fact that they still negate.

Memorial of the Armenian genocide in Yerevan, Armenia. Picture taken on the day of the genocide’s commemoration in 2014.

Language subtilities in politics: genocide, a taboo word.

Why is it so difficult for States to recognise massacres, and to call them as they are: genocides? Why is it so difficult even when the events belong to a long-gone past? Reasons seem to be always political: if Turkey came to recognise the Armenian genocide, it takes the risk to have to pay important amounts of compensation to descendants of victims and survivors. Above all, it would mean calling into question the very values of its State, as its founders apparently took part in the genocide.

                          In the end, I cannot prevent myself from thinking that officials do not accept to talk about genocides before they are finished – and so, victims dead and buried. Apart from the confusion that reigns at the time, strong political motivations prevent the use of the “G-word”, and so prevent action to be taken. What is going on China recalls other memories, older but not enough to play the “forgotten” card. In 1994, in Rwanda, more than 800 000 Tutsis died, partly because the international community refused to talk about “genocide”. While France kept the diplomatic relationships with the governing Hutus responsible of the genocide going[6], Israel was selling weapons to the Hutu government[7]; and the UK and the USA kept opposing to any kind of military intervention in Rwanda. After their failure in Somalia, the USA didn’t want to get militarily involved in Africa anymore, and thus refused to use the word “genocide” while referring to the situation in Rwanda, because if they did, it would have forced them to take military action in Rwanda, according to the conditions of the CPPCG they had signed – along with all the members of the UN. Hundreds of thousands of Tutsis thus died because saying this was a genocide would have forced the Occidental countries to step in and send their soldiers in Rwanda, which they did not want to do.

Memorial of the genocide of the Tutsis in Kigali, Rwanda.

Things start to get clearer. Saying openly that China is perpetrating a genocide against the Uighur people means making an enemy of the first world economic power. We got to see how much China by itself could paralyse the whole world when the Covid-19 crisis started: stock market crash, interruption of the production… If Occidental countries and the UN can still take a stance, they only do it timidly[8]. As one can read in an article published by the French newspaper Libération a year ago: “the international community can no longer ignore the abuses committed on the Uighur population, but avoid the subject for fear of economic retaliation”[9]. More Precisely, saying openly that China is perpetrating a genocide against the Uighur minority means being forced to take military action against China. Considering the fragile current international situation, where the whole world literally depends for its survival on Chinese technology and savoir-faire, what do the lives of thousands of Xinjiang’s Uighur men and women represent?

I can only desperately notice that we recognise the acts of genocide more easily after they happened rather than while they’re happening. We are still very far from “preventing” the crime of genocide. At the most we are able to present to the justice the persons responsible of the genocide after the harm has been done. And on top of that, China is being intelligent enough to develop a “modern” genocide, perpetrated without blood nor dead bodies, planned on the long-term, made from birth control and forced integration; hoping maybe to justify the disappearing of a whole ethnic group by the natural work of time.

I cannot see a way to conclude this reflection on optimistic words, so I will let Gaël Faye’s words do the job for me. Gaël Faye is the author of Small Country[10], novel which partly deals with the Tutsis genocide. During lockdown, he wrote these words in an “inside letter” addressed to a friend[11]: “I do not believe that lockdown has silver linings, that those empty days have some virtue. This situation mainly confronts us to the failure of our societies and highlights our weaknesses. Of course, just like everybody, I try to forecast what will happen after, but I fear that the promises of the “Never again!” will not hold on farther in time than after the next adverts. This April reminds me that we come, you and I, from a history that shoots at point-blank range. In April 1994, the “Never again!” of the 20th century echoed through the void while our families disappeared from the face of the earth. It was twenty-six years ago amidst general indifference. What lessons have we learned from it? […] All our “Alas!”, our “What’s the point?” prepare patiently the ends of the world. But we can also change the course of events if we stop having doubts about the good we can do in the world.”[12]


[1] https://www.genocidewatch.com/single-post/2020/07/15/The-Worlds-Most-Technologically-Sophisticated-Genocide-Is-Happening-in-Xinjiang

[2] https://www.hrw.org/news/2019/10/30/countries-blast-china-un-over-xinjiang-abuses

[3] https://en.wikipedia.org/wiki/Genocides_in_history

[4] French equivalent for the Oxford dictionaries.

[5] See the Article II and following of the CPPCG: http://www.un-documents.net/cppcg.htm

[6] Until today the extent of the French State’s responsibility in the Tutsis genocide is still unclear and the diplomatic relationship between Rwanda and France are still very strained.

[7] Israel decided in 2016 to keep the archives of its weapons selling to Rwanda sealed in order not to “cause harm to Israel’s safety” à (https://fr.wikipedia.org/wiki/R%C3%B4le_de_la_communaut%C3%A9_internationale_dans_le_g%C3%A9nocide_des_Tutsi_au_Rwanda#Les_raisons_de_l’%C3%A9chec)

[8] Except for the USA, along the line of Donald Trump’s economic war against China.

[9] Unofficial translation made by the author of this article. The mentioned article: “Ouïghours: au Xinjiang, un lent et silencieux ‘génocide culturel’ » by Laurence Defranoux and Valentin Cebron, 05/09/2019 à https://www.liberation.fr/planete/2019/09/05/ouighours-au-xinjiang-un-lent-et-silencieux-genocide-culturel_1749543

[10] « Petit Pays », a novel which has recently been adapted into a movie.

[11] « Lettres d’Intérieur », a radio transmission created during the lockdown by Augustin Trapenard in which authors, actors and other artists sent a letter to be read out loud by Trapenard during the radio transmission. « Je ne crois pas aux bons côtés du confinement, aux vertus de ces jours désemplis », Gaël Faye, « Lettres d’Intérieur » by Augustin Trapenard on radio France Inter, 28/04/2020 à https://www.franceinter.fr/emissions/lettres-d-interieur/lettres-d-interieur-28-avril-2020

[12] Unofficial translation made by the author of this article. Ibid.

The pitfalls back of market growth

Financial markets continue their unstoppable growth. After the impressive recovery of April, also May disappointed the expectations of many short sellers[1] who were betting on a downward correction in the market. After a prolonged period of lockdown, the opening in all countries have generated a great euphoria on the financial markets, making the run-up to pre-coronavirus levels continue.

For a long time, we have relied on earnings as the main value driver in the stock market. Wasn’t the price / earnings (P/E)[2] ratio one of the main multiples for valuing stocks? So far, although most companies have reported earnings well below the levels provided by both guidance and analyst forecasts (except those in the technology sector, communications and stay-at home stocks[3]), the market is slowly returning to its pre-crisis level. The Nasdaq composite has returned to very few percentage points from the historical highs.

The numerous negative macroeconomic data amplify the paradox of this overview, almost one-way upwards. The International Monetary Fund estimates[4] predict negative GDP projections in almost all countries of the world, with rare exceptions such as China and India (respectively + 1.2% and + 1.9% in 2020) which in turn are far from the standard growth rate. In 2020, a 7.5% drop is expected in the Euro area with a 4.7% rebound in 2021. We wonder  how long it will take to return to the levels of GDP before the coronavirus.

United States-5.94.7
United Kingdom-6.54.0
United States-5.94.7
United Kingdom-6.54.0
Source: IMF. Pil outlook in percent change.

Additionally, the estimates on unemployment  in the United States reached 14.7% in April, more than triple from 4.4% in March[5]. We must keep in mind that about 70% of the consumption in the United States is due to the US families themselves. Who will consume in the USA considering that unemployment increases?

Together with the macroeconomic assessments there is  the total uncertainty concerning the vaccine too. Although some (few) trials have been successful, an effective vaccine seems to be far from being achieved. Nowadays, the most promising vaccines are being tested. However, it seems that investors have recently forgotten the main uncertainties that this health and economic crisis has caused: there are no effective treatments, we do not know if, and possibly when, profits will return to pre-covid 19 levels, we do not know the consequences of the reopening or if the autumn period could lead to a new wave. And I could continue with many other uncertainties.

So, where does all this optimism come from? The real question is to wonder if perhaps ‘there is no alternative’ market. In fact, alongside all these uncertainties, we have unquestionable certainties: the central banks continue and will continue to print money unceasingly, guaranteeing unlimited stimuli (two examples are the Federal Reserve and the Bank of Japan). The decisions of the main central banks to provide disproportionate liquidity on the market have probably favored a recovery in the short term, but its sustainability will have to be assessed. Inevitably, all these interventions have brought the returns on cash and bonds to such low levels as to generate an implicit investors’ willingness to expose themselves more on the stock market, in order to obtain a more satisfactory risk-return. Added to this is the so-called ‘fear of missing out’ (FOMO) by investors, or the fear of missing the opportunity at the time of the bullish trend to take advantage of the rally[6], which in turn feeds further rises. The problem remains, however, the macroeconomic context, which could lead to an upward trend only in the short term.

Another factor of extreme importance is the possible cold war between the United States and China which could further fuel uncertainty on the markets. The immediate reaction was naturally negative. Such contexts increase the risk-premium and endanger global development. Obviously, an increase in the risk-premium[7] leads, in most cases, to a decrease in the share price. Bear in mind that we are talking about the two major powers in terms of global GDP, and serious repercussions could, with a chain effect, involve all markets.

As for the European market and in particular the Eurozone, the main news concerns the Recovery Fund proposed by the European Commission which should guarantee 750 billion with an issue of thirty-year securities guaranteed by all countries, with a mix of loans and grants. Very complicated negotiations will open in the following months. We are finally approaching a debt mutualization at the European level (eurobond). The problem is that the funds will be accessible no earlier than 2021. Consequently, the instruments available in European countries will be, at least until the end of 2020, the Sure, the Esm and the purchases of government securities by the European Central Bank. These initiatives were taken with great euphoria on the markets, above all that of government bonds which saw a narrowing of spreads[8].

We cannot predict whether the stock rally will last much longer since we are in a truly anomalous market. In this context, investor sentiment seems to count far more than macroeconomic and microeconomic fundamentals. However, there is a crucial principle of the economy: in order to be sustainable in the long term, growth must be based on solid structures  and these, nowadays, seem to be very fragile. In the extreme case, there is the risk of creating a bubble which, if it explodes, would cause further negative consequences on the market.

Gianlorenzo Zeccolella

[1] https://en.wikipedia.org/wiki/Short_(finance)

[2] Price over earnings is one of the most important multiples, used to assess the equity value of a company. When P/E = 15x, the stock price is 15 times its earnings per share.

[3]  Typical examples for stay-at-home stocks are Netflix or Zoom.

[4] https://www.imf.org/external/index.htm

[5] https://www.bbc.com/news/business-52591262

[6] In finance, a rally is a period of sustained increase in the price of an asset. https://en.wikipedia.org/wiki/Rally_(stock_market)

[7] https://www.investopedia.com/terms/r/riskpremium.asp

[8] The spread is the differential between the returns of two securities with the same maturity (typically 10 years). One of the securities compared is considered as a benchmark.

Lights and shadows of the Asian Giant: Human Rights in China

The human rights situation in the People’s Republic of China is still today extremely controversial. Despite the economic openness and reforms of recent years, many international human rights associations continue to brand the Chinese legal system as “arbitrary, corrupt and unable to provide the proper safeguard” due to the numerous violations of international norms. [1]

The Coronavirus emergency has underlined even more clearly the existing flaws in terms of protection of fundamental rights, exposing China to the inquiring gaze of the international community. As stated by Nicholas Bequelin, Director of Amnesty International for Asia, the measures launched by Beijing against the virus inevitably implied the limitation of important fundamental rights: the right to healthcare, first of all, in terms of free access to medical care, information and freedom from medical treatment without consent. Moreover, freedom from arbitrary arrests, freedom of movement and expression. [2] In the weeks of the crisis, in fact, Wuhan’s medical staff complained about the shortage of resources for managing the increasing infections. Local media told about patients rejected by many hospitals because of lack of beds, medical facilities without access to basic diagnostic tests, people unable to reach hospitals quickly due to the halt of public transport. Moreover, local media reported the impossibility of taking out of the home the bodies of people who died of the virus. [3]  These issues, it is important to underline, have pointed out the fragility of all the countries affected by this health emergency, including Italy. What weighs further on China, however, is a political dimension that has often exposed the leadership to accusations of lacking transparency and mystification attempts. The closedown imposed on many metropolises, starting from the Hubei province, has been accompanied by draconian measures such as stringent control systems, mandatory filing of citizens and censorship of destabilizing news. People who have tried to share information about the Coronavirus have been targeted by the authorities: a symbolic case is that of the doctor Li Wenliang, the first who launched the alarm, accused of having “spread false information on the web“.[4] As Bequelin states “Censor legitimate information in newspapers or on the social media is not functional to any public health objective (…) limiting freedom of information and suppressing free debate in the name of stability has serious risks and can be very counterproductive“.[5]                                                                       

Chongqing, south-west China, photo by Antonella Iavazzo

The absence of a democratic system and effective human rights’ protection in China seems to be a consequence of the so-called “Chinese specificity”, aspects of the traditional political culture and national civilization. [6]  This has been also highlighted by the scholar Antonio Cassese, according to whom Socialist countries do not consider human rights to be inherent to individuals nor to pre-exist the State, human rights are granted by the State who can, therefore, limit them if necessary. [7] This cultural influence, combined with the Maoist heritage that still weighs on the country, show us up that the legal protection of human rights in China is a relatively recent phenomenon. Until the 1980s, in fact, judicial activity was carried out arbitrarily by the Red Guards and revolutionary committees, strenuously following the imperative of “politics first” and “supporting the leadership of the Party“.[8] The same expression “human rights” (renquan) 人权 had a derogatory connotation, as an expression of the capitalist ideology used in the West to mask the exploitation of man by man. [9] Only the gradual liberalization and openness inaugurated since 1978 has encouraged the leadership to respond more appropriately to the need for human rights protection. From the regulatory point of view, Beijing has made clear efforts to adapt its laws and ensure increasing respect and protection of these rights, as they are recognized by the international community of which China is a full member. [10] The 1982 Constitution, for example, guarantees citizens a wide variety of political, personal, economic, social, and cultural rights. In 2004, art. 33 of the Constitution was amended with the addition of the paragraph “the State respects and protects human rights” and, in 2010, the publication of the first National Human Rights Action Plan sanctioned the principle of universality of human rights. At the same time, China has joined numerous international Conventions regarding thorny matters such as torture, minors’ and workers’ rights. [11]                                                                                                                             

Chongqing, south-west China, photo by Antonella Iavazzo

The signs of progress that have been made, however, cannot hide the fact that the protection and exercise of these freedoms remain extremely limited, not only because of the vague definitions of these rights but also due to the inclusion of numerous exceptions. As clarified by art. 51, in China the exercise of citizens’ rights and freedoms is conditioned by the collective interest. Human rights, in practice, are not considered in absolute terms but concerning the growth and well-being of the community, especially in areas susceptible to strong tensions where the public interest is a priority over that of individuals. [12] Regarding the Convention against Torture, for example, although the Chinese leadership has strengthened the prohibition of torture also providing sanctions for possible abuses, an absolute definition of the concept of torture is still missing. This allows the possibility of easily limiting these rights in favor of maintaining internal order and stability. [13]  The Amnesty International 2017/2018 annual report illustrates the Chinese authorities’ continued tightening of their power of dissent and censorship through the formulation and application of new national security laws. The establishment of civil society organizations still clashes with the strict limits placed on associative activities. In January 2017, the new law on the management of foreign NGOs authorized non-registered NGOs’ ban of their bank accounts, the sale of their spaces and the detention of their staff, without any kind of protection for privacy, freedom of expression and against arbitrary detention. Also, many activists have been repressed by the Chinese government:  they have been arrested or convicted of “subversion of state power” and subjected to torture and ill-treatment during detention. [14]                                                                                                                                                                

Chongqing, south-west China, photo by Antonella Iavazzo

The leadership also exercises extensive control over every aspect of religious practice: the organization and worship of unrecognized religions are violently repressed. The 2018s has encouraged a revision of rules and regulations on religious issues, to limit “infiltrations and extremism”: religious minorities such as the Tibetan Lamaist and Uyghur Muslim, although been recognized, are subject to severe restrictions due to their potential connection with the separatist currents in the Tibet and Xinjiang provinces. [15] Talking about freedom of expression, the Party’s strict control over information is well-known, thousands of websites and social networks are still blocked, including Facebook, Instagram, and Twitter. Since 2017, China has been conducted an inquiry on the main internet service providers such as Tencent’s Wechat, Sina Weibo and Baidu’s Tieba, identifying on their platforms user accounts that “disseminated information dangerous for national, public and social order security“.[16]  Even about personal freedom and dignity, the main idea is that personal choices must give way to the public interest. An example is the right to reproduction, severely limited by the “one-child” policy which imposes a duty on couples to practice family planning, punishes off-plan births with financial penalties and takes advantage of instruments of psychological and social pressure. Even Chinese criminal law remains characterized by vague rules strictly connected to political control, such as crimes of opinion, chimes against State secrets or those generically defined “against public safety and the Socialist economic order of the market”.[17] The Chinese leadership still continues to conceal the real extent of the use of the death penalty.

This reflection shows that Chinese citizens’ subjective autonomy has grown enormously compared to the past. As a leading actor in the international community, China is willing to search for shared solutions and to become more familiar with the protection of human rights and the ethical assumptions underlying them. However, limits exist to this adaptation process: tools of power management that the Chinese leadership considers indispensable, despite contrasting with human rights. These trends, although explained according to the priority of national order and stability, demonstrate that there is still a long way to go before the full affirmation of the human rights and the consequent abolition of the death penalty.

written by Antonella Iavazzo

[1] https://reporterspress.it/cina-diritti-umani-2/

[2] https://www.amnesty.it/coronavirus-e-diritti-umani-sette-cose-da-sapere/

[3] https://www.amnesty.it/coronavirus-e-diritti-umani-sette-cose-da-sapere/

[4] https://www.ilpost.it/2020/02/07/la-doppia-morte-di-li-wenliang/

[5] https://www.amnesty.it/coronavirus-e-diritti-umani-sette-cose-da-sapere/

[6] https://www.tuttocina.it/Mondo_cinese/046/046_corr.htm

[7] Cassese Antonio, I diritti umani oggi, Economica Laterza, Bari, 2009.

[8] http://www.cosmopolisonline.it/articolo.php?numero=III12008&id=16

[9] http://www.cosmopolisonline.it/articolo.php?numero=III12008&id=16

[10] http://www.acatitalia.it/newsite/content/tortura-la-cina-e-la-tutela-dei-diritti-civili

[11] http://www.acatitalia.it/newsite/content/tortura-la-cina-e-la-tutela-dei-diritti-civili

[12] http://www.cosmopolisonline.it/articolo.php?numero=III12008&id=16

[13] http://www.cosmopolisonline.it/articolo.php?numero=III12008&id=16

[14] https://www.amnesty.it/rapporti-annuali/rapporto-annuale-2017-2018/asia-e-pacifico/cina/

[15] https://www.amnesty.it/rapporti-annuali/rapporto-annuale-2017-2018/asia-e-pacifico/cina/

[16] https://www.amnesty.it/rapporti-annuali/rapporto-annuale-2017-2018/asia-e-pacifico/cina/

[17] https://www.amnesty.org/en/documents/asa17/5849/2017/en/



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