China on a Prowl

By Lt Gen P R Shankar (R)

Published in The Financial Express @https://www.financialexpress.com/world-news/china-on-a-prowl/3052055/

In an earlier article I had opined that in the foreseeable future, the China will exhibit an hard exterior and a brittle interior. It was pretty apparent that China will use technology, diplomacy and its military to revive its economy and also use them to offset its long term problems. That would be the way forward for Xi Jinping and his loyalists in their attempt to establish a Sino Centric World order. That is panning out faster than I thought would happen. 

In late Mar, China, Russia and Iran held a five day naval exercise in the Gulf of Oman. Coming on the back of the much touted Saudi -Iran peace deal brokered by China, the naval exercise represents a jump in its expanding influence in the region. China’s foreign minister has been on a blitz to woo ASEAN nations either by visiting some or talking to them at the Boao Forum. There have also been many heads of states visiting China and a flurry of diplomatic activity around such visits. The central and underlying theme of China during all these activities and visits is the same – revival of the Chinese economy and advancing the case for a global order where China is at the centre.

Simultaneously there is that hype being built around China’s economic rebound. New business registrations have increased. Red carpets are being rolled for investors. China’s leaders are going all out to reassure investors that it is committed to reform and opening up. Private sector is being promised the moon. The Chinese media is ratcheting up figures on a daily basis to prove that the Chinese economic recovery is on track. However the reality is far from rosy.  Unused containers and dwindling freight rates tell a seamy story. As per SCMP, Xi Jinping has launched an on-the-ground campaign to identify obstacles and risks threatening China’s development which must be attended to. In that article the five issues identified by SCMP are Private business confidence, Foreign investor concerns, Housing (debt infested real estate), Jobs and income (or lack of them) and China’s population problem. There is a feeling that the “good days” are gone. Will Xi Jinping and company find answers to these problems to revive their economy to take it back to the pre-pandemic times? The answer is clearly NO. Why is that so? 

China’s economy was slowing even before the pandemic because of structural issues. Its rate of growth was declining since Xi Jinping and company were more interested in a state run economy. They had destroyed a vibrant private sector.  More than mere destruction of the private sector they destroyed “Trust”. That will take a long time to come back. Most importantly, it appeared that the lethal word “Common Prosperity” had disappeared from the Chinese vocabulary for some time.  It is making a reappearance again. Financial controls over the money market also indicate that all is not well. As per multiple reports, the real Chinese growth rate was worse than the reported 3% since the official Chinese statistics are dubious. The economy could have actually contracted in 2022. 

An article in Foreign Affairs argues that long-term projections of potential economic growth rest on three factors: demographics, productivity, and capital investment. In China , the demographics are declining irreversibly. That is too well known now. It actually caps the consumption which China sorely needs to sustain its economy. Productivity has fallen drastically. Boosting productivity is feasible only if Xi Jinping changes political course. It means lesser  state control and lesser government  intervention. It also means allowing the private sector to grow without crackdowns. However crackdowns have made a reappearance. The current one in the banking sector talks of fraud , corruption et al. More than 30 state-owned firms are being investigated, including five financial firms. The whiff of old times! 

The third aspect is interesting. It was well known that capital investment in China represented by the frothy real estate sector must slow down. Debt fuelled investment will not boost the economy in China. However Xi Jinping and his cohorts seem to have their own ideas. China has recently made a mega investment plan to boost its rail infrastructure to kickstart the post covid economy. This is a sector which is over capacitated already with many high speed lines running at massive losses. In concert, local governments  are building more roads, railways and industrial parks through heavy borrowings even though the ROI is steadily decreasing. When they were on a song,  they were building airports, roads and industrial parks extensively. Now their coffers are dry due to massive expenditure they were forced to incur on extensive testing, quarantine and lockdown rules during Zero Covid. Many local governments are in fiscal disarray. They cannot afford the loans they are taking. However they have no other option since their tax revenues have fallen due to a struggling business environment. Their major source of income is from  land sales, which they are selling it to build infrastructure on debt. The Chinese seem to be trapped in debt fuelled infrastructure growth. Overall this approach will increase growth in the short term. However, even in the medium term China will start to stutter economically. This ties in with the macro prediction of IMF too that China’s growth will begin cooling off even as early as 2024 . 

In the larger context, the Chinese ploy is very clear. It intends to leverage its larger than life diplomacy, military and technology to revive its economy. In this gloomy scenario, it must increase its exports one way or the other. The recent high profile outreach in the post COVID phase, to ASEAN, South American, African and EU nations is part of this ploy. Its lofty Global Development Initiative and the newly launched Global Security Initiative are all part of its efforts to boost Xi Jinping’s image as a global statesman and establish a Sino centric world order. The base exists in its BRI and the debt trapped nations it holds as collateral.  In this period it is stitching up a partnership with Russia to give it geopolitical heft to enforce new trade alignments in its favour.  The recent visit of the French president is being seen in China as an opening back into the EU.  The visit of the Brazilian president was seen as an opportunity to consolidate China’s hold on the BRICs and even expand it. There will be an attempt to side-line and corner India. The technology card has not yet come to the fore, but it is only a matter of time before it is offered to the global South on seemingly attractive terms. China hopes to reap out of proportion returns in such a scenario. China is on the prowl, wooing the world as never before. 

The other track on which China is operating is also clear. It will use the military and wolf warrior threats to deter those against it or its competitors. Against Taiwan, China has resorted once again to military drills to signal its displeasure when Tsai Ing Wen visited USA and met the house speaker. Chinese military drills around Taiwan seems to be the new standard for punishing the misdemeanours of the Island nation. But such military demonstrations  have now entered a point of diminishing returns. In fact the opposite is happening. All first Island chain nations are arming themselves to meet the China challenge.  That is counterproductive since it keeps China under containment. Overall, while China has to contend with a neighbourhood which is moving away, it is hoping to find fair winds on far shores.    

China’s ploy against India needs some thought in this emerging scenario. It is now clearly evident that a realisation has set in that the only global alternative to China in scale is India. Any economic review or forecast of any kind mentions that India will be the third largest economy by 2030. Some predict India to be the engine of global growth. If this is to happen , it will be at China’s expense. Hence it is in China’s interest India is kept in check and in place. It will also be in China’s interest to expose and define India’s limitations so that the world at large will have no option to return to China. If India fails, Xi Jinping’s Sino centric world order will set in. As simple as that. There are two clear lines of action which have emerged.  

Recently, Chinese authorities published a map of newly “standardised” place names south of the Line of Actual Control (LAC) in Arunachal Pradesh. By publishing such maps and names they are asserting their sovereignty over India as also sending a message to the world that they are putting India in place. What is more, they are solidifying their hold over Tibet by upgrading Two towns along the LAC  to city status. Recently China also pushed Bhutan into talks on the border issue. The Bhutanese PMs remarks created a furore. Lately, the story by India Today on the expansive infrastructure in the Chumbi Valley is also being debated all over. Besides this, there are reports that China is naming some features in the IOR as per some musical tunes. This is significant after the release of the Chinese statement that the Indian Ocean is not India’s ocean. All this is part of a larger gray zone plan. Our borders are being put under pressure through influence ops. 

The second line of operations being opened up is in exploiting the increasing dependency of India on China for its economic growth. The study by the Indian Institute of Foreign Trade (IIFT),  New Delhi that Chinese imports were boosting India’s manufacturing and its exports in key sectors, including inorganic chemicals, pharmaceuticals, iron and steel is being splashed all over. Significantly Russia has also latched on to it and has put it out in its state media. Both China and Russia are busy pointing out that India cannot decouple from China. That puts India in a precarious position that its growth can be calibrated by China. Should China adopt such a strategy, there is likely to be a reversal of fortunes in India’s rise. This situations puts focus on India’s Atmanirbharta plan. While the situation is not alarming, there is a definite case to have a focused long term road map to reverse the increasing dependency on Chinese imports in certain core sectors. Both these lines  of operation are being supported by propaganda from Chinese media platforms which continuously paint bleak pictures of India. This is in addition to the Sorosian campaigns of the West to discredit India to keep it under check.  India has a lot to watch out for. 

When seen in the global context, China is on the prowl, trying to forge ahead with its plans by taking advantage of the global lassitude and weariness as a result of the Ukrainian campaign. Prima facie it appears successful from the optics presented by the Chinese. However, the narrative is based on a weak foundation. Notwithstanding this, the Chinese campaign against India has just opened up. We need to expect more lines to open up against India. If the underlying theme that China’s loss is India’s gain is understood, India will do well to anticipate Chinese moves to stall them.     

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