Aggressive China and India’s Interests

The emerging China remains a formidable adversary for India; we need to prepare ourselves on many fronts. — KK Srivastava

The 20th National Congress of the Chinese Communist Party has phenomenally reshaped the politics of China. This in turn has implications for the global strategic and economic order. Now the President of China Republic Xi Jinping will have absolute control over the party, military and the state as a whole. There are many fundamental changes – ongoing and fresh – that will be witnessed. For example, during the Deng Xiaoping regime there was a policy turn in terms of wealth creation through private capital, including global players. Now there will be greater role for the state, less role for the private sector, more central planning, and pursuing of common prosperity instead of concentration of wealth. In other words, the equation between the state and private capital will see a sea shift. 

The zero covid policy has resulted in slowing of economic growth. More importantly, however, the government is sending out a clear signal that now onwards the state will dictate the economic agents. Earlier china focused for nearly three decades on achieving high economic growth. But now it wants to directly challenge the hegemony and superiority of the US; no more the approach of strategic neutrality. This could considerably alter trade and investment flows which were earlier aligned to a ‘capitalist’ China. We have to safeguard our interests.

The US had seen it coming; look at the focus on domestic semiconductor manufacturing, the new oil of the global economy. President Biden has sought to promote huge federal investment in R and D in technologies and manufacturing sectors where China currently dominates. It has placed embargo/controls on chip supplies to China. Of course there are dissenting voices from Tesla, Apple, and their likes since they have huge stakes in China (assembly and consumers). But then there is Intel which has committed $20 billion for a new chip plant in Ohio. 

India too has to safeguard its strategic and economic interests. While we can ill afford to antagonize our neighbor given a symmetric power of Chinese military and economic might, at the same time we can not surrender meekly. Chinese imports into India in 2021-22 were in excess of $90 billion, not withstanding  our efforts to cut ourselves loose. Yet, to begin with, India has to go atmanirbhar in crucial areas like pharmaceuticals, for which China supplies nearly three forth of active ingredients. 

Today’s China is certainly not communist, with state ownership of the means of production and the guiding principle being ‘from each according to their abilities and to each according to their needs.’ Yet there is a recalibration of China’s economy with a clear and sharp statist turn. The ruling party has sent out a clear message (remember Jack Maa ?) to the realty, credit, and Fintech sectors that it will take regulatory and punitive actions, as it deems fit. But the fact is that Chinese economy is losing momentum. Between 2002-2012 (Hu Jintao) the economy grew at a CAGR of real GDP at 10.55%; this rate got reduced to only 6.55% during 2012-2021 (Xi period). Xi aims at making China a mid level developed country in the next decade. For this it needs an annual growth rate of around 5%. But due to adversities like shrinking population, declining productivity growth, and heavy debt burden, some estimate that it may actually grow at around 2.5%. This has many implications for the world as a whole, and India in particular. For example, it has no chances of becoming the world’s largest economy (and therefore dominant super power) in near future, since US will continue to occupy that position.

Also Chinese debt driven progress through Belt and Road Initiative (started in 2013) aims at being an engine of expanding its global dominance. But this loaded gun can back fire if the debtor countries (Sri Lanka being the current example) face economic hardships, in turn creating a crisis for China.

Xi has sought to reposition China as aggressive, revisionist world leader which wants to create a world community of shared destiny. But in effect it wants to reshape the world order that should be dictated by rules framed by China. This, however, is fraught with many imponderables, some of which we pointed out earlier. Thus while the economy is slowing down (and may continue to do so under the renewed focus on wealth distribution and check on wealth creation by involving private capital), adverse demographics is leading to aging population with implications for supply to labour force. Besides, while earlier Xi could rule with an iron hand in the background of high economic growth, the Chinese population may opt to rise in protest if they see no gains. Lastly, it is a moot question if China will continue to remain innovation tech powerhouse, especially in face of US. China strategic rivalry. As far as India is concerned, India is unlikely to find peace with China. Hence the only approach it can have is to boost its domestic economy, reduce dependence on China, align its interests with like minded countries, and upgrade its defence preparedness. This is because China will continue to remain a formidable foe. Xi is carving out new fault lines thereby plunging the world into sea of confusion and uncertainty. But one thing is certain; Delhi will have to work harder and a lot more swiftly to blunt the challenges from new China to India’s interests. Xi has decided to exercise tighter political control at home, increasing reliance of state against markets for the economic growth, and more assertive policies abroad in the name of shared destiny. Of course there are multiple contradiction due to the authoritarian rule of one man which are likely to surface. But in near term Delhi is likely to face a hostile China with a mighty military; the Chinese regime under Xi has made no secret about its expansive geopolitical ambitions. Given this there is not likely to be a benign phase in Sino-Indian relationship. In fact we face an adversary which has a hierarchical vision of the world. Only out higher national strength and external partnership can come to our defence.             

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