China’s Titanic Moment Approaches

Cameron’s 1997 blockbuster remake of Titanic showed that it lacked an adequate supply of binoculars, let alone lifeboats. Not only was it going at full speed in Arctic waters when disaster struck, but the Crow’s Nest was relying on naked eyesight in the dark. Icebergs are white. Otherwise, the Titanic may not have even got the couple of hours evacuation time it did.

First Class was sumptuous on its maiden voyage. It had a number of ‘name’ American millionaires and heirs to substantial fortunes making the Atlantic crossing back to New York. In 1912, people did not speak of billions and trillions in Washington and Beijing alike.

 It also had the film’s heroine Rose and her mother on the secret brink of poverty. Rose had to make up to her rich and arrogant beau, also on board, because her mother reminded her, it was their last hope to stay amongst the privileged.

Of course, Rose fell in love, despite her parlous circumstances, with a heroic and talented painter from Steerage Class. But that, for today, is another story.

President Xi Jinping and the CCP are approaching their Titanic moment. Overconfidence in Communist social engineering is provoking a course correction that is as doomed as not doing anything. Xi says he is fed up of debt-fuelled capitalist style prosperity. It has created vast inequalities and deviated from the path of the founding father of Red China, the always serviceable Chairman Mao.

 That he has come to this personal eureka moment coincidentally when the dragon’s ecosystem is sputtering into stoppage and decline is perhaps not good news. His room to manoeuvre is severely limited. Thinking of Moral Hazard and catching hold of scapegoats after the excesses (and received benefits) of rapid GDP growth, is fraught with danger. When America let 1,000 banks fail in 1929, it led to a decade- long Great Depression. Barack Obama paid his way out of a similar crisis in 2008.

The Chinese may not have had political freedom from the establishment of Mao, and the expulsion of Chiang Kai Shek, but they have grown very prosperous, albeit in certain pockets, over the years since 1980. Can Xi Jinping snatch this away without grave political consequences? Is he, on the other hand, just trying to make a virtue of necessity like Rose’s mother?

President-for-life Xi is trying to deflect the blame away from himself and the CCP towards the actual hands-on engine drivers. The Engine Drivers - Evergrande’s owners, who owe $300 billion they can’t pay, Jack Ma of the ANT Group who has been forced to lose $100 billion, Local Government Mayors who have accumulated over $ 8 trillion in debt, other tech biggies, manufacturers, exporters, conspicuous consumers, and their Rolls Royces. These ‘deviants’ from Mao’s path - and not the Railways themselves. These people, and not Xi and the CCP, must be held responsible for derailments, goes the logic. The owners of the Titanic who were not on board, in order to go down with it, advanced a similar argument in the subsequent enquiries.

 In recent speeches, Xi Jinping said he wants to steer the ship of state towards more equitable waters where disparities between rich and poor are lessened. He wants to go back to Chinese Communist first principles. However, is the iceberg too close to dodge? And are those yet more and more, ice mountains, behind and beside that first one?

It’s not the fudged statistics in the recent World Bank Report on China to show its economic prowess. Not the insatiable cement consumption figures that fuelled the construction boom. In 2004, at a seminar in swish Hong Kong, the Chinese economics professors who spoke said the Chinese banking system was ‘unreal’. Nobody would be able to find it on Judgement Day. That was 17 years ago. Judgement Day, aka the iceberg, still hasn’t loomed into sight less than a mile away, but it could be hidden in yonder mist.

The story is coming apart at the seams now. It’s not only the unused infrastructure at home and abroad. In places like Hanbantota, Sri Lanka, or Venezuela, far away. Neither can pay the bill, to paraphrase am old Cole Porter song that might have been played in  the nightclubs of sophisticated colonial Shanghai. And seizing sub prime property in Pakistan and around the belt and road/ new silk route globe will not pay the bill in a hurry either.

Nevertheless there is a headlong rush, a full speed ahead in the night at work. A French think-tank, its Military School Strategic Research Institute, alludes to Nicolo Machiavelli’s The Prince in its characterisation. It says China once preferred to be loved rather than feared, but this has changed. Now it wishes to coerce.

It has invested billions in international media to finesse its image. It tries to influence foreign elections Moscow style. It liberally uses embargoes, sanctions, tariffs, and controls access to its markets, in an effort to bring other nations to heel commercially.

This report does not refer to the years of espionage responsible for some of China’s biggest technological advances. It has been a master of copyright infringements, theft, retrofitting, rather than greenfield R&D most successful in the West and the US in particular. That is why its equipment often does not work, and nobody, not in dire straits, wants to buy Chinese fighter jets.

Nor does it refer to the massive Chinese government subsidies used to grab export market share in the early days. Later, China did make money, and its costs rose and rose. This proved a boon for Vietnam and Bangladesh if not for slow, ponderous India.

When the borrow and spend Western bubble burst in 2008, the beginning of China’s export decline was scripted. There was no market like in the old days.

The Chinese economic myth-making was becoming visible.  The woods of apartments in ghost cities in the Chinese hinterland just to boost the GDP. More dams built and being built than a school of beavers could justify. Highways to nowhere.

The myth-making was also an international propaganda machine that captured the UN. UNESCO, WHO, The Human Rights Commission, the UNSC. The lack of progress on the WHO investigation on the origin of the Wuhan Virus is a sell-out to Xi Jinping. The ineffective vaccine Sinevac. The casualty figures suppressed in Wuhan had the crematoriums working 24x7 for more than six months. Was it a man-made virus? Was it deliberately spread by the Chinese, killing nearly 7 million people worldwide so far?

Europe, certainly EU leader Germany, and also France, are beholden to Chinese commerce. So is America. Only Australia has had the courage to break free despite massive economic losses. India has reacted too, in its quiet muted fashion. Chinese 5G is out. Many other opportunities have also been denied.

Its hard to determine Chinese statistics from the outside. Is the currency  overvalued given its massive external and internal debt?  The Local Government domestic debt being half (52%) of its current GDP at $ 8.2 trillion is an informed estimate from Goldman Sachs and the Rhodium Group. China itself does not release Local Government debt figures.

For as long as possible, Xi Jinping and the CCP will keep the veil  drawn over its financial affairs. The electricity is failing. Factories cannot function. Orders are unfulfilled. Scams are being unearthed. The ports are in chaos. Homes are in the dark. Unemployment is getting out of hand. Shortages are mushrooming. The public is risking protests.  The military does not want to fight. Friends of China are leaving the table. Outside adverse comment is growing exponentially. The iceberg will not be denied.

(1,272 words)

For; Sirfnews

September 30^th, 2021

Gautam Mukherjee

 

 

The Gunga Din Syndrome Is Gone At Last

Of all them blackfaced crew/The finest man I knew/Was our regimental bishti, Gunga Din – Rudyard Kipling

 

As Prime Minister Narendra Modi heads towards Washington and New York for the first time since 2019, the European end of NATO is examining its options. The sudden Anglo-Saxon unilateral military alliance between the US, Australia and the UK, has rattled the chains of not only France, but the EU as a whole.

France has lost a troubled if massive $ 90 billion contract for conventional submarines, without warning. It is nothing short of furious. President Joe Biden, whom nobody expected to be quite so decisive during his campaign, has followed through on President’s Trump’s complaints against the European NATO partners. They haven’t been ponying up their share of the costs, nor showing the strategic commitment that this post WWII military alliance demands.

France and Australia have been conflicted on the much delayed and cost escalated deal for some years, but the key change is that Australia has just gone nuclear with US help, nods towards non-proliferation notwithstanding.

China is worried, perhaps for the first time, with America moving into Australia with its nuclear weapons on land, sea and air more or less on an immediate basis. Nobody is waiting to actually build the nuclear attack submarines at Adelaide which will take a decade for the appearance of the first one. China has 50 conventional and 10 nuclear submarines. But these numbers are no longer daunting.

India is likely to gain economically from the shifting of a number of American manufacturing enterprises to India from China as this squaring off escalates. It will also be able to buy military technology and hardware it needs from the US as an important partner of the QUAD. It will gain from Japan and Australia as well on similar lines. AUKUS may prove to be a general benefit in the Indian Ocean and the Pacific to those in the QUAD. Others are welcome to be camp followers. There is the UK beyond the AUKUS deal, in Diego Garcia and with its aircraft carrier group in the Asia-Pacific. France in the Indian Ocean. Germany in the South China Sea. Littoral states such as Vietnam, Singapore. All of them are in a sense QUAD plus.

At the same time, India needs to ramp up its own economic and military strength by bilateral cooperation with multiple countries. After all, the old order is changing, and India is well placed comparatively, without any bones of contention with any of the players except China and Pakistan. Beyond the hectic bilateral meetings and those with American company heads, India would do well at the UN to stick to its tried and tested messages against international terrorism and broad-based cooperation on climate change. Bland is good to negotiate through these sensitive times.

The Modi government knows there is much to be gained in a multipolar universe. It offers sovereign autonomy and freedom of choice. However,if we are pressured to toe any American line in our region or country, pragmatism dictates we need to be well compensated for it both strategically and economically. But to say no may not be wise, with China watching for any rift. Australia and the UK have happily embraced their supporting roles in AUKUS. Like Australia, India needs a lot more military equipment than it can readily buy or manufacture in short order. Again, China is relentlessly building up strength on our borders all along the LaC and via Pakistan as well. Russia cannot really help in this, because as a smaller economy, it has its limitations and is dependent on China to an extent. If India as a member of the QUAD with imminent threats from China, is presented with American military teeth, provided India supplies the bases, it must not hesitate.

Looking at the past can be educational. Non-alignment was meant to be a post-colonial equidistancing from the then power blocks of the Capitalist West and Communist Soviet Russia. It degenerated swiftly into all the newly independent countries adopting both Socialism and the USSR as Godfather.

This arrangement apparently gave the have-not nations a voice in the UNGA and a certain dignity to poverty. It was axiomatic that the poor countries could not survive without the help of a big brother. The benefactor, in turn, subordinated these satellites in large ways and small, and expected their unflinching support in foreign policy, big buying decisions, and value systems.

For India, this hollow form of non-alignment lasted nearly fifty years. Nobody has quite removed the obsolete name-plate as yet. We talk of national interest and multipolarity these days.This is because we no longer accept aid and have grown into one of the top ten economies of the world.

But in the old days, due to our British colonial hangover and Nehru’s penchant for imported conceptions under the surface Gandhianism, we became part of the Commonwealth - a kind of non-military QUAD of its time. We continue with this example of subservient Gunga-Din diplomacy. Even as it too has declined along with the fortunes of the United Kingdom, little more than a US satellite itself.

Of course, Socialist India also needed British Aid and grants in the early years. The Commonwealth Games extant to this day, are fun, though they are really also reminders of the extent of the imperial British Empire at its zenith. 

During our active non-alignment years, made a nonsense of as we held hands with the likes of Marshal Tito of then Yugoslavia, Gamel Abdel Nasser of Egypt, and later, Cuban supremo Fidel Castro and Yasser Arafat of the Palestinian Authority.

We were laughed at for our posturing and hectoring at the UNGA by the prosperous and technologically superior West. But, that wasn’t the half of it. India had to endure many humiliations from both sides of the see-saw.

The USSR kept India on its leash with bribery, flattery, while  infiltrating Indian politics and policy-making using the KGB. They sold us second level armaments no longer used by the Soviet armed forces. They permitted us our rupee payments and barter as we persisted with 2% or less rates of GDP growth. Today, we still buy Russian armaments because 50% of our in situ equipment comes from there, but we get much better terms. Including JVs such as the one that has produced the universally respected Brahmos missile. A grown economy on its way to become the world’s third biggest, is putting the erstwhile bishti in the driver’s seat. 

We had to turn to America for food grains and milk in the early decades, donated under their PL-480 programme. This went on till the 1960s and even later till the Green and White Revolutions despite distribution bottlenecks and primitive storage conditions that persist to this day.

But our mateyness with the newly liberated Socialist or Communist countries, our dislike of imperialism, plus that unworkable non-alignment, clearly harmed us. We refused to accept Nepal and Balochistan into our fold. We didn’t take the proffered UNSC seat from President John F Kennedy, or his offer to turn India a nuclear weapons power before China.

Instead, we gave away both opportunities to China. China went nuclear in 1964 itself.  A couple of years before that, Mao’s China came at us in NEFA, took over the Karakoram Pass, large tracts of Akshai Chin, and all of Tibet. We ended up providing refugee status to the Dalai Lama and lakhs of his followers as a gesture.

Early independent India had no idea of realpolitik. Ironically, we forgot all about non-alignment when Nehru begged America in panic to attack China for us. Kennedy didn’t, but forced China to give back seized Indian territory to an extent.

The Soviets didn’t come into all this, but years later rival block pressures, with China added to the mix, persist. Russia, the successor, was forced by America to deny us its cyrogenic technology for rockets. Israel’s dealings with China sometimes get in the way of its posture towards India.

Going with the power blocks however used to hurt much more when India was poor. Pakistan was the out-and-out US ally, and India was hyphenated with it, till the disparity between our economies became too large to ignore. By then the Soviet Union was gone but Russia, with a much smaller economy, is not free of pressures.

Pakistan wasn’t so essential, once the US managed to oust the Soviets from Afghanistan. Now Afghanistan too is gone from the US equation.

In the heyday of non-alignment, India needed development money, soft, long-term loans, aid, grants. And this came via institutions controlled by the West- the World Bank, the IMF, the ADB. The Soviets couldn’t help in this regard, being hard up behind their ‘Iron Curtain’ themselves.

Coming back to the Prime Minister’s US visit, it is reassuring that India will be seen as a power on its own. Buying armaments from Russia continuing, no longer defines us. We buy significant value from the US, France and Israel as well. India has begun exporting its military equipment starting with excellent bullet proof vests and coast guard boats and frigates for the navy. Missiles might be next. Gunga Din can rest from his labours at last.

(1,532 words)

For: Sirfnews

September 22^nd, 2021

Gautam Mukherjee

 

A Richer India Will Be A Safer India

Money, money money/Always sunny/ In the rich man’s world- ABBA

The aspirational aspects unleashed by the Modi government from the start, need  large funding. More so, because the approach is holistic and spread over all sectors. All being awakened to their potential, perhaps for the first time.  We have stopped calling ourselves poor, as if to excuse all shortcomings. There is massive welfarism still, but it has been shorn of corruption and has developed a reformist sheen. However, ‘povertarianism’ as a pornographic Marxist glory is gone.

Today there is every attempt to try and balance the books. Revenue generation is important. That is why the NHAI, furiously building expensive and world class highways,targets income from tolls to rise from Rs. 40,000 crores to 1.5 million crores a year.

What we must aim at though, is surplus revenue in all our productive endeavours, that can be directed in any direction necessary.

And the best money, as ‘borrow and spend’ disasters from across the world remind us, is earned money. So far, seven years in, the GDP is far less than in the Vajpayee years. But public spending on modernisation, infrastructure, welfare, the military machine, the railways, ports, airports, education, health, culture, has blossomed. These things, essentially investments, have a way of paying handsomely in the medium term.

There is a steady increase in Foreign Direct Investment (FDI). But we need the Chinese rate of growth of the three decades from 1980. Fuelled, not so much by exports as theirs was, but pumped up domestic demand.  Exports today are hampered by low growth in the buyer countries and pressure on margins.

Still, lateral shifts of manufacturing are promising. The opportunity from global disenchantment with China can do much for us if we work with a will.

A sharpening bipolarity between America and China is now an established reality. As they duke it out, the challenger China, has subverted or ignored most existing institutional mechanisms, the UN, G7, G20, many other fora, various protocols and agreements, international law.

China, particularly with regard to the East and South China Sea, various territorial and boundary disputes in its vicinity, says I don’t accept international laws and positions. It seeks, further to dominate the world with forward military bases and a growing blue water navy supported by its other military arms. Till recently, it was proud of its ‘wolf warrior’ diplomacy to counter all objections though this is somewhat muted post-covid.

America under Biden has been surprisingly decisive too. It has already removed missiles from Saudi Arabia, pulled out of Afghanistan, and turned Australia into its forward base in the Pacific looking squarely at China.

India’s own gradual ascendancy into a leading economy has sharpened rivalries. There are serious military threats from China and Pakistan and fomented internal security concerns. These are making fresh demands on its purse that cannot wait.

The march to a $5 trillion economy has become urgent. This, not only to lift most Indians towards first world levels of prosperity and well-being, but to keep the country safe.

Post Covid, or the most of it, as we approach the end of 2021, the Modi government seems determined to aim for double-digit growth in 2022. 

In preparation, a series of economic reforms have been unfolding. The bold step of the three new farm laws have started yielding good results.

The long-awaited repeal of the retrospective taxation that hit oil player Cairn and telecom’s Vodafone has taken place. In the aftermath, reforms to financially unburden the telecom sector have been so practical and dramatic that a near collapse has turned into green shoot optimism.

The much postponed bad banks have come, even as the non-performing assets ballooned to Rupees ten lakh crores. Some three to four lakh crores of it, mainly due to badly structured infrastructure loans, have happily been recovered by the lender banks themselves. The rest may involve partial recovery from asset-light borrowers. But all of it leaves the books of the high street private and PSU banks, some of which have changed ownership or been merged. This sets up a new lending cycle towards better results in the near future.

Exports, supported by government incentives and facilitation, have shown a great upswing of late -rice, mobile phones, vehicles, bullet-proof vests, software, data storage, components, engines, textiles, other raw materials and finished goods. We are emerging as the pharmacy to the world as the multiplicity of India made vaccines for Covid-19 have demonstrated. There is a lot of money in this area too.

Breaking through the tentacles of a powerful import lobby in military procurement, a host of joint ventures in the armaments space are gaining momentum. There are others, involving making parts of civil and military aircraft for US and European majors. 

The replacement for the superannuated Avros, with Airbus transports, will, for the most part be made by the Tata Group in JV here. Air India too is about to be privatised at long last and returned to the Tata Group.

The second generation Mk2 Tejas programme for single engine fighter jets, has been boosted with orders for 83 from the Air Force and the acquisition of 100 GE Aviation engines.

DRDO too has gone in for a JV with Rolls Royce in addition for the manufacture of a wide range of aircraft engines. India has also developed 1500 Hp and 750 Hp turbo-charged engines for its Main Battle Tank and Armoured Carriers. Ammunition manufacture has been reorganised in order to get out of the clutches of Communist trade unions that have engineered go-slows and man-made blockages for long.

A lot of the military manufacturing initiatives are achieving the dual objectives of becoming cost efficiently atmanirbhar while bypassing the rigmarole of technology go-slows and embargoes from the military export majors. This is very important in an every-country-for-itself atmosphere prevailing.

The armed forces are being structurally reorganised to form more integrated fighting groups involving all three services. A new Rocket management corps is on the anvil. Space warring capabilities are being developed. High altitude warfare battalions have been raised. There is increased recognition of the changing face of modern warfare.

This involves digital process, drones, armed drones, robotics, missile deployment, stealth technology, electronic and satellite surveillance,  space wars, missile shields, cyber warfare.

On ‘Civvy Street’ LIC is going in for a mammoth IPO, even as the Indian stock market is booming as a show of confidence in the future. A plethora of start-ups are not only accessing mega funds on the stock market but have put India in the top echelons of the global start up ecosphere.

The Chinese debt crisis is now spilling out into the open with the Evergrande real estate group with over $300 billion owed is trying to barter its way out on the point of default. Analysts have long predicted that the mountain of debt that fuelled Chinese growth, as indeed it did the American boom years, is not sustainable. The difference is that the US has the confidence of the world behind it but China does not.

Though China will do everything possible to control the financial and social fallout, it will still be highly preoccupied with containing the damage. Abroad, the Chinese getting paid in seized assets in sub-prime countries is also far from good enough.

India has a good chance to catch up. This will be assisted by the constitution of the QUAD and other outside followers of the same script such as France, Britain, Singapore, Vietnam, and probably, even Russia.

With a 67% approval rating in a recent CNX survey, the present Modi government is still overwhelmingly popular. It should therefore not only win most of the assembly elections including UP in 2022, but also the general election in 2024. Assuming the NDA gain another majority, they can implement their nationalist economic agenda till 2029 at least. And a fifteen-year run tends to ensure a further continuance as the opposition dies of political starvation.

Side by side we must continue making large gains in diplomacy, foreign affairs, manufacturing, robotics, cyber software, start-ups, modern high-yield agriculture, preventive medicine, cutting edge technology. High year on year growth will end our days of playing Gunga-Din, the water bearer – meeting the thirst of the developed world. A prosperous, modern, responsible, civilisationally-gifted India is to be our identity in the future. It is our duty to realise this and work towards it.

(1,395 words)

For: The Sunday Guardian

September 20^th, 2021

Gautam Mukherjee