Wednesday, September 30, 2009

China at 60: Taking stock

Here is an assessment of China, by Kent Deng, who is the chair of China studies at the London School of Economics. The article "How far has China come?" was published in the Indian Express newspaper on 30 Sept 2009.
The history of the People’s Republic so far can be divided into two periods of about 30 years each: Maoism from 1949 to c.1979, and the post-Mao period from 1979 to 2009.
Maoism, 1949-79
  • Seen in a positive light, Mao made China diplomatically independent. China succeeded in building its modern arsenal with nuclear weapons.
  • Seen in a negative light, Mao spent about 80 per cent of his time and energy purging Chinese society. No social stratum or individual was left untouched.
  • Cultural Revolution alone cost China 800 billion yuan, equivalent to China’s total capital stock of the state-owned enterprises in 1979. Mao’s rule left China with a third of its population officially illiterate (as in 1979).
  • During the 1959-62 Great Leap Famine, about 30 million people died. There was no record of effective famine relief by the Maoist state. In 1965, on the eve of the 10-year long turmoil of Cultural Revolution, China’s infant mortality rate was as high as 165 per 1,000 births.
Post-Mao, 1979-2009
  • When Deng Xiaoping took over the party and state, he faced the carnage of 30 years of Maoist practice. Deng’s rescue plan, known as “socialism with Chinese characteristics” had the following goals:
    • To re-build law and order,
    • To resume supply of well-educated bureaucrats,
    • To resume economic incentives and freedom for ordinary people,
    • To ease tension with foreign powers,
    • To promote foreign trade and FDI,
    • To build “comfortable material life for all” in exchange for the party’s legitimacy to rule
  • In rural China, farmers were re-incentivised, by the state’s permission to keep some of their output, through legal contracts (“the Household Production Responsibility Scheme”). This was a great success. China’s per capita food consumption soon returned to the 1930s level at around 3,000 kilocalories per day.
  • In urban China, Special Economic Zones were set up, fully compatible with Western capitalism, to attract foreign capital, technology and market sales.
  • In 2004, with over US$ 60 billion of foreign capital invested, China surpassed the United States and became the largest FDI recipient in the world.
  • From 1978 to 2000, the total value of China’s foreign trade increased 110 times.
  • But there is a downside to the post-Mao growth: environmental damage and social inequality.
  • China is now one of the most polluted countries in the world. The estimated damage to China’s soil, air and water systems is worth US$ 60 billion, the same as China’s total FDI intake.
  • In terms of energy efficiency, to produce per unit of GDP, China used 2.5 times as much energy as India, 4 times as much as the US and 7 times that of Japan (as in the 1990s).
  • The greater problem is income inequality between the urban and rural sectors, and between the coastal regions and the interior. China’s Gini coefficient has jumped from 0.28 (as in 1983) to an alarming 0.48 (2000), which has made contemporary China one of the least equal societies in the world.

China marks 60 years of Communism, India needs to rethink

As China celebrates the sixtieth anniversary of the founding of the People’s Republic this week, India must take a deep breath and begin a fundamental rethink its strategy towards the rising giant north of our borders, writes C Raja Mohan, the Henry A. Kissinger Chair in Foreign Policy and International Relations at the Library of Congress, Washington DC, in the Indian Express, "The middle path" (30 Sept 2009).
If our China debate during last few weeks was mostly about attributing hostile intentions to our northern neighbour, it said little about India’s own policy failures.

Take for example the situation on the border. The single most important change there has been the dramatic modernisation of transport infrastructure across the frontiers in Tibet and Xinjiang. This change did not, of course, take place in secret. Beijing announced its ‘go-west’ strategy with great fanfare in the mid 1990s.

Some the major projects of this strategy — such as the South Xinjiang Railway line to Kashgar just north-west of Jammu and Kashmir and the construction of the Tibet rail to Lhasa just north-east of Sikkim got massive international attention.

Yet, Delhi slept through the 1990s and in the early years of this decade. When it finally woke up a couple of years ago, Delhi did announce major road construction all along the China border. But the UPA government seems to have no capacity to follow through even when the projects are of such paramount importance for national defence and security.

The same holds true for the question of Chinese advances in our neighbouring countries. We can call it Chinese ‘encirclement’ till we go blue in the face. The problem, however, is rooted in Delhi rather than Beijing. So long as India refuses to imagine and implement policies that make economic cooperation with India attractive to our neighbours, Chinese economic penetration of South Asia will continue unimpeded.

For all the talk about the China threat, there is little expertise in India about the world’s second largest economy that shares a 4000 km of land border with us and will soon be our maritime neighbour in the Indian Ocean. As China rises, India needs deeper and broader engagement with China.

Neither our government nor our civil society has devoted the resources necessary to understand what makes modern China tick. The number of Chinese scholars studying the subcontinent and the reporters based in India is far higher than the pitiful Indian resources devoted to understanding China. When ignorance is combined with anger and incompetence, we have the makings of a perfect self-induced crisis.

Tuesday, September 29, 2009

Musical telling the story of Indian films touring China

Old Indian films were widely screened in China in the late 1970s, and were said to be quite popular with its larger than life characters, and mixture of emotion, drama, colours, and song and dance. But subsequently, censorship and limited quota for foreign films reduced the flow of India films to China. Yet, it is quite common place to find VCDs and DVDs of new and old Indian films on the sidewalks of major Chinese cities. Presumably, these pirated copies of Indian films have sufficient viewership. Now there is a more concerted attempt to renew interest among Chinese audiences of Indian films and music. After successfully touring Europe and Australia, a new musical is being staged across 10 cities in China. The following item, "Musical rekindles China's Bollywood affair" appeared in The Hindu on 27 Sept 2009.

BEIJING: For the first time in decades, hundreds of theatregoers across China are swaying again to the beats of Bollywood.

In the biggest attempt yet to bring Bollywood to the Chinese public, the ‘Merchants of Bollywood,’ a musical that chronicles the film industry’s history, has been making its way across China’s interiors to rave reviews.

Billing itself as the first “authentic” Bollywood musical, it was conceived by Australian Tony Gough and choreographed by Mumbai-based Vaibhavi Merchant. The show has already travelled across Europe and Australia, but its current foray into 10 cities in China promises to be the most engaging, given the unique history of the country’s experience with Indian cinema.

Indian films from the 1950s were among the first foreign films to be shown in Communist China after the country’s “opening up” in the late 1970s, and were wildly popular. But subsequent Chinese censorship laws restricting the number of foreign films that could enter the country has seen the interest wane to what, at present, can best be described as mild curiosity among young Chinese and fading nostalgia in their parents’ generation.

The success of this musical could change all that. ‘Merchants’ is touring 10 cities, from remote Yantai in northern Shandong province to Beijing and Shanghai, and for the first time in decades is again providing Bollywood a mainstream platform in China.

“We are in an unchartered territory as the first ever Bollywood show in China,” the show’s Australian producer Mark Brady told The Hindu before the show’s Beijing debut on Friday. “More than in other markets, we were very curious to see how the Chinese public would react to it. And we have been amazed by the response. Even in small cities like Yantai [in Shandong province] and Wuhan, we have been getting standing ovations, which we are told is not common in Chinese theatres.” ... ... ...

Bollywood is the popular name for the primarily Hindi film industry in India, that is mainly based in the city of Bombay (now called Mumbai). Although Bollywood does not have a physical presence on any map, it was derived from the internationally renowned Hollywood, the base of the American film industry. Since the 1970s, more films are produced in Bollywood each year, than Hollywood. Today, in India, foreign films generate just about 5% of the revenues.

Having failed to lure the Indian audiences in any substantial way to their own productions, Hollywood has been trying to make its own attempt to make "Indian" films, for the past few years. Without much success so far. The New York Times had an article titled, "Can Hollywood make a Bollywood film? in 2007.

China too has a large film industry. Would be great to hear what our Chinese friends think of the possible reentry of Indian movies in to China.

Friday, September 25, 2009

China Review comments on the India media

China Review looks at the current hot topic of China-India relation. This was shared by Chaoliang, a Chinese friend, who also summarised the article in English. The original Chinese article can be found here.

The governments of both sides hopes to enjoy peace around the boarder. Especially, although there have appeared storms of propaganda about Chinese aggressiveness inn Indian media, the prime minister, the national security advisor, and the foreign minister in India have all dismissed the alarmism. These were aroused by the helicopter event, paint event, or .shooting event, which have been denied by Indian department of defence.

Despite the efforts made by government and military authority to clarify the rumours, media seem to become more anxious to create an air of panic with too many negative reports about China, covering the 1962 war between China and India, the cooperation between China and Pakistan, Chiinese opposition to Indian possessing nuclear weapons and its permanent member state of UN security councile, trade gap, and competition over energy, etc.

BBC once gave an surprising reason for the deluge of bad news against China, that is, so doing would promote the media’s market share.

Meantime, the situation also has something to do with the political conflits in India. The opposition parties, such as the People’s Party and the Socialist Party would like to take the unwarranted Chinese threat as an excuse to blame the ruling party.

And somebody embracing revengeful mind over the failure in 1962 war would of course like to see the bubble blown huge about the Chinese brute hostility.

And the factors helping making the matter. Worse also include Dalai Lama’s purposeful words and some irresponsible experts' agitating remarks.

In conclusion, the so-called tension highlighted so far actually derives from an arbitrary conspiracy among media, individual politicians, and other interest groups.

These reports I hope will provide a glimpse of the thinking in China, and the undercurrents, particularly, in the official circles.

China and India: Idiosyncratic Paths to High Growth

Kaushik Basu, Chairman, Department of Economics and Professor of Economics and International Studies at Cornell University, has just been appointed Chief Economic Adviser to India’s Finance Ministry. In a recent article he looks at the parallel and contrasts between China and India. Here are a few key points.
  • The mainsprings of development in these nations are widely different, even though their trajectories of growth are converging.
  • Industrial recession in the US, Europe and Japan has caused big hardships for the export-oriented Asian economies. Serious though this crisis may be, it does not alter the longrun prospects of China, India and the other Asian economies.
  • Thinking in terms of broad categories, such as socialism and capitalism or big and small governments, and trying to link these to growth is the wrong way to approach the problem. Markets and incentives play a critical goal for development to occur, and, as long as the government has the intelligence to weave these into the policy fabric, the stage is set for economic take-off. Further the Chinese government has intervened in macroeconomic markets by keeping tight controls on capital and has kept its exchange rate deliberately undervalued in order to break into global markets with its exports.
  • With the growth spurt that occurred over the last five years and the rise of the Indian corporations as global investors – on this India’s rise has been more striking than that of China – India’s medium to long-run prospects look very good. In addition, one development of the last five or six years that augurs well for both India and China, and especially the former, is the growth of trade and the flow of foreign direct investment between the two countries.
  • One common feature of both China’s and India’s growth experience is the salience of the savings rate and the investment rate. China has always had a fairly high savings rate -- the rate never dropped below 30% from 1977 onwards and, as we know, China’s growth rate showed particular robustness from 1978. For India the sharp rise in savings in the early 1970s did not immediately translate into growth. I believe that there were some infrastructural bottlenecks that held back the economy. And, in any case, by the late 1970s and certainly the early 1980s it was evident that the economy was growing faster. Interestingly, India has witnessed another very sharp rise in its savings rate over the last four years. The rate climbed up from 24% to 34% – according to the latest Economic Survey, the savings rate is 37.7% (Government of India 2009). For the first time India is saving and investing at rates which have been associated with the Asian tigers. This is so recent that this has not yet been analysed sufficiently. But this augurs extremely well for the country.
  • Despite the market-oriented reforms of 1978-80, which were significant in comparison to the draconian control of the Chinese state previous to that time, in China the “socialist planning system still operates, ….the labour responsibility system determines where a person can work legally and where it cannot, … all land is owned and controlled by the State,” and the Chinese Communist Party continues to vet all senior appointments in firms and “even if the CEO is not a party member, there will be a party member (or group of members) ostensibly junior(s) in the organisation who can over-rule him on ‘ideological’ grounds, …in China banks are not intermediaries but instruments of the State… .” These quotes are from Virmani (2006), who in his comparison of India and China has repeatedly stressed the importance of free-market policies.
  • India’s big problem now is that its government is in the wrong places. It is not a problem of size as much as location. In terms of the fraction of the national income that is produced by stateowned enterprises, India is not an outlier in Asia; and compared to the communist and former communist nations, India is a very privatised economy. While the output emerging from stateowned enterprises in 1990 in India was 14.1%, the figure for China in 1985 was an astonishing 70%. Though state-ownership has been declining, even today it is around 50% in China, which is way higher than other Asian nations. It is not just that, as Huang observes, “As late as 1998 much of the Chinese officialdom held private ownership in utter contempt”. In 1978, South Korea had a larger share of output coming out from the state-owned sector than India. The ranking had changed by 1990 but that gap was not large. Indonesia looks similar to India; Malaysia has a distinctly larger share of state production and the Philippines is the most privatised economy – with a large part of that, at one time, in the firm private grip of Marcos.
  • Where government is needed and inadequately available in India is in the provision of infrastructure and in the social welfare sector. On infrastructure the awareness is now high in government and there is reason to expect large changes over the next five years. On social welfare the situation is still bleak. Poverty is still very high with around 250 million people below the poverty line (and India’s poverty line is quite a bit below one dollar a day). If the poor and the dispossessed develop some other identity – for instance, based on caste or regional origin, then this can be politically destabilising. Government needs to do much more in eradicating poverty.
  • The risk of political destabilisation is there also for China and may be even greater than what India faces. These risks manifest themselves in different ways in China. I have attributed a large part of China’s success, despite its government’s overtly interventionist behaviour vis-à-vis the market, to the fact that it was intelligent intervention. Contending with the same argument Yao argues that China succeeded because it has had a “disinterested government”, meaning it has not played one group against another but has been a neutral referee. This is a valid argument. But what stands out even more is that China has had the luck of an intelligent government. It has cleverly held back damaging intrusions into the market. This, however, always has the risk of changing. As argued, when an agent is as powerful as China’s government is, it can easily fall prey to the temptation of exercising that power in the interests of itself or a small group. This can also be not a response to temptation but self-preservation in times of turmoil. China’s excessively pliant civil society could cease to be that under times of stress, for instance, a period of growing unemployment or inflation. Its attempt to dislodge those in power can easily result in a siege mentality on the part of the government, whereby it becomes impossible for it not to exercise the vast powers that it already has.
Read Prof Kaushik Basu's article "China and India: Idiosyncratic Paths to High Growth" published in the Economic and Political Weekly, Sept 19-25, 2009.

A shorter version of the article is published in the Hindustan Times newspaper, "Use your head".

Challeges for China at 60

Professor Pranab Bardhan, a renowned economist at University of California at Berkley, has an an article in YaleGlobal on "Challenges for China at 60". He looks at the relationship between the political authorities in the Communist Party, and the leaders of enterprises in China. The online journal which studies globalisation, summarises the article as follows.
China is in many ways a land of contradictions, confounding outside observers. And such contradictions are nowhere more obvious than in China’s economy: a market-driven allocation of resources overseen by the Communist Party. But as Berkeley Economics Professor Pranab Bardhan notes, the contradictions lie at an even deeper level. Simply establishing private ownership of some of China’s largest companies is decidedly serpentine and many of the owners have familial ties with, or are themselves members of the Party. Moreover, many state-owned enterprises are controlled by political families. Such fuzzy lines between political connections and business have led to particularly egregious abuses of power that are precisely the predatory tendencies of capitalism that the Chinese Communist Party originally sought to defeat. Indeed, as Bardhan points out, many government officials now find it difficult to control their own colleagues’ venality, collusion, or depredations. But as some assert, as long as control of the economy remains with the state, such ills will continue to plague China. Though Chairman Mao believed that contradictions were the nature of society, it is doubtful he would have imagined all the contradictions that obtain in China’s society today. – YaleGlobal
A few key points.
  • While party retains monopoly over political power, resource allocation in the Chinese economic is mostly market driven.
  • About one third of the private entrepreneurs are members of the Party, and members get help in the form of finance, protection, and gain legitimacy.
  • The nexus between political and economic agents is best evident in land seizures in cities and countryside.
Prof Bardhan's new book, "Awakening Giants, Feet of Clay: Assessing the Economic Rise of China and India”, is to be published shortly by the Princeton University Press.

Virtual war, hard reality

An expanded version of my earlier post on this blog "Breaking News" has been published in the Financial Express. In it I also suggest a possible way to look at the border dispute in a broader light.

The media warriors have, of course, attempted to wrap their rhetoric in tricolour. In the heat of battle, they may have missed one small point. Much of the China-India border is disputed by one side or the other, which is why we have the Line of Actual Control. And in some areas, even the LAC is not clearly accepted by both sides. There can hardly be anything but ‘incursions’ by one or the other, if there is no mutually recognised border cast in stone, in the first place.

On the other hand, if we are to accept the LAC as the de facto border, then it would basically mean that we surrender claims on the western sector in Aksai Chin, and China give up its claim in the eastern sector in Arunachal Pradesh. A lot of scholars think that it is precisely this kind of across-the-board settlement which is desirable, possible and doable. But it is the sector by sector, section by section, mile by mile negotiation between China and India that has perpetuated the talks, and held up settlement of the border dispute all these years.

One hopes that from this fog of battle in the media, a little light would shine through, giving impetus to the border negotiations. If the border is settled, the media warriors, of course, will lose one of their favourite punching bags. But that is one casualty from friendly fire that would be worth paying for.

Postscript: While the media goes to battle the dragon, the reality of Sino-Indian relationship goes on. China is India’s largest trading partner. Indian investment in China is growing. Many Indian students are studying at Chinese universities. China and India are working together at G-20, at WTO and other forums. The two sides recently acknowledged their identical positions on climate change. If these are a few of the highs, then as in any relationship, there are many low points too. The war drums in the virtual media cannot overshadow the realities.

You may like to read the article, "Breaking News: TV war on China", Financial Express, 25 Sept 2009. Comments welcome. Would appreciate any out of the box ideas to resolve the border issue between China and India.

Thursday, September 24, 2009

Labour pain: Chinese workers in India

China and India are two of the largest countries in the world, by, with well over a billion people in each. If there is one thing that is available in plenty in both countries, is labour, that is people willing to work.

There are 30,000 people Chinese working in India today. But these are not people who have come to work on Chinese projects in India. I did not even know that Indian companies, particularly those working on short term projects and contracts, are hiring Chinese workers to work in India. And these are not high skilled professionals, but relatively low skilled workers, mostly working on power projects across India. Why is India importing labour from China?

From all accounts, there are two reasons why firms are opting to import labour. First, and most critically, India’s archaic labour laws—which the broader polity has little interest in reforming—are a huge disincentive for firms to hire workers on their payroll. For firms which work on a project to project basis, it is impossible to hire labour on a ‘permanent’ basis, as is required by our labour laws, which frown upon ‘hire and fire.’ Given that constraint, firms are forced to outsource their labour requirements to another party. This, of course, raises the cost—the firm which gets the outsourcing deal will obviously charge a commission above the regular charges for labour. It also creates a larger principal-agent problem, because the outsourced, contracted labour does not have a direct stake in the firm or project they are working on.

Add to this the fact that Indian labour—and this is the second reason for importing labour—in general works at lower productivity levels than similarly skilled labour from China. Anecdotal evidence suggests that Chinese workers put in longer hours and complete projects at a much faster speed than Indian workers do. This is not to argue that Indian workers are inherently less competent or hardworking—it’s just that work ethics and working cultures are different.

However, for senior management at profit making companies, what matters most is efficiency, not culture and nationality. They are, therefore, making the right decision by importing labour from China. As far as projects get completed faster, it involves a huge benefit to the Indian economy at large... ... ...

It may seem cruel to equate human labour with physical goods but the economic construct is the same—trade is good and free trade is optimal. Look at what years of trade protectionism did to the quality and standards of our industry and look how they have lifted their game after liberalisation. Competition is always good and that goes for labour as much as for physical goods and services. The government has missed this important nuance by simply banning the import of unskilled and semi-skilled Chinese labour. Instead, the [Indian] government should focus on skill upgradation and training of locals so that firms hire them out of free choice... ... ...

If the government is really serious about helping low skill Indian labour, it should reform labour laws immediately, rather than play populist politics.

Please read the originaly article "Bad solution for Chinese labour pain" by Dhiraj Nayyar in the Financial Express. While there is a lot of negotiations at WTO on movement of skilled labour, and professionals, hundreds of millions of workers in India are paying the price for a labour policy that has privileged the 10% of the over 450 million workforce in India, at the cost of the latter. Import of low skilled Chinese workers by Indian companies is a telling illustration of the high cost of indigenous labour due to "protective" labour laws. The price of this protectionism is being paid by the vast majority of Indian workers, Indian companies, and Indian consumers. Yet, any discussion on reforming labour laws, and lowering the cost of hiring is seen as politically sensitive, because of the political muscle of the small minority of workers who form the organised labour in India.

Tuesday, September 22, 2009

Trade across China India border, driven underground by govenrments

China and India share thousands of kilometers of border, much of it in not very hospitable heights of the Himalayan mountains. Yet, demand for trade among people on both sides have persisted. Given the lack of enthusiasm in both governments towards more open trade across these borders, smugglers have taken over. Two recent news reports in indicate the rise of barter among traders along parts of China and India border, particularly in Ladakh and western Tibet. Read the reports "Smuggling worth millions across China India border", here and here.

Some of the officials also feel that smuggling was being allowed by the Chinese because it was difficult for them to maintain the essential supplies to western Tibet area from the mainland China. According to the news report quoting Indian officials,
before last year's Olympics in Beijing, the Chinese had set up two temporary shelters in Dumchele area opposite to India's Changthang area where traders from both sides assembled and exchanged goods to the tune of several crores of rupees.
As the Tibetan protests grew during the Olympics, the Chinese closed down this facility and sealed the borders thus paving the way for smugglers from both sides to operate in a major way on barter system.

Though the Indo Tibetan Border Police and Army have been trying to clamp down on these smugglers, but they also admit that it is difficult to curb it because of hundreds of mountain passes which are difficult to man.

Some of the officials, speaking on the condition of anonymity, also alleged that a tightened crackdown always saw political intervention by Ladakhis who have been asking the security personnel to allow this trade to carry on as it was a mainstay for many people.
Not surprisingly, when trade is driven underground by law, the criminals and smugglers tend to take over trade. And ordinary people are forced to pay a much higher price.

Monday, September 21, 2009

Chinese Media look at the Sino-India relationship

Here is a sample of press clippings sent by a Chinese friend. Gives a flavour of how at least some in China are looking at the Indian media reports on tension between the two countries. I am very grateful to my friend for translating the headlines in to English.

  • 杨洁篪外长认为中印之间没有根本的利害冲突,呼吁加强合作
[Yang Jiechi, Chinese foreign Minister, claims that there is no fundamental conflicts between China and India, and calls on their sound cooperation.]

  • 中印关系政府顾问程瑞声表示中国目前要处理的问题甚多,没有功夫和印度搞军事冲突
[Cheng Ruisheng,the general consultant in Sino-India relation affairs,says Chinese government is too occupied in caring for something else to feel like seeing military conflicts arise between China and India.]

  • 水均益认为中印并非必然冲突
[Shui Junyi,an influential host from CCTV writes about the outstanding significance of the bilateral relation recognized by the leaders of both sides,and suggests as well that misunderstanding be wiped out.]

  • 印度呼吁政府的脊梁装钢筋
[India media fans the sparks of conflicts and impose pressure on Indian government to be tough at China.]

  • 呼吁印方某些人改变敌视中国的态度
[indicating that it is some voices from India that led to the tenseness between China and India]

  • 中国乃维稳为主的内向型经济及针对印度的增兵所建议举措
[China is oriented on keeping a peaceful environment to boost the steady economic growth without ambitious aggressive desires]

I welcome Chinese friends to share relevant news clips and their thoughts on the issue, so that my friends and I in India would get some idea of how China is looking at India.

Sunday, September 20, 2009

Breaking news: Indian channels battle the Chinese dragon

Apart from any geopolitical factors, there are two plausible explanations for the current focus on China India border, particularly on a few TV news channels in India. We are being daily fed with reports of Chinese incursions, China’s aggressive postures, China’s military build up, China paining rocks red, and then the media is blowing hot and cold over whether the Indian military is capable or ill prepared to deal with any situation that may arise. Indian government has repeated that there is nothing unusual happening on the border. Indian military has said there has been nothing unusual on the border. But of course the media knows better.

I know very little about the Chinese response to the war being waged in Indian drawing rooms. One report in Indian papers quoted Chinese officials urging Indian media to show restraint. Of course no can restrain the free Indian media, particularly when what is at stake is TRP. Particularly when many are suffering from an withdrawal symptom in a phase when there is no T20 cricket to keep the TV channels focused on the records made, the records missed, and records that might be made, both on and off the field.

Here are my two cent worth contribution on why China India border is dominating some TV news channels.

One, China is still relatively unknown to most Indians, quite unlike our other neighbours, and that makes it an easy target. For instance, Pakistan and its many non-state actors are a known devil, so whatever price they make us pay every time we are at the receiving end of their firework, we soldier on. There is very little personal animosity between ordinary people on both side of the Indo-Pak border. On the other hand, historically and socially, China has always been on the periphery of awareness for most Indians, and the Himalayan range only reinforced that perception. Shekhar Gupta writes in his weekly column in Indian Express, that the defeat of the Indian army in the 1962 war at the hands of the Chinese in the Indian north-east may have scarred the Indian psyche for generations. So today, the little known China, coupled with the trauma of 1962 are casting a shadow on the reality of Sino-India relationship in 2009.

Secondly, like the Bollywood films which seem forever eager to try and capitalize on any prevailing popular perceptions, there are some in the Indian media who think they now have an opportunity to try and leverage the Chinese dragon. In an economic slowdown, the competition among news channels for higher TRPs have become hot, and what better than a T20 thriller between China and India. The channels had a field day predicting a close election, when it was anything but that. Then it was the Swine flu, with running commentary on deaths triggering a panic. Then the monsoon or its failure, and the media descended like vultures at the prospect of picking at the worst drought in a century. And now it is time for a China India to face off, a battle has been joined with hardly anyone from the media actually visiting the border. Wait for the next media sponsored breaking news event. Far from being the messenger, the television channels seem to want to create news! Welcome to the media war in the information age.

Nevertheless, a war of words on TV channels is far more tolerable than any exchange of artillery between the armies.

Friday, September 18, 2009

Myth and reality in India-China relations

When I started this forum a couple of months ago, I had no idea that much of the popular discussion on China and India, at least in the Indian media, would get dominated by the differences over the border, and security and strategic concerns. While these political concerns have to be faced, it is also true that these concerns need to be put in a wider perspective. In an earlier post, I had indicated how the trade and economic relations between China and India had grown over the past five years.

Dr Subramanian Swamy, a Harvard-trained economist and China scholar and has made significant contributions to promoting India-China relations since 1978. He is a former Union Law Minister. He also knows Mandarin. In this article in The Hindu, 19 Sept 2009, Dr Swamy notes,
The most frightening myth in currency today is that China and Pakistan will co-ordinate an invasion of India, and balkanise the nation, or at least destroy our economy. This is expected no later than 2012, as precise as that! This we are hearing in some think tanks of Delhi populated by former officials of the government.

This mythical scenario is bogus because, first, China and the rest of the world learnt by the events of 1962, and by subsequent unconnected events, that if anything, the Indian people unite and India nationally consolidates when attacked from abroad. This Chanakya had noted as the concept of Chakravartin. Secondly, with Tibet and Sinkiang simmering, attacking India is not a one-way street or a picnic. On our borders and contiguous areas, moreover, the Indian Air Force is far superior while the terrain on our side of the border provides a much shorter and friendlier supply chain. China’s is very long and through more hostile terrain. Invasion therefore cannot be in the mind of the rational Chinese strategist. Most of these inflamed reports and the surrounding hysteria in India is because the propagators have been brought up on the British Imperialist version of our history, which is that India is a sitting duck for anyone who wants to invade the country.

The most potentially dangerous reality of the Sino-Indian relation today is India’s abdication of vital national interests for the domestic political survival of ruling coalitions. To counter China, some in India are advocating strategic bonding with the U.S. This is not in our national interest because the U.S. will then make us another Australia or Japan, a concubine, so to speak. The bottom line in U.S.-China relations at present is that China has a veto over U.S. actions in South Asia. Unless we can change that bottom line, the U.S. partnership is not going to mitigate our hysteria about China. In the meantime, China has us ringed in like a circus lion. It does not need to invade us when we are in such a state of impotence.

Shorn of the myths, the realistic and appropriate policy course for India is to match Chinese military capacity by concrete action (for example, spending 7 per cent of GDP on defence) and be conciliatory in policy, attitude, and words. Or to put it bluntly, take full care of national security but work for peace and good neighbourliness. At present we are doing precisely the opposite.
Increasing trade will play a big role in promoting economic development, building communication and improving understanding between the people. And Economic development is critical if military capacity is to built and sustained. Hopefully, with prosperity and political confidence to meet strategic challenges, there would be a growing recognition of the futility of military conflict. It is this process of marginalisation of military threat, which, I think, will determine the relationship between China and India. Would very much like to hear from others on this.

China's top climatologist stays cool

A 2C rise in global temperatures will not necessarily result in the calamity predicted by the Intergovernmental Panel on Climate Change (IPCC), China's most senior climatologist has told the Guardian, the British newspaper.

While the IPCC warns a 2C rise substantially increases the risks of floods, drought and storms, the report quotes the Chinese official,
Xiao Ziniu, the director general of the Beijing Climate Centre, said "it was too early to determine the level of risk posed by global warming."
"There is no agreed conclusion about how much change is dangerous," Xiao said. "Whether the climate turns warmer or cooler, there are both positive and negative effects. We are not focusing on what will happen with a one degree or two degree increase, we are looking at what level will be a danger to the environment. In Chinese history, there have been many periods warmer than today."
Pls read the complete report filed by Jonathan Watts, The Guardian newspaper's Asia Environment Correspondent.

Monday, September 14, 2009

Communication, rather than alarmism: China - India coexistence requires astute management

Given the increase in political temperature following a number of reports in the Indian media, about the various Chinese inclursions in to India, across the line of actual control, Nitin Pai and Sushant K Singh write in the Mint, "Interpreting China’s attitude" (14 Sept 2009), suggests that viewing Beijing as a political monolith is erroneous. Indian attitudes require realism in dealing with China. The authors offer that "nuclear deterrence imposes limits on how much a conventional military conflict can escalate", and secondly, any military conflict "would have the inevitable consequence of pushing India unequivocally into an alliance with the US".

While eschewing paranoia, alarmism and irresponsible rhetoric, a state of armed coexistence requires astute management. First, Indian and Chinese officials—civilian and military—must communicate across all levels. The establishment of a hotline between the heads of government must be followed up with communication links and better contacts between military commanders at operational levels...

Second, India must continue to invest in conventional defences to ensure that the military balance across the Himalayan frontier remains stable in the face of the PLA’s rapid modernization. This calls for careful planning as to the type of military assets used and the areas where they are deployed, to minimize the risk of miscalculation by either side. Also, as Admiral Sureesh Mehta said in an important speech a few days before he stepped down as navy chief, “On the military front, our strategy to deal with China must include reducing the military gap and countering the growing Chinese footprint in the Indian Ocean Region. The traditional or ‘attritionist’ approach of matching ‘Division for Division’ must give way to harnessing modern technology for developing high situational awareness and creating a reliable stand-off deterrent.”

Third, India must avoid creating needless suspicions in Beijing over its Tibet policy. John Garver, a noted scholar of India-China relations, determines that Mao’s profound misreading of Nehru’s strategic intentions over Tibet was one of the main drivers of China’s decision to go to war with India in 1962. New Delhi must not allow the Tibetans’ struggle to unduly determine how it is perceived by the Chinese leadership.

Finally, not everything about the India-China border issue lies in the domain of foreign policy. It’s not only about the “development” of Arunachal Pradesh, Sikkim and Ladakh. It is about making them part of the political, economic and social mainstream.

Ironically, while China has consciously attempted to integrate Tibet in to Chinese mainstream, India has as part of its strategic doctrine sought to keep the border regions such as Arunachal or Ladakh or Sikkim, relatively isolated, believing that their remoteness would somehow help secure secure the border against possible external aggression. In modern times, it is futile to believe that natural obstacles such as the mighty Himalayas would continue to prove insurmountable as it had throughout much of history. Secondly, there is a greater need among military and strategic scholars to recognise the critical role of economic development in sustaining a greater military strength.

Hats off to merchants of China and India: Is economics trumping politics?

Over the last couple of years, there has been a sense of growing political tension between China and India. Whether it is China's claim on parts of India's north eastern state of Arunachal Pradesh, or the recent media reports on incursions by Chinese troops across the line of control, these and similar events have only contributed to sense of unease. Although, official sources on both sides have denied any political or military tension. Yet, strategic and military thinkers across the world have been assessing the geo-political implications of economic growth in India and China, and their impact on the region.

However, just as political tensions between China and the United States have not had much impact on the balooning trade between two of the largest economies in the world, so too China - India economic ties has grown rapidly despite the political tensions. The question therefore is whether the growing trade relations will help smoothen the political feathers, or whether the political tensions will eventually begin to adversely affect economic ties.

Healthy political ties are considered positive for bilateral economic engagement. Bilateral trade, investment and commercial transactions are expected to enhance along with improvement in mutual political ties. India and China, however, appear to be interesting exceptions to this causality. In recent years, economic engagement between the two countries has grown at a robust pace despite persistence of political tensions...

The sporadic volatility noticed in political ties has been conspicuously absent in economic engagement between India and China. The rise in economic engagement has been rather spectacular. In 2003-04, India-China bilateral goods trade was worth $7 billion. Over the next five years, the trade experienced a five-fold increase to reach $37.9 billion in 2007-08. During the same period, India-US trade and India-Japan trade increased from $16.5 billion and $4.4 billion respectively in 2003-04 to $41.7 billion and $10.2 billion respectively in 2007-08. The quantitative expansions in India-US and India-Japan trades amounted to slightly more than two-fold increases during the period. These were just about half the increase in India-China trade...

During 2004-05 to 2007-08, India’s exports to Japan and the US grew at annual average rates of 22.8% and 16.1%respectively. The corresponding growth in exports to China was 40.9%. On the other hand, India’s imports from Japan and the US during the same period grew by 24.4%and 44.4%respectively. But India’s imports from China recorded a far higher growth of 61.%...

The divergence in the nature of economic and political engagements between the two countries can be explained by highlighting some fundamental aspects that are usually ignored by conventional strategic analysis. Foremost among these are economic complementarities between the two countries. The heterogeneities in the two economies contain ample contrasts in terms of resources and capabilities. Given the varied range of final and intermediate products manufactured by the two countries and the niche specialisations of their workforces, numerous opportunities exist for efficient exchange of commodities. Manufacturers and exporters from both sides are simply responding to these opportunities...
View a graphical presentation of India's merchandise trade with China, Japan and US, here.

Amitendu Palit and Parama Sinha Palit look at the China India merchandise trade, in "Hats off to merchants", in the Financial Express (14 Sept 2009).

Sunday, September 13, 2009

One party autocracy

One-party autocracy certainly has its drawbacks. But when it is led by a reasonably enlightened group of people, as China is today, it can also have great advantages. That one party can just impose the politically difficult but critically important policies needed to move a society forward in the 21st century. It is not an accident that China is committed to overtaking us in electric cars, solar power, energy efficiency, batteries, nuclear power and wind power. China’s leaders understand that in a world of exploding populations and rising emerging-market middle classes, demand for clean power and energy efficiency is going to soar. Beijing wants to make sure that it owns that industry and is ordering the policies to do that, including boosting gasoline prices, from the top down.
This pean to China was written by noted columnist Thomas Friedman of the New York Times, in "Our one party democracy". At a time when many in the world are appreciating, while others are apprehensive of China's growing presence in the manufacturing sector. On the other hand, and at the same time, there are many within China who are articulating the need for political reforms. The above paragraph illustrates two fatal intellectual flaws. One, Friedman implies that enlightened leadership can improve on the market mechanism. But if that was indeed the case, Fascist and Socialist regimes would have continued to thrive, rather than being in the dustbin of history. Secondly, Friedman, coming from the oldest democracy and the world's largest economy - the United States, which is also largely a market economy, tragically shares a belief among many intellectuals, that democracy and market may not be compatible. Both these propositions are false, historically, politically, and economically.

China seeking to overcome labour shortage by improving skills

China's working-age population has been growing slowly, with rural surplus labor down to about 20 million from 150 million in recent years. In a report, Institute of Population and Labor Economics, of Chinese Academy of Social Sciences, calls for the second labour advantage, by improving labor skills and increasing the level of education.
The average student in the countryside attends school only 6.8 years, despite the country's mandate for a nine-year compulsory education.

The report found that a rural resident who finishes senior high school will have a higher productivity rate - 21.1 percent - compared to 8.8 percent for those who only finish lower levels of education.

In the city, the government should encourage more residents to receive more education after high school, said the report. Those with further education earn at least 29 percent more.

The current average time for schooling is 9.5 years.

The report notes that in the manufacturing sector, one more year of education increases productivity by 17 percent.
This item was forwarded by a Chinese friend. It was published in the China Daily, on 10 Sept 2009, "China losing global labor advantage".

Friday, September 11, 2009

Power of wind: Cost of power

Two recent reports have once again highlighted the tremendous potential of wind energy in both China and India. The two reports, prepared by two distinct teams, have come to very similar conclusions. They say that 20-25% of electricity by the year 2030 could come from wind, if the government extends appropriate incentives. While releasing the report on India, the minister for renewable energy offered to help the industry, but wanted power at a cheap rate. The report on China, estimated an investment need of $900 billion, in the next twenty years if that country is to harness fully its wind power potential. Here are a few key excerpts.
  • China produces 792.5 gigawatts per year, second only to the US, with an expected 10 percent annual increase in the future. Close to 80 percent of its power is produced through coal-making, making China and the US as the world's two largest carbon emitters.
  • A team of environmental scientists from Harvard and Tsinghua universities analyzed China's wind resources and concluded that if the nation meets 30 percent of its increase in electricity demand with wind power by 2030, it will be enough for the nation to realize a low-carbon future.
  • While wind-generated energy accounts for only 0.4 percent of China's total current electricity supply, the nation is rapidly becoming the world's fastest growing market for wind power, trailing only the US, Germany and Spain in the capacity of existing wind farms.
  • The authors said the report was fueled by the Chinese government's support for a low-carbon future after it passed the Renewable Energy Law in 2005. The law, which provides favorable tax status for alternative energy investments, has boosted the development of renewable energy, especially wind.
  • The research team evaluated the total potential for wind energy that could be realized at an affordable cost level, which would require installation of 640 GW of wind farms over the coming 20-year period. Their analysis would theoretically require China to make an investment of around $900 billion (at current prices) over the same twenty-year period.
Read the complete article, "Wind may prop China's power rush" by Lin Shujuan in China Daily on 11 Sept. 2009.

Following are the key highlights from the Indian news article, "Wind power can meet quarter of India's energy needs by 2030" in (10 Sept. 2009).
  • 'Indian Wind Energy Outlook 2009' prepared by the Indian Wind Turbine Manufacturers Association (IWTMA), says that with proper incentives, wind power can meet over 24 percent of India's energy needs by 2030.
  • The study says wind power can supply 21.2-24.2 percent of the electricity India will need in 2030, if the industry gets all the encouragement it wants. In contrast to this 'advanced' scenario in the report, it says without any extra push, it will be able to supply 2.4-2.7 percent of India's energy needs in 2030.
  • The report says that India's wind energy resource has only been partially realised due to the lack of a coherent national renewable energy policy. The promotion of renewable energy in India is mainly driven by state governments, but inconsistent implementation and the lack of a national policy is hampering genuine progress... To boost investment in renewable energy, it is essential to introduce clear, stable and long-term support policies.
This call for supportive policies, including subsidies, is surprising considering that an Indian company is among the top five in the world, manufacturing wind turbines.

If wind is abundant, and technology has been proven, given the rising demand for energy in both China and India over the next 50 years, why would the wind power industry need special treatment?

Saturday, September 5, 2009

Uneasy Engagement: China rises, Region worries

In a new series of articles in the New York Times, titled "Uneasy Engagement", reporters have been looking at the rise of China, and the worries that many in the region are beginning to share. This is a contrast with India's experience, where India's economic growth has not sparked any particular concern even among its immediate neighbours. India's uneasy relationship with some of its immediate neighbour seems to be rooted more in history, rather than in economics.
In the first article, in this series, "Australia, Nourishing China’s Economic Engine, Questions Ties", NYT provides a glimpse of the sentiments in Australia.
China has become Australia’s biggest trading partner, one of its biggest tourism customers, the largest single buyer of its government debt, a major buyer of farmland and real estate...

China’s hunger for steel gobbles up half of Australia’s iron ore exports, and its textile factories buy more than half of Australia’s wool. Over 120,000 Chinese students throng to Australian schools and universities...

Three state owned Chinese companies said they would buy stakes in Australia’s storied mining industry totaling $22 billion — as much as China’s entire investment here in the last three years — some of this nation’s 21.3 million people have reacted with aggrieved nationalism...

Nor is Australia alone. From the Philippines to Vietnam, China’s neighbors are recalculating the benefits — and potential deficits — of life in the shadow of a newly dominant nation...

In the second of the series, "China and India Dispute Enclave on Edge of Tibet", NYT visits the predominently Buddhist area of Tawang in India's north eastern province of Arunachal Pradesh, and experiences the tension between China and India over this part of the border.
This is perhaps the most militarized Buddhist enclave in the world...

Though little known to the outside world, Tawang is the biggest tinderbox in relations between the world’s two most populous nations. It is the focus of China’s most delicate land-border dispute, a conflict rooted in Chinese claims of sovereignty over all of historical Tibet.

In recent months, both countries have stepped up efforts to secure their rights over this rugged patch of land. China tried to block a $2.9 billion loan to India from the Asian Development Bank on the grounds that part of the loan was destined for water projects in Arunachal Pradesh, the state that includes Tawang. It was the first time China had sought to influence the territorial dispute through a multilateral institution. Then the governor of Arunachal Pradesh announced that the Indian military was deploying extra troops and fighter jets in the area.

The growing belligerence has soured relations between the two Asian giants and has prompted one Indian military leader to declare that China has replaced Pakistan as India’s biggest threat.

Economic progress might be expected to bring the countries closer. China and India did $52 billion worth of trade last year, a 34 percent increase over 2007. But businesspeople say border tensions have infused business deals with official interference, damping the willingness of Chinese and Indian companies to invest in each other’s countries.
Many of us believe that open trade and commerce is one of the key factors in building peaceful relationship between communities and countries. But China's economic rise has generated admiration as well as triggered apprehension.

Indian strategic thinkers concerned about China

The economic ties between China and India has been growing. China has become the leading trading partner of India. On international issues such as climate change, both countries seem to share a lot of common ground. Yet, defence and foreign policy experts on both sides periodically express grave concerns. Last month, there was that report from a Chinese think tank which said that fragmentation of India was an option for India. This week there are three Indian experts who have expressed their concerns about Chinese design on India.

In an article published in The Telegraph newspaper, "Diffident diplomacy: China continues to outmanoeuvre India", on September 1, 2009, former Indian Foreign Secretary, Kanwal Sibal had warned about "strengthening suspicions that China will do everything possible to thwart India’s rise as a rival power," "its propensity to disregard agreements arbitrarily," and with India’s politically

Harsh Pant, a scholar at King’s College, London, wrote an article titled, "China Tightens the Screws on India", in the Far Eastern Economic Review, Sept 2009, (subscription required).
Even as the two countries sign seemingly important documents year after year, the distrust between them is actually growing at an alarming rate.....The two sides are locked in a classic security dilemma where any action taken by one is immediately interpreted by the other as a threat to its own interests... ... ...
Sino-India frictions are growing and the potential for conflict remains high. Concern in India is increasing over China’s frequent and strident territorial claims along the Line of Actual Control in Arunachal Pradesh and Sikkim... ... ...

To strengthen its bargaining position with China, India will have to gain some sort of leverage over its neighbor, something it could possibly achieve by cultivating states along China’s periphery. Indian policy toward China continues to be viewed largely through the prism of economic growth, with the assumption that the only way to match up to the challenge posed by Beijing is to grow at 7% to 8% over the next decade or so. Yet India will have to work proactively to achieve greater strategic balance in the region over the next few years if it wants to preserve and enhance its own interests. As of now, Indian policy makers have not found a way of doing this... ... ...
Brahma Chellaney, a strategic scholar, at the Center for Policy Research in New Delhi, wrote another article titled, "India’s Growing China Angst " in the Far Eastern Economic Review, Sept 2009, (subscription required).
The strains in Sino-Indian relations have also resulted from sharpening geopolitical rivalry. This was evident from China’s botched 2008 effort to stymie the U.S.-India nuclear deal by blocking the Nuclear Suppliers Group from opening civilian nuclear trade with New Delhi. In the NSG, China landed itself in a position it avoids in any international body—as the last holdout. Recently, there has been an outcry in India over attempts to undermine the Indian brand through exports from China of fake pharmaceutical products labeled “Made in India.”... ... ...

India can expect no respite from Chinese pressure. Whether Beijing actually sets out to teach India “the final lesson” by launching a 1962-style surprise war will depend on several calculations, including India’s defense preparedness to repel such an attack, domestic factors within China and the availability of a propitious international timing of the type the Cuban missile crisis provided 47 years ago. But if India is not to be caught napping again, it has to inject greater realism into its China policy by shedding self-deluding shibboleths, shoring up its deterrent capabilities and putting premium on leveraged diplomacy.