13 November 2006

Chewing over China
Vikram Sood

The theme song almost everywhere nowadays is ‘Will India catch up with China’? The French daily Le Monde had a special supplement on ‘Chindia’ in October. Eric Le Boucher predicted that by 2035, China would have overtaken the US, and India would be the third largest economy. Even though there were going to be problems in both countries, the 21st century would belong to them. Jean-Francois Huchet talked of the advantage that the Chinese had with their access to energy sources, while India had an advantage in its young population. The difference is that by 2035, India will be dependent up to 95 per cent on imported energy while China’s dependency will be 75 per cent. A country that is almost totally dependent on external sources of energy will obviously be disadvantaged. There are also several predictions that while China may keep winning the sprints, India will win the marathon.

But it may be useful to remember a few random statistics. The Chinese today produce thrice as much electricity as we do, their railways haul five times more freight traffic than ours does, and their container traffic is 15 times higher. Nearly half our roads are unpaved while 90 per cent are paved in China. Their foreign exchange reserve is six times that of India’s and their manufacturing sector adds twice as much value to the GDP as ours does. China has a huge trade surplus, while India has had a continuous trade deficit for over 50 years.

Moreover, the Chinese produce major weapons systems that they supply to their friends, often at cut rate prices, and use their deep pockets to buy global influence. So, while there is a lot to exult about in India, the reality is that we have a long way to go. Mere aggregated GDP figures do not make for a major power, usually defined as one whose voice is heard and reach felt across the globe.

China became a major power within a couple of decades because there was tenacity of purpose, a long-term perspective uninhibited by contrary political pressures and their own world view of their status in the world. Having decided what they wanted, they went about it systematically: the State committed itself to health and education, reduced its size of governance and made foreign investment attractive. Rapid economic growth brings its problems. Shanghai today is China’s showpiece and has twice as many skyscrapers as New York City. But it is equally well-known that these modern-day Potemkins hide the desolation of the poverty and inequality in the interior regions.

For the first time, China and India are charting rapid growth simultaneously. For China, this is happening amid unresolved territorial disputes and historical animosities with Japan, accompanied by competition for new resources, markets and rising military expenditures. The transformation of Japan into a country capable of rapid militarisation along with the US’s enhanced military and naval presence stretching from the Mediterranean to the western Pacific has pushed China to want to break out and ensure its future. China sees the growing warmth in the India-US relations a part of this encirclement.

Today, China considers the US to be sinister and Japan as antagonistic, but keeps its economic relations with both on a strong platform. But it treats India with disdain — unwilling to accept it as an equal and seeing to it that India has no seat at the high table of international affairs.

This is partly our fault for we revel in equality with Pakistan; Havana was just another landmark. China seeks to be treated with awe and respect. India, on the other hand, seeks approval and acceptance from the West while wanting to be loved in the neighbourhood. China has exercised strategic military options with Pakistan and North Korea, and strategic market options with India and Japan. Consequently, China has two nuclear allies in Pakistan and North Korea, having helped them get there in pursuit of its own power ambitions. The West, for all its machismo, has been unable and, at times, even unwilling to prevent this.

The Chinese have always believed that neighbouring States must be respectful and obedient. This may not cower India but the game to restrict India to the Asian subcontinent remains Chinese policy. The tactics are simple: keep borders with India tranquil but do not solve the dispute; trade with India but arm Pakistan and wean away Nepal, Bangladesh and Myanmar. As India retreated strategically from Tibet over the last 60 years, Han Chinese and missiles moved in — the former to change the demography and the latter as an exhibition of Chinese muscle and future intent.

The recently inaugurated rail link from Qinghai to Lhasa is more than just a spectacular engineering marvel. It is an exhibition of Chinese determination. The railroad will reach Xigatse near Nepal by 2010 and may even be extended to Kathmandu. The road infrastructure along the entire India-Tibet border has strategic implications for India in the context of an unresolved border. The Chinese aim is to use their ‘soft’ economic power to reach India’s North-eastern states, Chittagong and Myanmar through these trade links via Nathu la. The lateral roads from China into Pakistan and Myanmar, along with access to the ports in Pakistan, Myanmar and, possibly, Bangladesh and Sri Lanka, are designed to put India in pincers.

It can be argued that these so-called threats are really challenges and every challenge can be an opportunity. Since it does not make economic sense that Chinese freight trains and trucks that come to the border should go back empty, opportunities then exist for Indian entrepreneurs. This is perfectly rational, if one side were to view this as an economic venture and the other is ready to exploit the opportunity. The answer to both is, however, no.

President Hu’s visit to India may be a part of the India-China friendship year but it is also part of a four-leg tour that includes Vietnam, Laos, and finally Pakistan where at least 20 agreements will be signed at a time when more and more Pakistanis appear to be virulently anti-American. One would expect that the border issue, trade and Tibet will be discussed when the Chinese leader is in India. There are no quick solutions to the first because the Chinese are not in a hurry. But if the Chinese want a consulate in Kolkata, then the least we can expect is one in Lhasa.

All this hoopla about growing trade misses the point that the Chinese are flooding our consumer markets with manufactured goods (some quite shoddy), while taking away our raw materials like iron ore and steel for their growth industry. We need to correct this. Tibet is also more than just a territorial and emotive issue. It concerns Asia’s environment as well. The Indus, the Sutlej and the Brahmaputra originate in Tibet. Should the Chinese decide to divert the Brahmaputra to feed their arid north and generate some 40,000 MW of electricity, all of our North-eastern states will become dry. A river water agreement with China is perhaps more urgent for India than a border settlement. Issues such as these that impact the quality of life of Indians should be our major concern, instead of getting led into a steeplechase with China.
Source: The Hindu

 10 November 2006

Worries about India-China economic ties
Pallavi Aiyar

Trade between India and China is set to cross the $20 billion mark by the end of this year. But recent moves to subject Chinese investments to special security clearances have come as a dampener.

THE OVERALL positive assessment of the India-China relationship in the new century has largely been sustained by the booming bilateral trade. Bilateral trade is set to cross the $20 billion mark by the end of this year and steady streams of business delegations have begun to cross the border with an eye to investment. To some analysts this is proof that Bangalore and Shanghai rather than New Delhi and Beijing will shape the future of relations between two of the world's fastest growing economies.

But even as Chinese President Hu Jintao gets ready to make his maiden visit to India, recent moves by New Delhi towards subjecting Chinese investments to special security clearances have cast a question mark over the future of bilateral economic ties.

The Indian government is drafting a new foreign direct investment (FDI) policy that will, for the first time, include China on a list of countries considered to be a security risk. New Delhi has for long stymied Chinese investments in certain sectors, such as telecommunications and port development, but the new policy may extend security reviews to many more sectors.

"I am extremely worried about this news," says Wang Jinzhen, Secretary General of the China Council for the Promotion of International Trade. "I am personally a strong believer in the potential of India-China economic collaboration and I spend a large amount of time persuading would be investors in China to look towards India," he continues.

"But how can I strongly promote India if the Indian government puts such discriminatory measures against Chinese investments," asks Mr. Wang. He says the more than 100 Indian companies with offices and investments in China are treated on a par with those of other foreign countries whereas Chinese companies in India are singled out for discrimination.

"If some restrictions on FDI are applied in certain sectors and these apply to all countries we can accept this. But when just some chosen countries are discriminated against, this is not good."

In recent years there have been several cases of potential Chinese investments in India being blocked. In August, India refused approval for a port terminal contract to a consortium of Chinese companies, Kaidi Electric Power Company and China Harbour Engineering Company. Huawei Technologies, a Chinese telecom-equipment major, has also been repeatedly rebuffed in its expansion plans; the Research and Analysis Wing having identified it as a possible front for espionage activities as far back as 2001. Huawei has a six-year-old software centre in Bangalore and employs 1,150 Indian engineers in addition to 50 Chinese employees.

The current levels of Chinese investments in India are paltry. According to the Indian government, FDI inflows to India from China between August 1991 and October 2005 worked out to a total of $2.03 million. Chinese statistics put the figure considerably higher at about $47.35 million but given that India's total inward FDI for the same period stood at $36.2 billion, this number too is distinctly unimposing. Even Indian investments in China are higher, valued at around $130 million.

Given that the much touted potential for Sino-Indian collaboration in a range of areas from IT to energy has caused business pundits to coin the term "Chindia," these statistics are a stark reminder of the gap between the hype and reality.

Defending the low level of Chinese investments in India, Mr. Wang says the business environment in India is still not very appealing for most Chinese companies. "In China you can hire and fire people according to the company's needs. In India the labour laws are still very restrictive and combined with poor infrastructure it is not always very attractive for Chinese."

In addition, Mr. Wang points to the troubles several Chinese businesses in India have had in obtaining visas for visiting staff. For example, it has taken Reliance Industries several weeks to persuade the government to issue visas to 1,800 engineers from Chinese Petroleum whom it wants to hire to lay a gas pipeline.

But notwithstanding the contentious investment issue, Mr. Wang says he hopes the two countries can sign a free trade agreement (FTA) at the earliest. China is reportedly keen on pushing ahead with an FTA and it is expected that Mr. Hu will discuss ways of taking one forward when he visits New Delhi from November 20 to 23.

The two countries had agreed to conduct a joint feasibility study regarding an FTA during Chinese Premier Wen Jiabao's visit to India last April. An FTA between India and China would create the biggest free trade region in the world and, according to Mr. Wang, it is a must if India and China are to attain a "quantum jump in economic and business relations."

China is currently holding FTA talks with Singapore, Australia, New Zealand, and Pakistan as well as the Association of Southeast Asian Nations.

Even in the absence of an FTA, Sino-Indian trade is growing strongly. In 2005, bilateral trade increased by 37 per cent over 2004 to touch $18.7 billion. Just three years earlier in 2002, the total volume of bilateral trade was a mere $5 billion. This year trade volume reached $17.8 billion during the first nine months itself and, according to Mr. Wang, is expected to reach $22 billion by the end of the year. China is, in fact, poised to overtake the United States as India's largest trading partner over the next few years.

But New Delhi is reluctant to enter into an FTA with China prematurely amid fears that this would open the doors to a flood of cheap Chinese goods, harming domestic industry and on balance causing losses to Indian exporters.

The composition of current bilateral trade is revealing. India's exports to China are overwhelmingly dominated by low-value, primary products with a huge reliance on iron ore. By contrast China's top exports to India was machinery, which accounted for 43.9 per cent of total Indian imports in 2005.

In 2005, ores, slag, and ash comprised 56 per cent of India's exports to China with a year-on-year growth rate of 28 per cent. This kind of undue reliance on a single commodity is far from ideal. If the iron and steel industry in China were to experience a new direction it would dramatically impact on Indian exports. China's ongoing construction boom cannot be expected to last forever. Driven by fears of overheating, the authorities in Beijing have, in fact, been trying to tighten growth at the macro-level for the last several months.

The impact of these measures on Indian exports is already being felt. In the first six months of 2006, Indian exports of iron ore decreased for the first time in years, by almost 16 per cent (in contrast iron ore exports had exploded by some 233 per cent in 2004). Bucking the trend of the last few years, India has thus developed a trade deficit with China of over $3 billion. In contrast, last year India's trade surplus with China stood at $843.2 million.

Mr. Wang acknowledges that this is a worry for India although he says that it is "natural for countries to go through cycles when it comes to deficits and surpluses." "Sometimes one country has a surplus, and then sometimes it's the other country's turn. As long as trade develops that's what really matters," he says. But for India such sentiments are cold comfort.

Mr. Hu will be accompanied by a 150-member-strong business delegation on his India trip, underscoring the economic emphasis that the Chinese side is giving the visit. When in Mumbai, the Chinese President will also address a Sino-Indian business summit and participate in a CEOs forum.

But the continuing restrictions on Chinese investments and the proposal to make these restrictions official policy are testament to the limits of bilateral economic cooperation in the absence of a final boundary settlement. While burgeoning trade has helped provide momentum to the sweetening of relations on the political front, economic engagement can never be truly unfettered until full normalisation of political ties is complete, including a boundary settlement.
Source: The Hindu

 27 June 2006

Another step forward in strengthening ties
Pallavi Aiyar

INDIA AND CHINA began on Monday the eighth round of talks between their Special Representatives on the border dispute — National Security Adviser M. K. Narayanan and Chinese Vice-Foreign Minister Dai Bingguo — marking another step forward on the slow road to resolution. The latest round of discussions comes against a background of steadily warming bilateral relations. In the last year, the two neighbours have entered into broad cooperation in areas where they have usually been portrayed as rivals: energy, security, and defence. Bilateral trade is galloping ahead and expected to touch $20 billion before the end of this year. China is, in fact, expected to overtake the United States as India's largest trade part1:37 PM 6/28/2006ner within a few years.

CLOSER TIES: National Security Adviser M.K. Narayanan and Chinese Vice-Foreign Minister Dai Bingguo on the first day of the eighth round of the India-China boundary talks in Beijing on Monday.