my firstpost column on the PM’s east asia visit: china, mongolia and south korea

May 21, 2015

this was published on 20 may 2015 at:

http://www.firstpost.com/world/no-loss-is-the-main-gain-from-modis-china-trip-south-korea-was-the-highpoint-2253890.html

here’s the original copy which was slightly edited:

Modi in China, Mongolia and South Korea

Rajeev Srinivasan

As I write this, Prime Minister Modi is wrapping up his visits to East Asia with a tour of South Korea. Of course, the most important was to China, but it is the least likely to bear immediate fruit.

The best thing that could be said about the landmark visit by Prime Minister Modi to China was that there were no major mishaps, although not a whole lot was accomplished, either. Notably, for the first time in many years, there was no incursion by Chinese troops into India as is customary when Indian leaders visit (and as happened when their strongman Xi Jinping visited India in 2014). This has several implications, the most obvious being that China does these provocations deliberately, to ratchet up tension and present faits accompli.

The second implication is that the Chinese side feels that it has done enough to trouble Modi by announcing a $46 billion plan to build a railway and an oil/gas pipeline from Xinjiang in Chinese-occupied Xinjiang, through Pakistan-occupied Kashmir and Gilgit/Baltistan all the way to Pakistan-occupied Balochistan’s Gwadar port. This is another leg in the encirclement of India via the “Maritime Silk Road” (nee “String of Pearls”).

The third implication is that China, despite its pretensions of lofty disdain (upeksha), actually does worry about the strategic potential of India. This could be because it now sees in Modi the kind of leadership a Lee Kuan Yew or their own Deng Xiao-Ping gave to their countries, and thus concede that India could follow in their footsteps. The other reason is that India has an implicit threat for China: although now not committed to the US, India could well become an American ally to contain China in Asia.

If all this feels like Kremlinology, that’s because it is. The Chinese are so inscrutable that reading the tea leaves about what Beijing says and does is a full-time job. But the fact is that China is treating Modi a lot differently than they have treated Manmohan Singh and others in the recent past.

That has good reason, too. In the 1980s, China was only a minor player on the world stage (think North Korea but bigger) with a low per-capita income, and highly exploited peasants. It is in the last 10 to 15 years that China has pulled ahead of India with a manufacturing boom. I don’t have the data with me now, but there’s some evidence to believe India is following China’s high-growth path, although it cannot also be a factory for the world sucking in jobs from elsewhere. India is about 10-15 years behind China, and they will remain ahead, but not necessarily by that much, if India plays its cards right and gains the 10%+ GDP rate growth China managed.

There was talk of China investing $20 billion in India through projects including high-speed rail and so on. Some of the euphoric pre-trip expectations have to be toned down, because except from some areas like special-economic zones and the like, China has no reason to share its manufacturing competence with India.  India will have to acquire it from a number of sources, including the West, as well as through integrating itself into supply chains in South East Asia as well as in China.

In electronics and telecom handsets, India has a grave problem. It is forecast that by 2020, the India market for these will be about $400 billion, out of which imports will account for $300 billion, bigger than the bill for crude oil and gas. At the moment, if I am not mistaken, not a single handset is being built in India (after the Nokia plant was mothballed). This gap needs to be filled by local manufacturing, and that should be part of the hard bargain Modi has struck with his hosts.

Another key area of weakness for India is in Active Pharmaceutical Ingredients, or APIs. A pharma industry insider told me that if the Chinese withhold their APIs, the Indian generics industry would go out of business in a matter of months. I am reminded of the salutary case of rare earths and Japan: one fine day, China simply refused to ship these metals, reducing much of the Japanese electronics industry to begging for supply. APIs are a key vulnerability that India needs to mitigate through a second source, preferably home-grown.

The other aspect is that trade between India and China is heavily skewed in the latter’s favor, for India exports mostly commodities like iron ore, and China exports value-added manufactured goods; the net trade is almost $40 billion in China’s favor, and it needs to be reversed. It’s not clear how that’s going to happen, unless India ends up erecting trade barriers to prevent dumping; or, more positively, India starts building highly-engineered, innovative products that the Chinese need.

Overall, though, it is much more likely that the South Koreans (who have promised to invest $10 billion) and have major success stories to show in India (Hyundai, LG, Samsung) will be much better bets for India on the economic side. This is partly because the Chinese model of investment, while lavish in pursuit of political objectives (Brazil $10+ billion, Venezuela $50 billion, now Pakistan $46 billion) all show Chinese willingness to throw money around and get to dominate the projects, by bringing in Chinese nationals (including convicts). This will not work in India.

South Korea is a much more promising economic prospect for India. It has lessons for India: its success stories are built around chaebol, large conglomerates which are similar to India’s big business houses. Their expertise in electronics, steel, shipbuilding, automobiles and infrastructure can be beneficial to India; and India’s software expertise, iron ore, design and frugal innovation skills can be a good match. Besides, an aging and rich Korea may find, just like Japan, that India offers complementarities; the market success of their chaebols is also encouraging.

On the political front, the border talks didn’t move an inch, mostly because it suits China to leave the issue ambiguous so that they can make fresh claims as they wish. On the issue of stapled visas for Arunachalis, there was no Chinese willingness to act in good faith and refrain from offering paper visa. Well, India could and should reciprocate by issuing stapled visas for residents of Tibet, Xinjiang, Hong Kong and Macau, simply as quid pro quo. That will send a message. Incidentally, the e-visas for Chinese tourists is a red herring: it is not ‘visa-on-arrival’, but just a mechanism whereby they don’t have to go to Indian consulates physically. The checking of bona fides will happen before they embark.

India doesn’t have a whole lot of leverage with China as it continues to build up its Silk Road links to Europe both by land and by sea. The Maritime Silk Road is essentially “string of pearls 2.0” in that it does tighten a noose around India. However, I am beginning to wonder if the strangling of India is a fringe-benefit for China, not a prime goal, which is to protect its oil and gas supplies. An article in Business Insider http://www.businessinsider.in/This-Pentagon-map-shows-whats-really-driving-Chinas-military-and-diplomatic-strategy/articleshow/47273547.cms#ixzz3aJllXw59 suggests that oil-and-gas self-sufficiency is the prime motivator.

The major leverage India has is two-fold: the implicit threat that it will throw in its lot with the Americans, and its soft power.

India is playing its cards right by engaging with the Americans and their allies such as Australia and Japan, and other interested parties in the South China Sea, such as Vietnam. The American ‘pivot to Asia’ can hurt the Chinese, and India can be a major factor in that. The growing Japanese impatience with its pacifist Constitution, and its possible emergence as a strong military power, will draw Japan and India together. Indo-Vietnamese ties (for once, India sold someone arms: naval vessels and the BrahMos missile are part of the package negotiated) should lead to a stronger Indian presence in the South China Sea, perhaps with naval facilities at Haiphong and Cam Ranh Bay, which would worry the Chinese.

On the soft power side, there is some evidence that the spiritual vacuum caused by the Communist takeover is now diminishing, and could be a potent force. The extraordinary lengths the Chinese government has gone to in crushing Falun Gong is an example. Thus the ancient Buddhist ties could well be leveraged by India. I read interviews with several ordinary Chinese, and most of them believe India is the land of Buddhism; and historically India was the only country China looked up, as a teacher.

The tales of Chinese monks who came to India as pilgrims and students at Nalanda are still powerful. Fa-Hien and Hsiuen Tsang wrote voluminous travelogues: the latter even went to Sabarimala, and, in historian Lokesh Chandra’s telling, noted that the deity there was worshipped simultaneously as Siva and the Bodhisattva Avalokitesvara Padmapani. There was of course, also Bodhidharma, the monk who took kalai payat to a monastery in China, from which their martial arts and possibly their acupressure are derived.

It is this soft power that the PM used in his visit to Mongolia. In some sense, his emphasis on Buddhist memes is ‘counter-containment’, according to Brahma Chellaney. The allure of Buddhism, and the siren song of democracy, are both powerful; by extoling them on China’s doorstep, Modi was declaring his intent to use them. I suspect that before long, we’ll be seeing Indian cultural centers (I suggest the names of Bodhidharma or Nagarjuna for the centers) imparting Sanskrit, yoga and Ayurveda to Mongolia and China.

To summarize, the South Korea visit may yield quick dividends for ‘Make in India’; the Mongolia visit is a trial balloon to assert India’s soft power; and the China visit, as I might have predicted, yielded practically nothing, but was yet another step in the long-run shadow boxing that we can expect with them.

1650 words, May 19, 2015

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