How to fix China's economy?

By S.P.SETH

In the midst of global economic doom and gloom, China has attracted much attention and admiration for its impressive growth. Not long ago, China’s annual GDP was growing by over 10 per cent. Things are now slowing down but the pace is still healthy. In his speech at the recent National People’s Congress in Beijing, Premier Wen Jiabao revised down the GDP growth rate to 7.5 per cent, the lowest for a long time. In his address to China’s 3000 delegates, he detailed the problems facing the economy. He said: “Domestically, it has become more urgent but also more difficult to solve institutional and structural problems and alleviate the problem of unbalanced, uncoordinated, and unsustainable development.”

And: “Internationally the road to global economic recovery will be tortuous, the global financial crisis is still evolving, and some countries will find it hard to ease the sovereign debt crisis any time soon.”

The main reason for China’s relatively slower growth rate is a contraction of its major export markets in Europe and the United States. The US and Europe are trying to deal with their debt and deficit problems. They were, the US in particular, running large trade deficits with China. A good chunk of China’s trade surplus with the US was invested in US bonds and treasury notes. It seemed a convenient exercise for both countries with China continuing to expand its exports, while the US had access to easy credit. In the process, with cheap Chinese goods flooding into US and Europe, the inflation remained under control. An important contribution of China’s export economy was to keep inflation under wraps in the West.

With inflation under control and easy credit available domestically and internationally through all sorts of complex and phony credit instruments, the Western economies went on a spending spree like there was no tomorrow. But the time and their profligacy eventually caught up, leading to the global financial crisis of 2008 that is still working its way. Not surprisingly, China too got caught up in all this, with a sudden drop in its exports and rising unemployment. This was potentially dangerous for China’s social stability, when millions of unemployed migrant workers from rural areas returned to their villages with not much employment prospects back home.

The Chinese government sought to deal with this situation with a massive economic stimulation package of about $600 billion. This did salvage the situation temporarily with banks (under state direction and funding) making credit available to fund all sorts of construction projects at local, regional and central levels. While this massive expenditure did halt the slow down and improved employment, it has also created a housing bubble, inflationary pressures and a huge internal debt from easy credit availability. For instance, there are vast empty housing estates built in the last few years without people to live in them, as most people can’t afford to buy these places.

In some ways it is like the Japanese bubble of the nineties that is still plaguing the Japanese economy. In other words, the Chinese economy, with its inbuilt imbalances of rural and urban development and growing income disparities all around has become even more distorted. And this sort of “unbalanced, uncoordinated, and unsustainable development” cannot continue, as Premier Wen Jiabao told the assembled 3,000 delegates of the National People’s Congress.

The breakneck speed of China’s economic development has not only created structural imbalances but also social dislocation. From a predominantly agricultural economy, China is now 50 per cent urbanized. Nearly 300 million rural people (and rising) constitute its floating migrant population working on urban industrial and construction sites. And they are not entitled to urban residency entitlements because of their rural residency registration. A whole way of life, going back thousands of years, is in search of a new sense of belonging that eludes them.

No wonder, China is in the midst of widespread social unrest. According to the last official estimate, China experienced in one-year 90,000 cases of social unrest, big and small. The government has stopped compiling and issuing statistics on this. Corruption is now endemic and getting institutionalized, affecting even the higher level of bureaucracy and government. The Bloomberg columnist William Pesek has quoted a report to the effect that: “The wealthiest 70 members of China’s legislature added almost $90 billion to their bank accounts last year....”

The big question is: how do you restructure an economy geared to high rates of growth fuelled by ever increasing exports? China is planning to address this question by expanding domestic consumption to increase its internal market. For this to happen people’s incomes would need to rise alongside increased employment. As regards the first, there has lately been some increase in wages due to workers’ protests, especially in the coastal industrial zones. Another way is to give people greater return on their savings with the government banks, which currently have very low interests. People have no options but to accept what is offered. Being essentially government institutions, people also feel safe about their money.

China has a very high rate of savings, mostly at the government’s disposal with very little cost involved. If people were to save less and get more return on what they save, their disposable income will rise thus enabling them to spend more and stimulate demand. Of course, China’s industrial enterprises will need to invest more in producing consumer goods for domestic economy, thus diverting funds from fixed investment in construction projects that is creating a bit of a bubble economy. But to transform the country’s economy in such a radical way is a tall order, especially because the existing system has spawned vested interests and in the midst of entrenched corruption.

Another way to diversify China’s economy is to spend more on education, health, and social welfare sectors. China’s preoccupation with statistical growth has seriously neglected these sectors, even though it is now the second biggest economy. Besides, there is also need to invest more in the rural sector that has seen relative neglect in the last two decades from the nineties. That explains the increasing migration of rural people to cities in search of jobs. China could also do with developing ancillary small and medium scale rural industries to provide employment for people closer to farming communities. This is important not only to stem the outflow of rural population to cities but also to foster social harmony by keeping people within their familiar social and cultural environment. But unfortunately the government instrumentalities at the local and regional level, in particular, have been busy acquiring rural land for urban development and industrial construction without much consultation and compensation. Which is an important reason for rural unrest.

The overhaul of the economy will be a slow and a long process, requiring public accounting and transparency. In other words, it is time for China to link up economic transformation with political reform. As Premier Wen Jiabao said at his press conference, “ … Without successful political structural reform it is impossible for us to institute economic structural reform and the gains we have made in this area may be lost.” He has said before that, “… if we are to address the people’s grievances we must allow the people to supervise and criticize the government.

China will soon undergo a change of top leadership, with a new President and Prime Minister. That might lead to a concerted effort to transit China into a more sustainable development path, though it is not going to be easy and painless.

China’s race to become superpower

By S.P.SETH

China is in a hurry to become the world’s superpower. It is now the world’s second largest economy and might overtake the US in a decade or two. It will, however, still lag behind the US in terms of per capita GDP for a long while yet. In other words, many of its people will still struggle to make a decent living.

China is now also a major military power, with enough deterrence to discourage any threat to its national security. But it still finds its ambition to do what it likes constrained for a number of reasons.

The main obstacle being that the US is not facilitating its unilateral claims over South China Sea and its island chains. Washington is also not terribly keen on conceding Asia-Pacific region as China’s strategic space.

Beijing realizes that without US understanding, if not support, of its “core” interests and strategic concerns, China will feel thwarted in its primacy over the region. Not surprisingly then, China’s vice-president and leader-in-waiting, Xi Jinping, said in Beijing, just before his US visit, that he hoped “the US can view China’s strategic intentions… in a sensible and objective way…”

And he emphasized that: “Ultimate caution should be given to major and sensitive issues that concern each country’s core interests to avoid any distraction and setbacks in China-US relations.” Apparently, he didn’t succeed in this respect during his recent US visit.

Beijing is angry that the US is increasing its military muscle in the region. Reacting to President Obama’s recent announcement that the US would be prioritizing Asia-Pacific as part of its new strategic direction, Xinhua warned that, “If the US indiscreetly applies militarism in the region, it will be like a bull in a china shop [literally and figuratively], and endanger peace instead of enhancing regional stability.”

Another problem is that China’s neighbors, though duly impressed with its growing power, are not willing to give up their core interests. For instance, China’s sovereignty claims over regional waters and island chains are strongly contested by several South East countries, as well as Japan in the East China Sea.

And some of these neighbors have close strategic ties with the United States. Australia, for instance, feels that China’s growing power will destabilize the region, thus posing a security threat.

There are two ways for China to deal with these constraints. The first is to persuade the US to let China sort out its problems with its neighbors, without Washington’s overt or covert backing for them. If this were to happen, Beijing might not have much problem “persuading” its neighbors to see things China’s way.

However, this is unlikely. Therefore, there is no way for China to test this hypothesis since the US is not vacating the region for China’s power games.

The second way is to tell its neighbors, in no uncertain terms, that contesting China’s sovereignty claims might mean exclusion from beneficial economic relations with China. Their strategic tilt against China, as part of closer ties and/or security alliance with the US might, therefore, cost them dearly.

Australia has clearly received this message. In a recent editorial, the Sydney Morning Herald wrote: “Cui Liru, the head of the Institute of Contemporary International Relations in Beijing, warned that the economic relationship could not mask the strategic divide with China.”

It opined, “The underlying message was that Australia would have to catch up with the reality of growing Chinese power.”

No doubt, similar messages are being conveyed overtly and covertly to other regional countries that are cozying up to the United States.

Will it work? It is hard to say. But so far it is having the opposite effect. China’s flexing of muscles lately has had the effect of pushing some of these countries into a tighter US embrace, as well as creating bilateral and regional linkages.

Xi Jinping’s visit was intended to soften China’s image regarding its regional ambitions. But the differences with the US remain, because it refuses to acknowledge China’s privileged position in the Pacific.

For instance, on Taiwan, the US is continuing to sell defensive weapons despite China’s insistent pressure against it.

And that applies to the Korean peninsula too, with the US committed to its alliance with South Korea.

In a sense, China wants to enforce its own Monroe doctrine in the Pacific area.

If the US were to concede China’s sphere of influence in the region, China’s neighbors would feel vulnerable.

Obviously this is not going to happen, with all signs pointing to the US determination to become more active in the Asia-Pacific region.

According to Aaron L. Friedberg, in his book A Contest for Supremacy… , China’s goal is “to displace the United States as the dominant player in East Asia, and perhaps to extrude it from the region altogether.”

As for any common ground on international issues, the currently hot issues of Iran and Syria are a matter of contention. While supportive of nuclear non-proliferation, China is not keen on becoming part of the US-sponsored strict regime of comprehensive economic sanctions.

On Syria, China, along with Russia, has vetoed the UN Security Council resolution to condemn the regime’s bloodbath of its own people.

Another issue clouding their relationship is North Korea’s nuclear ambitions. There is some hope that Pyongyang might put a moratorium on its nuclear program in exchange for US food aid.

China has been playing a helpful role with its Beijing-sponsored on–off six-party talks on the North Korean nuclear issue but has resisted putting decisive pressure on its North Korean ally.

At the global level, China lacks commensurate clout in the existing international order designed and shaped, after WW11, by the United States and its western allies.

However, over the last few years, due to global financial crisis, the United States is starting to appear a bit wobbly giving China, as its major creditor, a lift in its global ranking.

At the same time, Europe is limping with the euro zone racked with debts.

With US and Europe in economic difficulties, China will seek to change international economic institutions to its advantage, with its financial power.

But it is still a long way to go for China.

For instance, even with all US’ economic problems, the US dollar still remains the world’s reserve currency. And when the economic news is bad, there is still a rush on US dollar as a dependable asset.

Even China is heavily invested in US bonds and treasury notes.

Therefore, it is too early to say that China will replace the US as the world’s superpower.

And considering the rising social unrest and other domestic problems, including its slowing economy, it might take a long time for China, if at all, to become the world’s top dog.

Tibet’s Agony: China’s Shame

By S.P.SETH

Tibet region of China is once again smoldering, with monks in the small town of Aba in Sichuan province and elsewhere self-immolating to protest against repression to sniff out Tibetan religion, language, culture and an age-old way of life. The number of monks who have set themselves afire is said to be more than twenty and rising. There are reports of some lay people taking to self-immolation as an act of solidarity with their monks and/or just out of plain frustration.

According to reports in the Guardian and Sydney Morning Herald, the town of Aba, the scene of the largest number of acts of self-immolation is ringed by a blanket presence of police and security people. As Philip Wen has reported in the Sydney Morning Herald from Aba, “Heavily armed police are set up at every intersection… beside army trucks full of soldiers in riot gear….”

According to Jonathan Watts in the Gaurdian reporting from Aba, “ Despite flooding Aba with security personnel, the protests continue.”

And he quotes Kate Saunders of the International Campaign for Tibet who said, “In Tibet, the monasteries serve the function of universities. What is happening now is like a military blockade of Oxford and Cambridge. It’s as if the UK tried to prevent students from studying anything except what the government wanted them to study.”

The unrest is also spread to Tibetan areas of Qinghai province.

Of course, with such massive show of force, the Chinese authorities will succeed in crushing the Tibetan unrest this time as they have done before. But shouldn’t it make Beijing pause and reflect why the Tibetan issue is not going away since Tibet was forcibly annexed in the fifties?

But that is not the way China’s communist government operates. To reflect about policies that are not working and might require a new approach is considered a sign of weakness. In dealing with Tibet’s seemingly intractable problem it is easy to simply deny that there is a problem.

They blame it all on the Dalai Lama for his remote-control hand to split Tibet from China. He is a “wolf in sheep’s clothing” talking of peace and reconciliation while doing just the opposite. Therefore, it is none of China’s fault.

Let us take the Dalai Lama’s role. He is the spiritual leader of the Tibetan people. He recently relinquished his political mantle to his elected prime minister. It would appear that the institution of the Dalai Lama might cease to exist after the present incumbent departs this world.

This will effectively deprive the Chinese government of foisting their own Dalai Lama on the Tibetan people. Beijing will still do it but their candidate will lack legitimacy and popular acceptance among the Tibetans.

China, therefore, might be well advised to enter into talks with the Dalai Lama, when he is still around, for a peaceful resolution of the issue. He has publicly said a number of times that he is not for a separate Tibet. He only seeks autonomy for Tibet, with Beijing retaining control of defense, currency and foreign affairs.

The on-off talks between the two sides have been off again for some time now.

Why is China not interested? Because: they don’t trust the Dalai Lama. They think it is his way of working towards a separate Tibet. It defies logic, though. For instance, how will an autonomous Tibet, with real control vested in the central government, be able to defy China?

What China obviously fears is that an autonomous Tibet will seek to preserve its religion, culture and traditional way of life. And this doesn’t suit China. With its policies of Han settlement of Tibet, where the Tibetans might soon become a minority with no say in how their affairs are run, Beijing is in no mood to grant autonomy. The Tibetans will soon, if they are not already, become strangers in their own land.

Indeed, by slicing off parts of the Tibetan region and attaching them to neighboring Han provinces, Beijing has already parceled out their land. And the herdsmen, removed from their traditional mountainous grazing lands, have been set up in ghettos to work as casual labor with whatever they can find to earn a living.

There is even a suggestion at higher Party level that the government should adopt a more overt assimilationist policy of doing away with ethnic “privileges” altogether, being an obstacle to national cohesion. In other words, Tibetans might cease be a distinct ethnic group.

No wonder such repressive policies are driving Tibetans to the wall.

It is now more than sixty years that China incorporated Tibet but Tibet is still seething. Isn’t it time for China to do some introspection about the failure of their policies and create an accommodative policy framework based on autonomy for Tibet?

According to Pico Iyer, an expert on Tibet and the Dalai Lama: “Over the decades I’ve known him, the Dalai Lama has always been adept at pointing out logically, how Tibet’s interests and China’s converge--- bringing geopolitics and Buddhist principles together….”

The Dalai Lama is saddened that China is single-mindedly pursuing greed and at some point, as Pico Iyer recalls his conversations with the Tibetan leader, is going to have to find something to support it at some level deeper than just growth rates.

But in the meantime, there is not much hope for Tibet’s agony.

How Strong is China’s Economy?

By Sushil Seth

There is a growing fear that the world might be heading toward an economic Armageddon, with the Euro zone crisis looking intractable by the day. The US economy too is in a holding pattern with not much bright light ahead. In these times China appears healthy, though its rate of growth is slowing. This is not to say that China is trouble free.

China’s economy has some deep-rooted problems that do not augur well for its future. Indeed, this is the assessment of China’s Premier Wen Jiaobao who said some time ago that, “ We must…address the long standing problems in China’s economy of a lack of balance, poor co-ordination and unsustainability…”

If anybody else had said this, he/she would have been laughed out of town when China’s even slower growth rate of around 9 per cent is something another country will die for.

China’s growth strategy has been underpinned by three important factors. First: it has been export driven with seemingly unlimited demand for Chinese goods in the United States, Europe and even among third world countries.

Second: production costs in China are low because of low wages with long working hours which gives China an important and decisive competitive advantage with other countries.

Third: an undervalued currency further enhances China’s competitive advantage.

Not surprisingly, Chinese goods have flooded international markets to undercut local production with job losses.

Until the global financial crisis hit the world in 2008, the availability of cheap and easy credit didn’t create too much resentment in the US and the west against Chinese exports. For instance, with China buying US treasury notes and bonds with recurring and expanding trade surpluses, and its cheap goods helping to keep inflation under control, it didn’t seem a huge problem.

But all this is changing for a number of reasons. First: China’s export markets in Europe and the US are shrinking because of severe economic problems in these countries. They simply can’t afford to keep buying Chinese goods like before.

Second: these countries, especially the US, have been pressuring China to revalue its currency to create a level playing field for their exports to China. Because of China’s resistance to freely float its currency, protectionism is rising in the United States.

At the same time, the wages in China have been under upward pressure because of labor unrest. Therefore, the competitive advantage from lower wages in China might diminish.

With the rise of protectionism and rising labor costs, the export-driven growth strategy might not be as attractive as in the last thirty years.

China will, therefore, need to reorient its economy to produce goods and services for internal consumption. Because: any slow or sluggish growth will worsen unemployment leading to social unrest.

The problem, though, is that it is not like switching gears to change the direction of an export driven economy to focus more on creating and meeting internal demand. The state has to have a road map for this and a strategy to execute it. As far as is known, there is no such thing.

When the global recession hit in 2008 affecting Chinese jobs and exports, China sought to meet the situation with a hefty stimulation package of about $600 billion. Which has created the property bubble and stock market gyrations.

But the government has once again eased up on liquidity fearing contraction of the economy. This kind of go-stop economic approach is too arbitrary for a country of 1.3 billion people who need more jobs with a strong component of social welfare for difficult times. As it is China’s estimated 300 floating rural migrants working in urban economy are not entitled to the benefits accruing to their urban cousins.

Many poor and low income Chinese have difficulty accessing education and health facilities for their children because of prohibitive costs.

After all, China calls itself a socialist country, presumably to promote economic and social equity.

Tsinghua University’s Social Progress Report for 2011 has reportedly warned that China has fallen into a “transition trap” and faces a series of systemic “abnormalities” like, for instance, lopsided growth which has privileged the state and its monopoly industries.

It is a top-heavy system with entrenched corruption. It needs overhauling. But with a small elite at local, regional and central levels controlling the levers of power, it is easier said than done. They have parceled out businesses among their children and a select group of favorites.

In this situation any systemic transformation will seriously hit China’s relatively small political and economic elite feeding on the system.

This is why despite all the noise about corruption and the need to eradicate it, nothing much can be done because of the nature of the system.

Liu Xiaobo, China’s Nobel Laureate currently serving an 11-year prison sentence, has described it like this in one of his essays: “In China the underworld and officialdom have interpenetrated and have become one. Criminal elements have become officialized as officials have become criminalized…”

Apart from entrenched corruption, there are rank inefficiencies, colossal waste, structural imbalances, over production, with social justice and welfare a serious casualty.

To overcome the recessionary impact of the global crisis, Chinese banks lent liberally. Which has resulted in huge internal debt incurred by local and regional instrumentalities, creating inflationary pressures and bubbles in property and stock markets; not unlike what happened in Japan and recently in the United States.

Since the system lacks transparency and accountability in the absence of a participatory and responsive political system, China’s economy will continue to sputter with no medium or long-term solution.

To sustain growth, China needs political reform as even Premier Wen Jiabao admits. He said last year in Beijing: “ Without political restructuring, economic restructuring will not succeed and the achievements we have made in economic restructuring may be lost.”

He added, “If we are to address the people’s grievances we must allow the people to supervise and criticize the government.”

No chance of this happening any time soon, if at all.

Is US-China Collision Inevitable?

By S P SETH

Even as Iran has become the center stage of another likely military conflict in the Middle East with the US and its western allies determined to force it to forgo its nuclear program, Asia-Pacific region is emerging as another potential trouble spot pitting China against the United States. With the US now disengaged from Iraq, and in the process of military withdrawal from Afghanistan by 2014, it has dawned on Washington that China has strengthened its role in Asia-Pacific and is slowly, but steadily, working to push it out of the region. China regards Asia-Pacific as its strategic space and the United States as an external power. The US has decided to hit back by declaring that it is not going anywhere and, indeed, will beef up its military presence in the region. Straddling both the Pacific and the Atlantic Oceans, the US considers itself a legitimate Pacific country.

US-China relations have never been easy. They are likely to become even more complicated after the recent announcement of a US defense review that prioritizes Asia-Pacific region. Even though the review seeks to make sizeable cuts of about $500 billion in the US’s defense budget over the next ten years, it wouldn’t be at the cost of its engagement with the Asia-Pacific region. Indeed, as President Obama told reporters, “We’ll be strengthening our presence in the Asia-Pacific…”

Washington’s decision to make Asia-Pacific a priority strategic area was presaged during Obama’s recent visit to Australia. He hit out at China on a wide range of issues, while announcing an enhanced US role, including the use of Australian bases/facilities for an effective military presence. He urged China to act like a “grown up” and play by the rules. Elaborating on this in an address to the Australian parliament, he said, “We need growth that is fair, where every nation plays by the rules; where workers rights are respected and our businesses can compete on a level playing field; where the intellectual property and new technologies that fuel innovation are protected; and where currencies are market-driven, so no nation has an unfair advantage.”

This catalogue of US economic grievances against China has been the subject of intermittent discussions between the two countries without any satisfactory results. On the question of human rights and freedoms in China, Obama said, “prosperity without freedom is just another form of poverty.”

The US is upping the ante in its relations with China, with Asia-Pacific as the centre stage. It doesn’t accept China’s sovereignty claims in South China Sea and its island chains. This has caused naval incidents with Vietnam, the Philippines, and with Japan in the East China Sea, and a close naval skirmish or two with the United States. As part a new resolve to play a more assertive role, the United States has reinforced and strengthened its strategic ties with Vietnam, the Philippines, India, Australia and Japan.

In announcing cuts to defense budget over the next decade, President Obama seemed keen to dispel the notion that this would make the US a lesser military power. He said, “The world must know ---the United States is going to maintain our military superiority with armed forces that are agile, flexible and ready for the full range of contingencies and threats.”

The US’s continued military superiority has a catch, though. Which is that the US will be adjusting its long-standing doctrine of being able to wage two wars simultaneously. Defense Secretary, Leon Panetta, maintains, though, that the US military would still be able to confront more than one threat at a time by being more flexible and adaptable than in the past.

Be that as it may, the increased focus on Asia-Pacific has upset China. Its hope of making the region into its own strategic backyard, with the US distracted in the Middle East and its economy in doldrums, might not be that easy with the new US strategic doctrine prioritizing Asia-Pacific. Not surprisingly, the Chinese media hasn’t reacted kindly to it. According to the Chinese news agency, Xinhua, “… the United States should abstain from flexing its muscles, as this won’t help solve regional disputes.” It added, “ If the United States indiscreetly applies militarism in the region, it will be like a bull in a china shop [literally and figuratively], and endanger peace instead of enhancing regional stability.”

The Global Times called on the Chinese Government to develop more long-range strike weapons to deter the US navy.

Australia, US’s closet regional ally, fears that China’s rising economic and military power has the potential of destabilizing the region. Foreign Minister, Kevin Rudd, though, hopes (as he told the Asia Society in New York) that there was “nothing inevitable” about a future war between the US and China, emphasizing the need to craft a regional architecture that recognized the coexistence of both countries, and the acceptance of US alliances in the region. He also saw hope (as a counterpoint to China) in the “the collective economic might of Japan, India, Korea, Indonesia and Australia…” Which means that, hopefully, China’s perceived threat might be balanced and contained with the US’s enhanced commitment to the region, and the rising clout of a cluster of regional countries.

There are any number of issues that could become a flashpoint for future conflict, like Taiwan, Korea, South China Sea and its islands, maritime dispute with Japan and so on. With China determined to uphold its “core” national interests, and the US and others equally committed to, for instance, freedom of navigation through South China Sea, it only needs a spark to ignite the prairie fire.

As it is, neither China nor the United States want military conflict between their two countries. China’s official position was expounded the other day in Beijing by its vice-president Xi Jinping, who is also the country’s president-in-waiting. Xi, who is expected to visit the United States next month, hoped “that the US can view China’s strategic intentions…in a sensible and objective way, and be committed to develop a cooperative partnership.” And he emphasized that: “Ultimate caution should be given to major and sensitive issues that concern each country’s core interests to avoid any distraction and setbacks in China-US relations.”

The problem, though, is that when it comes to “core interests”, objectivity is generally the first casualty. For instance, the US complains that China’s strategic doctrine, if there is one, lacks transparency. The double-digit growth in China’s defense budget, as viewed in Washington, is way beyond its defensive needs. On the other hand, the US has the largest defense budget of any country in the world. It is pertinent to remember that wars have often been caused by miscalculation rather than deliberation. And this is even more so when an emerging power is staking its claims impinging on the existing superpower’s perceived interests and/or seen to be threatening its regional allies. This is how the two World Wars started.

One can only hope that China and the US will carve out a new peaceful way of coexistence and cooperation, though the past experience in such situations is not very encouraging. Indeed, it points to an inevitability of a potential military conflict sooner or later.

Note: This article was first published in the Daily Times.

China-India Relations Hit a Bump

By S.P.SETH

Even as China is flexing its muscles with its neighbors in Asia-Pacific, it is also testing India’s resolve. This was recently demonstrated when Beijing cancelled an official-level meeting in New Delhi on their seemingly intractable border dispute.

China wanted India to cancel a religious gathering in New Delhi to be addressed by the Dalai Lama. When India declined, Beijing decided to cancel the official-level meeting.

China distrusts India’s hosting of the Dalai Lama and his government-in-exile (no longer led by the Dalai Lama), ever since he as was granted refuge in India after he and his entourage fled Tibet in 1959.

Since then, along with the unresolved border dispute between the two countries, the Dalai Lama has become the symbol of a continuing under-current of their prickly relationship.

When both the countries agreed in late-eighties to develop their relations, while simultaneously seeking a resolution of the border dispute through periodic talks, they hoped to overcome these differences through the gathering momentum of their relations in other areas.

It is true that they have made good progress in developing trade relationship but the border dispute and the shadow of the Dalai Lama has always been a limiting factor.

China is also not happy that India might have ambitions of becoming a competing Asian power, as well as becoming part of a containment ring around China as the United States’ strategic partner.

China’s India image is quite contradictory. At one level it has a low opinion of India as a nation. The People’s Daily noted, in a recent commentary, that, “India is expanding its military strength but it is still uncertain whether India will realize its dream of being a leading power, because India’s weak economy is severely unmatched with the image of a leading power.”

This is equally true of China, though its economy is much bigger than that of India. China’s economy has all sorts of distortions and imbalances. And its political system of one party rule is fanning social unrest.

China’s arrogance is a serious problem in its relations not only with India but also with its Asia-Pacific neighbors, as we have seen lately.

Expanding on its estimation of India, the People’s Daily added, “In addition, international communities and India’s surrounding countries are all suspecting and even being on guard against this kind of unbalanced development mode”--- whatever that means.

China apparently is alluding to India’s difficult relations with some of its neighbors, particularly Pakistan. And Beijing has been encouraging and aiding Pakistan to become a counter-point to India regionally.

But there are problems here. First, Pakistan is in all sorts of troubles internally and externally. Therefore, it is not a viable counter-point to India. Its deteriorating relations with the United States do give China space to make greater inroads into the country. However, its fractured society and polity makes any coherent policy approach difficult.

Besides, Pakistan’s Islamist character is at odds with China’s ongoing repression of Xinjiang’s Muslim population. It is important to remember that some of Xinjiang’s militants were trained in camps operating in Pakistan’s tribal areas.

As for India’s other neighbors, their relations with India might be prickly at times giving China some scope for creating trouble, but their relationship with India is quite normal, if not friendly.

In other words, China’s policy to hem in India regionally in its backyard is not succeeding, allowing it to develop relations with countries in South East Asia and East Asia.

India’s growing ties with Vietnam, including an accord for exploration of oil in Vietnam’s Spratly islands (also claimed by China), has raised Beijing’s ire. An Indian naval vessel was recently warned for entering South China Sea, though the warning was ignored.

India joined a number of regional countries raising the issue of China’s interference with passage of ships through South China Sea at the recent East Asia Summit.

China has serious problems with most of its neighbors in Asia-Pacific because of its maritime disputes, laying claim to South China Sea waters and islands, and with Japan in East China Sea.

Closer to India, China seems to have suffered a serious setback in its relations with Burma as its regime seeks to open up the country both internally and externally. The recent highly publicized visit of the US Secretary of State, Hillary Clinton, is a pointer to this.

Earlier, the Burmese government went ahead with cancelling a multi-billion dollars Chinese-financed dam to supply electricity to vast areas of China across the border.

India is likely to be a beneficiary as Burma seeks to balance its relations to reduce its economic and political dependence on China.

What is worrying China, among other things, is that India is seeking to develop its relations with Asia-Pacific countries. Whenever New Delhi seeks to tread on, what China regards as, its patch, Beijing turns up the heat on the border by reigniting its dormant border claims to more territory on the Indian side of the border.

For instance, Beijing is now laying claim to Arunchal Pradesh calling it “south Tibet.”

They have never forgotten India for letting in the Dalai Lama and his entourage when they were escaping to seek refuge in 1959 from Chinese occupation of Tibet.

Even though India acknowledges China’s sovereignty over Tibet, it is not good enough for Beijing because the Dalai Lama continues to function in his spiritual role as the head of the Tibetan Buddhism. Beijing regarded the recent religious gathering in New Delhi a provocation, making it the occasion to cancel the official-level border talks, thus raising the temperature between the two countries.

Despite this, both China and India are unlikely to let their tense relations get out of control. Despite China’s distrust of India’s strategic relationship with the United States, it is not keen to push New Delhi into any formal military alliance between the two countries.

India is unlikely to forgo its strategic independence through any kind of a military pact. And Beijing is not keen to push it into such a situation.

Therefore, India-China relations, for the foreseeable future, will continue to remain in a state of controlled management, with both sides remaining distrustful of each other.

North Korea: The Death of a Dictator
By S P SETH

The television images of mass grief in North Korea over the death of its dictator, Kim Jong-il, says a lot about the country. While a fair bit of it is a command performance required by the regime, it is not difficult to imagine that many North Koreans might be genuinely sad over the passing of their Great Leader, as he was called. While North Korea is a basket case economically, with many of its people dying of starvation, its population has only known Kim dynasty as the country’s rulers ever since the Peninsula was divided in the aftermath of the WW11. The death of Kim Jong-il, who succeeded his father Kim Il-sung in 1994, does create a vacuum of sorts in a country so structured around the personality cult of its leader. Kim Jong-il’s anointed heir, Kim Jong-un, his third son, is an unknown quantity, having been groomed by his ailing father for only a little over a year before he died. He is very young at about 28 years of age and with little political experience, Kim Jong-un era might be a little rocky, though his lineage is an advantage for him in a country where virtually all authority has percolated down from the ruling Kim dynasty from the beginning.
For a small country with a population of about 24 million, Kim Jong-il’s death has created a lot of flutter in the major capitals of the world. Indeed, both the US and China are equally worried about the political transition in Pyongyang, and their foreign ministers have been in touch to ensure that the political transition there happens peacefully to ensure regional stability. While the US and China might agree broadly about this, they remain distrustful of how a crisis in North Korea might pan out. For China the Korean peninsula is its strategic space, and it regards the United States as an outside power. On the other hand, for the United States, South Korea is its military and strategic ally. Indeed, the two halves of Korea are technically still at war with each other-- the war having ended in an armistice without a peace treaty.
A bit of history to the Korean problem might be in order here. When North Korea attacked South Korea in 1950, the peninsula was not only plunged into a brutal war but also became a theatre of Cold War between the United States and the Soviet Union. Additionally, there was a new China under the leadership of the Communist Party. It felt threatened when the US forces in South Korea started pushing closer toward its border with North Korea. This brought China into the war on behalf of its North Korean neighbor and ally. China’s forces finally pushed the US troops back and the war ended in 1953 with a truce along the 38th parallel dividing North and South Korea. The two countries are now separated by a demilitarized zone, more or less eyeballing each other with the not infrequent fear of a military confrontation. Indeed, the sinking of a South Korean naval ship last year, believed to be by a North Korean torpedo, and the shelling of one of its islands, created the fear of a military flare up. The Korean peninsula remains a flash point with the likelihood of the US and China drawn into it by virtue of their alliance relationship--- China with North Korea, and the United States with South Korea.
Things might get even more than usually dangerous in the new situation created by the death of its dictator, Kim Jong-il, and the succession of his inexperienced son, Kim Jong-un. With North Korea’s economy in dire straits, and its political transition worrisome, there are fears that the country might collapse from within. If this were to happen, it would pose serious challenges for regional stability. For instance, China might be faced with the prospect of a large influx of refugees from across a crumbling North Korea. The same will be true of South Korea. For South Korea, the bigger challenge/danger will be to prepare for a possible unification of the Korean peninsula in the event of a North Korean collapse.
Even with South Korea’s relatively strong economy, the economic cost of integrating North Korea will be prohibitive. Germany’s example is instructive, but the West German economy was much larger and it wasn’t facing a precarious strategic situation: not knowing how China will react to such sweeping developments on the Korean Peninsula. With South Korea allied to the US, any unification process under South Korean terms and patronage will make the unified country a military ally of the United States. The prospect of having US troops on its border is unlikely to be acceptable to China. China, therefore, will seek to perpetuate the new political order in Pyongyang under the nominal or effective leadership of the younger Kim. The problem, though, is that even China doesn’t really know the internal workings of the hermit kingdom, as North Korea is called. Therefore, there are more questions thrown up by Kim Jong-il’s death than there are plausible answers.
What is known, though, is that North Korea is an economic basket case, hugely dependent on aid and trade with China. Despite this, Beijing’s political leverage over North Korea seems rather limited. Short of ditching its ally, thus giving the United States a foothold on its border, Beijing cannot afford to wash its hands off the hermit kingdom. This is why it is seeking to enlist the US cooperation in bringing about a peaceful political transition in North Korea to perpetuate the Kim dynasty.
The US interest in North Korea is centered on ridding it of its nuclear capability. China doesn’t favor a nuclear North Korea, but it is against joining the US and its allies for sanctioning North Korea, and worse. It doesn’t want to be a party to upsetting the status quo on the Korean peninsula lest it works against its strategic interest, as earlier discussed. If the political transition in North Korea goes peacefully avoiding an internal collapse, it is likely that the suspended talks for North Korea’s denuclearization might be revived, with Beijing as its venue.
China has played the host in these on-off talks in the last few years, but without much success. This is so because Pyongyang wants to use its nuclear leverage to get the maximum mileage from these talks through a phased process of linking abandonment of its nuclear program with concrete diplomatic, aid and trade concessions from its negotiating partners. On the other hand, the US and its allies would require North Korea to abandon its nuclear program first under a rigorous process of international verification. Only after that Pyongyang will become entitled to diplomatic recognition as well as trade and aid provision. This remains the sticking point, with seemingly no way out.
In any case, the immediate concern for the region and its principal stakeholders, like the US, China, Japan, Russia, South Korea and North Korea, is the unpredictable nature of how the political transition in North Korea might pan out. Because: any internal implosion has the potential of plunging the region into a turbulent crisis that might involve the US and China on opposing sides. Hopefully, it will not come to that as the world can hardly afford another area of instability and confrontation.