Same Boat Brother

Xi Jinping and Narendra Modi are crudely in the same boat when it comes to their economies: investment rates are not what they would like. In India, the private sector, burdened by debts and spooked by tax terrorism, is holding back on investment. In China, the government’s own attempts to get away from decades of overinvestment in physical infrastructure has led analysts to trim growth forecasts to just above 7% for the year.

Beijing accepts that its reforms will mean shifting the economy to a lower gear. But it wants the transition to go as socially smoothly as possible. It is trying divert the overcapacity in generators, cement and so on to overseas markets. Hence the multibillion-dollar One Belt, One Road and its component Silk Routes. A modern-day Lenin would claim this is imperialism with Chinese characteristics.

But with some unofficial estimates putting growth as low as 5.2%, China is also backpedalling on other issues. It is softening its stance regarding archrival Japan because, as foreign observers in Beijing note, it is alarmed that Japanese FDI to China has fallen over 40% the past year.


All Your Base Belong To Us

This doesn’t mean Beijing has retracted its claws when it comes to its territorial disputes with neighbours. It has upped the stakes in the South China Sea, its most ey-popping example of snatch and grab, by building airstrips on contested atolls and coral reefs. But it has deliberately lowered the temperature when it comes to the Senkaku Islands (Daiyu Islands in China) dispute with Japan.

Chinese officials and academics insist that the easiest dispute they have is with India. The border is relatively peaceful, no one has died violently since the mid-1980s and the two countries now have “strong leaders,” the Chinese say, who can resolve the border dispute. They carefully differentiate the Indian border dispute from the South China Sea, arguing the former is a colonial leftover while the latter is about territory that is “indisputably Chinese” going back “to ancient times.” Given that India, Japan and Southeast Asia experienced an almost simultaneous assertiveness in their territorial disputes with China in the roughly 2008 to 2011 period, it will take a lot more to get Indians to buy that is true.


Cyber Modi

Narendra Modi’s visit, and especially his decision to open an account on the Chinese Twitter, Weibo, have generally gone down well in China. His number of followers tripled during his state visit and his selfie with Chinese premier Li Kejiang received 35 million hits. “It went viral,” said an Indian official.

Modi get a fair amount of abuse, largely by Chinese demanding India return “South Tibet”, their name for Arunachal Pradesh. Interestingly comments on the Weibo account now appear only in select times in the evening and morning which everyone assumes is by Chinese censors – removing the more egregious insults against Modi.

But Modi gets credit for wading into the wild dog world of social media. Tea Leaf Nation, a website that analyses Chinese social media, noted only five world leaders have dared to reach out to Chinese via cyberspace. In large part because of a fear of similar hypernationalistic abuse. It doesn’t help that Facebook and Twitter, where a more global audience could have balanced the Chinese commentary, are banned in the Middle Kingdom.

Chinese commentators across the board say the image of both India and knowledge of Modi has increased positively as a consequence.

And, yes, at least part of the crowd of 3000 who waved at Modi when he exited a Xian temple was spontaneous: the Indian prime minister had made the decision to take a walkabout on the spot, much to the horror of his security.


One Belt One Voice

Everything in China, one sometimes feels, ends up going back to One Belt, One Road – Xi Jinping’s grand plan to build a global infrastructure network with China at the centre. Everyone in China somehow connects what he is doing with One Belt, One Road – no matter how tenuous the link. I fully expected a noodle chef to say, “My noodle look like Maritime Silk Route.”

Chinese express sorrow that Modi rejected Indian endorsement of this project, saying New Delhi would selectively choose those bits that converged with its own interests. Sensible enough as the only two parts of One Belt, One Road announced for South Asia are a $ 46 billion transport corridor running through Pakistan and the Bangladesh-China-India-Myanmar corridor that would effect India’s sensitive Northeast. As one Western diplomat noted, “The BCIM would make your Northeast more connected to south China than it would to the rest of India. Exactly what the Chinese did in Myanmar, almost detaching Upper Burma from Lower Burma.”

Not that India can stop One Belt, One Road. But an Indian yes would have opened the door for almost all the smaller South Asian states to jump on the bandwagon. And India will indirectly end up funding it as one of the key funding bodies for building it will be China’s new Asian Infrastructure Investment Bank – of which India is the second largest contributor.

Just in case you wondered: the “road” part is confusingly a reference to the maritime part of the project while the “belt” is the two land Silk Routes.


Chindia Statistics

The latest statistic that the Chinese are bandying around to show the need for greater civil society engagement is that only 500,000 people travel each year between the two countries who have a combined population of 2.6 billion. “South Korea sends 8 million people to China every year,” said one Chinese think tank type. And most of that half-million is Indian. Only 180,000 Chinese come to India. There are no shortage of reasons why: a lack of Chinese speaking tourist guides in India, a Chinese vision of India as dirty, polluted and full of rapists, and a lot of difficulties getting Indian visas.

Modi is reportedly equally concerned about this lack of civil society engagement, one of the reasons he overruled India’s security agencies and unilaterally granted online visa applications to Chinese visitors to India.

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

Shanghai is about as distant a place to have an academic conference on West Asia (Middle East for non-Asians). But with the United States suddenly unnerving many of its allies in the Persian Gulf – at least the Sunni ones. Also the Arab Spring happened, the Islamic State came out of nowhere and the third revolution to shake up the region was fracking. Read more

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

Narendra Modi has been roaming the planet and has proven to have a real gift for international showmanship. But one part of the world that has, so far, been missing from his itinerary has been Europe.

Joao Cravinho, the European Union ambassador, held a press briefing this week and underlined the degree of neglect Brussels has experienced from the new Modi government.

The India-European Union free trade agreement, almost 95 per cent done, is awaiting the last mile of negotiations. Three quarters of a year in office, however, the new Indian government has not held a single meeting with the EU about whether they want to animate or bury the talks. Cravinho said he hoped that the EU would get word sometime in the next few weeks about what New Delhi wanted to do.

Somewhat strange given that, as he noted, the EU remains India’s single largest source of foreign investment, single largest trade partner and probably largest recipient of outward Indian foreign investment. Mind you, New Delhi had some reason to delay as the entire Brussels leadership was recently changed. Modi did meet the outgoing President of the European Council, Herman von Rompuy, at the G-20 summit long enough to master the pronunciation of each other’s names.

Of course, if you subtract the United Kingdom from this equation, the number for the rest of Europe plummets. Take out Germany as well and it is just a few billions here and there.

The lack of Indian engagement on climate change, the Holy Grail of European diplomacy, with Brussels is telling as well. Japan and the United States figure more in India’s climate change policy than Europe does. On Ukraine the two sides don’t even waste time talking to each other. Cravinho did say India could tell Russia that it was doing bad things in Ukraine, but it was for form’s sake.

One measure of the importance that Europe in the Modi worldview is the Indian foreign ministry’s recent 116-page e-book on the new government’s foreign policy, “Breakthrough Diplomacy

which gives all of two pages to Europe as a whole (with Minister of State V.K. Singh’s visit to Slovenia as one of the high points), plus two pages each to the UK and Germany. The Indian diaspora gets 12 pages and Africa, which Modi has also yet to visit, 14 pages in comparison.

Of course this will change to some extent. Modi will go to Germany and probably France in April. The UK will get a place on the itinerary in the later half of this year.

Cravinho was also certain that the Indo-EU summit would also be held sometime this year. Hopefully.

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5 out of 5)
Loading ... Loading ...

The new US ambassador to India, Rich Verma, speaking at the Vivekananda Foundation, noted how India and the US now even have a joint working group on carrier technology. Read more

1 Star2 Stars3 Stars4 Stars5 Stars (3 votes, average: 5 out of 5)
Loading ... Loading ...

As the rouble careens southward in value and, more importantly, capital flees Russia’s bleak economic future, the likelihood of capital controls being re-imposed by the Kremlin increases geometrically. Once that happens, the rouble will have isolated itself in a manner that belies Vladimir Putin’s 2009 claim that the “Rouble can claim for the role of a reserve currency.”

The present crisis aside, the future trajectory of the Russian economy looks so bleak – for reasons of demography if nothing else – that the future of the rouble is one of retreat, slowly returning to the Soviet shell it had emerged from post-Cold War. And this in turn will reflect an increasingly inward looking worldview of Moscow’s leadership.

It is interesting to speculate as to the trajectory of the rupee, the currency of an economy about the same size as Russia’s. The answer seems to be that the rupee is following a slow but steady path to the internationalisation that Putin alluded to. But New Delhi will do it in a manner far less outspoken than Moscow. Which is why it may succeed.

I am pretty certain no Indian prime minister and possibly finance minister has publicly spoke of the rupee as being a global reserve currency like the dollar or euro. Such musings are left to the Reserve Bank and central bankers are extremely wary of such an Idea.

G Padmanabhan, deputy central banker of India, in a 2013 speech spoke at length about the rupee becoming a currency of the world. “The Indian rupee is a natural candidate for being considered for greater internationalisation.” But this should be largely in the area of “trade invoicing”, he said, and generally in a “careful and gradual manner.” But most of his speech was about the reasons why the rupee had a long way to go: India’s economy was too small, too prone to current account deficits, too dependent on foreign hot money, too inflation prone and so on. Ultimately, no one was using the rupee overseas.

None of this is a surprise. A macro-economically challenged India, rightly, is cautious to a fault about the health of its currency. What is surprising is, when one looks closer at the figures, despite the lack of enthusiasm of New Delhi – and the opposite sentiment in Moscow – the rupee has become nearly as internationalised as the rouble in recent times. And the economic future of India is much better. The rupee worldview is one of greater integration and, possibly, reserve currency status. We should “aspire” to see the rupee as an “international currency” said Padmanabhan.

The latest Triennial Central Bank Survey of the Bank of International Settlements throws up some interesting numbers regarding rupee versus rouble use in the international markets. One, despite the lack of enthusiasm for such activity by New Delhi, the rupee has been bandied around the international currency markets in a manner comparable to the rouble. Two, the rupee’s rise in the international system has a more stable upward trajectory. And this will be greatly enhanced after the Crimean bust-up between Russia and the West.

Example A: the rouble percentage of global foreign exchange market turnover has gone from 0.3% in 1998 to 0.9 in 2010. The rupee went from 0.1 to 1.0 percent in the same period. By 2013, however, the rouble had jumped to 1.6% while the rupee had stayed at 1.0 – reflecting presumably the halving of India’s economic growth rate in the intervening period. One suspects these trends will reverse for both currencies in the next few years.

Example B: When the global foreign exchange market is divied up by currency and by instrument, the rupee fares surprisingly well. The rouble is much more used: daily average in April 2013 the rouble turnover in such markets was $ 85 billion. The rupee figure was $ 53 billion. But the rouble was used much more heavily in spot transactions while the rupee led the way in outright forwards: $ 24 billion compared to $ 9 billion. Since outright forwards lock a buyer of that currency for a set time at a set exchange rate, the greater rupee figure would seem to be a vote of confidence in the stability of the currency – at least over the rouble.

India’s greatest challenge will be to persuade other countries to consider invoicing their trade in rupees. The currency is still too unstable – it just escaped a meltdown last fall. But compared to the rouble who’s present collapse is just a reminder that it went through the same, only worse, in 1993, the rupee looks like its backed by gold. Over 90% of India’s trade is dollar invoiced and even Bangladesh has rejected the use of the rupee for such purposes.

The recent issuance of rupee bonds by the World Bank slowly helps deepen the pool of instruments that are rupee backed – and financial market depth is a crucial criteria for a reserve currency. But the simple lack of full convertibility and the simple size of the Indian economy means the rupee will go global over a longer time frame. However, one prediction that can be made: the rupee will get a seat at the global high table before the rouble.

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5 out of 5)
Loading ... Loading ...

Vladimir Putin, nine years ago, described the Soviet Union’s collapse as the “greatest geopolitical catastrophe” of the 20th century. While one argue whether that was much of a catastrophe given how dysfunctional the Soviet Union had become in its last few decades, from a Russian perspective that might make sense. Read more

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

What did the Arab Spring teach us about popular protest? How little, even today, we understand the mechanics of political protest. Read more

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

Prime Minister Narendra Modi shocked the international system when his government blackmailed the Doha round of the World Trade Organisation by saying, in effect, “give us a permanent food security solution or we will block the unrelated trade facilitation agreement (TFA).” Read more

1 Star2 Stars3 Stars4 Stars5 Stars (2 votes, average: 5 out of 5)
Loading ... Loading ...

I have been browsing Henry Kissinger’s latest volume, World Order, and had a chance to hear him live and close-up in New York City. Read more

1 Star2 Stars3 Stars4 Stars5 Stars (No Ratings Yet)
Loading ... Loading ...

Once again, the Sino-Indian border is the epicentre of an Asian geopolitical tremor. Not an earthquake, but it causes just enough shakes to weaken diplomatic efforts to at least ease relations between the two countries.

But where the Chinese incursions at Demchok and Chumar unusual?

The difficulty is that the border, for all of its Himalayan proportions, is more fluid than most people realize.

One, there is the issue of demarcations. There are two Lines of Actual Control which tell where the two armies have physical control. In between there is an extensive no man’s land in which snake two claims lines which more often than not overlap each other.

Two, there is the issue of infrastructure. While the Chinese have built extensive infrastructure on their side of the border, India has begun to catch up only in the past five years or so. But this is important: improved infrastructure means more frequent patrols and, say, jeeps instead of pack mules. Change the road system and patrols are more frequent – inevitably the more often Indian and Chinese troops will bump into each other.

Three, the operating procedures between the two sides on handling the border keep changing with new border agreements. These agreements are necessary to keep pace with the improved infrastructure, weapon systems and the entry of such things as helicopters and drones.

This makes it hard to draw from raw numbers whether this is a consequence of a Chinese tactical decision or a simple fallout of, say, a better road and warmer weather that season.

Looking at the raw numbers – of which there are, this being India, different and often contradictory figures depending on the agency one talks to – there is clearly an increase in border transgressions by China in the western sector.

In the period up to 2011, such incursions normally numbered about 200 per year. Then from 2012 this number has doubled to the 430 range. This present year, 2014, is set to match this new range.

Harder to judge is the quality of such intrusions. One thing seems certain is that China border action is focusing on a few specific areas. In Ladakh these are Chumar, Demchok, Pansong Lake (Three Idiots fans please note), Depsang and a half-dozen smaller points. All these largely match the 1959 claims line of China, an older claims line now seemingly in the midst of being revived physically.

There is an additional issue which New Delhi doesn’t like to admit.

Over the years, India has become much less aggressive about patrolling the full extent of its claims area, even the full extent of its LOAC. This seems to have been because of piecemeal decisions over the years that have led the Indian patrols to restrict themselves to hugging the LOAC. As Shishir Gupta points out in his book Himalayan Face-Off, “Indian patrols do not go up to the LAC on advice of the CSG in these areas.” The CSG is the quasi-official China Study Group that advises the government on such issues. This has immediately meant the furthermost claims areas of India have become de facto areas of Chinese control.

After the fall in Sino-Indian relations in the latter years of Hu Jintao, India built up both infrastructure and the began pushing its patrols forward. Confrontations have been inevitable.

So, yes, the Sino-Indian border is becoming just a bit more heated. It will continue to do so. Both these countries are experiencing a rising nationalism. India has also seen the emergence of a more shrill television media that is no longer prepared to accept the relatively common back and forth that takes place on the border of both sides intruding. Better infrastructure, better patrolling and, in the case of India, a sense that too much was conceded in the past decade and needs to be reclaimed.

There is a new norm emerging on the Sino-Indian border for better or worse. And the two governments need to hammer out an even more comprehensive border management agreement to make sure the norm is institutionalized in a manner that keeps the guns quiet.

1 Star2 Stars3 Stars4 Stars5 Stars (1 votes, average: 5 out of 5)
Loading ... Loading ...