Boom! Chinese bubble is about to collapse. Is it?

In the words of noted political and economic commentator – ‘Minxin Pei' – “The Chinese bubble is about to burst.” The manifestation of inflated Chinese statistics of imports as well as exports (in some sectors) has been dwindling over the rope of uncertainty.

Why?
- China’s import buddy – Australia, who supplied iron ore and coal like an obedient colony to his imperialist master, has been shrinking its resource exports. (45% drop in coal imports from Australia to China).
- Greece, although saw the arrival of a young, charming and leftist Alexis Tsipras regime is prepared for an exit from EU, which in turn is decelerating the revival process of EU nations and that's why despite sanctions on Russia, China couldn’t milk the opportunity of increasing exports to EU.
- A dopy increase in total debt of up to $17 trillion is haunting banking sector of China.
- A shoddy experiment of permeating democracy in local government with financial autonomy has earned him a debt of almost 40% of GDP which even the proposed 3 trillion Yuan bond swap agreement couldn’t digest.
-Emergence of multiple export oriented power centers like India, USA, Japan, Indonesia etc has demonopolised China’s import machinery and has opened avenues of negotiation for its suppliers like Australia, Africa, Venezuela, Russia etc.

Gone are the days when China could boast of its enlarged chest filled up with money earned out of exports. The equilibrium of import and export has been destabilized. Merely depending on exports for economic growth sidelining developmental initiatives is not feasible for an autocratic rule. Wonder what happens when the people of ‘undemocratic’ China would realize the income gaps after the sun of inflated statistics would stop shining.

India's foreign policy under 100 days of Modi Government

Although there is no radical shift in the new Government’s dealing with the world but the Prime Minister Narendra Modi is more direct and knows what he wants. The emphasis is more on the neighborhood and Asia which is evident by the PM’s visits to Bhutan, Nepal, Japan in that order and Foreign Minister’s visits to Myanmar, Singapore, Vietnam, Tajikistan (for SCO summit). Breaking the band, there is no visit to West Asia, Europe and US till now and the whole focus is on Asia, which is a welcome step.

Prime Minister is not afraid to take on the big players like WTO regarding the TFA Agreement which was supposed to be anti-farmers for India. For it, instead of giving mixed signals, he straight away denied to take the US pressure carried in the baggage by Secretary of State John Kerry to Delhi, last month. PM’s persona and convincing power got India the first President of the New Development Bank, an initiative of the BRICS countries in Fortaleza, Brazil.

There has been enhanced multilateral and bilateral cooperation with the world by the new government which can be summed up in the following way (major initiatives) –

CHINA –
India inked 12 agreements with China – The first agreement was about the opening of new route (Nathu La) to Kailash Mansarovar  which India welcomed with folded hands.

5 year trade and economic cooperation pact to improve the trade balance and obtain $20 billion Chinese investment in India (TOTAL Chinese investment abroad so far is $80 billion and that too mostly in Africa) signaled that India is open for business with India. But the Chinese investors would be cynical about investing in India unless there is a political steadiness between India and China which is difficult until the cross border incursions do not stop at once. Also, Chinese investments come either in ‘projects’ or in the development of those resources which can be ploughed back into its own economy for their own growth.

Modi Govt is far more active unlike the paralyzed previous government with regards to military modernization and defense cooperation with Japanese and Americans which will provide a balancing element to the dealing with China.

The PM (when asked about the expansionist policy of China by a journalist during Japan visit) said, “Within Asia, India, China and Japan should work together.” This explained the  balancing approach of the PM with regards to both China and Japan. Previous Government of India pretended to be friends with China but did nothing substantive to the issues of cooperation and pushed problems under the carpet.

JAPAN – (Enemy of my enemy is my friend – Machiavelli)

Under all the drum playing and protocol breaking, PM Modi was welcomed in Japan with so much vigor and he brought $35 billion investment for the next 5 years. He also ended the blacklist of 6 Indian firms from Japan’s Foreign End User List (Hindustan Aeronautics Ltd, banned after 1998 nuclear test). He also managed to bring US-2 amphibian civilian aircraft (it was not a defense deal). Most importantly, Modi successfully convinced Japan to provide financial, technical and operational support to introduce SHINKASEN/ Bullet Train for the Ahmedabad-Mumbai route.

Media was contemplating a nuclear deal between the two but it is not as crucial as media seemed it. Nuclear deal would be problematic because the Japanese have a far more rigid approach to it than our other partners and India cannot make exceptions with Japan (India had not done with US too even after all the heavy lifting was done by US for the deal).

Japanese want to elevate the dialogue with India from the current Secretary level (2+2) dialogue to Ministerial level, for which Delhi is not ready for till now. Also Japan also wants to bring the Americans into the room in an extensive way to elevate the trilateral dialogue for which India has reservations too.

India needs Japanese technology, investments but above all India needs a good strategic understanding and enhancement of strategic partnership with Japan.

USA –

There has been no substantive development with USA during the first 100 days of Modi government but yes there is surely a scope of ‘good chemistry’ between the two world leaders (Modi and Obama).

Problems with USA include outstanding problems in trade, Intellectual Property Rights issue, inability of US to sell nuclear reactors to India and the problems with the civil nuclear liability law.

The biggest problem of India with USA is that US turns the bilateral issues to multilateral issues which is not acceptable to India or any sovereign nation like India.

SAARC –

PAKISTAN –

There has been no illusion on part of Modi Govt about the past experiences with Pakistan. Outreach to SAARC countries in May during the coronation of PM Modi could not have excluded Pakistan, that’s why Nawaz Sharif was invited. But we should get away from using SAARC as an instrument for our policy with our neighbors because SAARC will never take off unless our relationships are bilaterally stable. We need to strengthen BIMSTEC for a balancing element too.

BANGLADESH – (Pakistan is a problem and Bangladesh is an opportunity )

Foreign Minister Sushma Swaraj went there with nothing except goodwill for their people. She said, “Our relationship is not with any particular party, but it is with the people of Bangladesh.” On Teesta agreement, land boundary agreement, she had nothing to offer except good intentions.

BJP has made gains in Assam in these elections like UPA did in 2004 and 2009 so the domestic politics may overrule the land boundary agreement even for 500 acres of land.

NEPAL –

Despite all the hustle and bustle of an Indian PM’s visit to Nepal after 17 years, and $1 billion line of credit for infrastructure and energy projects by India, Hydel power project to setup transmission lines, MoU’s on Pancheshwar Development Authority and cooperation between Doordarshan and Nepal TV, Nepal backtracked at the last minute on power transfer and power production agreements. Nepalese have been unable to overcome their inhibitions and paranoia on water resources cooperation with India, although they would have been the biggest gainer out of it. Let’s hope the 45 days grace time given them to rework on the issue would bring positive outcomes.

SRI LANKA –

Fishermen’s issue was focused more and it resulted positively with most of them getting independence from Sri Lankan prisons. Modi invited President Rajapaksa during his coronation despite strong opposition from Jayalalitha and other Tamil parties. This gave an image to Sri Lanka that Modi could stand up against Tamil parties for the sake of national interest.

BHUTAN –

Bhutan was chosen as the first destination for PM Modi despite prior commitments to Japan about the same. There he inaugurated a 600MW hydel power project and the Parliament of Bhutan, constructed by India. All in all, it was a positive step to attract Bhutan closer to India after all the fall outs of previous government during which the small hill nation was preparing to sit in the lap of China.

WEST ASIA – (Area of instability and turbulence, seen by India by the prism of domestic politics).

Modi Govt has not focused enough on West Asia. Reaction on Israel-Palestine issue was a bit knee-jerk. Perhaps Modi shares a good rapport with Israel than the previous government of UPA. But this was also balanced out by the vote in UNHRC (Geneva) ‘against’ Israel’s massive bloodshed in Gaza.

Modi has not taken a strategic view to far more important developments taking place in Syria, Israel, Hamas (Gaza), Saudi Arabia- Iran, impending change of Government in Afghanistan, Libya and UAE’s involvement in bombing Libya. We hope Modi gives a kind attention to West Asia as he is giving to South East Asia and East Asia because West Asia is a far troublesome region. Our awareness on West Asia is abysmally low. Previous PM Manmohan Singh travelled West Asia for just 4 times during his 10 year tenure (2 NAM Summits + Iran + Egypt).

Foreign Minister, Sushma Swaraj had started the West Asian campaign with visits to Bahrain. Modi has a baggage associated with him regarding his views towards Muslim community. He can achieve a breakthrough in $250 billion worth Gulf region (where 7 million Indians find a place to live) by engagement which would also help him domestically.

OTHERS –

There have been major other developments in the foreign policy under Modi rule. For example – Nuclear deal with Australia and Uzbekistan, formal letter of membership by India to Shanghai Cooperation Organisation, various trade deals with Vietnam for oil exploration in South China Sea via ONGC Videsh Ltd to name a few.

Building a set of flexible Asian coalition that do not include China and USA would help deepen ties with the allies of US and China as well as the non aligned Asian nations who are all seeking extra layer of insurance against the possibility of China’s non-peaceful rise. Delhi’s strategic cooperation with these and other Asian middle powers, including Indonesia, is likely to win greater domestic support than an Asian strategy that relies solely on American commitment to maintain the regional balance of power. For it to be achieved, India needs to raise the quality and intensity of India’s defense engagement in the region.

India needs to be multi focus in foreign policy as we’re not a ‘one issue country’ like many small countries. We’re destined to be a regional and a global player, therefore we must act in various regions, at various levels and with various countries. We know our national interest very well but we fail to have a coherent action plan to achieve our objectives because we’re hobbled by various things including our domestic problems.  UNLESS YOU ARE STRONG INTERNALLY, YOU CAN’T BE STRONG EXTERNALLY.

Implications of US Government Shutdown

Democrats and Republicans are busy in a power tussle over the condition to drop/sustain President Obama’s healthcare reforms in the shape of Obamacare. The ultimate sufferers are not just the 800,000 employees out of the total 2.8 million government employees but the whole nation. Smithsonian Institutions (19 museums, 9 research centres, National Zoo and National Parks) are closed in the wake of this financial crisis engulfing, the otherwise prosperous nation. Fortunately the Federal Reserve, Department of Defense, Air traffic control, Department of Homeland Security and Justice Department are among the many exceptional sections that will see no disruptions.

According to the Goldman Sachs report, a three week shutdown could shave as much as 0.9% of the US GDP this year. Now, certainly this is a cause of concern which cannot be avoided irrespective of the struggle to show off the dominance by both the political parties in the Congress to each other.

October 17 – The deadline which if crossed, would lead to the financial risk of default in debt payment by the US Government. This implies that the upcoming days are not the good days for the world economy to enjoy sunshine on the beach of ‘return on investment’ ocean. The dark clouds of financial risks have engulfed the city of ‘World Economy’ from the western direction. Weathermen (world economists) are keeping a close look at the possible storm, forming in the western coast of the city. The storm may cool down a little if the ceiling limit of the debt by the US Government is raised before the deadline.

Investors around the globe, who were smiling incessantly over the last few months when the outgoing Fed Reserve Chairman- ‘Ben Bernanke’ assured higher rate of returns through their investment in the gilt-edged securities (US Treasury Bonds) are now on a verge of shedding tears as their investments will be at risk. These include countries like Japan, China and India who are possessing nearly $1.135 trillion, $1.277 trillion and $59.1 billion US Treasury bonds respectively.

On the diplomatic front too, United States is getting harmed, as in the wake of the shutdown, President Obama had to cancel two important Asian visits (Philippines and Malaysia), that gave a strong prospect to the Chinese President Xi Jinping to avail the benefits of the geopolitically important Southeast Asia Summit in Malaysia. Chinese President is the star of the summit now which Obama would have been, if there was no financial crisis at home.

There are some serious questions being raised in hush voices over the ability of United States to lead the world from front, if it cannot even pass a budget bill of their own country. There is not even a single year since 1997, in which there was a smooth passage of the budget. Who is at fault - the presidential style democratic system of the country or the dominance of political interests over national interests by the two political parties of the country?