US and PRC relationship & India

renukb · Post by **renukb** » 21 Mar 2009 23:18

The above news / news item on

"China and Russia Welcome Iran, India, Pakistan and Mongolia into Shanghai Cooperation Organization
By M K Bhadrakumar "

This could re-define NATO operations in Afghanistan in the near future.... Since very soon Afghanistan would be surrounded by the SCO group, NATO has no entry point to Afghanistan but to listen to what the SCO dictates.

James B · Post by **James B** » 21 Mar 2009 23:46

X-posting

China's U.S. Debt Quandary

U.S. investors may have cheered the Federal Reserve's decision this week to pump more than 1 trillion new dollars into the economy, but at least one faction in China was on the verge of tears.

"I want to cry, really want to cry," wrote one Beijinger on Thursday, posting on one of China's most popular portals, Sina.com. The problem was that by issuing more currency, the Fed was potentially weakening the U.S. dollar, making China's dollar-based investments worth less. "Those elites insist on buying American bonds."

They know that their government is now America's largest creditor, with more than half of its $2 trillion in foreign exchange reserves invested in Treasury securities and other U.S. government bonds. Some of these critics suspect that the Federal Reserve essentially prints more money not just to stimulate the economy, but also to devalue China's U.S. dollar portfolio, undermining a rival power.

The believers are not just fire-breathing ideologues. "Many technocrats believe in this argument that the U.S. is trying to screw over China by cheapening the dollar," says Victor Shih, a political economist and China specialist at Northwestern University. Shih learned of the influential reach of "Currency Wars" when he visited last summer with bureaucrats from the People's Bank of China.

It's the old debtor's aphorism, writ on a sovereign scale: If you owe China $1 billion, it's your problem. If you owe China $1 trillion, it's China's problem.

renukb · Post by **renukb** » 22 Mar 2009 10:21

India, China, the U.S. and the Balance of Power in the Indian Ocean
http://japanfocus.org/-Adam-Wolfe/1564

News on New Delhi's foreign policy has recently been among the top stories in the media. On April 11, 2005, India started a strategic partnership with China, and, on June 29, 2005, signed a 10-year defense agreement with the United States. Western observers, however, have paid less attention to an ambitious Indian move in the military field: Project Seabird. This plan -- with origins from the mid-1980s -- is to be assessed in light of two geopolitical triangles juxtaposing on the Indian Ocean's background: U.S.-India-China relations and China-Pakistan-India relations. In this complicated geopolitical configuration, New Delhi is not simply a partner of China or the United States: India is emerging as a major power that follows its own grand strategy in order to enhance its power and interests.

India's New Diplomacy

India is emerging as a decisive player in U.S.-China bilateral relations, often regarded as the real landmark of this decade's geopolitics. New Delhi launched a potentially revolutionary "strategic partnership for peace and prosperity" with China on April 11, 2005. The move was aimed at ending the Sino-Indian border dispute on Aksai-Chin (existing since 1962), and at boosting mutual trade and economic ties. Prospects for a more cooperative relationship between the two Asian giants are to be read in light of regional powers' ambition to reshape world order along the guidelines of a balanced multipolarity -- a goal already expressed by China, France and Russia, among other states.

However, in order to rise as a great power, India needs more than economic assets and a strong military; "infusions of U.S. technology and investments in infrastructure," as former Indian envoy Lalit Mansingh told the press on July 14, are necessary for India to "become a major global player." These Indian needs -- along with concerns over the Indian Ocean's security -- form the context that led New Delhi to sign a 10-year defense agreement with Washington on June 29. Strategic partnerships are not intended to directly challenge the U.S., but rather to rapidly obtain economic, technological and military power. Thus, India's strategy is not contradictory. On the contrary, it is a sophisticated policy whose endeavour is to create the necessary balance of power in its geostrategic environment in order to concentrate on economic, technological and military matters indispensable to its emergence as a true great power. [See: Great and Medium Powers in the Age of Unipolarity]

Interestingly, as the Wall Street Journal reports, U.S. President George W. Bush clearly said that the United States is involved in helping India "become a world power" -- which could be a sign of Washington's gradual acceptance of an embryonic multipolarity in Asia. However, U.S. fundamental interests in developing better relations with India are the necessary containment of China, and New Delhi's help in the war against militant Islamic groups -- a need that is growing stronger due to the unstable political landscape in Pakistan.

Project Seabird

Such a political and diplomatic framework is the background of India's ambitious Project Seabird, which consists of the Karwar naval base, an air force station, a naval armament depot, and missile silos all to be realized in the next five years.
Indian Defense Minister Pranab Mukherjee said on May 31 that the naval base INS Kadamba in Karwar, Karnataka state will protect the country's Arabian Sea maritime routes. Kadamba will become India's third operational naval base, after Mumbai and Visakhapatnam. Six frontline Indian naval ships, including frigates and destroyers, took part in the commissioning. Kadamba extends over 11,200 acres of land, along a 26-km stretch of sea front, and it will be the first base exclusively controlled by India's navy. Eleven ships can be berthed at Kadamba once the first phase of it is achieved; 22 ships after the second phase of construction will be completed around 2007, according to INS Kadamba's first Commanding Officer Commodore K.P. Ramachandran as reported in the international media. Moreover, the new harbor is designed to ultimately berth 42 ships and submarines once completed.

The geopolitics of the Arabian Sea and the Western Indian Ocean largely explains India's determination in such an $8.13 billion enterprise. The China-Pakistan-India triangle is more than ever the Arabian Sea's decisive geostrategic setting. For the Chinese, this trilateral relationship is crucial for two reasons: from the point of view of energy security, the Arabian Sea and Pakistan are Beijing's access points to the oil-rich Middle East; from the perspective of military security, Pakistan provides China an effective counter-balancing partner in front of India's ambitions.

Therefore, faced with geographic constraints, the Chinese successfully proposed to Islamabad the sharing of the Gwadar naval base back in 2001. This latter serves the Chinese purposes in three ways: first, it serves as a tool to secure Beijing's access to the Gulf's resources; second, it is a useful military base to counter Washington's influence in Central and South Asia: in fact, the Sino-Pakistani agreement came into being just four months after U.S. troops entered Kabul in 2001; third, Gwadar functions as an excellent wedge between India and the Middle East and as an offset against India's naval power.

Sino-Pakistani cooperation has contributed to accelerating India's plans to regain the upper hand in the Western Indian Ocean.
India and U.S.-China Competition

The slowly escalating competition between the U.S. and China has helped to create a fertile environment for India's ambition to gain status as a great regional power. Cooperation with China has become one of the most discussed issues in India's business community for a number of reasons, but the loudest talk has been the opportunities based in combining India's "software" economy with China's "hardware" economy. There are also geopolitical motivations for India to align itself with China. Both countries favor multipolarity: for Beijing, this trend will help to weaken U.S. influence in its sphere of influence; for New Delhi, this shift creates an environment for it to gain influence over its near-abroad.

However, India is also seeing gains from advancing its relationship with the U.S. Washington has often touted the "natural alliance" between the two expansive, multi-ethnic democracies, but it is on military issues that India would most like to develop its relationship with the U.S. During the recent tsunami relief effort, the two states' navies worked together, which helped to cement their budding military-to-military ties. The U.S. would like India's navy to serve as a bulwark against China as Beijing becomes more active in the Indian Ocean. Also, there are some areas where the U.S. Navy cannot operate, such as the Malacca Straits, where India's presence might be seen as less threatening than that of the U.S.

The U.S. Seventh Fleet patrols the Indian Ocean and Western Pacific

However, there are drawbacks to aligning too closely with either power for India. On energy security, India and China have found cooperation to be easy in Iran, but, as finding new sources of oil becomes more difficult, there are bound to be areas of friction. For example, China views the Andaman Sea off Myanmar's coast as an important source of oil to fuel the economic expansion of China's western provinces. However, New Delhi sees building a port at Dawei, Myanmar as a major component to its future security strategy for the region. China's presence in the area is an unwelcome development for India.

Washington's relationship with two of India's neighbors, Iran and Pakistan, are the major sticking points in their relationship. The U.S. prefers to starve out the current government in Iran, but India sees the country as an important source of energy for its expanding economy. Washington's support of Pakistan's military since September 11, 2001, has been protested loudly and repeatedly by India. However, the U.S. is unlikely to abandon this support because the Central Asian countries aligned with China in the Shanghai Cooperation Organization (S.C.O.) have recently signaled that they favor a U.S. withdrawal from the region.
Because of this, the U.S. will now need Pakistan's support even more for the success of its operations in Afghanistan.
Even though Indian Prime Minister Manmohan Singh and President Bush announced on July 18 a new agreement for the U.S. to cooperate with India's civilian nuclear industry in return for international oversight and a continued moratorium on nuclear weapons testing, Washington's support for New Delhi's nuclear industry will continue to be tempered by India's unwillingness to sign the Nuclear Nonproliferation Treaty.

In this environment, India has been very successful in using strategic partnerships with both Washington and Beijing to further its interests on the Indian Peninsula and Indian Ocean. For the near term, New Delhi can be expected to emphasize points of agreement with China and the U.S., while looking to gain better positioning for itself in the region.

Another Interested Player: Russia

India's increasing ambitions in the Western Indian Ocean and the Persian Gulf will most likely draw in actors other than the U.S., China and Pakistan. The Russian Federation will no doubt assume greater importance for India as a major source of military hardware that is currently fueling India's drive for a blue water navy. Since the flagship of Karwar, INS Kadamba is a Russian-built aircraft carrier with Russian-designed Mig-29 aircraft, India will rely on Moscow for a major portion of spare parts and maintenance in the short and medium run.

India's growing naval ambitions represent an expanding area of interest for Russian manufacturers. Currently, China is a major customer of Russian-made submarines, surface ships and surface-to-surface weapons systems that are adding to Beijing's growing naval strength. Since Karwar, INS Kadamba is expected to accommodate an increasing number of military ships, India may augment its indigenous production capacity with ever-growing numbers of Russian-made vessels.

This may spark a naval race in the Western Indian Ocean if China places its most advanced vessels in Pakistan's Gwadar Port. The two countries have much to gain from cooperation in the business and trade sphere, and an outright military clash between their navies is unlikely. However, the two could be drawn into a confrontation if the vessels of other navies, aligned to either state, get involved in a conflict.

Indian Sovremenny Class Destroyer

If more political and military problems develop between India and Pakistan, then even a growing rapprochement with China may not prevent a dangerous escalation for New Delhi. Washington may find itself powerless to act in this case, as it will be unwilling to compromise both its tactical relationship with Islamabad and its growing "alliance of need" with New Delhi. On the other hand, Russia may well benefit from such a scenario, as it has experience in supplying two belligerents fighting each other at the same time. Moscow sold weapons to both Iraq and Iran in the 1980s when the two countries were at war. Presently, Russia will be content in selling naval ships and technology to both India and China, even as the two states may be inching towards competition in the strategically important Western Indian Ocean.

There is much to gain from cooperation for India and China when it comes to shipments of oil from the Persian Gulf. A major disruption of such flow -- whether from an intentional military escalation by the two states or even from a combination of factors having less to do with both countries, such as an Iranian military action or a terrorist attack -- will have negative consequences for the economies of both countries. Peaceful shipments of oil and gas are in everyone's interests. Still, the construction and use of both Karwar and Gwadar will certainly invite some form of competition, as India and China may view each other's minor advancements in naval technology, number of vessels or any other technical factor as a less-than-benign show of strength.

The dynamics of the region still call for a balance of power approach rather than a straight alliance. China-Pakistan cooperation will figure prominently for Indian decision makers, just as India's warming relationship with Washington may be a concern for China's People Liberation Army planners. The construction of both Karwar and Gwadar may signal both India's and China's readiness to upgrade their naval strength from brown water to blue water capability, but cordial relations between both states may be no guarantee of the peaceful use of the Western Indian Ocean.

Relying more and more on advanced military technology that is not currently indigenously produced by both states, India may turn to Russia to supplement its increasing naval needs. This may enhance Moscow's status in the region, as well as offer the possibility of countering Washington's current undisputed naval primacy in that part of the world.

Conclusion

The rise of India as a major power, coupled with the better-known — and frequently analyzed — Chinese rise, is changing the structure of the world system. Not only is U.S. "unipolar" hegemony in the Indian Ocean facing a challenge, but the strategic triad U.S.-Western Europe-Japan, which has ruled the international political economy for the past few decades, is now also under question. Nonetheless, when confronting the new reality, Washington seems eager to help India rise in order to counter Beijing's growing influence. Moreover, India's increasing power is also a part in the process of a major shift occurring in international relations, from U.S.-based unipolarity to a "multifaceted multipolarity," which could be the prelude of a new multipolar order. [See: The Coming World Realignment]

In this transition phase, the Indian Ocean's security will be a crucial issue. Massive military build-ups have already started, and the risks of miscalculations by the traditional and new great powers are getting higher. We can expect the South Asian region to be one of the system's key areas to be watched in the next decade.

Report drafted for Power and Interest News Report (PINR) by Adam Wolfe, Yevgeny Bendersky, Federico Bordonaro and published July 20, 2005. http://www.pinr.com Posted at Japan Focus July 25, 2005.

amit · Post by **amit** » 23 Mar 2009 11:20

This WSJ article has a lot of comments which can lead to a better understanding of present mess.
First the comments:

In recent weeks, a growing chorus of prominent economists -- including U.S. Federal Reserve Chairman Ben Bernanke and Bank of England Gov. Mervyn King -- have pointed out that it took more than greedy bankers, profligate American consumers and lax regulation to generate a crisis of global proportions. While all those factors played important roles, they say, the conditions were created in part by China and other Asian nations, which over a decade of export-led growth socked away trillions of dollars in the form of foreign-currency reserves. Their efforts to invest those savings flooded Western financial markets with cash, making it cheaper to borrow at a time when people in places like the U.S. and the U.K. were building up debts at an alarming rate.
The huge machine of subprime-mortgage lending that triggered the crisis, the logic goes, was just one of the many ways bankers took advantage of these so-called "global imbalances" by putting savers and borrowers together.

As the G-20 meeting approaches, Mr. Portes and others are offering a menu of remedies, from boosting the authority of the International Monetary Fund to making the fund a central repository for foreign-currency reserves -- an idea reminiscent of the global central bank economist John Maynard Keynes had in mind in 1944, when world leaders created the IMF at a meeting in Bretton Woods, N.H. All the options have their drawbacks, but if some way can't be found to get Asians to save less and Americans to save more, economists warn that the world will inevitably find itself in trouble again.

Even as global economies have taken a turn for the worse, one measure of the imbalances -- China's vast current-account surplus -- has hardly subsided. The IMF estimates that the surplus, which reflects both China's net exports and how much capital it sends abroad, grew to about $399 billion last year from $372 billion in 2007. If the surplus persists, it could fan the flames of protectionist sentiment, as Western politicians worry that their countries' huge stimulus packages are boosting exporters on the other side of the planet.

After the crisis, the countries changed tack, focusing on spurring exports by keeping their exchange rates low against the dollar -- a strategy that boosted foreign-currency reserves to record levels. As they invested those reserves in places like the U.S. and U.K., they put an unprecedented strain on financial markets. One indicator of that strain -- net cross-border capital flows -- stood in 2008 at about $1.9 trillion, or 3% of global gross domestic product, according to IMF estimates. That's more than twice the level of 1997, before the Asian financial crisis hit.

Others, though, believe persuasion alone won't be enough. Mr. Portes sees the main impetus for China's and other nations' accumulation of foreign reserves in their desire to insure themselves against a crisis like that of the late 1990s. One solution, put forth in a list of proposals to the G-20, is to provide a substitute for that insurance -- for example, by pooling foreign-exchange reserves at the IMF and giving the fund greater power to step in and provide crisis-stricken countries with unconditional emergency financing. To make the insurance more credible, China and other emerging markets would be given more say at the IMF -- a direction in which the G-20 is moving.

One problem with the insurance plan, though, is that if it worked, it could encourage countries to act irresponsibly, keeping their exchange rates at unsustainable levels on the assumption that the IMF would come to the rescue in an emergency. "It's putting barrels of propane around your house to protect it," says Catherine Mann, professor of international economics and finance at Brandeis International Business School in Massachusetts.

The reasons for the crisis is well known: cheap exports, principally from China, and the resultant inflow of dollars into US Treasury bonds gave rise to the illusion that all was well in Massaland and Teflon-quoted Alan Greenspan could wisely explain the US housing bubble and an incredible 4 per cent (odd) growth in a mature economy to “growing productivity of the US workers” and in effect hide the gigantic bubble.

Now, it looks like folks have cottoned on that this can't go on. Notice the point about forcing the Asians (read Chinese) to spend more and the Americans to save more. Not easy to do but suppose that this can be done then what?

First of all, the whole model on which the Chinese economy is built on - factory of the world, stuff - will turn on its head. A lot of articles have been posted on the PRC econ thread which shows that despite all the much-touted domestic consumption plan China can't (yet) substitute domestic consumption for export consumption to keep its growth rate intact. So how does China maintain its minimum 7 per cent growth in order to keep people off the streets? This is something China will have to tackle just as the US needs to tackle the toxic assets problem.

On the US side in the short to medium term it needs China (that is its US$1 trillion in Treasury Bonds) to keep quiet as its tries to find a way out of the mess. So IMHO US will not only do nothing in the short to medium turn to anger China, in fact there may even be a level of appeasement.

Once the crisis is tackled then it’s likely that there's going to be a new world economic model built and that may not necessarily be one that China is used to or likes.

My reading is that for the next couple of years or so US will kowtow to China to make sure it does not rock the boat. However, after that there may be less bonhomie. I'm sure the Chinese leadership understands this. And so it may look at this two-year (or so) window of opportunity for China to pursue its geopolitical goals.

I also think that China will be very circumspect and would not like to chew off more than it can digest as it also need to ensure that nothing happens which it cannot control. It’s got a big crisis at home just like the US.

Coming back to the original premise of this thread, that's why in my last post I made the comment that in the event of a ganging up of US, China (with the Pukes in tow) India should give an irrational response (the N-threat).

For the US and China the top priority – even more than boxing India in - is to ensure world political stability. They can't tackle BOTH economic and political instability at the same time. So making them wear brown pants to hide the stain wouldn't be a bad option, IMHO.

JMT, please take it for what its worth.

renukb · Post by **renukb** » 24 Mar 2009 10:04

China Looks Beyond India-Japan Space Alliance to the US Connection

Peter J. Brown
http://japanfocus.org/-Peter_J_-Brown/2959

krithivas · Post by **krithivas** » 24 Mar 2009 19:03

China calls for new global currency
http://finance.yahoo.com/news/China-cal ... &ccode=TBD

While I dont fully understand, and therefore cannot comment on the merits/demerits of the proposal - The vision set-out puts China on track for global leadership. I have not seen an equivalent vision/statement emnating out of their Indian counterparts.

Thanks,
R. Krithivas

ramana · Post by **ramana** » 25 Mar 2009 21:55

X-Posted...

amol.p wrote:
Adrija wrote:The "global savings imbalance" spout is pretty much BS....... reality is that the world- led by the US consumer- pretty much overconsumed above sustainable levels. This excess demand was fueled/ supported by cheap credit, and the economic gurus, thought that level of demand was sustainable. That, combined with the excess liquidity, led to the asset prices becoming inflated above sustainable trend line.

Now that someone finally woke up and popped the cork, led to asset prices falling. The US is trying to arrest that fall in prices through quantitative easing (IOW, cheap credit all over again) but I am not personally not sure if it's going to work the second time around. But personally moi thinks the process is more aimed at managing the decline, coz of social pressures, than any fundamental challenge to US economic supremacy

Anyways, in the entire process, Unkil will come out fine and dandy, thank you- Chipanda and al others who built their entire economic model around supplying to US and accepting paper in return, are screwed anyways, as I think we on BRF already know

JMT/ IMVVVHO, of course
very truly said....imbalance due to saving is pure BS
1] Why saving rate is higher in asian countries than in USA.....bcoz asian countries want its people to save money vice versa USA govt wants people to keep on spending so that private companies are in profit
2] Asian countries always want to bailout people first and then companies vice versa situation is in USA.
3] It was with pure intention of USA govt which kept interest rate low for years ( Fd,recurring & other saving schemes) so that people dont invet in them and either spend on buying or invest in share market 7 related funds

its very clear that the whole recession has been brought by policies of USA govt to keep private companies in profit and loot common people which failed at some point.

ramana · Post by **ramana** » 25 Mar 2009 23:02

Links to the two speeches by Sri Shyam Saran

Speech at India Habitat Center

Subject: Geo – Political Consequences of Current Financial and Economic Crisis: Implications for India.

Speech at Brookings Institute

Subject: Indo-US Civil Nuclear Agreement: Expectations and Consequences.

and an un-noticed speech by MKN at Munich

Address at Munich Security Conf

Subject: Non-Proliferation, Arms control and future of nuclear weapons; is zero possible?

ramana · Post by **ramana** » 26 Mar 2009 07:44

Rising powers blog

http://risingpowers.foreignpolicyblogs.com/

The Nano has made an impact beyond our ken on BR!

ramana · Post by **ramana** » 26 Mar 2009 10:00

India has been thinking about PRC quite bit.

USI Journal:

Emerging China as a Strategic and Economic Super Power

Am glad they have this journal online.

Tilak · Post by **Tilak** » 26 Mar 2009 10:34

'My remarks were not meant to be anti-US'
Aziz Haniffa in Washington, DC | March 26, 2009 01:14 IST

Former foreign secretary Shyam Saran, who was the original Indian interlocutor of the US-India civilian nuclear deal negotiations with erstwhile US Under Secretary of State for Political Affairs Nicholas Burns, is unapologetic about his recent remarks at the India Habitat Centre lecture series in New Delhi [Images] which left many foreign policy experts both in India and the US puzzled. For someone who helped shape that policy, he seemingly was having second thoughts about India's pro-US tilt.

Asked about these remarks by rediff.com (India Abroad) and the 'flutter' it had caused among the pro-US people both in Delhi and Washington, during an interaction that followed his headlining a major conference on the US-India nuclear deal at The Brookings Institution here, Saran said, "I'm delighted that it created a flutter, (but) I don't think it was my intention to create a flutter anywhere."

But he said that "although this does not relate to the subject that we are discussing today, let me say that this was from the perspective of India. It is not a matter of being pro-US or anti-US. What I was pointing out was that thanks to the economic and financial crisis, the international, you know, landscape is going to change."

Saran, currently a special envoy to Prime Minister Manmohan Singh [Images], in his address at the Habitat Centre had said, "India needs to be geared up for a more diffused and decentralized complex international landscape, with the US enjoying significantly diminished predominance" and that New Delhi needs desperately to "hedge its foreign policy in view of the Sino-US strategy convergence," as the US is embarking on an unprecedented diplomatic offensive to co-opt Beijing [Images] in its economic recovery.

"China is being invited to participate in the fashioning of new global governance structures and have a major voice in the management, if not resolution, of major regional conflicts," he said.

Saran reiterated, "This is nothing to do with being pro-US or anti-US," but argued that "there is going to be a change in the international landscape, and it is going to be very uncertain how this is going to evolve."

"And, therefore, countries like India need to be mindful of the fact that we are going into a phase where many of the assumptions -- many of the certainties -- that we have become used to are no longer," going to hold. "So, from the point of view of strategic thinking, it is extremely important that India keeps that in mind and starts to fashion policies which will be more appropriate to that kind of evolving world."

Saran, however, pointed out that in that speech, he had mentioned "that the United States of America will continue to be the predominant party for the foreseeable future -- that is not in doubt. But, you know, there is going to be a bit of a shake-up in terms of the inter-relationship amongst the major international powers, and my perspective is -- and I may be wrong -- that we will find a much more diffused, a much more looser kind of international system, which will appear."

"And, in that context, there are certain opportunities for India, there are certain downsides for India, which we should factor in. That's all," he added.

Asked what are the pressure points, and where the possible pitfalls are that could perhaps change the nature of the otherwise positive and strong US-India relationship, which is very much on track, Saran said, "One of the good things is that over the last several years, we have built up an extraordinarily broad range relationship and it's not only a government-to-government relationship, but there is a strong relationship that has developed between the business communities, there is a very strong, people to people relationship -- of course, that has always been there -- but it has really acquired a very strong dimension."

"So, I do not see a major downside in terms of how the India-US relationship is taken forward," he said.

Saran asserted that "very much will depend upon whether or not the political, especially in the leadership of the two countries, really focuses attention to leveraging many of those opportunities which have opened up. If there are, in terms of the economic and financial crisis, can one see an India-US nuclear relationship or a defense relationship or investment relationship as one of the answers to the economic and financial crisis, or is this going to be a casualty of that crisis."

He said he believed that "in many of these things there is an element of choice. That is why I think it is extremely important that the level of engagement that we have had with the United States for the last several years, that level of engagement continues, and in fact, intensifies as we face new challenges."

"So, I am not looking at pressure points in that sense that, there are negatives which may derail this relationship. I don't think that the relationship can be derailed now precisely because this is a very broad-ranging and very strong relationship," Saran said. "But whether or not the promise of something more will, in fact, crystallize in the days to come, that requires an effort�that requires a deliberate effort on the part of India, that requires a deliberate effort on the part of the United States."

Indian Army fears China attack by 2017
Rahul Singh, Hindustan Times
Email Author
New Delhi, March 26, 2009

The Indian military fears a ‘Chinese aggression’ in less than a decade. A secret exercise, called ‘Divine Matrix’, by the army’s military operations directorate has visualised a war scenario with the nuclear-armed neighbour before 2017.

“A misadventure by China is very much within the realm of possibility with Beijing trying to position itself as the only power in the region. There will be no nuclear warfare but a short, swift war that could have menacing consequences for India,” said an army officer, who was part of the three-day war games that ended on Wednesday.

In the military’s assessment, based on a six-month study of various scenarios before the war games, China would rely on information warfare (IW) to bring India down on its knees before launching an offensive.

The war games saw generals raising concerns about the IW battalions of the People’s Liberation Army carrying out hacker attacks for military espionage, intelligence collection, paralysing communication systems, compromising airport security, inflicting damage on the banking system and disabling power grids. “We need to spend more on developing information warfare capability,” he said.

The war games dispelled the notion that China would take at least one season (one year) for a substantial military build-up across India’s northeastern frontiers. “The Tibetan infrastructure has been improved considerably. The PLA can now launch an assault very quickly, without any warning, the officer said.

The military believes that China would have swamped Tibet with sweeping demographic changes in the medium term. For the purposes of Divine Matrix, China would call Dalai Lama for rapprochement and neutralise him. The top brass also brainstormed over India’s options in case Pakistan joined the war to. Another apprehension was that Myanmar and Bangladesh would align with China in the future geostrategic environment.

amit · Post by **amit** » 26 Mar 2009 16:43

India's emerging power makes Chinese Army worried: Pentagon

"The PLA has replaced older liquid-fueled nuclear-capable CSS-3 IRBMs with more advanced solid-fueled CSS-5 MRBMs in Western China, and may possibly be developing contingency plans to move airborne troops into the region," the report said.

Elsewhere, it said, the border dispute remains a major cause of tension between the two countries.

"While China and India have improved bilateral relations, tensions remain along their shared 4,057 km border, most notably over Arunachal Pradesh," it said.

ramana · Post by **ramana** » 26 Mar 2009 21:30

A dhimminess creeps up in Indian elite/intelligentsia when they get the attention/ear of foreigners. They start identifying with the foreigners interests or give primacy to that over Indian interests.

Why should Shaym Saran be apologetic for articulating Indian interests?

JE Menon · Post by **JE Menon** » 27 Mar 2009 00:39

Exactly. It is a twist introduced by Haniffa. And even the notion of "flutter" (note that Haniffa puts it in single quotes first), presumably introduced by the author. Further, it would have been interesting if the author of that piece could identify the "many foreign policy experts both in India and the US" who are "puzzled"... Not one is identified by name. And I have yet to see a public comment by anyone expressing puzzlement on Saran's comments.

Not to mention that the headline - misleadingly again in single quotes - is not close to what Saran actually said "it is not a matter of being pro-US or anti-US"...

sanjaykumar · Post by **sanjaykumar** » 27 Mar 2009 00:55

Shyam Sharan is one perceptive and articulate diplomat. The global financial meltdown has strategic consequences for the US, almost all negative. However, it will not willingly allow China more influence. hey will definetly play the Pakistani 'taliban' strategy of playing both ends. Russia will not welcome any closer understanding between US/China. India has perhaps even more strategic space than it did one year ago.

Further India's economy will grow 5% in 2009, China might see 30 million newly unemployed along with major export and currency disruptions.

svinayak · Post by **svinayak** » 27 Mar 2009 01:10

JE Menon wrote:Exactly. It is a twist introduced by Haniffa. And even the notion of "flutter" (note that Haniffa puts it in single quotes first), presumably introduced by the author. Further, it would have been interesting if the author of that piece could identify the "many foreign policy experts both in India and the US" who are "puzzled"... Not one is identified by name. And I have yet to see a public comment by anyone expressing puzzlement on Saran's comments.

Not to mention that the headline - misleadingly again in single quotes - is not close to what Saran actually said "it is not a matter of being pro-US or anti-US"...

Fake news and Fake perceptions are created by corporate owned news media to create and maintain the image.

ramana · Post by **ramana** » 01 Apr 2009 22:16

In my view, that accelerated MRSAM co-development/procurement program with Israel is related to this angst about aggressive posture of PRC in about 5 to 7 years.

Johann · Post by **Johann** » 02 Apr 2009 00:13

amit wrote:The reasons for the crisis is well known: cheap exports, principally from China, and the resultant inflow of dollars into US Treasury bonds gave rise to the illusion that all was well in Massaland and Teflon-quoted Alan Greenspan could wisely explain the US housing bubble and an incredible 4 per cent (odd) growth in a mature economy to “growing productivity of the US workers” and in effect hide the gigantic bubble.

Now, it looks like folks have cottoned on that this can't go on. Notice the point about forcing the Asians (read Chinese) to spend more and the Americans to save more. Not easy to do but suppose that this can be done then what?

First of all, the whole model on which the Chinese economy is built on - factory of the world, stuff - will turn on its head. A lot of articles have been posted on the PRC econ thread which shows that despite all the much-touted domestic consumption plan China can't (yet) substitute domestic consumption for export consumption to keep its growth rate intact. So how does China maintain its minimum 7 per cent growth in order to keep people off the streets? This is something China will have to tackle just as the US needs to tackle the toxic assets problem.

On the US side in the short to medium term it needs China (that is its US$1 trillion in Treasury Bonds) to keep quiet as its tries to find a way out of the mess. So IMHO US will not only do nothing in the short to medium turn to anger China, in fact there may even be a level of appeasement.

Once the crisis is tackled then it’s likely that there's going to be a new world economic model built and that may not necessarily be one that China is used to or likes.

My reading is that for the next couple of years or so US will kowtow to China to make sure it does not rock the boat. However, after that there may be less bonhomie. I'm sure the Chinese leadership understands this. And so it may look at this two-year (or so) window of opportunity for China to pursue its geopolitical goals.

I also think that China will be very circumspect and would not like to chew off more than it can digest as it also need to ensure that nothing happens which it cannot control. It’s got a big crisis at home just like the US.

China has the option of also engaging in massive stimulus spending, and if anything individual Chinese firms are going to get more aggressive looking for markets, both internal and external.

The deeper problem was loose money supply, and an unregulated financial products market that took crazier and crazier risks with that cheap money. It was that loose money supply which allowed consumption to rise, and paid the Chinese for all those things coming out of their factories, some of which was in turn re-invested in US treasury bonds. While the increased regulation of financial markets will reduce the kinds of mad (and eventually fraudulent) risks taken, it doesnt seem like the problem of lose money supply has not been fully addressed. In fact the Chinese are unhappy about the devaluation of their assets and trade balances because Obama if anything is going to be even looser with money supply.

Gold isnt the answer to the question of money supply - its failed twice before. Money supply at the global level whether the dollar or the IMF 'SDR' as proposed by the Russians and Chinese needs to be tied to the fundamentals, like global per capita production/puchasing ability of food and energy. Otherwise we have insane prices spikes in commodities, and unproductive use of loose money.

putnanja · Post by **putnanja** » 02 Apr 2009 01:35

China a great power: Obama

ramana · Post by **ramana** » 02 Apr 2009 01:46

Confirms SS pov!

Meanwhile GP in Pioneer

EDITS | Thursday, April 2, 2009 | Email | Print |

A tectonic shift in India-US ties

G Parthasarathy

For over three decades, two Washington-based think tanks — Carnegie Endowment for International Peace and Brookings Institution — have spearheaded an international campaign to compel India to cap, roll back and eliminate its nuclear weapons programme. It is symbolic of how times have changed following the nuclear tests of May 1998 that the Prime Minister’s Special Envoy for Nuclear Issues and Climate Change, Mr Shyam Saran, visited Washington, DC to proactively spell out where India stood on issues many have feared could become sources of friction with the Obama Administration. More importantly, Mr Saran spelled out India’s position publicly on March 23 at Brookings Institution.

Mr Saran did not fight shy of addressing issues like the Comprehensive Test Ban Treaty and the Fissile Material Cut-off Treaty. He made it clear that while India remained committed to its unilateral moratorium on nuclear testing, there were serious reservations about the CTBT, because the Treaty was not “explicitly linked to nuclear disarmament” and the manner in which it was accepted was obviously meant to circumscribe India’s nuclear options. He added that while “we cannot be part of a discriminatory regime where only certain states are allowed to possess reprocessing or enrichment facilities”, we would be willing to work with the US to curb nuclear proliferation. Welcoming US President Barack Obama’s plan to expand the Proliferation Security Initiative from merely stopping illicit nuclear shipments to eliminating the remnants of organisations like the one run by Dr Abdul Qader Khan, Mr Saran signalled Indian flexibility in looking afresh at the PSI.

Mr Saran also alluded to India’s readiness to accede to an FMCT, provided it was a “multilateral, universally applicable and effectively verifiable” treaty. India has to insist on the treaty being non-discriminatory and internationally verifiable, given China’s readiness to transfer fissile material and nuclear weapons know-how to Pakistan. But, despite Mr Obama’s stated intention “to make the goal of eliminating nuclear weapons a central element of US nuclear policies”, the American establishment will have serious reservations about making any commitment to eliminate their nuclear weapons within a reasonable time frame. All that the Americans appear presently ready to do is to seek agreement with Russia to reduce their strategic nuclear arsenal to around 1,000 warheads. Between them, the Americans and Russians today possess over 20,000 nuclear warheads. Moreover, for the first time, there seems to be recognition among scholars in the US that moves towards nuclear disarmament can succeed only if concerns of all nuclear-armed states, including India, Pakistan and Israel, are addressed, while noting for the first time that Indian concerns about China’s nuclear weapons cannot be brushed aside.

Mr Saran spoke of India’s readiness to work with the US to set up a working group for nuclear disarmament in the UN Commission on Disarmament. But what he did not mention is the recent tendency on the part of the US, France, the United Kingdom and Nato to threaten the use of nuclear weapons against those they choose to characterise as ‘rogue states’. Even the Russians do not subscribe to a doctrine of no-first-use and never using nuclear weapons against non-nuclear weapon states. Chinese claims of adhering to a doctrine of no-first-use are suspect, given their deployment of scores of missiles targeting India. We need to sensitise world opinion to the fact that refusing to rule out the use of nuclear weapons runs contrary to the historic World Court Ruling of July 8, 1996, which held that countries possessing nuclear weapons have not just a need but an obligation to commence negotiations leading to nuclear disarmament, and that the use or the threat of use of nuclear weapons is generally contrary to the principles of international law. In fact, the least the nuclear-armed states could do is to de-alert their nuclear missiles and separate them from warheads.

The nuclear non-proliferation treaty of 1968 was premised on its ‘three pillars’ of non-proliferation, nuclear disarmament and the right of access to nuclear technology to its signatories. While the big five nuclear-armed states amassed nuclear weapons and refused to abide by any commitment not to use these weapons against those who foreswore their acquisition, they also refused to move towards nuclear disarmament and placed highly selective restrictions on others seeking to acquire nuclear technology. The net result was that the fifth review conference of the NPT in 2005 ended in a fiasco, with divisions between those who possess nuclear weapons unwilling to make any commitments on nuclear disarmament and others refusing to go along with the violation of two of the three pillars of the treaty. The US and its partners recognise that the forthcoming NPT review conference in 2010 will end in a similar fiasco, unless they can claim forward movement towards a world free of nuclear weapons. Hence, the feverish moves to show progress towards disarmament by agreeing to discuss cuts in nuclear stockpiles with Russia. The point India has to emphasise is that arms reductions by themselves do not constitute a credible move towards disarmament, unless accompanied by guarantees of no-first-use and de-alerting of nuclear delivery systems and the separation of warheads from missiles.

India has conveyed that with estimated investments of $ 150 billion in nuclear power, it stands by its letter of intent for acquisition of 10,000 MW of nuclear power reactors from the US, provided the US fulfils its side of the bargain by recognising India as a responsible state with advanced nuclear technology through upfront approval of reprocessing of spent fuel for the reactors it supplies. With former Congresswoman Ellen Tauscher slated for appointment as the State Department’s non-proliferation czar, India can never be too careful on this score.

However, with Mr Saran noting that India is scheduled to purchase around $ 120 billion of defence equipment, with the US entering the market in a significant manner once concerns about reliability of supplies were addressed and with growing convergence of issues ranging from the Proliferation Security Initiative to the FMCT, there does appear to have been sufficient groundwork done to move matters forward in the India-US relationship after the general election. Another important area of dialogue would be prevention of military conflict in space and negotiations on an agreement to prohibit the testing of anti-satellite weapons. Nonetheless, much will depend on the political dispensation that emerges in New Delhi after the election.

There seems to be a longer version in Hindu Businessline paper.

brihaspati · Post by **brihaspati** » 02 Apr 2009 03:02

Anti-satellite missiles and long range nuke delivery systems should be acquired/developed first by India before joining the clamour for decommissioning. The coming conflict with PRC has to be prepared for. Any domestic problem within PRC could trigger the CCP to go for aggressive action against India in coordination with TSP (for all practical purposes now run by a parallel gov of Talebjabis) to stave off domestic crisis.

JwalaMukhi · Post by **JwalaMukhi** » 02 Apr 2009 20:27

http://www.upi.com/Emerging_Threats/200 ... 238624677/
Emerging Threats
China's support to Pakistan's jihadists
By M.D. NALAPAT, UPI Outside View Commentator

This second objective is of value to China, which is visibly uneasy at the accelerating pace of development in India, despite intense efforts by its communist allies in the ruling establishment to reverse economic reforms. It's no wonder that almost all the sensitive communications links of the Pakistan army -- including the unrecorded "ghost units" that guide terror operations -- are provided by China.

With cash from the United States and sophisticated equipment from China, the jihad-friendly Pakistan military is on a roll. Its allies in terror groups around the world will be delighted.

As for the rest, all they can do is brace themselves for the terror attacks that will follow the consistent China-U.S. policy of allowing the Pakistan army to continue unmolested on the jihadi path initiated by the late Islamist President Muhammad Zia-ul-Haq nearly four decades ago.

Yogi_G · Post by **Yogi_G** » 02 Apr 2009 21:17

brihaspati wrote:Anti-satellite missiles and long range nuke delivery systems should be acquired/developed first by India before joining the clamour for decommissioning. The coming conflict with PRC has to be prepared for. Any domestic problem within PRC could trigger the CCP to go for aggressive action against India in coordination with TSP (for all practical purposes now run by a parallel gov of Talebjabis) to stave off domestic crisis.

Brihaspati ji, I believe we are already in possession of both anti-satellite and long range nuke delivery systems...the former has not been tested/demonstrated. Arun ji's articles/papers give some xlent information on the latter with regards to range vs payload...You are right about the potential aggression part by China, that one event could make or break India and China, one of them will survive and look to the future with complete confidence...

ramana · Post by **ramana** » 03 Apr 2009 21:20

X-posted....

vina wrote:Yawnn.. BRF ahead of the curve as always. We have always known that China has been shafted (or rather shafted itself) in this economic collapse.

And to borrow a phrase from esteemed right honorable shri shri Rahul Mehta Maharaj ji, AWMTA , this time Paul Krugman writes in NY Times about the same thing in the same language. Expect our Desi Dork Media to print multiple copies of this in tomorrows newspapers in their syndicated columns (smarter folks would have read it in BRF before anyways!)

The New York Times

April 3, 2009
Op-Ed Columnist
China’s Dollar Trap
By PAUL KRUGMAN

Back in the early stages of the financial crisis, wags joked that our trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities .

But these days, both sides of that deal are breaking down. On one side, the world’s appetite for Chinese goods has fallen off sharply. China’s exports have plunged in recent months and are now down 26 percent from a year ago. On the other side, the Chinese are evidently getting anxious about those securities.

But China still seems to have unrealistic expectations. And that’s a problem for all of us.

The big news last week was a speech by Zhou Xiaochuan, the governor of China’s central bank, calling for a new “super-sovereign reserve currency.”

The paranoid wing of the Republican Party promptly warned of a dastardly plot to make America give up the dollar. But Mr. Zhou’s speech was actually an admission of weakness. In effect, he was saying that China had driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place (where did you read that before ? )

Some background: In the early years of this decade, China began running large trade surpluses and also began attracting substantial inflows of foreign capital. If China had had a floating exchange rate — like, say, Canada — this would have led to a rise in the value of its currency, which, in turn, would have slowed the growth of China’s exports.

But China chose instead to keep the value of the yuan in terms of the dollar more or less fixed. To do this, it had to buy up dollars as they came flooding in. As the years went by, those trade surpluses just kept growing — and so did China’s hoard of foreign assets.

Now the joke about fraudulent securities was actually unfair. Aside from a late, ill-considered plunge into equities (at the very top of the market), the Chinese mainly accumulated very safe assets, with U.S. Treasury bills“; T-bills, for short — making up a large part of the total. But while T-bills are as safe from default as anything on the planet, they yield a very low rate of return.

Was there a deep strategy behind this vast accumulation of low-yielding assets? Probably not. China acquired its $2 trillion stash — turning the People’s Republic into the T-bills Republic — the same way Britain acquired its empire: in a fit of absence of mind.

And just the other day, it seems, China’s leaders woke up and realized that they had a problem.

The low yield doesn’t seem to bother them much, even now. But they are, apparently, worried about the fact that around 70 percent of those assets are dollar-denominated, so any future fall in the dollar would mean a big capital loss for China. Hence Mr. Zhou’s proposal to move to a new reserve currency along the lines of the S.D.R.’s, or special drawing rights, in which the International Monetary Fund keeps its accounts.

But there’s both less and more here than meets the eye. S.D.R.’s aren’t real money. They’re accounting units whose value is set by a basket of dollars, euros, Japanese yen and British pounds (where did you hear the word Wampum to describe exactly this SDR business? ) . And there’s nothing to keep China from diversifying its reserves away from the dollar, indeed from holding a reserve basket matching the composition of the S.D.R.’s — nothing, that is, except for the fact that China now owns so many dollars that it can’t sell them off without driving the dollar down and triggering the very capital loss its leaders fear. (toldja.. 'em Commies hab ein Problem )

So what Mr. Zhou’s proposal actually amounts to is a plea that someone rescue China from the consequences of its own investment mistakes. That’s not going to happen.

And the call for some magical solution to the problem of China’s excess of dollars suggests something else: that China’s leaders haven’t come to grips with the fact that the rules of the game have changed in a fundamental way.
(oh yeah baby, it is just the beginning. Lets see their faces when the music stops and they have to change focus inwards)
Two years ago, we lived in a world in which China could save much more than it invested and dispose of the excess savings in America. That world is gone.

Yet the day after his new-reserve-currency speech, Mr. Zhou gave another speech in which he seemed to assert that China’s extremely high savings rate is immutable, a result of Confucianism, which values “anti-extravagance.” (here we have commie drones in BRF dishing out statistics on washing machines and airconditioners and all those malls in Shanghai and Beijing and the Skyline in Pudong) Meanwhile, “it is not the right time” for the United States to save more. In other words, let’s go on as we were.

That’s also not going to happen.

The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.

And that failure to face up to new realities is the main reason that, despite some glimmers of good news — the G-20 summit accomplished more than I thought it would — this crisis probably still has years to run.

During the late 1980s Japan used its currency surplus $s to buy up real estate and properties in US. the recession of 1990s erased all those gians. So learning from that PRC hoarded $ cash reserves and even that is turning wampum.

ramana · Post by **ramana** » 03 Apr 2009 21:43

I am posting here as it shwos how both US and PRC deal with TSP and its effect on India.

From Nightwatch 4/1/09

Pakistan: The commander of U.S. forces in the Middle East, General Petraeus, said today that Taliban and al-Qaida-linked groups based near the Afghan border threaten Pakistan's existence, Agence France-Presse reported.

A Chinese military delegation met with Pakistani counterparts in Islamabad on 1 April to discuss improving military ties between the countries, The Associated Press of Pakistan reported. The two sides discussed ongoing defense projects, such as the JF-17 Thunder Aircraft and F-22 Frigates being built with Chinese assistance, and the issue of "terrorism" as a major threat to regional security.

The two snippets are linked in that they showcase two different theories, even definitions of threat. The US view is that Pakistani Islamists pose a grave threat to Pakistan. Pakistani media and personal anecdotes indicate Pakistanis generally do not agree with the US view and even sympathize with the Islamist argument that the government has strayed too far from Islamic values.

Many news outlets denounce the violent tactics of the Islamists but equate them with the US drone attacks in the tribal agencies. They also do not reject the religious sentiments that ostensibly motivate the Islamists, including Pakistani taxi drivers in Prince William County, Virginia. They do not trust the US and its acolytes in the national government and especially dispute the notion that the US knows what is best for Pakistan better than Pakistanis.

The Chinese support the more visceral Pakistani and Pakistan Army thesis that the Indians are the gravest threat to Pakistan, not Muslims. A significant and influential segment of Pakistani media argues that the Afghanistan instability problem is instigated by India for Indian strategic purposes to destabilize Pakistan. Multiple outlets reported the allegation by retired officials this week that the Indians were behind the Lahore attack yesterday. They argue Baitullah Mehsud is an unwitting agent of Indian intelligence. Thus Chinese conventional arms aid is welcome for building conventional capabilities to deter India.

Of these two views, the anti-India view is by far the more widely held and the more popular, based on press coverage, especially in the retired Army officer associations. As long as that view dominates, Pakistani cooperation in rooting out Pakistani Islamists will be begrudging and half-hearted.

Pakistanis are deliberating now – in inchoate fashion -- whether Pakistan should be a moderate Muslim state or an Islamist state. The US insists on cooperation in a fight that Pakistanis doubt is righteous and fear might be sinful.

The conversion of a secular Pakistan into an Islamic Republic was decided by the General Zia Ul Haq administration in the mid 1980s. Secular government is not in Pakistan’s future: it is part of a discarded past.

Gaurav_S · Post by **Gaurav_S** » 05 Apr 2009 17:03

Chinese whispers

The global financial crisis may be the catalyst for a changing world economic order. With the supremacy of the United States seemingly in descent, the Chinese star seems to be in ascendency. In what was previously Chinese Whispers about the emergence of the super power that is China, it is now becoming a shout. In olden days, one was concerned about armies and weaponry moving in to annex a country, now it is the economic might of your adversary which seems to hold sway.

In the recent days, two incidents have highlighted the economic pressure which the Chinese are willing to apply on the United States and its allies to demonstrate that it is them and not the United States which should have the respect of the powers that be in the economic world. The Chinese Premier gives only one press conference a year and in this year’s press conference Premier Wen Jiabao openly expressed his concern about the security of his countries’ AUD $1.5 trillion holdings of US Government bonds. The US treasury has been increasingly issuing Government debt to get the country out of the financial quicksand it finds itself in. The Chinese Government has been buying these bonds and the US has a lot of debt owed to the world’s biggest creditor – the Chinese Government. When the Premier of China publicly questions the security of these assets and talks about how worried they are about the economic strength of their borrower, it openly raises doubts about America’s financial strength and questions America’s standing in the world. This comment on the world stage is been seen as some as the opening salvo by the Chinese to overtly, not covertly, wrest power from the US and position China as the major economic world force.

This comment has been followed by lobbying to major world governments that the crown which the US currency has of being the benchmark should be reconsidered. The US dollar became the world’s major currency after the Second World War. The United States had defeated Japan and was emerging as the major world power and an emerging economic leader. Now China has challenged this protocol and while it will take time to effect any change, that it has been publicly put on the table will mean that in course of time this will need to be resolved.

China’s cashed up status is allowing it also to strategically buy assets. The current situation with Rio Tinto where Beijing backed Chinese company Chinalco is attempting to purchase a 31% stake is an indication of its corporate power China wishes to wield on the international stage.

While China has been building on its economic credentials, India international status seems to be bogged down as it fights with terrorism and its relationship with Pakistan. That Pakistan seems to be lurching towards anarchy with a breakdown in its government and the increasing pressure by Taliban will only lead to more instability in this region. The US is in a quandary here, while promising financial and soft support to Pakistan, they also are concerned at the Pakistan armies’ support of the Taliban. That Pakistan is nuclear and these arsenals can fall in terrorist hands, is cause for worry for the US and India.

China has influence with Pakistan but has not exerted it to its capacity. While India has been preoccupied with the terrorist issues, both internally and on its border, the Chinese government has consolidated itself on the forefront of the world politics. The world’s largest democracy seems to be falling behind rapidly in its manoeuvres to be an international power broker. The Americans may be able to understand this feeling as both India and the United States seem to get marginalised on the world political and economic stage by China.

By Pawan Luthra

ramana · Post by **ramana** » 07 Apr 2009 04:10

X-posted...

Vipul wrote:'China's investment-led growth a time bomb'.

As a political economist who tracks China and India closely, Yasheng Huang has long argued that Asia's two largest emerging economies hold developmental lessons for each other. "But my worry," says Huang, "is that they're learning the wrong lessons from each other." In this first part of a two-part interview to DNA in Hong Kong, the MIT Sloan School of Management professor and the author of, most recently, Capitalism with Chinese Characteristics traces the problems in China's growth model, the effects of which are showing up acutely during this global economic downturn. Excerpts:

Yasheng Huang has long argued that Asia's two largest emerging economies hold developmental lessons for each other.You argue that China's growth model, which is the envy of India and much of the world, is flawed. Why?
In my view, the true China economic miracle happened in the 1980s, when the country was powered by bottom-up enterprises, especially in the rural areas. In the 1990s, China changed its development strategy by placing greater emphasis on big cities like Shanghai and Beijing. To me, the 'Shanghai model' represents the most extreme example of economic and financial distortion, but today that model is being replicated elsewhere in China.

The 'Shanghai model' is an extreme version of a model that's effective in building production but not in building a consumption base. Indicatively, in the 1990s, Shanghai's GDP per capita grew dramatically in comparison with the national average, but household incomes relative to the rest of the country were virtually unchanged.
That goes to the heart of the problem that China faces today: It's been successful in generating GDP growth, but far less successful in generating household income growth.

It's been good at building a huge production base but equally good at suppressing a consumption base. And now, as a result of the financial crisis and the global economic downturn, unemployment is rising and wage growth for China's rural migrants has slowed, which will only suppress incomes further.

If the model is flawed, how do you account for China's supernormal GDP growth for 30 years?
It's not a mystery. Some 50% of China's GDP comes from investment, which has a huge multiplier effect on GDP. Now, there's evidence that they are doing that again, with the 4 trillion yuan ($585 billion) stimulus package.

Sure, some of that will go into social spending, which is good. But much of that will trigger another wave of huge investments. You only have to look to Japan to know that such investments cannot get you out of a hole.

I feel very strongly that if you see a fast GDP recovery in China and if that recovery is powered by investment, it is a time bomb.
In the past, that kind of growth was sustained by high demand from the US and other developed countries. I don't see any evidence that the US economy will recover magically to the level it was before the financial crisis.

So, the stuff that China puts out has to be absorbed somewhere. The government is trying to increase domestic consumption, but they're trying that within the existing level of the income rather than thinking of growing the income.

In terms of household income and the small asset base, China is very poor - in some ways, poorer than India. China's consumption-to-GDP ratio is lower than India's. Savings rate of households are not high in China: It's only government corporations' savings that are high.

Since 2003, China's leaders have emphasised rebuilding the social safety nets and narrowing the income gap between rural and urban areas. Do these mark a return to the policies of the 1980s, which you believe underlie the China growth miracle?
There's an attempt to go back to the 1980s, but these developments have been mixed. Sure, there is more emphasis on rural issues and social safety nets. And connected to that is the emphasis on rural education and rural health provisions.
But there's very little connection with the 1980s in terms of the methods.

We're now seeing only baby steps, and more administrative measures, more government involvement. In the 1980s, on the other hand, rural financial reforms were put at the front and centre and at a very high level of policy response. In that sense, we've not returned to the 1980s model at all, even though leaders are talking about rural entrepreneurship today.

One similarity between now and the 1980s is that then too the country faced a huge unemployment problem. But support for rural entrepreneurship in the 1980s was driven not by ideology but pragmatism. Today, a majority of the policy emphasis is on preserving GDP growth at 8% by supporting exports. Even if there is a rural entrepreneurship initiative, it's not been highlighted.

There's been a slideback in China's efforts at poverty reduction since the 1990s. How did this happen despite high GDP growth and what are the socio-political implications of this?
The whole issue of rural migration has shaped many of the economic and social developments in China. Some of these are positive effects: China created this huge export industry, which was very successful for a time. In fact, I'd argue that India should have more of this broad-based export success.

But the issue in China is whether we need this level of migration to create this level of success. I acknowledge the success, but I also see a huge downside.

When rural migrants go to the cities for employment, they are excluded from the social services, educational services and health services. When I was in Guangdong province (in China's south, home to many special economic zones) recently, I saw a sign that said: "People born between September 1 1994 and October 1 2008 should report to the government to receive free immunisation shots."

Basically, one entire generation of rural people who were born in the 1990s simply fell off the map! The same is the case with education. Because the migrants are not urban residents, their children are not entitled to education in the cities. And when NGOs started schools for migrant workers' children, the government shut them down.

An entire generation of people in the 1990s fell through the cracks.
All this has enormous political implications. The rural situation makes politics less stable rather than more stable. I link everything to rural development. When rural development in China was successful, the country as a whole was successful.

The rural issue has to be front and centre - similar to what (Mahatma) Gandhi said. I disagree with Gandhi's methods, but the philosophy was right.

ramana · Post by **ramana** » 09 Apr 2009 21:21

X-posted from the Tech & Econ forum thread on Global Prespectives:

Ashutosh Malik wrote:Exporting weapons to Vietnam makes a lot of sense.

Based on publicly available information one gets a sense that India has not really explored the possibility of using Vietnam as a leverage against China. They are sitting under the Chinese belly and have whipped their ass earlier and hardly have any love lost for the Chinese. Bharat Karnad has also averred to this earlier in his writings.

As for Mr. Brando's thoughts - well I would recommend that all of us read the book "The Rise and Fall of the Great Powers" by Paul Kennedy. ISBN-10: 0679720197, ISBN-13: 978-0679720195. Will give a sobering thought to anyone who thinks that any particularly country or empire will retain the edge for all times to come. 20-30 years are hardly anything in the march of nations. What will be interesting is what happens 100 years from now. One history book that I read by a Chinese author residing in US, seemed to suggest that Chinese time frame is to look at where they will stand post 100 years or 200 years. They are keen to teach the western world a lesson for the injustice done to them in the 19th century. Although in India we dont seem to communicate the same resolve, the march of the times will make things clear to our cousins from the western civilisation.

Without belittling the achievements of western civilisation - after all we are also learning from them - I think the issue with a substantial number of people in the West is that they think that time started when their civilisation started to rule the waves post around end of 17th/ beginning of 18th century. One can hardly fault the majority among them to think that way - they have just seen their primacy over other civilisations. Interestingly from the economic point of view, even till early 19th century China and India accounted the most substantial portion of the world GDP. Without denying the achievement of the Western world over the last 400 odd years, I think one needs to help them appreciate that time didnt start 400 years ago! And nor will things stop changing!

Cheers

svinayak · Post by **svinayak** » 09 Apr 2009 21:40

http://www.politico.com/news/stories/0409/21053.html

Pentagon preps for economic warfare
By EAMON JAVERS | 4/9/09 4:18 AM EDT

The Pentagon sponsored a first-of-its-kind war game last month focused not on bullets and bombs — but on how hostile nations might seek to cripple the U.S. economy, a scenario made all the more real by the global financial crisis.

The two-day event near Ft. Meade, Maryland, had all the earmarks of a regular war game. Participants sat along a V-shaped set of desks beneath an enormous wall of video monitors displaying economic data, according to the accounts of three participants.

“It felt a little bit like Dr. Strangelove,” one person who was at the previously undisclosed exercise told POLITICO.

But instead of military brass plotting America’s defense, it was hedge-fund managers, professors and executives from at least one investment bank, UBS – all invited by the Pentagon to play out global scenarios that could shift the balance of power between the world’s leading economies.

Their efforts were carefully observed and recorded by uniformed military officers and members of the U.S. intelligence community.

In the end, there was sobering news for the United States – the savviest economic warrior proved to be China, a growing economic power that strengthened its position the most over the course of the war-game.

The United States remained the world’s largest economy but significantly degraded its standing in a series of financial skirmishes with Russia, participants said.

The war game demonstrated that in post-Sept. 11 world, the Pentagon is thinking about a wide range of threats to America’s position in the world, including some that could come far from the battlefield.

And it’s hardly science fiction. China recently shook the value of the dollar in global currency markets merely by questioning whether the recession put China’s $1 trillion in U.S. government bond holdings at risk – forcing President Barack Obama to issue a hasty defense of the dollar.

Johann · Post by **Johann** » 10 Apr 2009 04:33

'China's investment-led growth a time bomb'.

As a political economist who tracks China and India closely, Yasheng Huang has long argued that Asia's two largest emerging economies hold developmental lessons for each other. "But my worry," says Huang, "is that they're learning the wrong lessons from each other." In this first part of a two-part interview to DNA in Hong Kong, the MIT Sloan School of Management professor and the author of, most recently, Capitalism with Chinese Characteristics traces the problems in China's growth model, the effects of which are showing up acutely during this global economic downturn. Excerpts:

...In terms of household income and the small asset base, China is very poor - in some ways, poorer than India. China's consumption-to-GDP ratio is lower than India's. Savings rate of households are not high in China: It's only government corporations' savings that are high

It takes time for individuals and families to accumulate savings - the Maoist era wiped the slate clean for most of the Mainland Chinese population, and trasferred private assets to the state in a totalitarian fashion.

That process ended only 30 years ago.

Given the costs of healthcare, education, etc over and above what the system provides its not a surprise that its taken time for consumption levels to grow.

Even today, one has to wonder how secure any private property is.

SwamyG · Post by **SwamyG** » 10 Apr 2009 06:51

Center Stage for the 21st-Century

Summary -- Already the world’s preeminent energy and trade interstate seaway, the Indian Ocean will matter even more as India and China enter into a dynamic great-power rivalry in these waters.

putnanja · Post by **putnanja** » 15 May 2009 02:54

More Chinese Navy in Indian Ocean, US OK, India not

NEW DELHI: A clear disconnect has emerged in the military views of India and the US, with a top American military commander saying Washington is comfortable with the increased presence of the Chinese Navy in the Indian Ocean, a suggestion that New Delhi bristles at.

This apart, Admiral Timothy J. Keating, who heads the Hawaii-based US Pacific Command, said he would like China to come aboard - as an observer and later as a participant - in the annual India-US Malabar naval war games that occasionally take on a trilateral hue. India is hardly expected to root for this.

...

ramana · Post by **ramana** » 15 May 2009 02:57

They can have their own exercises is South China Sea. Can call it Chop Suey.

But seriously shows they are retreating and fearing the PRC. Having PRC as observer is to show them there is nothing aggressive going on. Why the need to reassure PRC? Only whn one is weak.

Besides Malabar is for US to gain tropical waters experience. Its not like they are held in Alaska to give Cold water experrience for Indian Navy.

In mid 50s to early 60s IN used to exercise with Commonwealth Navies and this was cut off after 1965. So Malabar is sort of resumption of those exercises as part of Kickleighter proposals in 1990s.

brihaspati · Post by **brihaspati** » 15 May 2009 03:13

If US can come so far from homebase to play around and claim share in Indian Ocean experiences, IN can also ask to go and play around in the Pacific. Moreover, why should the Russian navy be left out of playing around then in the Indian Ocean? Indian Ocean is closer to home for them! For that matter even the Iranaian navy can hold joint exercises in the Arabian sea with IN.

ramana · Post by **ramana** » 15 May 2009 03:32

In a way its a fallout or secondary effect of what was described in Shyam Saran's speech.

putnanja · Post by **putnanja** » 15 May 2009 05:15

China proposed division of Pacific, Indian Ocean regions, we declined: US Admiral

In a startling disclosure, a top US Admiral has revealed that China offered to divide the Pacific and Indian Ocean regions between China and the US after Beijing launched its own fleet of aircraft carriers.

The offer was made by an unnamed top Chinese Navy officer while discussing the country’s ongoing aircraft carrier programme, one of the senior-most officers of the US military, Pacific Command (PACOM) chief Admiral Timothy J Keating said. He added that the incident was disclosed to Indian Navy chief Admiral Sureesh Mehta during their meeting on Thursday.

Keating said that the offer, which was made somewhat “tongue in cheek” was declined by the US but the top Chinese officer indicated that Beijing would pursue the development of aircraft carrier technology.

...
“(The Chinese officer said) You, the US, take Hawaii East and we, China, will take Hawai West and the Indian Ocean. Then you will not need to come to the western Pacific and the Indian Ocean and we will not need to go to the Eastern Pacific. If anything happens there, you can let us know and if something happens here, we will let you know,” Keating recalled.
...

Pranav · Post by **Pranav** » 15 May 2009 06:41

Interesting! China is ruled by people who know how the global great game is played. Just look at the admirable ruthlessness with which the Chinese have cracked down on their own Jehadis and EvanJehadis. India is ruled by people who are supported by external powers and keep their wealth abroad - they are afraid of their own people and their position of privelege in India is dependent on keeping down the majority.

RaviBg wrote:China proposed division of Pacific, Indian Ocean regions, we declined: US Admiral

In a startling disclosure, a top US Admiral has revealed that China offered to divide the Pacific and Indian Ocean regions between China and the US after Beijing launched its own fleet of aircraft carriers.

The offer was made by an unnamed top Chinese Navy officer while discussing the country’s ongoing aircraft carrier programme, one of the senior-most officers of the US military, Pacific Command (PACOM) chief Admiral Timothy J Keating said. He added that the incident was disclosed to Indian Navy chief Admiral Sureesh Mehta during their meeting on Thursday.

Keating said that the offer, which was made somewhat “tongue in cheek” was declined by the US but the top Chinese officer indicated that Beijing would pursue the development of aircraft carrier technology.

...
“(The Chinese officer said) You, the US, take Hawaii East and we, China, will take Hawai West and the Indian Ocean. Then you will not need to come to the western Pacific and the Indian Ocean and we will not need to go to the Eastern Pacific. If anything happens there, you can let us know and if something happens here, we will let you know,” Keating recalled.
...

Gerard · Post by **Gerard** » 15 May 2009 06:53

The great game is not played so foolishly. China is needlessly provoking potential adversaries years before they are in a position of power. Japanese naval power dwarfs that of China. How will the Japanese react to this proposal? How will India react to this and to the ADB loan veto?

vsudhir · Post by **vsudhir** » 15 May 2009 07:15

Gerard wrote:The great game is not played so foolishly. China is needlessly provoking potential adversaries years before they are in a position of power. Japanese naval power dwarfs that of China. How will the Japanese react to this proposal? How will India react to this and to the ADB loan veto?

That was my first thought too.

Then realized, PRC didn't get to where it is by playing low stakes. The chicoms are playing a series of moves in tandem.
They taught uppity Dilli a hard lesson in 1962 which we and the world since are yet to forget. They're trying to provoke a manageble crisis that will enable them to land swift jhapads on some more uppity democracies.

Besides, Japan is playing ball with PRC. Even mighty USa is backing off from taking PLAN head on in the south china sea, and now in the IOR as well.

No room in Chiang Mai

A few days ago, China, Japan, South Korean and the ASEAN states agreed to set up a US$120 billion to manage currency volatility. The Chiang Mai Initiative (CMI) primarily reduces the member countries’ dependency on the International Monetary Fund. It deliberately excludes India.

archan · Post by **archan** » 26 May 2009 23:17

X-posting.
India ups vigil on China border (NDTV)

India increases troops:

* Two new divisions (40,000 troops)
* Artillery brigade, 9 airstrips
* Military's assessment: China is India's greatest threat
* India wants to match China's forces
* Cost: Rs 5,000 crores