The Economic Case for China’s One Belt, One Road Initiative


October 14, 2017

The Economic Case for China’s One Belt, One Road Initiative

by Shang-Jin Wei*
https://www.project-syndicate.org/commentary/china-belt-and-road-economic-case-by-shang-jin-wei-2017-10

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In recent years, many of the world’s most influential countries have turned inward, with politicians promising protectionism, immigration restrictions, and even border walls. But, to achieve stronger economic growth and development, the world needs initiatives focused on building bridges – initiatives like China’s Belt and Road.

NEW YORK – Since 2013, China has been pursuing its “Belt and Road” initiative, which aims to develop physical infrastructure and policy linkages connecting more than 60 countries across Asia, Europe, and Africa. Critics worry that China may be so focused on expanding its geopolitical influence, in order to compete with the likes of the United States and Japan, that it may pursue projects that make little economic sense. But, if a few conditions are met, the economic case for the initiative is strong.

As a recent Asian Development Bank report confirms, many Belt and Road countries are in urgent need of large-scale infrastructure investment – precisely the type of investment that China has pledged. Some, such as Bangladesh and Kyrgyzstan, lack reliable electricity supplies, which is impeding the development of their manufacturing sectors and stifling their ability to export. Others, like Indonesia, do not have enough ports for internal economic integration or international trade.

 

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The Belt and Road initiative promises to help countries overcome these constraints, by providing external funding for ports, roads, schools, hospitals, and power plants and grids. In this sense, the initiative could function much like America’s post-1945 Marshall Plan, which is universally lauded for its contribution to the reconstruction and economic recovery of war-ravaged Europe.

Of course, external funding alone is not sufficient for success. Recipient countries must also undertake key reforms that increase policy transparency and predictability, thereby reducing investment risk. Indeed, implementation of complementary reforms will be a key determinant of the economic returns on Belt and Road investments.

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President Xi Jinping’s One Belt, One  Road Initiative  aims to knit together Asia, Europe and Africa through land and maritime corridors that collectively encompass a set of countries representing about 65 percent of the world’s population and one-third of its total economic output. China plans to spend roughly $150 billion a year to advance the initiative through infrastructure projects ranging from railways and roads, to ports and pipelines, to power plants and telecommunications networks.

For China, the Belt and Road investments are economically appealing, particularly when private Chinese firms take the lead in carrying them out. In 2013, when China first proposed the Belt and Road initiative, the country was sitting on $4 trillion in foreign-exchange reserves, which were earning a very low dollar return (less than 1% a year). In terms of China’s own currency, the returns were negative, given the expected appreciation of the renminbi against the US dollar at the time.

In this sense, Belt and Road investments are not particularly costly for China, particularly when their far-reaching potential benefits are taken into account. China’s trade-to-GDP ratio exceeds 40% – substantially higher than that of the US – owing partly to underdeveloped infrastructure and inadequate economic diversification among China’s trading partners. By addressing these weaknesses, China’s Belt and Road investments can lead to a substantial increase in participant countries’ and China’s own trade volumes, benefiting firms and workers substantially.

This is not to suggest that such investments are risk-free for China. The economic returns will depend on the quality of firms’ business decisions. In particular, because efficiency is not the primary consideration, Chinese state-owned enterprises (SOEs) might purse low-return projects. That is why China’s SOE-reform process must be watched carefully. Nonetheless, while the Belt and Road initiative is clearly driven partly by strategic objectives, a cost-benefit analysis shows that the economic case is also very strong – so strong, in fact, that one might ask why China didn’t undertake it sooner.

Even the United States and other countries may reap significant economic returns. A decade after the global financial crisis erupted, recovery remains weak and tentative in much of the world. Bold, large-scale infrastructure investments can provide much-needed short-run stimulus to global aggregate demand. The US, for one, is likely to see a surge in demand for its own exports, including cars, locomotives, planes, and high-end construction equipment, and financial, accounting, educational, and legal services.

In the longer term, the new infrastructure will ease logistical bottlenecks, reducing the costs of production inputs. The result will be higher productivity and faster global growth.

If Belt and Road projects are held to high environmental and social standards, significant progress can also be made on global challenges such as climate change and inequality. The more countries choose to participate in these projects, the better the chance of achieving these standards, and the greater the global social returns will be.

In an era when some of the world’s most influential countries are turning inward, talking about erecting trade barriers and constructing border walls, the world needs initiatives focused on building bridges and roads, both literal and figurative – initiatives like the Belt and Road strategy.

 

Why Cambodia is turning its back on the West


September 10, 2017

Why Cambodia is turning its back on the West

opinion September 10, 2017 01:00

By Shaun Turton, Mech Dara
The Phnom Penh Post
Asia News Network

With China throwing its support behind premier Hun Sen, both are protecting each other’s interests

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Their Forebears were abandoned by the United States and its allies; The United States bombed the Cambodian countryside, as Nixon and Kissinger expanded the war, and in the name of democracy and human rights brought tragedy and hardship to the Cambodian people. When it suited American interests, US administrations from Kennedy to Obama (and Trump too) have not hesitated to let history repeat itself.

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His Excellency  Samdech Techo Hun Sen, Prime Minister of Cambodia

Cambodians under the leadership of Prime Minister Hun Sen have learned well; they are naturally cautious and circumspect; and  they are  now seeking new friends and strategic partners who respect Cambodia’s sovereignty and territorial integrity in their effort to build national resilience through sustainable development. The country has enjoyed peace, stability and strong economic growth for more than 2 decades and the way forward for the Cambodian people, in my view, is promising.

The Asian Development Bank has called Cambodia an “emerging tiger economy”.  From a Miracle by the Mekong, the Kingdom is a key member of ASEAN and a proud nation ready to take its place in the community of nations. As a witness to its progress for more than 25 years, I am very bullish.–Din Merican

By Shaun Turton, Mech Dara
The Phnom Penh Post
Asia News Network

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The Cambodian National Flag with the The Independence Monument in the Background, Phnom Penh

Its president imprisoned on a charge of treason and its existence under threat, the Cambodia National Rescue Party last week renewed its calls for the international community to step in and stop what’s widely seen as an all out assault on the Kingdom’s democracy.

But with China throwing its support behind the premier Hun Sen, the West’s statements of condemnation and concern, which have flooded in from embassies, NGOs and the United Nations in recent days, will have little impact, particularly in the absence of concrete measures, analysts said.

Building on a statement of support from China’s Foreign Ministry, senior Chinese diplomat Wang Jiarui met on Thursday with National Assembly President Heng Samrin to offer private assurances amid the mounting criticism, according to Samrin’s spokesman Sorn Sarana.

Jiarui, the former head of the Chinese Communist Party’s international liaison department and current vice chairman of the National Committee of the Chinese People’s Political Consultative Conference (CPPCC), reaffirmed Beijing’s support following the late-night arrest of CNRP President Kem Sokha, Sarana said. He said the official, whose committee is described as a non-state organ that advises on state affairs, expressed the sentiment that “an obstacle for Cambodia is also an obstacle for China”.

“China is behind Cambodia to help and support,” he said, relating the discussion. “The success of Cambodia is also the success of China.”

 A representative from the Chinese Embassy in Phnom Penh did not respond to messages to verify Sarana’s characterisation of the discussion, but for analysts, China’s backing was hardly surprising given Hun Sen’s long drift into Beijing’s orbit.

 

Backed by more than $1 billion (Bt33 billion) in foreign direct investment and $265 million in overseas development aid, according to 2016 figures, Chinese support insulates the premier from external pressure, at least to a certain extent, analysts said.

Carl Thayer, a Southeast Asia expert at Australia’s University of New South Wales, said China had previously shown its willingness to supply military equipment and plug holes left by the withdrawal of Western aid. Cambodia, meanwhile, has repeatedly backed China’s position on the contested South China Sea.

“China will pick up the pieces if the US or other donor countries resort to sanctions or other punitive actions against Cambodia,” Thayer said, adding that nonetheless, the support was not a carte blanche endorsement of Hun Sen, who has ruled Cambodia for more than three decades.

“The message was subtle but clear. China will support Hun Sen under these conditions, but if Hun Sen cannot protect Chinese interests they will support a CPP leader who can.”

The premier himself has shown no signs he’s willing to cede power should his ruling Cambodian People’s Power lose next year’s election, announcing on Wednesday that he planned to rule for 10 more years.

Eleven months out from the crucial national ballot, the government has pursued what’s widely seen as a relentless crackdown against the opposition, independent media and civil society, culminating this week with the arrest of Sokha, who faces up to 30 years in prison on a “treason” charge for what officials say is a US-backed plot to topple the government.

A well-connected observer familiar with thinking inside the CPP said the government’s virulent anti-Americanism reflected a belief that the US and US-backed organisations were supporting the CNRP, as well as frustration over Washington’s reluctance to forgive war-era debt. Nevertheless, the observer, who requested anonymity because of the tense political environment, said the escalation against the US was a gamble.

He described anxiety in the CPP about the US’s recent announcement of visa restrictions for Cambodians, which came in response to Cambodia’s refusal to accept deportees as part of a controversial US programme to sends home long-term non-native residents who are convicted of a felony.

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Phnom Penh in the Land of Temples, Smiling People, and Wonder

The possibility of trade restrictions also worried many in the party, he said. The scrapping the EU’s “anything but arms” preferential trade arrangement, or the US’s zero tariffs for travel wares could have “devastating” economic consequences given European and American markets are vital to Cambodia’s almost $7 billion garment export sector. With the minimum wage rise in Cambodia making other countries in the region more appealing to manufacturers, lead ASEAN analyst for the Economist Intelligence Unit Miguel Chanco said such moves would be a stronger tool than aid cuts, which have long been threatened but without much impact.

However, in light of North Korea’s nuclear ambitions and the Myanmar military’s crackdown against ethnic Rohingya in Rakhine state – and considering the political upheaval in the US and EU – discussions of such actions were “unlikely” to feature high on the agenda, he said.

Simply put, the EU and the US have bigger domestic fish to fry. The former is dealing with the complexity of Brexit, while the latter is busy dithering on Donald Trump’s controversial domestic agenda,” Chanco said.

According to a government database, China last year provided about 30 per cent of Cambodia’s $1 billion overseas development aid budget, followed by Japan, which contributed 10 per cent, and is also second only to China for foreign direct investment.

Following Sokha’s arrest, the Japanese Embassy released a cautious statement calling on the ruling and opposition parties to “make efforts to create a suitable environment to realise a free and fair” election.

Deputy Asia Director of Human Rights Watch Phil Robertson urged Japan not to “soft-pedal”, and to use its central role at the UN Human Rights Council to take a strong position against threats to the legitimacy of next year’s election, noting Tokyo was a major supporter of preparations for the upcoming ballot and had led the UNTAC mission that staged Cambodia’s 1993 vote.

“I would take five statements of concern, and if I got something from Japan that was somewhat terse and tight and strong, I would match those up against the others,” Robertson said, noting Japan’s preference for closed-door diplomacy.

“Japanese critical statements are sort of like unicorns; you get a critical Japanese statement, it’s like, ‘Did I just see a magical creature?’”

A small glimpse of Japan’s behind-the-scenes courting of Cambodia emerged last month, when Hun Sen posted a video of a surprise birthday party organised in Tokyo by Prime Minister Shinzo Abe, complete with a personal rendition of “Happy Birthday” and a new set of golf clubs.

Paul Chambers, a Southeast Asia expert at Thailand’s Naresuan University, said Japan’s “jousting” with rival China would likely temper the strength of any public response, and the potential of punitive action.

“If Japan were to walk away from Cambodia, Tokyo would provide a vacuum which Beijing would only be too willing to fill,” Chambers said.

Noting Toyko had “little appetite for confrontation”, associate professor of diplomacy and world affairs at Occidental College, Los Angeles Ear Sophal said he saw little hope for anything “dramatic and coordinated” from the international community.

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A new Chinese-built bridge, on the right, spans the Tonle Sap River in Phnom Penh, running parallel to the bridge Japan helped construct in the 1960s.–Putting Words into Deeds is what counts.

“The last time anything serious happened in terms of aid suspension [1997], 100-200 people died,” he said, referring to the violent factional fighting in which Hun Sen ousted his royalist rivals from a coalition government.

“And, indeed,” he added, “China has already made a statement endorsing Cambodia’s actions.”

 

 

Unfinished business in Berlin: Why Angela Merkel deserves to win Germany’s election


September 10, 2017

Unfinished business in Berlin

And why she must become bolder in her (almost inevitable) fourth term

https://www.economist.com/news/leaders/21728618-and-why-she-must-become-bolder-her-almost-inevitable-fourth-term-why-angela-merkel-deserves

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Angela Merkel; Germany’s Great Liberator and Towering European–She deserves to win a Fourth Term

Success will partly depend on Mrs Merkel picking the right partners in government. A continuation of the present grand coalition with the SPD threatens yet more sleepy stasis. Instead she should team up with the free-market Free Democratic Party and the Greens—who are wise on Europe and tougher on Russia. Such a coalition would stand a chance of shaking the country up. As its leader, the hesitant Mrs Merkel might even become the chancellor who surprised everybody.–The Economist’s editorial

TO HER many fans, Angela Merkel is the hero who stands up to Donald Trump and Vladimir Putin, and who generously opened her country to refugees. To others, she is the villain whose ill-thought-out gamble on immigration is “ruining Germany”, as Mr Trump once put it, and whose austerity policies laid waste to southern Europe.

The fans are closer to the truth. Her country has indeed done well under her leadership and the world been better for her steady hand. But during three terms in office, Mrs Merkel has not done enough to prepare Germany for the future. If her many years at the top are to be viewed as more than merely sufficient, she must use her fourth term to bring about change.

A steady hand in a turbulent world

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Germany’s Chancellor with Canada’s Favorite Son, Canadian Prime Minister Justin Trudeau

There is little doubt that Mrs Merkel and her Christian Democratic Union are coasting towards victory when Germany votes on September 24th. That is partly owing to the lacklustre Martin Schulz, her Social Democratic Party (SPD) rival. His party’s domestic policy is undistinctive and his foreign policy barely credible. He has also failed to put the chancellor on the spot. Their debate on September 3rd was more like the negotiation of a new “grand coalition” than a clash of ideas.

But her imminent victory also reflects how Germany has prospered since 2005, when Mrs Merkel took office (see Briefing). Unemployment has fallen from 11.2% to 3.8%; wages are rising; consumer confidence is at a high. The chancellor has stood by the labour-market reforms introduced by Gerhard Schröder, her SPD predecessor—though she has not extended them. She has provided stable and unideological political leadership. German society has become more open and relaxed on her watch; she allowed, for instance, a vote on gay marriage even though she personally opposed it.

And in trying to cope with the euro crisis and the influx of refugees from the Middle East and north Africa, Mrs Merkel has proved to be the indispensable European. Beyond that, she persuaded Germans that their country should take on more of the responsibilities its size demands but its history makes difficult. At summits she is a calm, well-informed presence, helping to broker European sanctions against Russia over its invasion of Ukraine, and the Paris climate accord. Germany is also taking on international burdens, with troops in Afghanistan, Mali and Lithuania, a scale of deployment unthinkable a decade ago. Her commitment to NATO’s target for defence spending of 2% of GDP speaks of a country growing up in the world.

Yet, for all this, Mrs Merkel has often governed on the “easy” setting, especially in her policies at home. She has enjoyed a host of advantages. Mr Schröder’s reforms made German workers competitive. The euro, raw materials and borrowing have all been cheap for much of her chancellorship, too. Emerging economies such as China cannot yet make the things Germany does (like luxury cars), so they import them. Germany has the second-oldest population in the world, but its baby-boomer bulge is largely still of working age. The country has been living through a golden age.

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She is a Giant among Men–with Guts and Strong Convictions

The trouble is that none of the factors that brought this about is permanent. Mrs Merkel had a chance to prepare the country for the future. She has squandered it. Her government’s obsession with balanced books has led it to invest too little. The net value of German infrastructure has fallen since 2012. Since 2010 the country’s broadband speed has fallen from 12th to 29th in the world. New industries like the internet of things and electric cars are underdeveloped. The mighty German automotive industry took a bad gamble on diesel engines, and is now mired in allegations of faked emissions tests.

Little has been done to prepare Germany for its demographic crunch. Mrs Merkel’s outgoing government not only reversed a raise in the retirement age, but cut it to 63 for some workers and introduced a “mothers’ pension” for women who took time off to care for children before 1992, benefiting a generation that was already well-catered for. At the same time she did little for those Germans left behind. Inequality and the use of food-banks have both risen on her watch.

When she does take big decisions, Mrs Merkel has a habit of ducking the consequences. The switch to renewable energy is proving so slow and expensive that Germany’s coal usage and carbon emissions are rising—her sudden decision to shut the country’s nuclear plants after a meltdown in Japan only made the transition harder. Having helped to hold the euro zone together through a series of weekend crises, Mrs Merkel (along with Wolfgang Schäuble, her finance minister) has stood in the way of reforms that would mitigate the next crisis. The task of integrating legions of refugees has been left primarily to cash-strapped state governments and citizens. The chancellor barely talks about them these days, having reduced arrival numbers using a murky repatriation deal with Turkey.

In the election campaign Mrs Merkel has said little to confront her compatriots with the need to reform governance of the euro, to raise investment and to prepare the economy for a revolution in the nature of work. Instead, her manifesto is vague, and her public appearances have been banal.

Action needed in Act IV

And yet Mrs Merkel could accomplish a lot in her next—and possibly last—term. She could use Germany’s budget surplus, of €26bn ($31bn) last year and rising, to invest more in human and physical capital. She could look to Emmanuel Macron of France for ideas to strengthen institutions that govern the euro and for a sense of urgency about high-tech. She could cement Germany’s foreign-policy credentials, by pressing on towards NATO’s 2% goal. Her legacy depends on it.

Success will partly depend on Mrs Merkel picking the right partners in government. A continuation of the present grand coalition with the SPD threatens yet more sleepy stasis. Instead she should team up with the free-market Free Democratic Party and the Greens—who are wise on Europe and tougher on Russia. Such a coalition would stand a chance of shaking the country up. As its leader, the hesitant Mrs Merkel might even become the chancellor who surprised everybody.

This article appeared in the Leaders section of the print edition under the headline “Angela’s unfinished business”

Trump’s China Bashing can be harmful to US Business and Consumers


August 29, 2017

Trump’s China Bashing can be harmful to US Business and Consumers

by Stephen S. Roach*

Stephen S. Roach, former Chairman of Morgan Stanley Asia and the firm’s chief economist, is a senior fellow at Yale University’s Jackson Institute of Global Affairs and a senior lecturer at Yale’s School of Management. He is the author of Unbalanced: The Codependency of America and China.

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Seemingly at odds with the world, US President Donald Trump has once again raised the possibility of a trade conflict with China. On August 14, he instructed the US Trade Representative to commence investigating Chinese infringement of intellectual property rights. By framing this effort under Section 301 of the US Trade Act of 1974, the Trump administration could impose high and widespread tariffs on Chinese imports.

This is hardly an inconsequential development. While there may well be merit to the allegations, as documented in the latest “USTR Report to Congress on China’s WTO Compliance,” punitive action would have serious consequences for US businesses and consumers. Like it or not, that is an inevitable result of the deeply entrenched codependent relationship between the world’s two largest economies.

In a codependent human relationship, when one party alters the terms of engagement, the other feels scorned and invariably responds in kind. The same can be expected of economies and their leaders. That means in a trade conflict, it is important to think about reciprocity – specifically, China’s response to an American action. In fact, that was precisely the point made by China’s Ministry of Commerce in its official response to Trump’s gambit. China, the ministry vowed, would “take all appropriate measures to resolutely safeguard its legitimate rights.”

Caught up in the bluster of the US accusations being leveled at China, little attention is being paid to the potential consequences of Chinese retaliation. Three economic consequences stand out.

First, imposing tariffs on imports of Chinese goods and services would be the functional equivalent of a tax hike on American consumers. Chinese producers’ unit labor costs are less than one fifth those of America’s other major foreign suppliers. By diverting US demand away from Chinese trade, the costs of imported goods would undoubtedly rise sharply. The possibility of higher import prices and potential spillover effects on underlying inflation would hit middle-class US workers, who have faced more than three decades of real wage stagnation, especially hard.

Second, trade actions against China could lead to higher US interest rates. Foreigners currently own about 30% of all US Treasury securities, with the latest official data putting Chinese ownership at $1.15 trillion in June 2017 – fully 19% of total foreign holdings and slightly higher than Japan’s $1.09 trillion.

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In the event of new US tariffs, it seems reasonable to expect China to respond by reducing such purchases, reinforcing a strategy of asset diversification away from US dollar-based assets that has been under way for the past three years. In an era of still-large US budget deficits – likely to go even higher in the aftermath of Trump administration tax cuts and spending initiatives – the lack of demand for Treasuries by the largest foreign owner could well put upward pressure on borrowing costs.

Third, with growth in US domestic demand still depressed, American companies need to rely more on external demand. Yet the Trump administration seems all but oblivious to this component of the growth calculus. It is threatening trade sanctions not only against China – America’s third-largest and fastest-growing major export market – but also against NAFTA partners Canada and Mexico (America’s largest and second-largest export markets, respectively). As the reactive pathology of codependency would suggest, none of these countries can be expected to acquiesce to such measures without curtailing US access to their markets – a counter-response that could severely undermine the manufacturing revival that seems so central to the Trump presidency’s promise to “Make America Great Again.”

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In the end, China’s economic leverage over America is largely the result of low US domestic saving. In the first quarter of 2017, the so-called net national saving rate – the combined depreciation-adjusted saving of businesses, households, and the government sector – stood at just 1.9% of national income, well below the longer-term average of 6.3% that prevailed over the final three decades of the twentieth century. Lacking in saving and wanting to consume and grow, the US must import surplus saving from abroad to close the gap, forcing it to run massive current-account and trade deficits with countries like China to attract the foreign capital.

It is sheer political chicanery to single out China, America’s NAFTA partners, or even Germany as the culprit in a saving-short US economy. Fostering policies that encourage an economy to squander its saving and live beyond its means makes trade deficits a given – as are the seemingly unfair trading practices that may come with this Faustian bargain for foreign capital.

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Let Good Sense Prevail

The US ran trade deficits with 101 countries in 2016 – a multilateral external imbalance rooted in America’s chronic domestic saving problem. The fix for this problem cannot be made in China. Ironically, with the Trump administration’s policies likely to lead to larger budget deficits that put national saving under additional downward pressure, the need for Chinese and other foreign capital will actually intensify and the codependency trap will only close more tightly.

America does not hold the trump card in its economic relationship with China. The Trump administration can certainly put pressure on China, and, on one level, there may well be good reason to do so. But deep questions concerning the consequences of such pressure have been all but ignored. Getting tough on China while ignoring those consequences could be a blunder of epic proportions.

 

India at Seventy


August 19, 2017

India at Seventy

By John Elliott@www.asiasentinel.com

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It’s an easy copout when talking about India to say everything and the opposite are both true and correct. That has never been more so than when assessing the country’s performance in the 70 years since it became independent on August 15, 1947.

Put simply, India is a huge success, tackling dire poverty, ethnic social religious and cultural divisions, building a strong private sector, developing infrastructure, excelling in research such as space and rockets technology, and breeding a new young and aspirational youth, all within a successful though turbulent and noisy parliamentary democracy.

It is also a dismal failure because it has done all those things far too slowly, encumbered by lethargy and a failure to grapple with challenges together with increasingly corrupt politicians, bureaucrats, judges, and police fed by greedy business people, criminals and members of the general public. Intolerance and ethnic and religious tensions, never far below the surface, are increasing.

Falling behind

Year by year, despite substantial successes, it falls more and more behind its regional rival and potential enemy China. It has been acting tough with its larger neighbor for the past two months in a military confrontation on the Himalayan border, but it has been increasingly losing out in terms of economic and infrastructure development, manufacturing competitiveness, defense preparedness, regional influence and international clout.

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Prime Minister Narendra Modi–Making a Difference for India

Economic growth is around 7 percent, but it should be far more. Between 20 percent and 30 percent of the 1.3billion population are illiterate and live below the poverty line, and far more are badly fed with inadequate education, sanitation and health facilities and a serious lack of jobs for the million young people entering the job market every month.

This is the third time I have written a decade’s assessment. In 1997 I said that “Indians seem unsure what there is to celebrate” because there was a “belated realization of how far development has lagged behind the rest of Asia, plus despair with the decrepit state of the country’s corrupt politics.” The economic reforms of 1991 had sputtered to a virtual halt and their effect had not by then fed through the economy –  the major impact emerged in the following decade. I.K.Gujral, Prime Minister of a short-lived coalition government, said that India was “almost standing on the threshold of greatness”.

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The Giants of India–  Jawaharlal Nehru and Mahatma Gandhi

In 2007, I recorded a marked change with a headline on this blog (then on Fortune magazine’s website) saying “A Nehru dream comes true.” That referred to the hopes of Jawaharlal Nehru who, as Prime Minister, heralded in India’s independence 70 years.

I noted that the country’s overall self-confidence and its economic performance were being transformed. In the previous four or five years, “a spirit of can-do” had inspired business people – big and small, ranging from names like Ratan Tata, Mukesh Ambani, Azim Premji and the Infosys founders to small niche players – who invested, managed, delivered, and grew both at home and abroad.

Many problems, especially social, were however little improved: “Vast proportions of the country’s 1.1 billion people are undernourished and hungry, as well as poorly educated and illiterate. Blighted by a lack of drinking water and proper sanitation, many are plagued with poorly-treated ill health.”

No one this time is using a Nehru headline in a positive sense, despite the many advances made in the last decade. The trumpets are blasting out the new India of the Bharatiya Janata Party (BJP) led by the Hindu nationalist prime minister Narendra Modi and by Amit Shah, the tough party president. Together they are more interested in celebrating the 75th anniversary in 2022 after they have won (as it seems they will) the next general election in 2019.

They and their platoons of followers crave a Hindu-dominated society that replaces Nehru’s secularism and turns Muslims, Christians and others into the second class minorities than many increasingly feel they have already become.

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Vice President Hamid Ansari

Hamid Ansari, a veteran diplomat and government official talked tellingly when he retired recently as India’s Vice President about how “a feeling of unease, a sense of insecurity is creeping in” among Muslims.

Their “ambience of acceptance” was under threat and there were “enhanced apprehensions of insecurity amongst segments of our citizen body, particularly Dalits, Muslims and Christians”. No-one had any doubt about his target – Modi, Shah and their followers.

India is a harsher society than it was 10 years ago with rabid nationalism, violence and vigilantism adding to cruel policing and ruthless regional politicians – many encouraged by the existence of a BJP government that shuns the softer secular approach of less fundamentalist political parties.

Maybe these contrasts and contradictions are inevitable in a society that has undergone India’s massive social and economic changes of the past 26 years. The 1991 reforms have gradually transformed the face of much of India, hastened by cascading access to television, the internet and social media. There is an arrogance of success among the new rich, and feelings of bitterness and anger among those left behind.

Image result for The Gandhis-India's Political FamilyThe Gandhi Family Dynasty

But if one is to pick a target to blame it should not be Modi and the BJP but the Gandhi family dynasty and its Congress Party that, having successfully led India into independence and beyond, has failed in the past 15 years to adapt to the aspirations of a changing India.

The Gandhis cling to power at the top of the party with a born-to-rule style that is no longer appropriate, preventing other politicians emerging to lead anti-BJP parties. Jairam Ramesh, an outspoken Congress politician, said recently that “the sultanate has gone but we behave as if we were sultans still.”

Modi an enigma

In all this, Modi is an enigma because he talks as if he is determined to build a strong and efficient India of which he can be nationalistically proud. Reforms have included efforts to curb corruption, a strengthened national identity system (Aadhaar), and the implementation of a long-planned national goods and services tax.

Yet he is also pulled into supporting or at least condoning the more extreme Hinduisation approach of the Rashtriya Swayamsevak Sangh (RSS), the BJP’s extreme right wing umbrella body, and its allied extreme organisations.

As India enters its 71st year of independence tomorrow, Modi is expected to talk about the target for 2022 in his annual prime ministerial speech (pictured last year) from the ramparts of the Red Fort in Old Delhi.

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“Let us pledge to free India from poverty, dirt, corruption, terrorism, casteism, communalism and create a ‘New India’ of our dreams by 2022,” he said in a recent speech that has been backed up with front-page government advertisements in leading newspapers headed Sankalp se Siddhi (pledge to achieve).

These are ambitious goals that have been on earlier governments’ agendas to little effect. Modi was elected in 2014 to implement developmental change and he has personally launched and driven countless campaigns that include his Swachh Bharat (Clean India Movement). The government claims that the number of people defecating in the open has dropped from 550million to 320million, even though many newly installed toilets do not have water or sewerage facilities. That is significant in a country where 100,000 children die each year from diarrhoea related diseases.

At the same time as examples of such developmental success are emerging, there also the glimmerings of the government softening its authoritarian line, presumably in order to quell criticism ahead of the 2019 general election.

One example is the appointment last week of Prasoon Joshi, a liberal screenwriter and poet, and the CEO in India of the McCann Erickson international advertising group, to head the Central Board of Film Certification (CBFC). He has replaced PahlajNihalani, a strong BJP and Modi supporter who was a controversially tough and insensitive censor, even shortening kissing scenes in a James Bond film.

Joshi’s appointment looks like a tactical move rather than a policy change, and 230million fewer people defecating in the open is only small change measured against India’s enormous needs for development.

But the first shows how India’s strident democracy does have an effect on governments, and the second shows that Modi recognises the need for action.

India’s future over the next decade depends on how this balances out.Will Modi and Shah’s Hindu nationalism be constrained by the need to operate within a parliamentary democracy, or will their likely victory in 2019 make their nationalism increasingly dictatorial and disruptive? And how successful will Modi’s government be at making India work?

Put another way, thanks to the failure of the Gandhis and Congress, India’s future development depends on the drive that will be given by Modi and the increasing number of BJP state governments. The price for that is the BJP’s Hindu nationalism.

The hope therefore has to be that India’s diverse democracy, which inserts its own unpredictable checks and balances, will somehow keep that in check.

John Elliott is Asia Sentinel’s New Delhi correspondent. He blogs at www.ridingthelepant.com

The Role of India and China in South Asia


July 27, 2017

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Number 389 | July 26, 2017

ANALYSIS

The Role of India and China in South Asia

by Christian Wagner

India and China have a long and complex bilateral relationship that oscillates between concepts of “Chindia” and great power rivalry. In South Asia, India seems to be a regional power by default. But a closer look reveals that China is gaining an upper hand in the region. The analytical framework of the regional power debate helps to explain the different approaches between the two countries towards South Asia. Developments in the fields of politics, economics, and security indicate that India is at a structural disadvantage to China in the region.Despite its superior material resources relative to other South Asian states, India has never managed to establish itself as a regional power.

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Attempts by Nehru and Indira Gandhi to portray the region as part of India’s national security and to secure the country’s foreign political interests through military, economic, and political interventions were mostly unsuccessful. Several factors have always undermined India’s regional power ambitions.

First, because of the common religious, linguistic, and ethnic ties, foreign policy debates in the neighboring countries are often linked with debates about national identity which emphasize the distinctions from India. Hence, Indian interventions in the neighboring countries have often been perceived as threats to their respective national identities. In Sri Lanka, Buddhist nationalist groups have always been critical of India, in Bangladesh, the debate on Bengali and Bangladeshi nationalism is closely related with India, and in Nepal there is a controversy in most parties on the relations with the bigger neighbor to the South. The common religious, ethnic, and linguistic traditions that seem to bind the region have also acted as a counterbalance against India’s regional ambitions.

Second, India has not pursued its foreign policy interests vis-à-vis its neighbors in a consistent manner, nor has it applied political, economic, and military capacities to achieve sustainable outcomes. The military victory over Pakistan in 1971 was not followed by a permanent settlement of the Kashmir issue. India supported Bangladesh after its independence in 1971 but could not prevent Bangladesh’s economic and political realignment after the military coup in 1975. India’s attempts to mediate in the Sri Lankan civil war in the late 1980s ended in political and military disaster.

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Finally, all neighbors have used the strategy of internationalizing their bilateral disputes with India, more or less successfully. Pakistan is the most obvious case, but Bangladesh, Nepal, and Sri Lanka have also played the “China card” at various times.Since the economic liberalization in 1991, India has put its South Asia policy on a new foundation. Since then, South Asia is not only seen as an area of significance to India’s national security, but also as a market that can contribute to India’s economic development. The Gujral doctrine has emphasized the principle of non-reciprocity vis-à-vis India’s smaller neighbors.

The government of Prime Minister Manmohan Singh promoted bilateral and multilateral initiatives in order to provide regional public goods, like better connectivity and made unilateral economic concessions to the weaker states in order to expand intra-regional trade. India has also improved its security collaboration with most South Asian countries in recent years, except for Pakistan. This indicates that the threat perceptions among most South Asian governments have converged. The transnational networks of different militant groups are now seen as a common security challenge, leading to more cooperation among the security forces.

Despite India’s changing South Asia policy, China has strengthened its position in the region. Politically, China has the advantage of being regarded as a “neutral” player in most South Asian countries, except for India.  China has never been part of the discourse on nation-building in South Asia; therefore, China’s bilateral relations with most countries of the region are not marred by the baggage of socio-cultural ties and previous interventions. Economically, China is also a more attractive partner for South Asian countries than India.

The massive Chinese investment in India’s neighborhood in the context of its “One Belt One Road (OBOR)” Initiative will increase Beijing’s influence in South Asia. China has also expanded its trade relations and has surpassed India in some cases. Even in India, China has emerged as a significant economic actor. In the field of security, China has increased its military cooperation, supplying arms to many South Asian countries.  The Chinese infrastructure investments and security cooperation in the region have fostered apprehensions in India about encirclement by China.

India seems to be caught in a catch-22 in South Asia. On the one hand, the religious, linguistic, and ethnic ties bind India with the region. On the other hand, those ties separate India from its neighbors with regard to nation-building. Such structural links, and their effects, are difficult to address. Hence, India will hardly be able to overcome resentments in the neighboring countries and to counter the advantages that China enjoys in many South Asia countries in politics, economics, and security.China remains an economically more attractive and politically more reliable partner for most of India’s neighbors.

Despite their bilateral problems and tensions from respective engagement in South Asia, India and China have also increased their collaboration on the global level, for instance in the BRICS group (Brazil, Russia, India, China, South Africa). In the regional context, both countries are cooperating on initiatives like the Bangladesh-China-India-Myanmar corridor (BCIM), and China has also promised to make large scale infrastructure investment in India.

“The Chinese infrastructure investments and security cooperation in the region have fostered apprehensions in India about encirclement by China.”

 

But these joint collaborations should not obscure the fact that India is structurally in a weaker position in South Asia compared to China. India is therefore losing its influence in South Asia vis-à-vis China. But it remains an open question how far the growing dependence on China will be a better deal for South Asian countries in the long term perspective.

About the Author

Christian Wagner is Senior Fellow at the German Institute for International and Security Affairs (SWP), Berlin. He can be contacted at Christian.Wagner@swp-berlin.org.

The East-West Center promotes better relations and understanding among the people and nations of the United States, Asia, and the Pacific through cooperative study, research, and dialogue.Established by the US Congress in 1960, the Center serves as a resource for information and analysis on critical issues of common concern, bringing people together to exchange views, build expertise, and develop policy options.

The Asia Pacific Bulletin (APB) series is produced by the East-West Center in Washington.

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