The Bhutanese Leading the way.
There have been a lot of opeds and articles in the Indian press questioning why Prime Minister Modi is ‘soft on China’ or not able to take punitive measures for putting a hold in the UNSC on listing JeM chief Masood Azhar as a terrorist.
However, the view point of someone sitting on the Indian PM’s chair faced with ground realities will be quite different.
First off, any equation of India and China, mostly by western writers, leaders and commentators is off by around three decades as it was only in the early 1980’s when both countries had comparable economic and military might.
The economic and military power asymmetry now is heavily in China’s favor.
In terms of economy, China’s GDP is around $ 14 trillion while India’s economy is around $ 2.30 trillion.
China has around $ 3 trillion in reserves while India has around $ 400 bn.
As per 2017 data from World Bank, China’s GDP per capita is $8,827, and India’s is $1,942.
India may currently enjoy a faster GDP growth rate but given a much smaller base, this is insignificant.
China adds around half of India’s GDP every year to its economy. To add what China adds every year India has to grow by around 40% a year & real growth at that (ToI).
China’s higher growth is not just due its one party authoritarian system. The bulk of its population is based along its coastal belt areas. This favors manufacturing and trade, where China dominates.
By contrast, the bulk of Indian population are in the interior region or BIMARU states of Bihar, Uttar Pradesh, Madhya Pradesh and Rajasthan which are also the most backward.
China’s annual military budget is around $220 bn while India is around $ 55 bn or one fourth of China.
China has around two to three times the naval assets and almost double the air assets.
China’s army currently has around double the manpower but is rapidly reducing and modernizing them.
By contrast, given the limited defense budget and huge manpower, a bulk of India’s defense budget goes in salaries or maintenance and not in equipment and modernization.
Also, given the lack of an indigenous military industry most arms are imported, including ammunitions with a 10-day war stock.
In terms of internal security China has only two restive regions in Xinjiang with 10 mn people and Tibet with around 6 to 7 mn people
India has to deal with many more in Kashmir, North-East and the Naxals along its tribal belt in Central India. There are also religious and other tensions.
In geo-strategy China has a huge advantage in its ‘All Weather Friend’ Pakistan which is India’s sworn enemy especially after the 1971 liberation of Bangladesh.
This poses a two front challenge for India.
The entire Pakistani missile technology and a sizeable section of nuclear tech is from China. China and Pakistan have also collaborated in producing war aircrafts.
The relationship between Pakistan and China has been further deepened with huge committed OBOR investments of $ 55 bn.
Modi would be having all the above inputs and much more. This explains the more cautious reaction to China on the JeM Chief listing issue and no punitive trade actions against China, despite a $ 58 bn annual trade deficit with China.
Given the power asymmetry, India has adopted a careful and defensive posture on China only willing to defend but not to offend or initiate challenge.
In terms of 2019 polls, action against Pakistan gives Modi dividends but any aggressive tango with China can damage his political career.
The Indian PM who ‘stood up to’ China, albeit unprepared, through the ‘Forward Policy’ was Nehru.
The 1962 war hit India’s international standing at the time and deeply impacted Nehru.
After Balakot, China for the first time guaranteed Pak territory and sovereignty in a recent public statement. India does not enjoy similar commitments from USA or the west.
The real challenge to China is not from any of its Asian neighbors, but it is in fact from the developed West led by the US and its allies anxious about China’s growing strength and muscular foreign policy and its implications on them in terms of military, trade, global clout, tech etc.
In the China worldview its main challenger or rival is the US which backs Japan and South Korea.
Post 1962 and until the Bush and Manmohan’s nuclear deal China never saw India as a major challenger but India’s economic rise and its efforts to secure itself with ties to US was seen as a challenge.
So is China an invincible and inevitable superpower ?
Not really. Apart from external challenges with the West getting more firm on it with joint patrols on South China Sea , Huawei actions and trade talks – it also has huge internal economic and political challenges.
On the economic front China’s economy slowed down to 6.6% in 2018 which is the lowest in three decades.
Given how data is fudged international experts say real growth could be 5%.
It has $ 34 trillion in private and public debt higher than the US national debt of $ 22 trillion.
A chunk of this debt was a knee jerk reaction to the 2008 crisis while a huge chunk is in non-productive over investments like large and empty housing projects.
Large loans to inefficient state owned enterprises and local governments are also among them.
Then there is non-Financial Institutions’ unofficial loans which are undocumented but huge.
A toxic combination of high debt at 266% of GDP and slow growth is far more impactful on China than any trade war with the US.
The entire legitimacy of Communist party to rule unopposed is an understanding that it will provide economic prosperity. This legitimacy is challenged when prosperity is hampered.
Unable to deliver on economic growth and faced with a more demanding and aware population the CCP is trying to strengthen ideological aspects and has increased repression in recent years.
This in part explains the rise of Xi as his primary role is to strengthen CCP rule and ideology.
The CCP, ironically, does not trust its own people and is very afraid of any internal challenge to its power.
This explains why its internal security budget is next to its defense budget coupled with increased repression, ill treatment of minorities, great firewall, crackdown etc.
One symptom of this is the heightened and unprecedented crackdown on activists, lawyers, religious groups and different groups within China.
An example is the detention camps in Xinjiang where 1 mn civilians or 10% of the Uighur population are locked up and reportedly mistreated.
China also has a huge tech challenge on its hands. Contrary to the past theory that China can just steal defense and high tech and replicate it- research has shown that China has not been able to do so and is behind.
While e-commerce and its new tech companies is one bright spot for China with Tencent, Alibaba, Huawei etc- their association with CCP is starting to pose real market and trust problems in the west. There have been recent actions against Huawei and others with calls for more scrutiny.
For me, geopolitical issues are becoming more important, because how can you understand economy if you don’t understand geopolitics? People think economists just deal with spreadsheets and charts. That’s a narrow-minded caricature.
Nouriel Roubini