Dousing the Dragon

There can be little dispute about China’s current misconduct towards India. Strategically, China is openly hostile. For the long term it has armed nuclear Pakistan to encircle India along with other neighbors and choke New Delhi. Tactically, China bullies India. It does this through border encroachments, untenable territorial claims, enforced stoppage of construction work on India’s side of the Line of Actual Control, and now, cyber espionage. Diplomatically, China appears brazenly hypocritical. It provides soothing sound bytes through its Prime Minister and its Ambassador. It may well be that the Chinese Premier and its Ambassador are personally sincere and well disposed towards India. But their personal disposition does not count. The actions of their government belie good intentions. New Delhi can only judge what is served on the plate.

The Indian government seems helpless. It has woken up belatedly to beef up its defence preparedness. That is all to the good. But there is little likelihood of direct Chinese military action against India. Beijing has too many proxy nations to do its bidding. If at all there is direct military involvement by China it will most likely be a short, swift and limited action to expose India’s weakness and humiliate it in the eyes of the world. New Delhi meanwhile is reduced to helpless acquiescence in China’s bullying. And it continues to further business ties with Beijing.

China can be effectively curbed. Only Indian self confidence is required. China draws its present belligerence from very rapid economic growth. But there is a chink in China’s economic armor. China has a weakness that New Delhi can exploit. India has a strength that New Delhi can deploy. Consider both, China’s weakness and India’s strength, and a simple strategy suggests itself to cool the overheated Chinese dragon. According to American analyst James Chanos the Chinese economic bubble will burst with dire consequences. Chanos had earlier correctly predicted the collapse of the giant US Corporation, Enron. Regardless of what he has predicted if India can summon the requisite will and stamina it can prick China’s bubble.

New Delhi should draw a lesson from former President Ronald Reagan. He was credited with engineering the collapse of the Soviet Union. He deliberately embarked on the Star Wars project. The Soviets had to keep pace for their security. The costs of that venture crippled an already ailing Soviet economy. With the spread of information through television across the Soviet controlled empire the economic crisis ignited rebellion and revolt. East Europe went up in arms. Soon the Soviet dictatatorship collapsed. Today, thanks to the Internet, media is far more all pervasive. And China’s economy is vulnerable.

Consider China’s weakness. China’s economy is export driven. Sixty per cent of China’s urban population is employed in its State Owned Enterprises (SOEs). All these SOEs are running at a loss. But they cannot be closed down because of the resultant unemployment and disruption that would follow. So SOEs are kept alive by continuous loans from state owned banks. The loans are not repaid. These are bad loans. The banks continue paying these bad loans from the revenue that the government earns from exports. That is why Chinese exports mean life or death. China must continue to export in order to maintain social stability. China’s economy is heavily dependent on Foreign Direct Investment (FDI). Manufacture by cheap labour in partnership with foreign firms earns China the revenue from its exports. China’s domestic market is comparatively weak. The large bulk of its manufacture is consumed abroad. With FDI of US$ 80 billion China has achieved a 10 per cent growth rate. 93 percent of Chinese exports are manufactured goods. These manufactured goods contain 40 percent of imported inputs. China therefore is a mammoth, cheap-labour, manufacturing factory utilized by greedy foreign capitalists. China imports mostly raw materials and capital goods. China’s urban-rural gap is dangerously large. Its actual urban income is almost six times that of rural income.

Now consider India’s strength. India’s economy is consumption driven. With an FDI of US$ 8 billion, one-tenth of China’s, India has a growth rate of 8 percent, just 2 points behind China. According to a 2008 survey by McKinsey Global Institute, India’s domestic consumption accounts for 57 percent of its economy. This is the highest in Asia, more even than Japan at 55 percent, Singapore at 40 percent and far more than China at 37 percent. And of the total investment in India, a staggering 37 percent comes from domestic savings. This, while 42 percent live under the poverty line! Today the Indian middle class is estimated to be just 5 percent of the population. What will happen when, as experts predict, it grows up to 40 percent by 2050?

So what should India do? New Delhi should bluntly tell Beijing in private that its hostility, harassment and encroachment on India’s sphere of influence are unacceptable. As long as Beijing does not behave India will suspend all bilateral trade with China and take stringent steps to block smuggling. This step will cause India temporary disruption. It will hurt some businessmen before they can divert to domestic or other foreign markets. It will hurt consumers who may have to pay more for the items cheaply sold by China. However, it will cause no fatal damage. War, even by other means, inflicts some damage. Nevertheless India will survive, and even thrive. But what of China? The Indian market is vital for its long term export strategy. China’s American export market is saturated and shrinking. The European market is not overly hospitable. India is China’s biggest long term export market.

The time to act is propitious. Beijing’s current spat with Google has opened the world’s eyes. India should take the lead in suspending bilateral trade with China. Despite greedy capitalists who think little of jeopardizing the national interests of their own nations by profiting from China’s cheap labor, other governments may follow India’s lead. Any drastic reduction of China’s exports could bring Beijing to its knees. A major economic crisis could weaken the stranglehold of the power-mad fascists who ruthlessly rule China. China’s present rulers, seen or unseen, are a future threat to world peace. Recall the words of former Chief of the People’s Liberation Army and former Defence Minister, Chi Haotian, from a speech delivered in 2005: “Hitler’s Germany had once bragged that the German race was the most superior race on Earth, but the fact is, our nation is far superior to the Germans…When we decide to revitalize China based on the German model, we must not repeat the mistakes they made.”

If China is liberated from the fascists who rule it, one of the world’s greatest civilizations could give true expression to its culture. And one of the world’s most talented and industrious people could make their authentic contribution to global progress.


More by :  Dr. Rajinder Puri

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