US and PRC relationship & India

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US and PRC relationship & India

Postby ramana » 19 Mar 2009 01:33

I start with Sri Shyam Saran's speech and x-post other related posts. the object is to develop a comprehnsive picture and not an alarmist picture for distance may dim the vision but not distort the prespective.
Shyam Saran shows good awareness of the challenges facing a new govt.

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

Shyam Saran,
Special Envoy of PM
India Habitat Centre
28 February, 2009

Dr. Shankar Acharya,

Thank you for chairing this Session. I am deeply honoured by your presence. I would also like to express my appreciation to the India Habitat Centre and Mr. Raj Lieberhan for providing a forum for this interaction on a subject that has so far been off the radar in this country. It is my firm belief that even while we learn to cope with the more immediate impact of the on-going financial and economic crisis, we should look more closely at the manner in which the crisis may be changing, in a fundamental manner, the global geo-political landscape as well as the dominant ideologies which were accepted wisdom in most parts of our world.

Let us first look at the nature of the financial and economic crisis itself. It is a crisis that originated in the US and has now spread over the entire global economy. The Western dominance of the global financial markets and the global economy as a whole has been shaken to the core. It is possible that New York and London may no longer regain their undisputed status as the central financial markets of the world. With this has come an intellectual crisis engendering an open questioning of the western espousal of the magic of the market place, the belief in self-regulating market mechanisms and the relentless retreat of the state from virtually all key areas of economic life. These twin crises are beginning to spawn significant and far-reaching political consequences. One relates to the redistribution of political power based on real economic strength. The other relates to perceptions, which are equally important, shaking confidence in market based liberalism that has been the dominant dogma for the past two centuries and more.

First, let us examine the chief characteristics of the crisis.

In essence, it is the consequence of unsustainable imbalances in the global economy i.e. prolonged fiscal and trade deficits in the U.S. matched by fiscal surpluses and astronomical foreign exchange reserves in China, but also smaller surpluses in other economies such as the oil exporting Gulf and Japan.

These imbalances will need correction through a sizeable increase in saving and decrease in consumption in the U.S. and associated Western economies, while China will need to save less and consume more – China today saves over 40% of its GDP -. It seems to us that neither is likely to happen in the near future. In order to avoid a recession and promote the recovery of its economy, the U.S. has deployed and may continue to deploy progressively larger monetary and fiscal stimulus packages. The same is being witnessed in the market economies of Europe. This will push their economies in a direction opposite of the basic adjustment required, and can only be justified as a temporary palliative. The subsequent adjustments will have to be that much more significant and far-reaching, the larger the deficits are today. On the other hand, China’s saving rate is likely to remain high. Asians, including Chinese, respond to difficult times, by saving more not less, particularly, where social security safety nets are absent. China has announced a large spending package for infrastructure, but this will only increase the significant excess capacity that already exists in infrastructure, whether these are highways, ports or building construction.

The US and China have become joined at the hip over the past couple of decades. This is what Kissinger said in a recent article:

“China made possible the American consumption splurge by buying American debt; America helped the modernization and reform of the Chinese economy by opening its markets to Chinese goods. Both sides overestimated the durability of this arrangement.”

If this arrangement has to be progressively adjusted towards a new balance without risking economic collapse, an extraordinary and unprecedented level of consultation, coordination and understanding would be required between the two countries.

Let us consider what is required.

The US will need to reduce its trade deficit through a deliberate and graduated decline in the value of the US dollar. As this will lead to the progressive decline in the value of China’s vast dollar holdings – China currently holds US $ 1.1 trillion in US debt including US $ 652 billion in US Treasury debt - it will have to acquiesce in this erosion of wealth rather than seek to significantly diversify its reserves. Will China play ball?

China will need to resist the temptation to save its vast export industry from rapid decline and ruin, by devaluing its currency vis-à-vis the U.S. dollar, or at least keep the current parity level. The U.S. interest, on the other hand, will be to persuade the Chinese not merely to maintain the current value of the Yuan, but to revalue significantly. Can these two contrary interests be reconciled? It is estimated that closure of export factories has already led to 20 million workers in China becoming unemployed. Will the creation of new jobs in the infrastructure sector help mitigate the retrenchment in the export sector? The evidence is that the latter, for the moment, is outpacing the former. What is the scale of destruction of its industry and rising unemployment, which a Yuan revaluation would further exacerbate, that China would be willing to tolerate?

For its part, the US appears to be working on the assumption that dependent as China is on the health of the global and particularly the U.S. economy, it will, in fact, be persuaded to do the unprecedented things that may be required. For this persuasion to work, the U.S. is embarking on an equally unprecedented diplomatic offensive to co-opt China in its economic recovery strategy.

For example:

There are increasing calls for a Sino-US global condominium, a so-called G-2, which would shape a new world order. Some like former Secretary of State, Brzezinski,{Zbig was never the SoS but NSA for Carter. But OK} have gone much further than others, calling for a “comprehensive, global partnership, paralleling our relations with Europe and Japan.” Brzezinski elaborated this further by recommending a US-China peacekeeping force to deal with failed states and a strategic dialogue to cover India-Pakistan, Israel-Palestine and the Iran issue.

Though somewhat less dramatic, even Kissinger has called for taking Sino-US relations to a new level, at par with trans-Atlantic relations forged in the post-World War II period. :!:

The new US Secretary of State, Hillary Clinton, has echoed {What else can she do but be the voice of these puppeteers!} these sentiments by describing Sino-US relations as the most important bilateral relationship for the incoming Administration.

This implies an apparent willingness on the part of the US to accommodate China’s regional and global interests as a price to be paid for China refraining from tipping the US into a full blown economic and financial crisis through its own policy interventions and, hopefully, supporting US 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.

China has not revealed its hand so far. It has certainly encouraged thinking in the U.S. and the West that it is the key to their economic recovery. This provides it with a significant leverage for achieving its foreign policy objectives even though on the ground it may be able or willing to do much less.

A brief look at the structure of the Chinese economy may be useful in this context.

The Chinese economy continues to be dominated by State-owned enterprises which are largely domestic market-oriented or are engaged in commodity production and trade. The country’s export economy, which is the most dynamic, is occupied by two categories of enterprises: These are either wholly owned subsidiaries of foreign companies or joint ventures between State-owned enterprises and foreign companies. There is yet only a small percentage occupied by private enterprise, though this segment is growing. The high growth rates enjoyed by the Chinese economy has been, and continues to be, generated by these two categories of enterprises. The export economy today constitutes over 40% of the country’s GDP. If this segment of the economy continues to decline as rapidly as currently, China may not be able to sustain the 7-7.5% GDP growth that its leaders believe is required to avoid widespread financial and political unrest in the country due to growing unemployment. If such unrest indeed becomes widespread, China’s leadership will certainly wish to first address this threat with all the instruments available, including economic and trade policies designed to protect their industry and employment.

The above scenario suggests that China’s role in global economic recovery may be more limited than is being envisaged in some quarters, although it is likely that China will emerge from this crisis in a relatively stronger position than before.

I would not like to leave behind an impression that only China is likely to be threatened by political and social unrest as a result of the global economic crisis. This affliction may, in fact, be quite widespread, affecting even mature and politically stable societies. The most vulnerable will obviously be countries that are already at the margin of economic survival. There may be more failed and failing states, the possibility of more widespread radical movements and an expansion of zones of conflict in different parts of the world. It will require the major states of the world to demonstrate a very high degree of collaborative engagement to keep a handle on these multiple crises, precisely at a time when their attention may be inexorably drawn inwards towards domestic preoccupations. Depressing as this may sound, it is a scenario that we should be fully prepared to confront. What is happening today in India’s neighbourhood is a visible pointer.

This is, therefore, one of those rare occasions in history when predicting even the near future is fraught with deep uncertainty. The one certainty is that the economic and financial crisis is putting all major countries and economies, through a global shaker and it is not clear which way the dice will eventually fall. What can be predicted with some degree of confidence is that the global landscape which will eventually emerge when the dust finally settles down, will be vastly different from what it is today.

{Its the chaos theory at work from the churning. Could be halahal and eventually amrit}

Its contours, however, are not yet clear.

What are the implications for India?

For India, this is not necessarily a negative. It creates for us, other things being equal, greater strategic space. We will have more room for manoeuvre in managing our relations with a more diverse set of powers, and do so with more flexibility.

It should be our objective to encourage the trend towards a more diffused and diversified international order. This fits in well with our own instinctive preference for a multipolar world, which includes a multipolar Asia. We will need to work with other powers who share this objective. Our effort should be to build coalitions on different issues of shared concern and not primarily rely on a more limited range of strategic relationships.

This will imply a more energetic pursuit of our relations with countries like Russia and middle powers like Brazil, South Africa and Mexico. The European Union and, in particular, some of its individual members like France, can be useful political and economic partners. Europe seems currently torn between a desire to salvage Western dominance, on the one hand, and to lead the way towards an ambitious restructuring of the global political and economic governance structures on the other. We should encourage the latter trend.

With the US, we have built an extraordinarily broad-ranging relationship, which is likely to endure a change of political guard in either country. We must remain fully invested in this critical relationship, even while remaining alert to the possible threat to India’s interests as the US pursues its larger goals especially in our region.

Closer home in Asia, we will need deeper engagement with Japan and Indonesia and of course, a more nuanced diplomacy towards China. We have several areas of convergent interest with China, quite apart from a rapidly expanding trade and economic relationship. Our positions on multilateral trade, climate change and several other global issues are similar. At the same time, we should acknowledge that there are competitive components in our relations, which will need to be managed with prudence but firmness.

In this context, the prospect of a Sino-US strategic convergence has caused some anxiety in India. The situation is more complicated than it appears. China itself is hedging its bets by pursuing a number of parallel bilateral and regional strategies.

For example, while consulting closely with the US, it has also worked together with Japan and South Korea to create a North-East Asian swap arrangement and promised to consider a regional economic recovery package. China is also interested in adding substance to BRIC (Brazil, Russia, India and China) and put security issues also on its agenda. It is promoting both the Shanghai Cooperation process as well as a closer and more comprehensive relationship with South East Asia. It would be prudent for India to follow a similar hedging strategy as well, in its relations with other major powers and groupings. This will include an intensified engagement and dialogue with China itself, including on its interest in promoting a grouping of major emerging economies or on a new security architecture in Asia. India’s approach should be to position itself innovatively in a manner that enables it not only to ride-over this crisis with relatively less adverse impact but more importantly, to ensure a position of advantage for itself as a new international and geo-political landscape begins to emerge.

Our political prospects will inevitably be determined not only by how we weather the current storm, but whether we have strategies that enable us to emerge from the crisis as among the foremost of the economies of the world, and as one of the key drivers of the global economy. We will need to go beyond the defensive and survival-first strategies which currently dominate our thinking. Instead, we need to carefully assess what our strengths and vulnerabilities are as a continental-sized emerging economy, and articulate a forward-looking economic game plan on that basis.

What are our likely vulnerabilities?

At least for some time to come, the impact of the global crisis could well lead to diminished markets overseas and the revival of protectionist tendencies in those markets. There may be, similarly, diminished prospects for attracting inward investment from major capital-exporting countries. In short, the global economic environment may not be as supportive of India’s growth prospects as it has been during the past decade and a half. To the extent that our higher growth trajectory has been associated with the globalisation of the Indian economy, leveraging the liberal economic environment prevailing in major Western and other market economies, the downward pressure on our growth prospects may be unavoidable.

Secondly, all major economies will end up being more regulated than before. There will be more State intervention, initially by default and eventually by choice. There is a real possibility that a new economic orthodoxy will emerge where the state will, once again, become not only a regulator but a major economic actor. The tendency in countries like India would be to uncritically slip into a similar mode of thinking. Our statist legacy makes us particularly susceptible in this regard. We must guard against this.

What are the strengths we can leverage to position India as a leading economic and political power, post-crisis?

Some opportunities appear to be to be worth pursuing.

- For example, we should use the opportunity created by the crisis to consolidate pro-actively our economic interaction with our neighbours including through unilateral and asymmetric steps, if necessary. Our current policy line is that without a politically stable and economically prosperous neighbourhood, India will find it difficult to pursue its regional and global interests. It is time to put substance into this approach, even though current preoccupations with developments in Pakistan, Bangladesh, Sri Lanka and Nepal do cause anxiety. As the economic crisis hits the economies of our more fragile neighbours, we should accelerate regional economic integration through a series of economic support measures. An India-initiated South Asia Economic Recovery Initiative could be explored. :idea:

- We could use the opportunity of depressed commodity and other prices to acquire productive assets abroad while they are cheap, buying energy and raw-material sources, for instance, and making strategic investments abroad. The political obverse of this would be a strong outreach in Africa and West Asia and other developing countries, revitalising our developing country constituency through targeted initiatives. :idea:

- The Indian IT industry is likely to be significantly impacted due to loss of overseas markets as well as protectionist trends. So far the IT industry has been focused on the export market. It has not looked at the domestic market as a significant business opportunity. Now could be the time to do this. More competitive conditions in both domestic as well as external markets require Indian industry to be more efficient and productive. This is where our IT industry can play a significant role, but this will require the dynamic sectors of the economy, the service sector and the manufacturing sector, to come together to deliver a major punch, once the global economy settles down into a new and altered landscape. There should be a willingness in business and industry to think through and come up with an ambitious and potentially winning strategy. They should seek government support for delivering on such a strategy rather than looking only for short-term relief.

- There is little doubt that for at least the next 3 to 5 years, if not more, we will find a buyer’s market in a wide range of sectors due to the global slowdown. There is already significant excess capacity in capital goods and infrastructure sectors. Not only are more economical prices on offer but probably better terms and conditions for technology transfer as well. There is a window of opportunity for government and business to take advantage of these favourable conditions, to accelerate the upgradation of our transport networks, build more state of the art airports and seaports, build ten instead of only one high speed rail freight corridors, extend mass public transportation networks to all major towns and cities, and most of all, solve the power problem once for all. The civil nuclear agreement is a timely instrument in our hands today. As investment in the nuclear renaissance in the developed world slows down, India could some source many more high capacity nuclear reactors on the most competitive terms, if it wishes to. The country can leverage its financial credibility in the global market, to raise the funds required. We have to package and project ourselves as part of the solution to the global economic recession and not as its tragic victim. As a sound, credit-worthy and growing economy, with relatively less exposure to the buffeting of the global crisis, we are still a good bet, a low-risk and potentially high-return economy. But we will need to communicate these strengths more effectively to the rest of the world than we have so far. :idea:

- The inter-related crisis of climate change and energy security has already triggered a wave of innovations in renewable energy, such as solar energy, bio-mass and wind energy. The United States and, to some extent, Europe are the chief repository of such innovations. We have several interesting initiatives being pursued in India as well, though these are scattered in different locations, both in the public and private sectors. It is inevitable that, for some time to come, many of the venture capital initiatives in the area of renewable energy in the US and Western Europe, may run out of steam as money flows dry up. The decrease in oil prices, even though temporary in nature, will further reinforce this trend. India must not lose its long-term perspective. Its energy security demands an accelerated and significant shift from dependence on fossil fuels, increasingly imported, to renewables especially solar energy. Here is an opportunity for Indian business and industry to plug into the innovation chains in U.S., Europe and Japan, to help us bring about that shift. Energy of every kind will always be a big and growing business in India. Renewable energy will be even bigger. We should have the wisdom and foresight to grasp the opportunity we have today, to emerge as leader of tomorrow. We should map our future as a modern, state of the art, carbon free economy and a renewable energy leader within the next couple of decades. A stimulus package that promotes these initiatives will create productive assets which will help overcome the deficits which will inevitably have to be bridged in the future.

What are the key messages for India in terms of the likely Geo-political Consequences of the Global Financial and Economic Crisis?

- Our diplomacy will need to gear up for a more diffused, decentralised and complex international landscape, populated by several major powers, with US enjoying a significantly diminished predominance. Though complex, the new international terrain will create more space for India to emerge as a key driver of global economics and politics. In the meantime, we will need to deal with the continuing uncertainty across the globe through hedging strategies, encompassing multiple and concurrent bilateral, regional and multilateral relationships.

- In relative terms, India’s economy is likely to be less severely impacted than economies that are much more globalised and export and FDI driven. This gives the country an opportunity to expand its regional and global profile, but this may require a significant reorientation of our diplomatic assets towards promoting regional economic integration and political stability in our own periphery. Our aim should be to emerge from this crisis as an economy in which each of our neighbours have a significant stake. This must be paralleled by a political engagement strategy that is nuanced and goes beyond the state-to-state level dynamics.

- We will need to restructure our economy to play on our strengths such as in IT and reduce our vulnerabilities, for example, in infrastructure. There should be a strategy to take long-term advantage of the depressed global market conditions both for capital equipment and strategic commodities, including nuclear energy. This is an opportunity for acquiring strategic economic assets abroad as well as critical technologies on more favourable terms.

- Finally, we should use the challenge of climate change to fundamentally shift the Indian economy from its reliance on depleting fossil fuels, to a significant use of renewable energy. This will promote India’s energy security and spur technological innovation and change, positioning India as a front-ranking power once the current crisis begins to recede.

Let me conclude by saying that we need to think in very unconventional ways to deal with a very unconventional crisis. In the Global 2020 Document – Mapping the Global Future – it is stated and I quote:

“Linear analysis will get you a much-changed caterpillar but it won’t get you a butterfly. For that you need a leap of imagination”. I am certain that imagination is one resource that is never in short supply in this country.

Thank you.

Shyam Babu has given up on Chai biskoot and wants to go for the jugular. I second everyone of his moves. Very good speech full of ideas and India will benefit if even half his ideas are taken up.

Obama: Good-Bye To Dalai Lama & Aung San Suu Kyi, Hail Hu Jintao

By B. Raman

"There is a common interest in the US as well as in China in maintaining and strengthening the present economic linkages without letting them be damaged seriously by what a Chinese analyst has called the tumours in the otherwise healthy organism of Sino-US relations which keep appearing from time to time such as the Taiwan, the proliferation, the Tibet and the National Missile Defence (NMD) issues. The political leaderships and the business class in the two countries would see to it that these tumours do not become malignant. One saw that during the Clinton Administration and one would see that during the Bush Administration too. After the present phase of rhetoric and confrontation, moderation would again set in at Washington as well as in Beijing. It would be unwise and short-sighted for India to think that the present confrontation would last for long and that it could strategically take advantage of it."

2. So I wrote on May 14, 2001, in an article titled SINO-US RELATIONS: THE ECONOMIC ASPECT available at That article was triggered off by a surge in US rhetoric in relation to China after President George Bush assumed office on January 20, 2001.

3. There has been no surge in US rhetoric vis-a-vis China after Barack Obama assumed office on January 20, 2009. On the contrary, the focus of his advisers has been on identifying and expanding the mutual comfort features in the bilateral relations rather than on those features, which tended to cause friction in the past. The references from Washington DC to human rights issues---- whether they be in relation to Tibet, Myanmar or the Chinese role in the Sudan--- have been muted. Mrs. Hillary Clinton, the Secretary of State, hardly mentioned them in public during her visit to Beijing from February 20 to 22, 2009. She attended a Church service at Beijing apparently to underline continuing US interest in the question of religious freedom in China, but avoided any comments on allegations that the Chinese authorities, while welcoming her visit to a church, took care to prevent any Christian dissenters from having interactions with her at the church. The normal expressions of concern over China's military spending too were equally muted.

4. The focus was on the role which the US and China could play in jointly halting the unrelenting slide-down in the global economy and how the two economies could sink together if they don't swim together. She underlined in benign words the increasing mutual dependence of the two economies----- with the Chinese dependence on the US consumers for a quick recovery of its exports-dependent manufacturing sector and with the US dependence on continued Chinese purchases of US Treasury Bonds to provide the cash flow to fund Obama's stimulus packages.

5. The transformation of the US perceptions of the mutual economic dependence is remarkable if only one recalls that in the 1990s when her husband, Bill Clinton, was the President, US policy-makers and many Congressmen lost no opportunity to express their concerns over the increasing trade surplus in favour of China and over the national security implications of the Chinese cash flow for investment in the US Treasury Bonds and in US stocks. The advisers of Obama do not articulate these concerns. On the contrary, the concern now is, not that the Chinese are buying the US Treasury Bonds, but that they are showing signs of slowing down their purchase because of their own economic difficulties.

6. Mrs. Clinton did not hesitate to openly express the hope on more than one occasion that the Chinese would continue to invest in the bonds. Speaking at the US Embassy in Beijing on February 22, 2009, shortly before her departure from China, she said: "By continuing to support American Treasury instruments, the Chinese are recognizing our interconnection. It would not be in China's interest if we were unable to get our economy moving. We are truly going to rise or fall together. We are in the same boat and, thankfully, we are rowing in the same direction." Responding to her comments separately , Yang Jiechi, the Chinese Foreign Minister, said that China wanted its foreign exchange reserves - the world's largest at $1.95 trillion - invested safely, with good value and liquidity. He said that future decisions on using them would be based on those principles, but added that China wanted to continue to work with the US.

7. Mrs. Clinton's open acknowledgement of the benign aspects of the increasing economic inter-dependence between the two countries was music to the ears of the Chinese. The Chinese policy-makers chose to interpret it as indicating that the Obama administration did not view China as a potential adversary, but it viewed it as a potential partner. Mrs. Clinton said that she felt during her discussions in Beijing it was like the beginning of "a new era" of bilateral relations characterized by "positive cooperation". Addressing a joint press conference on February 21, 2009, Mrs. Clinton and Yang said that the two countries would build a "double-track" strategic and economic dialogue mechanism to discuss concerns of either politics or the economy. She added that she and Treasury Secretary Timothy Geithner would be involved in it. According to her, a decision on this was expected to be announced when Obama and Hu meet at the G20 summit in London in April. She also said that the US and China would build "an important partnership" to develop clean energy technologies and speed up the transition to low carbon economies.

8. As I had been pointing out in the past, whereas Mao Zedong believed that power grew out of the barrel of the gun, Deng Xiaoping believed that power also grew out of the money purse. Money speaks as eloquently as the gun, if not more eloquently. The bulging Chinese purse at a time when the rest of the world is facing a cash flow problem spoke repeatedly during Mrs. Clinton's visit. Good-bye to the Dalai Lama and Aung San Suu Kyi, Hail Hu Jintao----- that is the message from the Obama administration .

9. A spokesman of the Chinese Foreign Ministry announced in Bejing on March 7, 2009, that Yang Jiechi would pay a working visit to the US from March 9 to 13, 2009, as a guest of Hillary Clinton. The spokesman added that the two sides would exchange views on the growth of Sino-US relations in what he described as the new phase and on regional and global issues of common concern.

10. The visit comes less than a month after the visit to Beijing by Mrs. Clinton, which has given immense satisfaction to Chinese policy-makers as marking the beginning of the process of the US coming to terms with the reality of a four-polar world----with the US, China, the European Union and the developing world constituting the four poles of the new world order as seen by China. In the Chinese perception, India's place in this four-polar world is as an important member of the developing world but not as a power by itself on par with the US and China. Japan has no prominent place in this new world order. China projects itself as a developing country despite its galloping economy and huge foreign exchange reserves. At the same time, it views itself as a newly-emerged world power on par with the US and the EU.

11. This Chinese perception of itself and the world became evident in the articles and commentaries of Chinese analysts on the strategic significance of the US economic melt-down and of the US dependence on China for preventing an economic collapse. An article by the "People's Daily" of February 23, 2009, said: "China has grown to be a new heavyweight player and stepped into the limelight on the world stage. And its role in salvaging the plummeting world economy from hitting bottom looms large and active, as the U.S. Secretary of State Hillary Clinton said during her just wrapped-up Asian tour, 'the U.S. appreciates the continued Chinese confidence in the U.S treasuries.' If the Cold War was 'a tug of war' between East and West, and a showcase of hard power, what we have today, for the first time in history, is a global, multicivilizational and multipolar competition, and a display of smart power. To be the winner, one has to seek more cooperation rather than confrontation."

12. The two defining characteristics of the Obama administration are opportunism and pragmatism. Its main priorities for some time to come will be restoring the economic health, preventing another 9/11 in the US homeland by going after Al Qaeda's sanctuaries in Pakistan's tribal belt and any kind of peace in Afghanistan which would avert a Vietnam type disastrous withdrawal of the US forces from Afghanistan. For achieving these objectives, the US relations with China and Pakistan would have greater importance for Obama than its relations with India.

13. It should not, therefore, be a matter of surprise that India figures less and less in the short and medium-term strategic calculations of the Obama administration. The only interest of the Obama Administration in India will be in ensuring that it does not take any military action against Pakistan for its continued sponsorship and use of terrorism against India.

14. The Obama Administration is not going to be interested in building up India as a counter to China. In continuing to develop the USA's military-military relationship with India to which the Pentagon continues to attach importance, it will avoid features which could cause concern to China just as the Kevin Rudd Government in Australia is doing.

15. All India can expect from the Obama Administration is soothing words from time to time to tickle India's vanity. Nothing more. After the euphoria created by the policies of the Bush Administration among policy-makers and in the community of wishful-thinkers in New Delhi euphemistically called strategic thinkers, we are in for a mood correction.

An e-mail from a margadarshak:

Shyam Saran is a very thoughtful person and as is to be expected has spoken very thoughtfully.He has highlighted that both US and China would cooperate to maximise their respective damage limitation vis a vis the economic crisis.This has been elaborated in some more detail by Nayan Chanda in Global Yale.Nothing startling in that.The real issue to be considered is what will happen beyond that?the Sino-US cooperation for the period of recession will reduce the gap between the two and make China a relatively more weighty power in the international system.Yet the hierarchy of power will not alter and the US will atleast for the next couple of decades still be number one.Surely the international system and international science and technology are not likely to remain frozen.What role the new investments in science and technology will pay ,what results new international alignments can bring about will be subject to policy initiatives of major nations US,China and India too..Shyam's is a call for Indians to start thinking.


I recommend strongly the final piece of advice in Shyam's speech.Please let us not think linearly.

We must factor in ,the changes that are bound to take place in domestic consumption pattern,financing of health care and social security in US ,new technologies that will emerge out of the investments now made and possible domestic political and social changes in China.
Once the period of acute mutual dependency is over ,US and China will revert to become tacit rivals.If the US reduces its dependency on China's export surpluses financing its own unlimited credit requirements, the incentive for US entrepreneurs investing in China will somewhat decline. US will be interested in balancing China just as China will be interested in closing the gap with US.
There are vast uncertainties about Russia and European Union.
In my view the growth of powers in the coming decades will be influenced by new technologies that are likely to emerge and in this US still has some advantage and significant stake in Indo-US partnership.
The developments in Pak-Af area will be determined by the willingness and ability of Pak middle class and Army to take a stand against Talibanisation. The US has far to go to develop a realistic understanding of the situation and the problem. India today is in a better position to resist any US pressure than it had in the last 62 years.

I guess India has to develop multiple hedging strategies and invest accordingly while ensuring that no black swan or kala kauvva stops us.

We need to be more focussed in our understanding of the different shades of the relationships.
Read this with the Shyam Saran speech posted before.

EDITS | Thursday, March 19, 2009 | Email | Print |

Chinese threat looms large

G Parthasarathy

While India received overwhelming international sympathy and support during the 26/11 terrorist outrage, the Chinese reaction was one of almost unbridled glee, while backing Pakistani protestations of innocence. The state-run China Institute of Contemporary International Relations claimed that the terrorists who carried out the attack came from India. Moreover, even as the terrorist strike was on, yet another Chinese ‘scholar’ gleefully noted: “The Mumbai attack exposed the internal weakness of India, a power that is otherwise raising its status both in the region and in the world”. Not to be outdone, the Foreign Ministry-run China Institute of Strategic Studies warned: “China can firmly support Pakistan in the event of war”, adding: “While Pakistan can benefit from its military cooperation with China while fighting India, the People’s Republic of China may have the option of resorting to a strategic military action in Southern Tibet (Arunachal Pradesh), to thoroughly liberate the people there”.

Rather than condemning the terrorists and their supporters, Chinese Foreign Ministry spokesman Qin Gang urged India and Pakistan to “maintain calm” and investigate the “cause” of the terror attack jointly. The visiting Chairman of Pakistan’s Joint Chiefs of Staff Gen Tariq Majid was received like a state dignitary by Chinese leaders, with promises of support on weapons supplies ranging from fighter aircraft to frigates. The Chinese then got into the diplomatic act, purporting to show that they were actually Good Samaritans seeking to promote peace and reconciliation between India and Pakistan. The rising star in China’s diplomatic hierarchy, Vice Foreign Minister He Yafei, visited Islamabad and met the Pakistani leadership, including the ubiquitous Gen Ashfaq Parvez Kiyani. Rather than asking Pakistan to curb the Lashkar-e-Tayyeba Mr Yafei stressed the need for Pakistan and India to address “outstanding issues through dialogue and cooperation”. Shortly thereafter Mr Yafei landed up in Delhi, again with the object of demonstrating to the world that China had urged ‘restraint’ on India and promoted India-Pakistan dialogue. Mercifully, for once, our pusillanimous mandarins signalled that we did not need China’s purported ‘good offices’ in dealing with the fallout of 26/11.

Just as China was becoming a net importer of oil in 1993, Gen Zhao Nanqui, a senior official of China’s People’s Liberation Army proclaimed: “We can no longer accept the Indian Ocean as an ocean of the Indians”. Another naval analyst Mr Zhang Ming recently proclaimed that the islands of India’s Andaman and Nicobar archipelago could be used as a metal chain to block Chinese access to the Straits of Malacca. China has used such arguments to boost its naval presence in the Indian Ocean. Adopting a ‘string of pearls’ strategy to encircle and contain India in the Indian Ocean, it has acquired base facilities at Gwadar and Pasni in the Makran coast of Pakistan, virtually at the mouth of the Persian Gulf. It is building a fuelling station in the port of Hambantota in southern Sri Lanka, a container facility with naval and commercial access in Chittagong, and linking its Yunnan province to the Indian Ocean through Myanmar. It has gone as far as Mauritius and Maldives for securing a strategic presence, with promises of massive economic assistance to these countries. China has also planned its most ambitious project in the Indian Ocean, proposing a canal access across the Isthmus of Krai in Thailand, linking the Indian Ocean to its Pacific coast.

China has reinforced these measures by sending its first naval expeditionary force spearheaded by two destroyers into the Indian Ocean, purportedly to deal with piracy off the coast of Somalia. A Chinese fleet last entered the India Ocean in the 15th century, when an expeditionary force under Admiral Zheng He sailed across the Indian Ocean to Calicut, Muscat, Maldives and Mogadishu. President Hu Jintao’s China appears desirous of reviving the imperial ambitions of the emperors of the Ming Dynasty! As China strengthens its Navy acquiring aircraft carriers and nuclear submarines, India will soon find that unless it combines the boosting of its maritime muscle with imaginative diplomacy in its Indian Ocean neighbourhood and on China’s Pacific shores, it will be strategically marginalised and outflanked by an assertive and expansionist Beijing, which appears bent on exploiting the high costs of imperial overreach by the Americans in recent years. Given the manner in which China has joined hands with Pakistan to sabotage India’s quest for permanent membership of the UN Security Council and the devious role it played in the Nuclear Suppliers Group to undermine moves to end global nuclear sanctions against India, we should have no doubt that ‘strategic containment’ of India will remain the cornerstone of Chinese foreign policy in the foreseeable future.

New Delhi should also have no doubt that China will exploit the American economic downturn and the pro-Chinese views of Secretary of State Hillary Clinton, to get the Americans to revert to the policies of the Nixon, Carter and Clinton presidencies and to make common cause with China on issues like nuclear non-proliferation, the Comprehensive Test Ban Treaty, and even on Afghanistan and Pakistan, while undermining Indian interests. Echoing the Pakistani line, China’s Communist Party mouthpiece, the People’s Daily, recently suggested that for the United States to deal with problems in Afghanistan, it should not merely involve itself in the Afghanistan problem and the Pakistan problem but also in the ‘India-Pakistan problem’. Ms Hillary Clinton has characterised the US-China relationship as the “most important bilateral relationship in the world in this century”. Her visit to China was followed almost immediately by the visit to Beijing of a senior Pentagon official, who joyously proclaimed the resumption of defence ties with Beijing.

The Bush Administration had an overarching strategic vision of its relations with India, premised on New Delhi’s pivotal role in confronting terrorism, safeguarding the sea lanes of the Indian Ocean, and in promoting strategic stability in Asia. But with election around the corner and the UPA Government in a lame duck mode, Washington, DC, is unlikely to take any interest in fashioning a larger vision for India-US relations. The challenge we face in coming months is how we can pursue our interests in the aftermath of the 26/11 carnage without making the India-US relationship predominantly determined by developments on our western border. The decision to curb outsourcing by the Obama Administration, without any prior consultations, manifests an American propensity to act unilaterally and peremptorily on issues of vital interest to India.

This image of PRC among the MEA mandarins is at variance with the picture portrayed in the PRC Economy thread which is a dragon afflicted with fungus.

Wonder if we need to argue between thse two images in anew thread where we have posts containg the SS and his cohort and the other picture?
KS uvacha :

They Need Each Other-KS
For all those people who are convinced that the present financial crisis has shifted the balance of power from the US to China and since China holds a large chunk of US Treasury bonds it is in a position to call the shots Chinese premier Wen Jiabao has some news. He says he is "a little bit worried'' about the safety of the Chinese assets in the US and called on the US "to maintain its good credit to honour its promises and to guarantee the safety of China's assets". The message is clear. Just as China has leverage with America thanks to its large holding of US Treasury bonds, the US has a similar hold on China, with its power to reduce the value of those assets. Therefore, the two countries have to collaborate with each other to ensure neither damages the other's interests.

In a sense their collaboration will be a significant contribution to the stability of the global economy, which is under severe strain. To that extent it is beneficial to the entire international community. There has been a widespread tendency to read too much into Hillary Clinton's visit to Beijing and project it as the Americans kowtowing to the Chinese. No doubt Clinton was careful with her words and indicated that for the present Tibet and human rights have to move to the back burner. This was general prudence. At the same time, a naval face-off has taken place between the two countries in the South China Sea. Too much should not be read into that either. The basic fact is that in the ongoing financial crisis the US and China are mutual hostages and should be expected to behave with prudence towards each other.

In the present circumstances, China's hard earned money, the product of the sweat and toil of the Chinese working class, is in the US and that has enabled the US consumer to splurge excessively on credit, triggering this crisis. While this may be now called Marxism with Chinese characteristics, in earlier times it was known as colonial exploitation. China was able to do this because the present global system is an unalloyed capitalist system which permitted comprador elements in China to exploit the Chinese working class and place that surplus at the disposal of US consumers. In the process, China has also become beholden to the US. Marx, Lenin and Mao Zedong must be rolling in their graves.

This situation is not likely to last more than two years when recovery will set in. There is wide expectation that China will be a major engine driving this recovery. Perhaps that is undeniable. But will the new world, recovering from the recession, be a replica of the model that we have now? The US will have to start looking at ways and means of reducing its debt burden for future generations. Excessive consumer spending based on foreign loans needs to be curbed. Already there are claims that the American public has started cutting consumption and stepping up savings.

The pace of recovery will be influenced by new technologies which may emerge in the next few years. Green automobiles and clean energy are two areas where such possibilities exist. President Barack Obama has been laying stress on the exploration of such technologies. The pace of a Chinese recovery, especially in the export sector, will depend on the pattern of consumer spending in the US and the rest of the industrialised world. If China cannot recover its export markets, and domestic social turbulence increases simultaneously, what will be the implications for China's economy and polity?

When American entrepreneurs established enterprises in China and profited from them in more ways than one, it fitted in with the US schema of using Chinese soil, labour, raw materials and their surplus export earnings for the benefit of the US consumer. Will they continue past practices of making China a preferred destination for their investments? After this experience, will the Chinese persist in their ways? The more China invests in its infrastructure, the more stimulus domestic consumption receives.

The financial crisis has caused massive unemployment running into millions. There has been no disruption of global transportation, no destruction of property or infrastructure, and no massive medical emergency though. Let us superimpose on this scenario a few nuclear strikes. That will give us an idea of what the world will have to cope with in case of a nuclear war. Can we think of causes for which China, the US or Russia will resort to nuclear strikes or threaten such strikes? It should make us pause and reflect on the limitations of the use of military force between major powers in this mutually interdependent world.

Therefore, how we shape our world in the years to come has to be thought through. Linear thinking is not likely to be helpful in this exercise. The only certainty is that knowledge will be the basic foundation for prosperity in the coming decades and much of the investments will be made on education, health care and research and development. Knowledge-based societies are hardly likely to be authoritarian.

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Re: India-US and PRC triangular relationship-1

Postby ramana » 19 Mar 2009 01:37

ramana wrote:One way of looking at US-PRC nexus is that US wants PRC help to get out of the mutual mess (Saran's speech). This view is from the angle that US has vast RPC investments and both need to change the dynamic. However as the $ gets stronger and PRC keeps increasing its investment in US. and where is the drawdown? So this is contrary to the above view.

Another view is US rushed at assure PRC of support as it will face tremendous internal turmoil and discontent due to the global meltdown as it will face demand drawdown. Factories will close and workers get laid off. Looked at from this point of view PRC is a paper dragon on external hot air.

Can we look at data to support or rubbish these constructs?

In reply to myself here is a X-post from the PRC thread in Tech Forum...

Vipul wrote:'China may be the world's worst-affected economy'.

The next shock to the global economy, already reeling from recession, could come from China, which witnessed excessive 'malinvestment' during the boom years and where the investment structure is collapsing rapidly, says economist and Asianomics founder Jim Walker. India, on the other hand, will probably grow by 3-5% in 2009, which given the economic contraction or tepid growth elsewhere could possibly be the world's highest, he reckons. Excerpts from the first of a two-part interview that Walker gave DNA in Hong Kong on Tuesday:

Two years ago, you said, 'The butterfly has flapped its wings in subprime USA; the hurricane will be felt in rustbelt China.' Have we seen the worst of the hurricane? Some analysts are flagging a recovery there.
Quite the reverse. I think things are unravelling quite fast in China. Obviously, the export sector has been hit hard, and the trading goods sector is struggling. But when you look at the data in China, what is perhaps even more interesting is how quickly imports are collapsing relative to exports. In fact, China's trade surplus is going up. That tells you that domestic demand is falling faster than external demand.

The biggest problem, we've always felt, is that the signals being sent in China in terms of the industrial sector were that it should be export-orientated and it should be capital-intensive; in other words, the exchange rates were undervalued and interest rates were too low.At this stage, external trade is shrinking; at the same time, the capacity that has been put in place in China by private investment is being shown to be overcapacity and bad investment . The investment structure in China is coming down very, very quickly.The government has underestimated the impact of this on economic growth. Bear in mind that when investment comes down as it always does in a business cycle it doesn't go from 20% growth to 10% growth; it goes from 20% growth to 20% contraction. That's the process we are seeing in China now.

We have the two biggest drivers of the Chinese economy trade (the export sector) and investment absolutely collapsing. It's too early to talk of a recovery in China; we haven't even really got anywhere near the depths of the recession.

Will the 4 trillion yuan stimulus package add to 'malinvesment'?
The biggest danger is that it will go to the wrong industries and the wrong places, not the ones that are not efficient or profitable, which means eventually they will become bad debts in the banking system.

The banking system is perceived to have slack, loans-to-deposit ratios are relatively low, so there's a big push to get banks to lend. The big difference between the mid-1990s and now is that banks are now listed. What you're going to do is use money that's partly owned by investors foreign and local to support economic growth; whether that money will ever be repaid :rotfl: or not is immaterial. Basically, banks are being used as a policy tool. That makes equity investments in China a very dangerous proposition for a long number of years. China is really in danger of making foreign investors disappear for some time.
At the same time, that 4 trillion yuan is enough to raise economic growth rate. Our forecast is that in 2009, China GDP will grow between 0 and 4% GDP growth, with a 30% possibility that it will be negative :shock: , and 0% possibility that it will be 8%. :mrgreen:
That 0-4% projection assumes a huge effort by the government to spend money. What it has to overwhelm on the private sector side is gigantic. In any case, they are not going to be able to spend 4 trillion in one year; a lot of that is actually not new spending.Work report effectively spoke of 1.4 trillion yuan in new spend. That's about 4.5% of GDP. That should, with a bit of luck, keep them at 0-4%

How will this recession manifest itself in China?
Empty factories, mothballed production lines, increased unemployment.

For what period of time? Where will demand come from when it revives?
These are the hardest questions for China at the moment. It's not too difficult to make a case that China may be the worst-affected economy in the world. And that's still ahead of us.

In 2007-08, China's current account surplus was 10-11% of GDP. That told us that in order to balance domestic supply and domestic demand, China had to export 10-11% of its economy. That is a very big imbalance.Now, with the rest of the world in recession, exporting 10-11% of your economyis not going to happen. It's a question of what percentage of that 10-11% needs to be destroyed in terms of capacity reduction to balance domestic supply and domestic demand. There's still going to be some external demand. This could a very severe problem that takes 2-3 years.

But beyond the next 2-3 years, when the malinvestment gets sorted out, are you bullish on China?
That's always been my hope. But I am more concerned about the policy response in China not just now, but over the past 2-3 years. If anything, China has been going backward in terms of policy management for at least two years. It was unwilling to allow oil prices to find their proper levels when they were rising fast last year, and it's been getting banks to lend in a way that makes them 'handmaidens of national policy' . That's very dangerous because capital is already mispriced, and interest rates are not set by the market. Secondly, the kind of people they want banks to lend to have a bad track record of repaying.So, policy direction in China has not been consistent over the past five years. It was moving strongly in a market direction from 2002 to 2005, but by 2006, they stopped going down that that track, partly by balancing the currency appreciation with all sorts of offsets. (This includes lending to people who they know will default) :lol:

Does that influence your long-term view on China?
It's making me more concerned than I was two or three years ago. Unless they begin to reverse their interventionist tendencies, this could be a longer crisis. It would signal to people that China is just too immature to be investing in. For now, however, they're still starry-eyed about China.(What is they say about people wanting a long rope?)


shyamd wrote:Chinese Exports Contract by 26% in February and Trade Surplus Shrinks: How Deep Will the Export Slump Get?
# Chinese exports contracted by 25.7% y/y in February, a near -record drop and the fourth consecutive decline (they fell by 17.5% in January). In a change, Chinese imports contracted less than exports (24.1%) leading to a much smaller trade surplus than the$39b average of November 08-January 09. The $4.84b trade surplus was the smallest since February 2006
# The deep import contraction (43.1% in January) took China's trade surplus to the third highest of all time $39.11b (record $40.09b in November)
# China's trade with the EU dropped 20.2% yoy to $48.78b, with the US 17.4% to $39.43bn and Japan down 25.7% to $28.56bn in the first two months of 2009. The performance with the three biggest trade partners is better than the overall drop.
# there were smaller declines in exports of traditional goods such as footwear (-2.3%y/y), garments (-11%) and toys (-17.1%) as overseas consumers shifted to these low-end products. Exports of electronics & machinery dropped 22% exports of steel fell 34%. Exports of ordinary trade (-32.5% yoy in Feb09) dropped more than that of processing trade exports (-23% yoy in Feb 09)
# February’s trade surplus typically falls because of seasonally strong commodity imports and seasonally weak consumer exports(Simpendorfer (via Pettis))The Import surge may reflect rebuilding of commodity reserves
# China's imports of primary products saw a huge drop of 44.8% in Jan and Feb, signaling that domestic demand remained weak. Only the import of soybeans and iron rose by 15.1% and 6% respectively, despite plummeting global prices for both the commodities. The price reductions of these commodities benefited China, the biggest world's consumer of the two. (EEO)
# Danske: recent turnaround in the new export orders in manufacturing PMI suggests deterioration in exports may be turning around
# UOB: Stripping out Chinese New Year effect, exports fell 6.8% yoy in January.The sharp drop of imports is misleading because of the decline of trade volume is much smaller than the drop of price. Exports could remain weak in coming months due to the sluggish rebound of G3 economies; imports may recover earlier as exporters turn to domestic market and government stimuli.
# Barclays: after taking into account holidays, exports declined by 7% in January and imports by 35.9%. (via FT)
# Via WSJ: collapse in prices of commodities and waning domestic demand of commodities have been falling and domestic demand is waning. Imports linked to domestic demand (excl. purchase of overseas-made components used to manufacture goods for export) fell 40.1% y/y. Import of components for final consumer goods for export fell almost 65%. China is buying fewer components from Taiwan and South Korea to make end products
# The collapse in demand from Chinese key export destinations U.S. and EU (which absorb over 50% of total exports) can not be offset by exports to emerging economies as those in Asia count on final demand in the G3, and emerging economies are also reducing consumption especially those that export commodities. Intra-Asia trade trade has plunged since October. Import slump reflects a reduction in price and volume of commodities as well as lower demand for processing trade inputs - it may also reflect slowing domestic demand. The Lunar new year may have exacerbated the slump in exports as factories shut early.
# Chinese exports declined by 2.8% y/y in December and imports fell 21.3%. Shipments to the EU, China’s biggest export market, fell 3.5% and shipments to the U.S. slipped 4.1% y/y.
# Citi: Container throughput at Shanghai and Shenzhen, the biggest two container ports in China, slumped by 15% and 17% in Jan (YoY), underpinning market expectation that China export/import may have plunged in Jan. As empty boxes released from collapsing global trade continue to flood to Asia, China container throughput is inflated
# contraction now driven by slowdown of higher valued exports such as electronic goods, containers and steel products. Exports of textiles, clothing and footwear, which fell sharply early in 2008 have stabilized.
# Green: Machinery imports continue to be weak indicating a real downturn in domestic investment and manufacturing and evidence of a sharp deceleration of economic growth in the fourth quarter and poor growth momentum in the first quarter (via WSJ)
# Exports and Imports last grew 19.2% and 15.6% in October but growth in volumes slowed sharply. the collapse in exports is consistent with the plunge in new export orders in manufacturing surveys.Overall new orders (and export orders) continue to reflect a contraction but the pace of deterioration has slowed
# The steep contraction in imports suggests further export declines (particularly in the processing trade) in the future as well as slowing domestic demand and indicates that China may roll out further aggressive monetary and fiscal measures from the ones it has already introduced.
# Lack of trade credit may be exacerbating trade slowdown. When global financial system recovers, so might trade. Collapse in imports reflects weakness in processing trade (Merrill)
# Citi: Stripping out prices, import quantity growth already declined considerably beginning in mid 2008 to near zero, reflecting insufficient domestic demand
# Customs bureau reported that about half of China's toy exporters shut down in the first seven months of the year, foreign orders at October Canton trade fair fell sharply
# Holland: declining import growth today may well be a lead indicator of slowing export growth tomorrow. Chinese commodity importers may be asking suppliers to delay shipments or canceling them outright.
# L+F :processing trade has been losing weight in total foreign trade, total exports and total imports. In 1-3Q08, processing trade accounted for only 40.8% of the total trade value, compared with 45.4% in 2007. This trend was in line with the government’s policy direction to discourage processing trade and the exports of products that are energy- and resource-intensive, highly polluting, labor-intensive and low value-added.

China in Deflation? More Easing to Come?

* Chinese CPI fell 1.6% in February y/y, the first drop in more than six years. The producer Price index dropped 4.5% y/y, steeper than January’s 3.3% decline.
* Chinese CPI peaked in February 2008 on high commodity prices and the year on year declines in such prices will depress prices for several months. The rapid extension of credit and government spending might reduce need for and effectiveness of rate cuts
* Caijing: China’s corporate goods price index, which measures prices paid by businesses for key commodities, fell 6% yoy in Feb, and 0.8% from Jan, raising the odds of deflation in coming months. China already had one month of y/y Consumer price decline and several of Producer prices. February coal prices rose 14.2% y/y but were flat from January. Power prices rose 3.2% y/y but were also flat month-on-month.
* Goldman (via WSJ) high base effects from the shifting Chinese New Year holidays and the snow storm last February account for the sharp y/y decline but CPI growth has been negative in month-on-month terms for 7 months, suggesting that China had entered deflation before February 2009 and that rate cuts are likely
* Citi: negative CPI could persist for much of this year, as producer price declines transmit to consumer prices in an environment of overcapacity meaning more rate cuts are necessary despite past easing and credit extension
* Nomura (via WSJ) Given the inflationary nature of the stimulus package, the People’s Bank of China will hesitate in cutting rates meaning an additional rate cut may be more symbolic
* Danske: The current disinflation is to a large degree driven by the weak real estate market.
* MS:The initial deflationary impulse due to positive supply shocks should bring about cost savings, especially to energy- and raw materials-intensive sectors. Yet sticky nominal wages will lead real wages to rise, profit margins to fall and employment to be cut back, which along with the effects of past tightening may set off a deflationary cycle with far more serious consequences unless the government can prevent deflationary expectations from getting entrenched.
* The moderation in PPI for consumer goods is more modest than overall numbers, suggesting that deflationary pressure is not yet broad-based. Despite the downward trend in the PPI, prices of some goods (steel) have rebounded on the stimulus plan and post-winter rollout may boost prices (UOB)
* China now plans to adjust fuel prices down in accordance with global trends
* Fitch: inflation suboptimal rebalancing tool despite possibility that it might reduce rural urban gap
* Economist: whatever the inflation driver (money or food), faster appreciation of the RMB would bring it down as it reduces imported inflation

Chinese Reserve Growth Slowing Sharply : Outflows Now Replacing Inflows?
* Rate of growth of Chinese foreign exchange reserves has slowed sharply with reserve stock reaching only $1946 billion at the end of 2008, only $40b higher than at the end of September, much smaller than the pace of the first three quarters.
* Pettis: rumors suggest that Chinese reserves fell by $30bn. Given January's trade surplus and FDI, even adjusting for valuation, there are about $40-50bn in unexplained outflows meaning it is hard to believe that we haven’t seen at least $20-30bn of hot money outflows in January
* China's significant holdings of Euros resulted in valuation losses in October and November and gains in December as the dollar first weakened and then corrected - Adjusted for valuation, Chinese fx reserves might have increased less than $50 billion (RGE estimate). This figure is much lower than the sum of the inflows from the trade surplus and FDI- indicating that China has suffered capital outflows in the fourth quarter
* Setser: Outflows may have been very large in December08. Given a $40 billion trade surplus and another $10 billion from FDI and interest income, the small increases in reserves implies $70 billion plus in monthly hot money outflows … in excess of 10% of China’s GDP annualized.
* Lardy: the combined centrally financed injection of capital, which has been reported, and nonperforming loan write offs, which have not been reported, for the Agricultural Bank of China could have reduced officially reported official foreign exchange holdings by $110 billion to $120 billion
* export firms and banks could be choosing to hold more dollars now that the government has reversed some regulations and the RMB appreciation flows have now reversed. (Reuters)
* Chinese reserves rose to $1.906T by the end of September, an increase of less than $100b in the third quarter, a slower pace than in the first two quarters despite the substantial trade surplus and FDI inflows, indicating that some of the hot money inflows betting on a revaluation have ebbed or reversed as worries shifted to growth and RMB appreciation stalled. Yet valuation losses on Euro and pound holdings suggest reserve accumulation might have been higher (perhaps $150b - RGE estimate)
* Glenn Maguire: $10 billion to $20 billion of funds may now be leaving each month
* Reserves increased $377b from January to September but the pace of accumulation began slowing in May. China's sovereign wealth fund. monthly increase in H108 exceeded the already fast pace of accumulation in H107 (~40b/month), and is much higher than H207 ($32b/m) or 2006 (~$20b/m)
* Setser: Total Chinese official foreign asset growth – counting central bank reserves, the CIC, and the state banks – in 2007 was over two times the global increase in reserves in 2000 or 2001.
* Wang: residual approach to measuring ‘hot money’ (ie subtracting out FDI/trade balance) may over state short-term capital inflows by excluding remittances and income, for which high-frequency data are not available
* Pettis: RMB appreciation caused massive hot money inflows (exacerbated by the sub-prime crisis). As much as $40 billion of Q1 reserves were unexplained by trade surplus, FDI, valuation and interest gains. Banks may have been asked to hold recent increase in RRR in dollars ($40b for each 50bp hike), meaning domestic monetary impact of reserve growth is even higher than headline indicates..
* Explanations for reserve growth earlier this year include repatriation of fx that flowed to HK in 2007 or onshore dollar lending (Green), Anderson: Falling dollar increased the value of Chinese reserves in dollar terms (Anderson) Onshore fx lending (Zhao)

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Re: India-US and PRC triangular relationship-1

Postby ramana » 19 Mar 2009 02:05

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Re: India-US and PRC triangular relationship-1

Postby shyamd » 19 Mar 2009 02:40

China's Fixed Asset Investment Picked Up Pace: Is the Stimulus Offsetting Property Investment Decline?
* China’s spending on factories and property investment surged 26.5% y/y in January and February 2009 as Chinese government stepped up its fiscal stimulus, slightly higher than the level in 2008 (which was subdued because of winter storms) and for October to December 2008.
* Government investment, especially relating to infrastructure projects in the fiscal stimulus is be offsetting other investment declines (property investmment grew only 1%, from 11% in December). Investment in railway and the transportation sector saw a stunning 210% growth in Jan and Feb. Investment funded by the central government was up 40.3% in the first two months of the year
* Capital sources for FAI mainly came from domestic loans, which grew by 24.4%. Capital sourced from foreign investors and self-raised-funding expanded by 13.2% and 42.3% respectively. China’s FAI growth target for 2009 was 20%. The central government planned to invest 908 billion ($133bn) yuan in infrastructure projects such as railway, low-cost housing and post-quake reconstruction. (EEO)
* Citi: the effect of shrinking trade (exports fell 27.5% y/y, erasing $100bn of economic activity) outweighs increasing investment for now (net new investment was $32b) but could make up for trade shortfalls later on in the year. Jan-Feb is the slowest period for investment in the whole year, accounting for just 5.6% of annual nominal investment in 5yr average. Investment in infrastructure and materials sectors is over 50% (railways, coal and non-ferrous metals), raising overcapacity risks. Given PPI deflation, the real growth of investment could have reached 31.6%
* Xing (via bloomberg) : Investment growth may slow after June should infrastructure spending fail to offset shrinking investment by exporters and real-estate developers hit by a slump in the property market
* China's Urban FAI rose 26.1% for 2008, slowing after september. Urban FAi rose 23.7% yoy in November, from 24.4% in October and 29.0% in September. infrastructure accounts for only a third of total investment, property which accounts for 20-25% has been slowing as property prices fall
* Investment in eastern China rose 21.3% , while growth in central China was 33.5%. Investment growth in western China rose 26.7%. (Forbes)
* In December, the Rmb120bn of government investment in infrastructure may have picked up pace providing support but the other two thirds of FAI sustained significant slowdown, with both private residential and non-residential investments decelerating. Credit marked the sharpest contraction in 8 years (citi)
* Weak real estate is a lagged response to earlier monetary tightening. Loan-funded real estate investments have been hit especially hard projects funded by domestic loans contracted by 18% y/y. Fiscal easing is already starting to have some impact. Central government funded FAI soared more than 55% y/y in November and planned real estate investment has started to improve in recent months but positive outlook will require expansion of credit (Danske)
* Investment in upstream industries like mining and melting, and real estate investment moderated in December. Investments in infrastructure accelerated on government spending, which could be a cushion for the slowdown in the FAI in Manufacturing and Property (UOB)
* WSJ: Lending clampdown defered investment growth
* Little change in savings/investment balance; corporate savings, especially of SOEs outstripping households
* Hang Seng: Residential investment driving urban fixed asset investment; little slowing of new projects despite land use restrictions

Renminbi Politics: Will The Obama Administration Label China a Currency Manipulator?

* Treasury Secretary Timothy Geithner's congressional testimony suggested that Obama believes China is “manipulating” its currency but provided no details of how it might accomplish this. Geithner: "The new economic team will forge an integrated strategy on how best to achieve currency realignment in the current economic environment.”
* Although many economists believe Chinese currency remains undervalued, urging China to revalue its currency at this time might exacerbate Chinese economic slowdown - IMF currency surveilance process has been deadlocked for years
* With global trade contracting, the chances of trade friction between the U.S. and China, among others, are on the rise. China's response though has been muted, likely in part because it wants to do little to undermine the value of its existing stock of US assets in the midst of the first sustained USD uptrend in eight years(BNY)
* The Bush administration was reluctant to label China a currency manipulator which would have required trade retaliation, instead urging China to speed appreciation of the currency to alleviate domestic imbalances. Chinese RMB appreciated at a faster pace from late 2007-early 2008 but has since reverted to a virtual repeg to the dollar as Chinese exports and growth slowed. It is unlikely to allow much appreciation lest it weaken exports
* Buiter: Should the US Treasury officially determine China to be a currency manipulator, the Administration can unleash a range of remedies, including antidumping measures, countervailing duties, and safeguards. Although the WTO permits certain retaliatory responses from importing nations which can provematerial injury from unfair trade practices, much of what the US Congress and some members of the Obama administration have in mind may be in violation of WTO obligations. Any resulting bilateral trade war could easily spread to the EU, Japan and emerging markets outside China.
* The last semi-annual report on exchange rates released by the US treasury in December 2008 again declined to label China a currency manipulator but urged the country to speed up appreciation to solve domestic imbalances. The report, released several days after Secretary Paulson's last visit to China argues that government intervention in the market impedes China's needed shift towards domestic private consumption – away from net exports and investment; impedes financial sector development and constrains monetary policy (Treasury)
* Congress has been unimpressed with RMB band widening, appreciation, limited SED outcomes. may reintroduce legislation on currency manipulation as well as that tightening FDI - many bills introduced in the 110th congress dealing with aspects of the trade relationship
* US-China Bus: A single-minded focus on China’s currency is a distraction. China’s exchange rate is not the significant factor in the bilateral trade balance many make it out to be
* Baker: Designating China a currency manipulator could be the straw that breaks the camel’s back for China’s economy; and, it goes without saying that an economic calamity in China would have negative implications for global financial markets.
* Henning: Congress should amend the Exchange Rates and International Economic Policy Coordination Act of 1988, which mandates semi-annual exchange rate reports to increase coverage of reports, increased Accountability of Treasury and clearer definition of currency manipulation to include fx intervention or official lending, exchange restrictions or actions with effect if not the intention of preventing external adjustment
* CRS: The IMF and WTO approach the issue of currency manipulation differently. IMF prohibits countries from manipulation currency to obtain unfair trade advantage but cannot force a country to change is fx policies. WTO has narrow policies that do not seem to deal with currency manipulation
* HKMA: Although external pressures, especially from the U.S. do not seem to have systematic influence on the speed of the RMB appreciation, they do influence the uncertainty in the daily changes of the RMB exchange rate.
* Danske: China and the US are close to having reached a consensus on RMB with chance of trade war receding. Faster appreciation has been consistent with the Chinese leadership’s' increased focus on domestic price stability

Is The Chinese Economy Bottoming Out?

* World Bank: China’s real economy has been hit hard by the global crisis, but has been holding up with domestic demand less vulnerable than global demand. global crisis is bound to contain China’s growth in 2009 (est 6.5%) and 2010, especially via weaker exports and market-based investment
* There are signs that the pace of Chinese economic deterioration has slowed - lending growth has accelerated, PMI show that manufacturing sector output is not deteriorating as much as in November (though it remains in contraction) credit extension is at record levels (though it may not be being deployed in stimulus projects yet) and government investment is up 40% y/y, boosting overall investment to near 2008 levels. However, this increased activity may only partly offset the weakness of the export sector, corporate capital expenditure and residential investment even as consumption is decelerating (15% in Jan/Feb 2009)
* OECD Leading indicators continue to show sharp deterioration
* Bradsher: The rebound in investment (up 27% in Jan/Feb) and deepening slump in exports (down 26% in Feb and 17.5% in January) sketched a picture of a country that is spending huge sums at home in an attempt to offset steadily weakening demand overseas — with no conclusive signal yet on whether the stimulus program will succeed.
* Danske: It looks like China's stimulus measures are working. Domestic demand is improving given real income gains but because of the weak global environment there remains considerable downside risk for the Chinese economy.
* There is a risk that the China could experience a W- shaped growth path with the combination of the end of steep destocking and Chinese fiscal stimulus leading to a temporary recovery but with the absence of strong domestic and external demand putting off sustained growth (Ziemba)
* Wen: government measures “have shown preliminary results” suggesting that retail sales grew 18% in January (albeit a slower pace than in the recent past) and power output and consumption increased from the middle of February (Bloomberg)
* Data from January and February are distorted by the Chinese Lunar new year holiday
* Pettis: the sudden surge in lending in December put back on balance sheet loans that were taken off in 2007 and 2008. Chinese capex reliance on retained earnings will limit investment pickup - suggests China will not avoid the hard adjustment it faces ahead
* Citi: Further downside risks are possible if the macro condition worsens, but China's valuations seem to be bottoming from an ROE perspective, current 2009 P/B of 2.1x for 18% 2009 ROE looks more appealing than a 2008 P/B of 5.0x for 21% ROE in January 2008.
* Setser: available trade data still seems negative for China. eg Korea’s exports to China have been falling faster than Korea’s overall exports, suggesting China's export contraction continued
* Dollar: Industrial growth declined sharply, but primary sectors grew at 7.3% in Q4 and services at 8.0%, perhaps indicating the beginning of rebalancing in which service sectors become the growth leaders. the Chinese consumer is a bright spot in an otherwise gloomy global picture and the right govt policies (support of heath, education etc) could cushion consumption
* Although exports make up less than 20% of GDP, a considerable amount of investment is targeted towards this sector, meaning that the still weak external demand might limit Chinese recovery furthermore, manufacturing deterioration may have stopped but the sector continues to contract and with lack of profits to finance investment and weak outlook for external and domestic demand in many sectors, investment may be limited
* Loss of jobs, reduction in incomes will depress consumption in urban areas.
* MS: lending rates may not be sustainable given that most is bill financing
Last edited by shyamd on 19 Mar 2009 02:46, edited 1 time in total.

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Re: India-US and PRC triangular relationship-1

Postby brihaspati » 19 Mar 2009 02:43

Trying to track only the financial flows hides the more fundamental aspect of any economy - the macro quantitative one. The financial flows cannot deviate from the macro fundamentals for too long. The US -PRC interaction has followed increasingly the financial side of the transaction. Problem is the market for PRC products in the US and the market for US products in PRC are no longer viable. Speculative growths in finance capital are fueled by expectation of real growth, and sooner or later the expectations have to deflate if the limits of absorptive and productive capacities are reached.

The fundamental problem with both economies probably lie in their neglect and gradual falling behind in knowledge base. It may seem preposterous to even consider this, given that most Indian "talent" are keen to get the "best of education" in the US. But knowledge base in itself is not enough to keep the economy progressing, if the knowledge base is restricted to a small elite, or is heavily dependent on imported brain power. Any modern economy, that is not involved in internal and domestic production and consumption of knowledge in ever increasing scales is ultimately likely to fall behind in the macroeconomy also.

There is no immediate recovery path for either, and perhaps only one escape route. They can collaborate to or independent of each other promote regional military conflicts. This can perhaps take various forms - promoting coups whereby relatively weak mass-base military leadership comes to power and is dependent on the products of the military industry of PRC or US. Small scale or low-intensity conflicts that can be contained away from the mainlands of either are also good escape routes. A well publicized threat perception to reshape the consumer patterns (reduction and transfer of capital to other sectors) can be used as a means of deflating and realigning domestic economies.

An increasing rate of "terror" attacks, low intensity conflicts, coups away from the immediate periphery of both (in the case of US, away from its presence of "interest" globally) should be taken as highly suspicious.

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Re: India-US and PRC triangular relationship-1

Postby brihaspati » 19 Mar 2009 02:54

here are the maps:

X-posted from the future strategic scenario thread.


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Re: India-US and PRC triangular relationship-1

Postby shiv » 19 Mar 2009 08:27

I am afraid I don't understand what these maps are meant to indicate minus any explanation.

What is the exact reason for describing the relationship of India, the US and China as "triangular?

I see no triangle in a situation where the relationship of the US with China is huge and overshadows any relationship that India has with either the US or China. I may be misinterpreting the relationship between the US and China - but a collapse of China is hardly likely to benefit the US and a collapse of the US financial system is not benefiting China.

The US and China will try and embrace each other more closely and ensure that they support each other at the expense of any other small fry who may want to benefit from the situation. China has a totalitarian system which can still demand more "sacrifices" from its own people and produce goods that the US wants at rock-bottom rates, in keeping with the US citizen's inability to pay as much as they used to pay. In exchange, China may demand sops in terms of what India and Pakistan get from the US so that Chinese hegemony is assured.

Propping up the PAF and Pak army, gifting China with some high technology and keeping India under continued sanctions are all tricks that the US will play on India as usual. There is nothing India can do to replace China as far as the US is concerned. India on the other hand may be making a mistake in getting too close to the US.

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Re: India-US and PRC triangular relationship-1

Postby shiv » 19 Mar 2009 08:34

About the red lines on the map which seem to suggest a surrounding and restricting of India - I think that any Chinese plans can have covert US backing.

On the other hand India enjoys some geographic advantages and India must maintain hegemony over the Indian ocean and the North East of India - which is closest to the economy and population centers of China. China has some logistical disadvantages in other areas.

Do the seniormost people in the Indian Army, Air Force and Navy realise these things? Does our babudom understand the need or meaning of Indian hegemony? Can our criminal politicians take time off from bashing or giving sops to minorities to see what is happening in the world around India?

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Re: India-US and PRC triangular relationship-1

Postby ramana » 19 Mar 2009 09:41

Shiv, The thread was started to see if there is critical mass to Shyam Saran's speech and it has by the number of articles in the same vein. The subject was being discussed on and off in the Future Strategic scenarios thread where the maps come from.

Yes the babus are discussing this very thign as can be seen from their op-eds.

Its the only triangle that will effect India for next few years due to the US and global economic meltdown and behooves us to study the dynamics.

That is why I started this thread.

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Re: India-US and PRC triangular relationship-1

Postby Sumeet » 19 Mar 2009 14:55

We have heard of economic-strategic common interests that underly US-China cooperation.
Similarly economic-strategic common interests that underly US-India cooperation are also known.

May be I am not looking in the right place but I am yet to see a discussion on economic-strategic common interests that could underly a possible India-China cooperation.

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Re: India-US and PRC triangular relationship-1

Postby Philip » 19 Mar 2009 17:12

The focus shoulfd first be on strengthening the Indian economy-safeguarding ourselves against "robber barons" of a new East India Co. of the 21st century,where the family silver is sold off to the firang rogues .Many of these nations are now resorting to the Obama/Brown medicine,what I call "Latrine Economics",otherwise known as "quantitative easing",printing heaps of money to paper over the gaping chasms in their financial institutions which are all effectively being nationalised.Western corporate greed,as we've seen with their financial houses has plunged the globe into its worst ever crisis,as bad as WW2.In fact without a global war,the economic state of the world is likened to a post-war scenario.

China,which for the west and US in particular,with its huge population,has been the source of its cheap labour-outsourcing of industry.India ,with its IT strengths,has been the source of cheap intellectual labour.Thus investment in the billions went into China and India,with a much greater share into China.Unfortunately,China inwardly resents its reputation as a source for anything cheap.For the Middle Kingdom,global dominance is what matters most,and the masisve military modernisation is taking place as China hopes to supplant the US as the globe's major power in the Asia-Pacific region.It has embarked upon a new strategy of flexing its military muscle-seen in the recetn spat wiht a US intel vessel and sending naval vessels to Somalia,as an excuse for a premanent presence in the IOR.We will see more Chinese muscle flexing in Tibet and in other areas of dispute with its neighbours and regional states.India can expect continuing Chinese mischief in the north-east especially when there is weakness perceived at the centre.India cannot ignore the military threat from China and must on a war footing basis expand the IN and checkmate China in the maritime environment.

The US depends upon China ,cleverly fallen into the Chinese trap,where N.Korea and Pak behave like troublesome children and encouraged at times to misbehave,forcing the US to look to China for resolving a crisis.On both economic and Asia-Pacific security issues,it will placate China when it comes to regional issues ,because China is the strongest Asian military power.India is still preceived -thanks to China's machinations,as a Siamese twin of Pak,not as China's equal.Therefore,India should keep the US at a discreet distance when it comes to cooperation on security,as the US places its military relationship with Pak first,reduce military ties with it by buying only non-critical items of military hardware and reduce the interoperability of the Indian armed forces into the US's NCW structure.Our armed forces should be absolutely independent not tied to any security structure that the US might tie us to,in order that its dirty work on the battlefield is also outsourced to India.We are not another rent-boy like Pak.We must make it very clear to the US that continuing military aid to Pak is unacceptable to us if it wishes relations to improve and treat China on merit,by watching its actions not fooled by its words.The imbalance on the ground on the border,where our infrastructure is at a major disadvantage must be rectified as a priority and we must never forget that we hold two very important cards when playing against China,Tibet and Taiwan.The Tibetan freedom movement must be encouraged as a long term objective and we should hold out the threat to China of recognising Taiwan if it threatens us militarily in any way,or by using Pak as its proxy.

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Re: India-US and PRC triangular relationship-1

Postby Sanku » 19 Mar 2009 17:13

I have a slightly different theory -- The US China bonhomie is just a eyewash. The current recession is a deliberate Economic Nuke introduced by GOTUS to tame china.

All said and done; this recession gives US a chance to reverse some of the deep structural flaws that were built in during Clinton era -- and the Chinese dominance is rapidly giving way.

So US-China need other for sure -- however the need is not equal-equal.


BTW what Shri Saran says is correct -- however there may be layers within layers here -- and Shri Saran may be giving a message to multiple folks.

Finally strangely despite everything -- the funny thing is that what India needs to do has not changed by all this upheveal -- in fact it continues to be same and truer -- India has a destiny to reach to and the only competition is internal flaws, before now and always. The external factors are just the icing on the cake

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Re: India-US and PRC triangular relationship-1

Postby shiv » 19 Mar 2009 17:51

Questions related to Saran's speech:

Quote 1
This affliction may, in fact, be quite widespread, affecting even mature and politically stable societies. The most vulnerable will obviously be countries that are already at the margin of economic survival. There may be more failed and failing states, the possibility of more widespread radical movements and an expansion of zones of conflict in different parts of the world.

Quote 2
We could use the opportunity of depressed commodity and other prices to acquire productive assets abroad while they are cheap, buying energy and raw-material sources, for instance, and making strategic investments abroad.

Which small developed countries are getting kicked?
What human and technological resources can we buy up?

Energy stocks seem to be a good bet - (I have heard)

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Re: India-US and PRC triangular relationship-1

Postby ramana » 19 Mar 2009 21:15

An important prespective...

Looks like PRC has the same idea and was buying up those developing countries assets while India was still thinking about it and the US monetization is going to raise the costs of future acquisitions.

vina wrote:
RamaY wrote:Vina-saar,

What will happen in a hypothetical scenario, where China pulls out its US FX reserves partially (say 50% = $500B), in terms of
- Impact on US economy, value of $
- Impact of PRC FX reserves, reduced value (is this is money lost)
Assuming PRC uses most of this money to fund its own stimulus program,
- What will the additional GDP it can produce, ROI

I am trying to understand how many pounds of flesh US/PRC are trying to extract from the other so they keep supplying oxygen to the other (supposedly)


Let me try to put my arms around what is happening and do an "anal" ysis. That is where a Bade Saar like Fyzzics, Engg/Math/Science background is useful.

In fact, to do a root cause analysis, the "Toyota Method" is repeated "Why" ?. For eg, Why did the assembly line stop , Because the automatic switch/fuse tripped. Why did the fuse trip ?. Because the temperature of the hydraulics driving it rose too high. Why did it rise so high ?. Because there was dirt in the oil lines. Why was there dirt?. Because the oil filter was clogged.. So solution to stop frequent tripping of assembly line was to clean /replace the oil filter!.

So if we do a root cause analysis, at the fundamental level, the answer to Why is there an economic crisis ?. Is that asset prices have crashed . That is the fundamental core fact. Get asset prices back up, the math will be back for all the bonds and he banks will be back in the pink of health and everything will be normal.

So the solution to the crisis is to get asset prices up. Now how will you get asset prices up . And that is to reflate the collapsed bubble. Now remember, all the bonds and contracts are at NOMINAL values. So if you drop the value dollar, asset prices will go up in Nominal value. For eg, if you bought a house for $400,000 in 2007 and it had dropped to $300,000 in 2009 dollars, if in 2010, your value of the dollar drops by say the correct amount and you re inflate, your house will be back to $400,000 in 2010 dollars forwards , back to the 2007 levels and the MBS on your property banks and others are holding are back in black and the balance sheet is fine now. But notice however, the difference in value between the 2010 dollah and 2007 dollah. In REAL terms, there is a loss, but in NOMINAL terms you are fine. The US has no other option but to monetize their debts to reflate (ie, print dollahs).

Now coming to the Chicoms. They are in trouble. They know that Unkil is going to do it and that USD is Wampum or near Wampum. So the Atimes and other articles say that they are on a massive shopping spree across the world, trying to buy up REAL assets (like oil fields, coal mines, iron ore mines (they increased share in Rio Tinto) and basically hand over the Wampum to other suckers in exchange for real assets. The Chinese anyway are liquidating their USD treasury , overtly/covertly.

Unkil really made the move to monetize after that. They need to pump Dollahs into the global economy to reflate. So they need to buy Treasure bonds and hand out paper Dollar Wampum. So that is what they are doing. So any sales of treasury will be monetized. Now that raise the costs of the Chinese snapping up assets across the world, because even the dumbest moron will know what the Chinese are trying to do and price it accordingly / be unwilling to give out real assets.

I think the Chinese rejection of the Coke acquisition of the juice guy was the declaration of open war. US insists Chinese keep buying US Treasury (and commit suicide in the long run), and if it doesnt play ball and tries to liquidate treasury will monetize and destroy value of Chinese holding (and make them commit suicide anyways) and also help Unkil's own cause.

When the dust settles and the history of this downturn is written, I think what posterity will say is that US got out of the hole by Shafting Chicoms and other holders of Treasury by monetizing it's way out of obligations (basically a nice way to default in reality, but not on paper) .

For W.Europe, Japan, Korea and Gulf Sheikdoms, the US will say that it is them repaying US for its acts of saving Japan,Germany and Korea from ruin and bringing them untold prosperity for all these years. Fact is in the last 50 years,only those who were integrated with the US trading system prospered. Chipanda latched on, now the US will say that it is pay back time for Chipanda. You rose by tagging on to Unkil's coat tails. When Unkil is in trouble, there is no way in hell, he is gonna let you go scot free, without paying up your share to bail Unkil out . That is the moral of the story.

Beyond the next 1 year, the USD will lose value and there will be inflationary pressures (exactly what Unkil wants) and real assets will appreciate. If you are in the US, I think, this is the time to move to real assets like Real Estate. Go ahead and buy that nice house in SF, NYC, Florida etc . They are a great bargain right now. You will be paying back in monthly payments with Wampum anyways. Buy stocks of Oil and other commodity companies (again dirt cheap now). Get into a commodity ETF /mutual fund ..

India, didnt rise by riding Unkil's coat tails. That is why we have no obligations either!

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Re: India-US and PRC triangular relationship-1

Postby vadivelu » 19 Mar 2009 21:34

If one is involved in the defense industry of India, China is a real threat and competes with India for vital resources. And they are succeeding.

Lithium is one I am familiar with. Chile and Bolivia are the primary sources. The US relations with these nations are lukewarm. The hottest technology in the market – battery power – depends on lithium sources.

Several nations have a benign viewpoint of India – they do not see India as a threat but are fearful of PRC intentions. India should leverage such relationships and build trade agreements for resources it can put to use in developing technologies.

Given the dependence of the US on Chinese financial clout Obama cannot afford to overtly antagonize China. Stronger defense and trade cooperation with India will be beneficial for India and the US. Ditto with Israel.

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Re: India-US and PRC triangular relationship-1

Postby ramana » 19 Mar 2009 22:15

The PRC-US relationship is not as rosy or peachy as S Saran worries. Two reports:

Acharya wrote:
World turned upside down
By Nehemia Shtrasler

Chinese Prime Minister Wen Jiabao rattled the Obama administration late last week. He said China is concerned about its loans to the United States and asked the U.S. government to preserve its good credit standing and guarantee the security of these loans.

The comments by the Chinese leader sent U.S. treasury bills lower because it is clear to many observers that President Barack Obama's spendthrift and irresponsible policy will be costly for the U.S. economy and the entire world.

Obama quickly sought to restore faith. The U.S. budget deficit, he said, will shrink 50 percent in four years (doubtful). The White House spokesman added that there is no safer investment in the world than the United States. Still, the Chinese are not calm.

During the past decade China has paid for the shopping sprees and deficits of American consumers and their government. Every morning the Chinese went to work in the rice paddies and factories and saved a large portion of their incomes.
The savings were directed by the Chinese government to the American money markets, where treasury bills issued by the government were bought, as were bonds issued by banks, investment houses and other financial institutions once considered to be extremely safe. This way the Chinese worker financed the home, car, bonuses and good life of Americans. Then came the crash.

At first, the Chinese lost a big chunk of the money invested in banks and investment houses on Wall Street. Now they are afraid of a much worse scenario - that the price of U.S. T-bills will collapse, and the value of the American debt the Chinese hold will fall hard. China is the largest lender in the world to the U.S. government. The Chinese hold $700 billion worth of T-bills, which is 3.5 times more than Israel's annual GDP.

The Chinese concerns stem from Obama's generous policies. The U.S. president has been presenting a list of contradictory and unclear economic programs worth about $2 trillion, a frightening and unprecedented record in spending.

The many programs failed to restore calm to the American markets; the opposite is true. The rate of dismissals has risen to 650,000 per month, and unemployment has reached 8.1 percent. During the last four months 2.3 million Americans have lost their jobs, and there are new concerns that unemployment will reach 10 percent this year. Wall Street has also voted no confidence in Obama's policies. Stocks have dropped sharply since his election, the unavailability of credit is getting worse, and the big banks and insurance companies are at risk of collapse.

Today it is clear that Obama has used the financial crisis as a cover for his political agenda. Had he been elected in 2006, a year of plenty and growth, he would have carried out the same programs he is now targeting. In 2006 he would have said it is not right for only Wall Street to benefit from abundance, so we have to intervene in the economy significantly. Now he is saying the crisis obliges him to intervene in the economy.

Obama believes he is creating new jobs, but this is not true. Government does not make new jobs; government needs to create an atmosphere for private entrepreneurs to set up factories and businesses. The fact is, since Obama presented his programs, unemployment has increased.

The president is not only thinking about the short term. He is pouring hundreds of billions into welfare, the environment, renewable energy, cheap mortgages, aid to workers, subsidies to factories, national health insurance and budgets for education - all from the federal budget. This will require a tax rise for the middle class, not just the wealthy.

Obama is an ideologue. He wants to alter the fundamental values of American society, to move from a capitalist market economy to a social-democratic economy. Instead of a country where the budget is small and taxes are low, he wants an enormous administration that manages a large budget, interferes in details and clashes with free enterprise.

It is this socialist dream that appears to be worrying the Chinese prime minister.
The world has turned upside down.


Acharya wrote:
Oriental Morning Post, China

China Shouldn’t Count on
the U.S. to Guarantee
Dollar Asset Values ... et-values/

By Lu Qianjin

Translated By Peter Stevens

16 March 2009

Edited by Katy Burtner

China - Oriental Morning Post - Original Article (Chinese)

China is the biggest holder of U.S. government bonds. In December 2008, Chinese government treasury bond holdings reached $696.2 billion, corresponding to 36 percent of China's foreign currency reserves for this last year.

Because of the security of U.S. government credit, the low risk of default and the steady income they provide, treasury bonds are by far the main asset in China's foreign currency reserves. America is an economic superpower - its government's credit is assured. But this author believes that investing in treasury bonds presents risks - apart from the risk of default, there are also risks associated with the currency, inflation and the markets. If the dollar depreciates, the risk of inflation will rise and dollar-denominated assets will lose purchasing power.

For example, since the outbreak of the sub-prime crisis in July 2007, the U.S. economy has deteriorated, the Federal Reserve has continued to cut interest rates, the dollar has continued to weaken, international commodity prices rose for the first half of the year, and China's foreign currency reserves faced losses. This is the problem we are afraid of.

The risk of the dollar's depreciation is real. During the age of the Bretton Woods system, the dollar experienced three crises, emerging significantly devalued. Once problems arose in the U.S. economy, America would undertake expansionary monetary policy to stimulate the economy, "softening" its currency. As an international reserve currency, the dollar needed to maintain stability - correspondingly, America would constrain its macroeconomic policy, leading many times to a significant devaluation of the dollar, which presented substantial losses to those holding dollar assets. This is the dilemma facing the dollar as both a national and international currency; it existed in the past and continues to exist now.

Recently, in the name of "stimulus," America greatly expanded its fiscal policy and intensified its monetary policy. In terms of monetary policy, the Fed continuously lowered the federal funds rate, moving the target rate down to between 0 and 0.25% on December 16th, at the same time making clear that it would maintain the rate at extremely low levels. On the fiscal policy side, Obama passed the $787 billion stimulus plan on February 18th and submitted his first budget plan on February 26th. According to the budget, the total U.S. fiscal deficit will reach $1.75 trillion by September 30th - about 12 percent of GDP.

Recently, due to the hedge features of treasury bonds, the dollar has strengthened. But from a long-term perspective, the expansion of the money supply and the monetization of fiscal deficits will both lead to a depreciation of the dollar. While the dollar declines, international commodity prices will rise and dollar-denominated assets will be at risk.

So, from a long-term perspective, the real price of U.S. treasury bonds may go down, an important problem for those of us holding U.S. government debt. In other words, when the bonds fall, the principal and interest collected may have less buying power than the dollars that bought the bond in the first place. This is like savers putting their money in the bank due to inflation only to have the principal plus interest yield less buying power upon maturity. These kinds of potential losses should be our greatest concern.

China holds a lot of U.S. treasuries. How can it prevent its foreign reserves from shrinking? We can't count on the U.S.
The initiative should rest in our hands. To resolve this issue, we need a system that combines a variety of policies. I would emphasize two points. First, in the short term, we should adjust the structure of our assets, take advantage of falling commodity prices, increase our imports of strategic resources and advanced technology, and expand foreign direct investment. Second, in the long-term, we should increase domestic demand and adjust our industries to be less dependent on exports. At the same time, we should reform the way we manage foreign exchange, allowing more people to hold foreign currencies and overhauling the centralized management of the forex system.

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Re: US and PRC relationship & India -1

Postby brihaspati » 20 Mar 2009 03:13

X-posted from the strategic scenario thread
(admin please delete the previous stand-alone map post in this thread)
Indian Ocean as the pre-colonial Atlantic

• Indian Ocean as the Atlantic of pre-colonial era. Much of the global oil-export supply passes through the Indian Ocean rim region, through two main sealanes— the Strait of Hormuz between Iran and Oman, and Strait of Malacca. The rim also includes “emerging economies” - South Africa, India, Malaysia, Indonesia.
• China, is "seriously considering" adding a first aircraft carrier to its navy. Chinese President Hu Jintao publicly called for rapid naval modernization and the last defense White Paper stated that "the Navy aims to gradually extend its strategic depth".
• China has actively acquired energy and mineral assets in Sudan, Nigeria, Iran, Venezuela, Burma, Chad, Equatorial Guinea, Gabon, Republic of Congo, Zimbabwe, Ethiopia and other states with a history of unstable and arbitrary regimes. Chinese naval threat is hoped to deter repossession of Chinese-held assets, and also targeted at preventing rival powers to stake a claim or use of such resources.

Indian Ocean as the pre-colonial Atlantic

• Energy investments in Central Asia was used by China to justify heavy mechanized corps — with Xinjiang as their springboard. China's growing oil imports from the Persian Gulf and Africa is similarly used to justify Chinese military buildup on the Indian Ocean.
• China will probably deploy a fleet of SSBNs [Jin-class (Type 094) SSBN prototype, with satellite pictures showing one such submarine berthed at the huge new Chinese naval base at Sanya, Hainan Island].

Probable PRC presence in the Indian Ocean

• Gwadar, Balochistan
• Ormara, Balochistan - Jinnah Naval Base (testing ground for Shaheen)
• Karachi
• Marao (Maldives) nuclear submarine base - won by PRC around 2000-2001, should be functional by 2010
• Hambantota, Sri Lanka
• Chittagong, BD
• Great Coco Island, Myanmar

Why PRC wants to crush India in its imperialist mindset

• In a supposedly multipolar world, there are probably now three top "poles" - USA, PRC and Russia. There have been suggestions about a possible collaboration between India and PRC or that India can consider veering towards PRC in global politics. How far is this feasible and advisable?
• What are the main geo-strategic aims of PRC? Economically, PRC pinned its growth potential, quite naturally on the capturing of markets with the highest purchasing power and inclination to be "consumer" societies, where politics or ideology have less influence on consumer choice. Such markets typically lay in the capital rich markets of the "West".
• As supposed Marxists, they must have realized that through this interaction, there will be economic repercussions that could have profound impact on their regime itself. The economic model they followed can usually be characterized as "state capitalism". Now as these markets collapse, PRC has to diversify and capture less lucrative markets. India in this sense will be a secondary but not such a bad choice either.

How does India react?

• If interaction is beneficial for PRC, is it beneficial for India? Already there is discontent at Chinese products edging out the domestic Indian products in toys, silk etc.
• India trails behind the "West" in capital accumulation (although some of the assets in virtual money might have vanished during the recent crash).To compete at PRC levels, India has to enforce enormous rates of capital accumulation which are typical of all early cpaitalist societies, and always created through intensive exploitation of domestic labour, intensive extraction of capital from colonies, capital transfer through unequal trade maintained by military superiority.
• India has no colonies, did not impose intensive "primitive capital accumulation" through state authority, has not shown inclination or capacity to militarily dominate non-domestic markets to carry out unequal trade. The only argument possible is the dollar-reserve Chinese capital will/have devalued, making it fairer for India's capital to compete.

China's next strategic move

• But PRC's main infratructure to generate "capital" remains in place unless there is a "social revolution" driven by worsening employment conditions against already raised expectations.
• CCP has decided its continued authoritarian dominance of China as a key to both its own and China's survival. So far it has managed to convince the Chinese people about this. But once it begins to fail to deliver, and shows signs of failure/weakness - it will be the beginning of the end.
• By aggressively expanding via neo-imperialism, CCP has trapped itself into the same escalating spiral of destruction that USSR and the USA has. It now has to constantly “expand” at increasing costs, for any slowing down will invite both internal and external attacks.

China's next strategic move

• PRC's next main concern will be to capture both the oil as well as the still intact consumer capacities of the middle east. It wants access to and presence in the Indian Ocean to dominate the Indian ocean rim economies, some of which are "emerging". The main thorn in the side is India.
• It is scared that India continues to protect neucleus of Tibetan nationalsim, and a free Tibet would push PRC further away from its strategic objective of reaching the Indian Ocean and the Gulf. From the imeperialistic mindset of PRC rulers, militarily its hold on Northern Kashmir and Arunachal Pradesh are important flanking positions to dominate Tibet, and surround it from two sides.
• It is also therefore important for PRC to extend these two flanks right up to the Indian Ocean. Through Pakistan, it can then isolate India from the current NATO presence in AFG, as well as from Russia. In the east, it can threaten to join up with Myanmar and BD to isolate Indian eastern wing, in conjunction with Nepal.

Tentative Chinese Ring of Containment

China and India - a zero-sum deadlock

• Until PRC can ensure the continued weakness of Indian economy, and weaken its dominance in the region, it cannot ensure continued extraction of capital from the "lesser economies" to maintian its growth curve. If India agrees to this subsidiary role PRC can be happy and accept India's overtures.
• India can on the otherhand represent aggressive Chinese “payouts” and “investments” as a hidden strategy of undermining soverignity of the nations where China enters, and actually simply a “bribe” to the elite of respective nations to possess the country's resources. Against this India should simply offer expertise to develop resources and business of the country from its own soil. Trade balance should be openly and clearly built into this policy.
• PRC can be made to realize the extreme costs of this flanking attempt at isolating and weakening India. And a potential threat that such flanks could be turned inside out to surround Tibet from the sides. PRC may be more amenable to Indian "overtures" only then.

Possible Indian countermove to reverse flanking


Asian Super Highway and Chinese Military strategy


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Re: US and PRC relationship & India -1

Postby ramana » 20 Mar 2009 09:19

One thing we are not looking at is re-emergence of Russia from the ashes of the Soviet Union.

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Re: US and PRC relationship & India -1

Postby Atri » 20 Mar 2009 09:55

ramana wrote:One thing we are not looking at is re-emergence of Russia from the ashes of the Soviet Union.

Remote possibility... The general trend of populations in Russia, Europe (Germany, Poland and rest of eastern europe) and Japan is that the population is steadily declining..

The reason for the same in Russia is deaths are more than births...

There simply won't be enough ethnic Russians OR Germans OR Japanese to fuel the resurgence.. Either they have to allow immigrants (which they are not good at) or wither slowly..

Countries like France have lot of immigrant population. However, interestingly, most of the immigrants are from Muslim world. Their loyalty towards France and French interests will be questionable once they become a potent force.

UK might be somewhat better placed than France, because there are large proportion of assimilated Hindu population there to nullify this effect and provide second line of leadership.

The country most successful, by far has been US of A... They have assimilated immigrants to large extent and have made them share-holders in decision making of America's interests..

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Re: India-US and PRC triangular relationship-1

Postby renukb » 20 Mar 2009 10:29

shiv wrote:I am afraid I don't understand what these maps are meant to indicate minus any explanation.
China has a totalitarian system which can still demand more "sacrifices" from its own people and produce goods that the US wants at rock-bottom rates, in keeping with the US citizen's inability to pay as much as they used to pay. In exchange, China may demand sops in terms of what India and Pakistan get from the US so that Chinese hegemony is assured.

Propping up the PAF and Pak army, gifting China with some high technology and keeping India under continued sanctions are all tricks that the US will play on India as usual. There is nothing India can do to replace China as far as the US is concerned. India on the other hand may be making a mistake in getting too close to the US.

Yes, There is some thing India can do. India has to create a friendly neighbourhood.... This could even mean a re-union with TSP and BD, and look into the rest of the neighbourhood in a slightly different and friendlier way. More closer relationship with Russia is another key area of interest for India. Do business with USA, make $$, buy arms elsewhere or produce them locally. Military spending, qualitatively is the key. USA will not sell most advanced mil systems to China in the long run.

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Re: US and PRC relationship & India -1

Postby renukb » 20 Mar 2009 10:35

ramana wrote:One thing we are not looking at is re-emergence of Russia from the ashes of the Soviet Union.

Russia WILL fail, as they don't know how to build long lasting allies like the USA.... Unless something strikes Russia and they correct themselves in this areas... Otherwise Russia alone will succumb to US and EU pressure and one day will loose Siberia to either China or USA and rest of the Russia will integrate into EU as smaller chunks.

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Re: US and PRC relationship & India -1

Postby Rudradev » 20 Mar 2009 11:53

Excellent analysis by Brihaspatiji in the post with the maps. Also a great post by Vina that Ramana has cross-posted here, concerning the American compulsion to monetize their debt.

On acquainting myself with the ideas being posted on this thread... and putting on my paranoiac's tinfoil hat :mrgreen: ...some thoughts come to mind.

1) As Vina's post correctly says, Unkil has an economic compulsion to monetize his debt by flooding the world economy with US dollars. However, following the short term relief provided by printing dollars, Unkil will be faced with the problem of skyrocketing inflation unless he can ramp up the sales of his products in overseas markets. Unkil must increase productivity and find markets to absorb that productivity quickly, in the immediate aftermath of printing dollars. Otherwise, if domestic inflation hits Unkil before his domestic job market has recovered, he faces total disaster.

2) On the other hand, China has exactly the opposite economic compulsion: "de-monetize" (is that a word?) the trade surplus that it has acquired over the US, and do it quickly. Its $700B in US T-Bills is steadily declining in real value. It has to convert these holdings into something else of value (anything but dollars) very quickly, or it will suffer dire losses.

3) China is now in a bind, because of the degree to which its economic success was predicated on the health of Western consumer economies. We've all read the predictions of what will follow if international demand for its consumer products falls. It does not have a well-developed domestic consumer market, and will almost certainly suffer precipitous job losses and tremendous unemployment. That would be a serious problem for any government... for one such as the CCP, it is sheer poison.

4) To stave off retardation of its growth in this age of declining Western economies, China must gain unfettered access to the Middle East and Indian Ocean Rim emerging economies. The major obstacle in its path is India, per Brihaspati's analysis.

The Chinese thus have a strategic compulsion to clip India's wings... Ladakh and Tawang, the flanks of Tibet. The Chinese also know that there's a limited window of opportunity for them to achieve the separation of India's Northeast and Kashmir from the Indian Union. After this period, we will become too dangerous a military opponent for them to trifle with.

4) One of the most efficient ways to "de-monetize" one's surplus is to go to war. War is a strange thing, because you spend money, but the gains are never the sort of clear-cut, fungible assets whose values be easily entered and juggled in the ledgers of the world economy. That is not to say that the gains of war don't have value, however... of course they do, and often there is no way to acquire them without going to war. Further, as Vina's post says, the Chinese are going to have an increasingly hard time buying any real assets from other countries in exchange for USD or US T-Bills... the two things which they have plenty of, and which will soon be dropping in value.

5) It must, therefore, be very tempting for the Chinese to consider a short, sharp war with India at this point in time... a grab for Arunachal very likely, but possibly accompanied by multiple diversionary actions in Ladakh and/or the Sikkim-Siliguri corridor as well. The advantages of prosecuting a successful war against India would be tremendous for China, particularly right now. They would get to "de-monetize" their US T-bills which are rapidly losing value. They would get to clip India's wings on the flanks of Tibet, thereby gaining unhindered access to the ME and Indian Ocean. And, they would get to distract their people with belligerent nationalism in the face of looming catastrophic unemployment. Democratic countries hesitate to go to war because of the political costs. For the CCP, war may be almost a political asset, because it will ensure public loyalty far better than having millions of jobless and discontented citizens standing around with too much time on their hands.

6) The US might favor the eventuality of a Sino-Indian military conflict at this juncture, for its own reasons. Economically, it would get to sell arms and materiel to India at premium prices and on rush orders-- boosting domestic productivity and employment. Politically, a Sino-Indian war would ensure that India was distracted enough on our north and east to stay clear of Af-Pak, where Unkil doesn't want us interfering. Diplomatically, Unkil might even offer to assist us and intercede with China, perhaps putting up an all-important UNSC veto on our behalf... as long as we reciprocate by resolving Kashmir in his MunNA's favour.

7) Something to note about Unkil... he is setting up his own chain of dominos. In invading Iraq he has strengthened the hand of Iraqi Shias, and thereby of Iran. I am sure that Unkil's plans in AfPak include creating a dispensation which balances out Iran by giving them as much of a headache on the eastern flank as they have accrued benefits on their west.

Likewise, Unkil's plans for AfPak will possibly end up weakening or even breaking up Pakistan. However, Unkil does not want India to benefit as a result of what he does in AfPak, any more than he wants Iran to benefit as a result of what he does in Iraq. So this is another way in which Unkil will gain from belligerent Chinese pressure against India.

8 ) Conclusion: Unkil and China may be considering a situation where China either attacks India with the intention of capturing territory, or adopts a far more belligerent and threatening posture that keeps us engaged along the Sino-Indian border.

The benefits to Unkil are obvious: increased economic, military, political and diplomatic leverage on India. Unkil may be betting that India won't escalate in retaliation but only fight a defensive war... in which case the conflict will remain limited, slowing the growth of two BRIC economies so that they're brought back to par with Unkil's own.

China will benefit greatly if it manages to pull off a low-cost and successful war of territorial conquest against India. They will have little to lose even in the event of a stalemate... it is unlikely that an Indian counter-thrust could dislodge them from Aksai Chin or Karakoram, after all. I suspect China will weigh its chances of achieving its military goals very carefully, and go along with the adventure to whatever extent it calculates the possibility of success.

Before Shiv gets apoplectic at all this conjecture, I want to point out that I'm not saying that this WILL happen and that India WILL get clobbered by some halo-effected tag team of the US and PRC. I'm just saying it's an eventuality that's worth watching and preparing for. What would we do if the US and China started playing a very aggressive good-cop-bad-cop game backed up with the real and/or implicit threat of Chinese military action against India?
Last edited by Rudradev on 20 Mar 2009 12:19, edited 4 times in total.

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Re: US and PRC relationship & India -1

Postby Sanku » 20 Mar 2009 12:00

Ok I again differ -- the US does not care about us and we are dispensable -- however the above analysis and such thoughts assume that US is willing to step back and let China win.

What if the fundamental assumption is wrong? What if US has really started a economic world war with China while also circling in geo-politically?

What if US is playing for next 50-100 year period dominance game?

I reiterate -- it is too early to take the US-Chini bhai bhai at face value -- and therein lies our chance.

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Re: US and PRC relationship & India -1

Postby Rudradev » 20 Mar 2009 12:07

Sanku, no one said anything about the US being willing to step back and let China win. They may plan this with China the same way as they planned the invasion of Kuwait with Saddam... and then turn around and provide us with everything we need to bloody China's nose good and proper! The point is that they'll have leverage both ways... so its a win-win for them.

In the event of a Sino-India war, the growth of two BRIC economies will be retarded to an extent that is at least on pre-2008 par relative to the West. And relations between the two Asian giants will fall to new levels of mutual distrust and hostility, which is always to Unkil's great geopolitical advantage.

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Re: US and PRC relationship & India -1

Postby kittoo » 20 Mar 2009 12:39

I was thinking this for quite a while and pardon me, cause I'm not really as intelligent as you people, if it sounds stupid.

Does anyone else think that we should really look towards Japan? I mean, here is probably the only other country which is wary if China's rise more that India and will be willing to help us. I know its ties to US are deep but dont you think along with Taiwan and Tibet, this is where we might have a huge advantage?

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Re: US and PRC relationship & India -1

Postby Sanku » 20 Mar 2009 12:54

Rudradev wrote: Unkil's great geopolitical advantage.

Yes, I agree; I have said before that there is complete merit in whath Shri Saran is saying; and also what both you and Brihaspati are saying too.

I am trying to approach this from a different angle -- I see that the current situation is an economic war; and the loser so far is China. Of course in every war each side makes sacrifices and so US will feel the pain, but it is essentially trying to counteract the mistakes it make in getting to a situation where it was rapidly becoming a consumer country with a massive outflow of currency (wealth) and basic infrastructure for wealth creation.

It is trying to turn the clock back and go to fortress US and build in some insularity and re-develop skills.

US will be happy to see India and China let themselves beat each other up and turn losers. However for all the "interdependence" songs that are being sung -- I dont think anyone in US is going to take a step which increases China's hold in the region vis a vis US. (the game is in Asia, the rest of the world is inconsequential)

Through this understanding -- lies our opportunity out of the trap -- and the things we always want Indians to do in BRF still dont change -- the basic being becoming such hard nuts that any messing up with us a really poor RoI

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Re: US and PRC relationship & India -1

Postby Rudradev » 20 Mar 2009 12:57

Kittoo, nothing stupid about it. That has indeed been on the cards. Shinzo Abe (the Japanese Premier in 2006-07) had actually proposed a formal military alliance that would include the US, Australia, Japan, Singapore and India-- ostensibly to secure the Pacific-Indian Ocean shipping lanes but implicitly directed against China. According to one report, it was the Americans who were not too keen on the idea... so it didn't take off.

Unfortunately Abe is no longer in power but getting closer to Japan is definitely something to consider. Indo-Japanese ties were afflicted with the Japanese' refusal to accept our nuclear weapons status for a long time... but they seem to be developing a more realistic approach to that now.

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Re: US and PRC relationship & India -1

Postby Philip » 20 Mar 2009 13:13

We must frist ask ourselves what sort of realtions do we want with both China and the US.Friendly no doubt,equality of course,but that is what we are getting from neither.Therefore,our strategy should be to bend both nations to accept and acknowledge India as an equal and not as an inferior state.The US cxurrently places its realtions with China on ahigher plane.Dealing with the US is far eaiser.It seems to responds best when kicked in the backside.Showing Americans that their writ does not run everywhere and that the almighty dollar is but just one of several international currencies,brings them back to reality.China is different.It needs to be treated in a different way.The inscrutable Oriental does not appreciate the direct Occidental approach.One must be cunning and devious to keep China in its place.

The Chinese know that any military conflict with a weaker state will send alarm bells ringing across the globe.It will bring together alliances of smaller nations allied with the US or other major powers against China.Their strategy is to garner together as many allies,client states,poor nations where aid can be leveraged-as they're doing in Africa and gain control over their economic wealth,generally those with mineral wealth and the petro-rich countries.They need this wealth to keep the Chinese industrial machine running and the people employed.Therefore China's intense diplomacy in recent years has been that of a "vacuum cleaner" ,scooping up whatever they can from wherever they can through secret deals with the rulers of these nations.

Having secured the future sources for their raw material and fuel,transporting it to china and exporting the finished goods across the globe is the second goal.This is why Chinese companies have been bidding for managing strategic waterways like the Panama Canal,establishing ports and base facilities for both merchant and naval forces across the oceans-its "string of pearls" strategy.

Maintaining the territorial boundaries of the PRC is a fundamental objective and acquiring by force or other means any more from its neighbours is a primary objective.Here,the Chinese have engineered disputes with India,the nations in S-E Asia and the ASEAN nations over the Spratlys and their plan to eventually possess Taiwan.The technique that the Chines prefer is to put as much diplomatic and miliatry pressure upon these states,so that in a time of weakness,they acquiesce,give in totally or compromise whereby the end result favours China.Thus by NOT going to war,Sun Tzu style,China achieves its objectives.

India still has an enormous amount of goodwill in Africa and the Non-Aligned nations.Our basic non-interference in the affairs of other nations is a plus point.This should be leveraged,but it has to be done in a concereted and coordinated manner,using every speck of influence that we can bring in establishing agreements on trade and security matters.Especially in defence and security,India has an enormous advantage of training cadets and officers from these countries,many of whom are Commonwealth members,where English is the common tongue.The GOI needs a separate "Directorate",attached to the MEA,that takes a holistic viw of promoting India and Indian interests in equal partnerships with other nations.The sale of ALH helos to Ecuador is an excellent example of success and more such ventures should be encouraged.It requires extensive diplomatic skills and linguistic skills too.The country is short on linguists in large number and a chain of Institute of International Affairs and Linguistics should be established on the lines of there IITs,across the country.Our advantage over China right now is the knowledge of English,but for how long?

The vast Indian diaspora should also be used as the Chinese have been doing,but not for cheap spying,but establishing lasting realtions with the host nations that promote relations across the board,from trade to culture.Apart from the Indian embassies and consulates,India should establish in all major countries ,attached cultural centres on the lines of the British Council ,Alliance Francaise and Max Muller/Goethe Centre,to give examples.These centres while atached to the diplomatic establishment,should have much freedom to promote Indian culture in an exciting manner ,which will evoke interest in India and its heritage,which will have its own benefits.The Chinese lending of its "terracotta warriors" to the British Museum was an international cultural coup.A lesson to those at the helm of promoting India abroad.

Finally,strategic relations with those who feel threatend by the Chinese dragon.My "enemy's enemy is my friend".We should pay China back with the same coin as it is doing to us through manipulating Pak and with mischief in Nepal and Bangladesh.There is a lot of defence equipment which we can sell at "friendship prices",to quote a Chinese phrase,to countries like Vietnam,etc.,who are extremely wary of the Dragon.We must establish our very own "string of pearls",bases and base facilities across the Asia-Pacific region,wherever possible,so that the S.China Sea "does not belong to China".While not entering into any defence "Pact" like NATO,etc.,the key anti-Chinese nations should be encouraged in defence cooperation,with regular military exchanges and exercises,of a nature that cannot be construed by the Chinese as a public "ganging up" against it,even if it is true!

Above all only strength of will will defeat China's mischief,as its dictatorship is scared of popular uprisings ,as was seen in Tibet.China has no structural mechanism for handling mass uprisings,except to massacre its own people,unlike democracies which have regular elections and the rule of law to govern everyday life.The GOI should remain completely focussed in promoting Indian interests,seizing an opportunity which arises,and creating them too,checkmating China at every opportunity.Above all, we must keep our powder dry and remember that China only respects strength.

PS:The EU and Russia are the two other major entities that cannot be ignored,as Russia has enormous mineral and petro-product wealth,that wil kepe its economy running for a very long time to come.Chian is making major efforts to project itself as the top dog in Asia to these two entitites.This must be stymied at all costs.
Last edited by Philip on 20 Mar 2009 13:25, edited 1 time in total.

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Re: US and PRC relationship & India -1

Postby amit » 20 Mar 2009 13:22

It's hard to envisage the US willing to sacrifice some of its biggest and most prestigious companies in the BFSI sector just to teach China a lesson. Just as its quite far fetched to think that the worst recession since the Great Depression is a policy instrument to wean US consumers away from cheap Chinese products.

Rather as most of the writings which Ramana posted imply the chickens are coming home to roost after years of excesses in the US.

Rudradev, as usual excellent analysis.

I would just like to add that the Chinese and the US might consider using the TSPA as cannon fodder to initially engage India and then the Chinese forces can do a flanking movement while most of Indian firepower, particularly the Air Force is focused on the Western borders. Remember air power is one area that India has considerable superiority if we consider a India China war in the North East.

Pakistan at war with India would allow the Pak Army to get all the warring factions united and since the Army's cojones are in Uncle's hands he might quite like the idea.

I expect a lot of provocation for the Pakistanis over the next few months.

Added a bit later:
A war on two fronts would be India's worst nightmare come true. Apart from the US getting to sell arms and do a good cop routine, once a stalemate/ceasefire is reached then China can be "persuaded" to withdraw from any "territory" that they may occupy for India making "concessions" on Kashmir - another meta US objective to appease their Munna.

All this of course assumes that India will behave in a very "rational" manner and will not escalate the war from just a border engagement. And to be honest, the US, China or even the Pakistanis have no reason to think that the Indian leadership will be anything but "rational" - despite what we jingos on BRF would love to hope for.

Do note if the "war" is escalated to a situation where the "N" word gets bandied about then both Uncle and China will need to wear brown pants to hide the stain. One thing that the world economy can't stand now is the threat of a N-war. Therein may lie India's biggest triumph card.

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Re: US and PRC relationship & India -1

Postby SriniY » 20 Mar 2009 13:36

What role would Russia play in a limited Sino-Indian war ?

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Re: US and PRC relationship & India -1

Postby ramana » 20 Mar 2009 20:48

Two X-posts...
vina wrote:Guys. Guys. Why is it so difficult to understand what Unkil is doing ?. Bottomline is this . Unkil /Unkil denizens are deeply in debt (to everyone, including Chicoms who hold treasury).

Let me explain it simply.

Abdul Lungi goes to a showroom and buys a TFTA car for Rs 5 lakh (fixed). His EMI is Rs 15,000 pm say and he works in a guaranteed job like say Govermund (now even if you jump in and say gotcha!, but jobs are not guaranteed in this kind of downturn, on an aggregate basis /avg they are, a far higher percentage will keep their jobs, rather than lose them). Now Abdul's sister, Ayesha has run off with some wastrel and parents intervene and say okay , lets get the Nikah done. Father is penniless and old and says, for "Khandaan ki izzat" , Ayesha has to be given a grand wedding and reception, so Abdul, foot the bill . Abdul needs to go to the Pathan money lender and borrow at usurious rates (it is haraam to lend only to momin , but fully halaal to lend to kaffirs, I have seen pathan money lenders/ loan sharks lined up in Tata Steel's gates in the first week of every month to collect dues ) . However, Abdul has repaying capacity of only Rs 15000 pm. So what is he to do ?.

Now if inflation shot up, your existing loans become lot less valuable in real terms. How ?. Abdul's union (if he worked in Tata Steel) or his DA if Governmund (sharp increases in inflation will immediately result in salary hike demands), will do hartaal /bandh /gherao, with comrade Karat, Yechury leading the pack , N. Ram doing "rear admirargiri" from Chennai and writing editorials in the Frontline and Al-Hundi goading them on, and Mamta didi, will go on a fast and rasta roko in support of "workers" , in short a massive circus, so Abdul's salary will increase dramatically (tracking inflation).

Now Abdul as the borrower is actually happy. His take home has risen significantly, so he has enough money to pay the Rs 15,000 for the TFTA car and also he has enough money to pay the Pathan money lender for the money he borrowed for Ayesha's wedding. Abba jaan is happy and proud on what a good /dutiful son Abdul is, Ammi jaan is thrilled that Ayesha is married. So everyone is happy.

So what gives? . Who was shafted in this happy scene of things? It was actually the finance company who gave Abdul 5 lakhs to buy the TFTA car!. That is who. Abdul is now paying them back with Wampum.

Now substitute Abdul with Unkil and Ayesha with the economic crisis, the "sudden surge in inflation" to Helicopter Ben. So who is the Finance company which gave Abdul the 5 Lakhs here ? .. Hint --> Our Tarrel than Mountain and deepel than ocean friend to the east!


vina wrote:
Singha wrote:what if Unkil keeps on engineering crisis and fanning the flames around so that other
currencies too devalue in relative sync (UK and Japan are also printing notes, leaving out the basket cases in comatose state like ireland, iceland and greece). UK and Japan are top5 ecos and huge international traders. Swiss are also in the soup now via UBS.

Ah, Singhaji, it is standard Econ 101. In periods of high inflation, bond holders/lenders get shafted . No grand ISI/DSE/JNU/Ivy League Quant / ding dong modeling here.

so that way chipanda can still get relatively current values for its dollah notes when buying from other nations in other currencies.

only if the dollah alone devalues steeply and permanently vs euro/yen etc will chipanda get screwed.

This is ultra sunnah and halaal onree. Let us see how.

Okay, instead of Rupees, Abdul got even more TFTA and bought the car for 5 lakhs of Wampum, which is a basket of currencies . Wampum lent by our Tarrel than Mountain friend of course.

say 1 unit of Wampum has a% of dollah, b% of Pound, c% of Euro and d% of Yen . Now doesn't matter which currency depreciated more , for a given 1% depreciation of Wampum in the overall analysis. That is just academic. For Abdul, 1 Wampum = 1 Wampum. Baki sab, upar wala jaane.

Now as long as Wampum depreciates, Abdul is happy and lender is shafted.

So, it wont matter. Consider it from Tarrel than Mountain side. They have $1.5 T or whatever in dollars. Now if they say, okay , lets change 20% into Euro (trash), the moment they sell, the 20%, the value of he remaining 80% shrinks even more! :x . So they do "harmonious society thingy" and do it by Chipanda/Pakiness stealth. But Unkil has preempted by
running printing presses, so have the Euros, Japs and Swiss!. So Panda is shafted anyway. So for the 1 Wampum it lent, if it could buy 10 gms of rice in 2007, in 2011, 1 Wampum will get 8 gms of lice onree! :(( :(( . All this assumes fundamental currency convertibility among the major currencies , a reasonable bet to make I think.

So its all not cut and dry. Its the economy stupid as Clinton used to say and forgot.

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Re: US and PRC relationship & India -1

Postby brihaspati » 20 Mar 2009 20:56

Russia will play for India if India promises Russia access through Indianized Pakistan to the Indian Ocean. That is Russia's greatest objective.

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Re: US and PRC relationship & India -1

Postby ramana » 20 Mar 2009 21:13

Well Shyam Saranji's assumption and by extension of the GOI establishment is that US-PRC are in tight and will harm Indian interests what ever they are. My take is that US is embracing PRC so it wont de-stabilize/collapse and all economic facts point to that and thats a different picture. (Its more like the dance of a snake and a scorpion.)

The reality is a little bit of both. And how to take advantage of it?

Rudradev and Amit have forecast a war or proxy war.

Rudradev wrote:5) It must, therefore, be very tempting for the Chinese to consider a short, sharp war with India at this point in time... a grab for Arunachal very likely, but possibly accompanied by multiple diversionary actions in Ladakh and/or the Sikkim-Siliguri corridor as well. The advantages of prosecuting a successful war against India would be tremendous for China, particularly right now. They would get to "de-monetize" their US T-bills which are rapidly losing value. They would get to clip India's wings on the flanks of Tibet, thereby gaining unhindered access to the ME and Indian Ocean. And, they would get to distract their people with belligerent nationalism in the face of looming catastrophic unemployment. Democratic countries hesitate to go to war because of the political costs. For the CCP, war may be almost a political asset, because it will ensure public loyalty far better than having millions of jobless and discontented citizens standing around with too much time on their hands.

amit wrote: I would just like to add that the Chinese and the US might consider using the TSPA as cannon fodder to initially engage India and then the Chinese forces can do a flanking movement while most of Indian firepower, particularly the Air Force is focused on the Western borders. Remember air power is one area that India has considerable superiority if we consider a India China war in the North East.

Pakistan at war with India would allow the Pak Army to get all the warring factions united and since the Army's cojones are in Uncle's hands he might quite like the idea.

I expect a lot of provocation for the Pakistanis over the next few months.

If there is war with PRC then India should go all out and defeat the PLA in the theater. The nukes & Agonies will ensure it stays localized.

If there is war with TSP, India should localize the conflict and defeat the TSPA but not escalate. So the strategy has to be different for these two. The goal with TSP is to reduce its potential to be anyone's catspaw by liberating the people of TSP : disarm the kabila.

With PRC it should be to force a severe and visible loss of face to trigger the internal dynamics like in Czarist Russia or Soviet Union after loss of Afghanistan.

It takes a strong political leader and a brilliant general out of the IMA box.

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Re: US and PRC relationship & India -1

Postby satya » 21 Mar 2009 03:39

KS in his article has stressed a lot on 'network & inter connected powers' making it highly unlikely to go for War with nukes as insurance against such a venture. PRC need market & we are here ,need to make PRC see this & need to be told so to ensure that they don't go crazy in summers ! Value of this market is much more than a short ,localized war as being predicted by posters here . Historically PRC has gone for war only when there is internal political power struggle & India market pie is just too sweet to be missed by PRC so when we talk of war , one shouldn't miss economic angle .

Hypothetically , PRC goes for war & it gains access to more geographical locations & resources but resources are good so long they can be turned into products & market is there for such products .After such a war which hypothetically India loses in perception , are we sure that Indian market of 10-20 or so billion $ still there for PRC products ?

Or PRC is still counting on US consumers ?

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Re: US and PRC relationship & India -1

Postby ramana » 21 Mar 2009 03:43

Satya, Read again. Who is advocating war with PRC? The concern is the other way around. Its the PRC's interest to wage a localised war to protect its rule over Tibet.

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Re: US and PRC relationship & India -1

Postby ramana » 21 Mar 2009 10:42 ... newsletter


Vast Rural India Sparkles As an Expanding Market

By Rama Lakshmi
Washington Post Foreign Service
Friday, March 20, 2009; Page A15

DHORKA, India -- With her face wrapped in a pink veil, Suman Yadav squatted on the mud floor of her village home washing clothes, next to her family’s gleaming new possession -- a silver-gray, $10,000 car called Swift. She said they bought it on an auspicious January harvest-festival day and drove it straight to the village temple for a blessing before bringing it home.

"My husband’s new automobile spare-parts shop is doing well. The mustard and wheat from the farm is fetching good money, too," said Yadav, 30. "We already had a motorcycle and a tractor, but now could afford a car, too. We paid the full amount in cash. We drive everywhere now."

The global economic crisis that has slowed the growth of urban middle-class consumption in India is highlighting a new opportunity for businesses -- the vast, untapped and expanding rural market. Some analysts call it a mere "re-balancing" of market focus away from the big cities; others see it as the fortune at the bottom of the Indian economic pyramid.

About 72 percent of India’s billion-plus people live in rural areas. For years, the poverty of rural India was seen as reining in the country’s economic growth. But today, analysts say, rural India is a critical audience for marketers because it has been relatively insulated from the crippling blow of the global slowdown.

India’s rural destiny still depends on good monsoon rains and robust agricultural production, but four years of bumper crops and heavy government investment in rural infrastructure have given birth to what some analysts call an emerging economy within India.

In the dusty market along a bumpy road in Yadav’s village, 40 miles south of New Delhi, sales of microwave ovens, washing machines and 32-inch, flat-screen plasma televisions have risen in the past year. Branded-clothing stores called Rich Look and Charlie Outlaw have sprung up, looking to attract upwardly mobile farm youths.

"People have just begun getting the taste of spending money in these areas," said Ramesh Kapoor, a television salesman. "I hear of a slowdown on the TV news, but I do not see any here."

India’s dizzying overall growth levels of 8 to 9 percent, fueled by urban consumption and a boom in the manufacturing and services sectors, may slump to less than 7 percent this year, economists say. But even during the slowdown, companies’ sales are rising in rural and semirural India.

"Things have changed in the last one year. Today, 60 percent of our car sales are coming from rural and small-town India. The big farmers, small traders and shopkeepers are buying them," said P. Balendran, vice president of corporate affairs at General Motors India, which launched an aggressive rural marketing drive for its small cars in the past year.

About 60 percent of new cellphone connections are in rural areas, according to telecommunications industry figures. Passenger-car sales rose by almost 22 percent and motorcycle sales by 15 percent in the rural areas last month, compared with last year, according to the Society of Indian Automobile Manufacturers. Textile and clothing retailers that focused on small towns grew faster than those that focused on urban areas, and sales of consumer goods grew by 20 percent in the rural market, compared with urban growth of 17 percent, according to Technopak, a research firm that tracks consumption patterns.

The statistics raise an intriguing question for economists: Can the growth of business in rural areas and small towns help offset drops in big cities?

"There is no impact of the credit crisis and the stock market in rural India. Most purchases are made in cash," said Raghav Gupta, president of Technopak’s consulting practice. "It will not rescue us from the slowdown, but it provides us a steady cushion because it is just taking off."

A recent report, titled "Kisan Is King" ("Farmer Is King") by the financial services firm India Infoline, found that the number of rural middle-class homes has grown by 135 percent since 2001 and accounts for 45 percent of total national demand for many consumer products.

"The rural economy, consisting of 56 million households with annual incomes of $2,000 every year, represents a significant market that cannot be ignored," the firm said.

Next week, the Nano, an ultra-small, ultra-cheap vehicle being billed as the "people’s car," will be launched in Mumbai, with an eye on small-town India. It will sell for about $2,500.

Retailers say the growth opportunities are so vast because the rural market has been so neglected.

"The rural market has still not yet reached a level where there is any room for a slowdown. Cellphone usage covers only 12 percent of rural India," said Sanjay Kapoor, president of the mobile phone division of the telecom company Bharti Airtel. He said the "overwhelming" growth in cellphone usage in rural areas has spurred a thriving retail market for accessories.

In the past four years, the Indian government has invested heavily in programs aimed at boosting rural income, which grew at 4 percent annually, according to government reports. Government prices for rice and wheat have jumped nearly 65 percent over that period; about $38 billion has been pumped into rural development programs and more than $9 billion into building rural roads.

According to census data, rural migration to big Indian cities has slowed in the past decade. Instead, villagers are moving to smaller market towns nearby.

"To cut costs, new industries are moving to smaller towns and creating jobs locally. People don’t always have to go to the big city to find a non-agricultural job now," said Veena Mishra, a senior economist with Mahindra & Mahindra, an automobile and tractor giant.

Some fear, however, that the economic slowdown may have an indirect and delayed impact on rural India. Burdened with a huge deficit, the government may not be able to sustain public investment. Nearly 5 million jobs have been lost nationwide since the downturn, many of them in India’s export industry.

"Many of the jobless workers from export companies are returning to villages," said Shri A. Sakthivel, president of the Federation of Indian Export Organizations. "Eventually, rural India will have to bear the brunt, too."

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Re: US and PRC relationship & India -1

Postby renukb » 21 Mar 2009 15:25

Redrawing India’s Geostrategic Maps with China and the United States
By Lora Saalman

[This comprehensive survey of India’s growing military strength and geostrategic relationships involving China, the United States and Russia reveals the interplay between economic and military-nuclear power in a region that is doubly volatile, as the scene of recent nuclear breakthroughs and rapid changes in military and economy might. Noting the predominantly military character of the U.S.-Indian relationship, and the predominantly economic and resource-driven character of the unfolding China-Indian relationship, Lora Saalman raises important issues of regional development in an era of military insecurity. Japan Focus.]

India has been revising its strategic maps with China and the United States, both literally and figuratively. During early spring of 2005, Chinese Premier Wen Jiabao handed Indian Prime Minister Manmohan Singh a map reformatted to reflect the long-contested region of Sikkim as part of India. By summer, the United States handed India defense, nuclear, and space technology proposals, promising to transform more than just physical territory. Articles in India-based Bharat Rakshak Monitor attribute the warming of Sino-Indian ties as a means to counter the U.S. presence in Asia.[1] China's Party organ People’s Daily (Renmin Ribao) asserts that strengthened Indo-U.S. relations are targeted at containing China’s rise.[2] In these analyses, China and the United States are portrayed as focusing their strategic concerns squarely upon each other, while India maneuvers to secure political, economic and military benefits.

Yet, there remains a crucial and often missed difference between the Chinese and the U.S. approaches toward engaging India. China’s current inducements for India primarily focus on economic integration and energy development. By contrast, the U.S. has made dual-use technology transfer the centerpiece of its engagement strategy. At India’s level of technological sophistication, however, U.S. dual-use nuclear, space, and military cooperation promises to enhance India’s political weight and military footprint in ways that are more likely to conflict with long-term U.S. strategic goals than with those of China. Rather than encircling China as the People’s Daily foresees, the United States may instead be containing its own long-term interests.

China and the United States Engage India
On April 1, 2005, China and India took a symbolic step toward strategic cooperation as Chinese Premier Wen Jiabao and Indian Prime Minister Manmohan Singh issued the India-China Strategic and Cooperative Partnership for Peace and Prosperity.[3] This joint statement lauded the “global and strategic character” of Sino-Indian relations. It offered economic incentives for expanded cooperation, with the objective of nearly doubling bilateral trade to $20 billion by 2008. The two parties also announced the formation of a China-India Steering Committee on Scientific and Technical Cooperation in education, science, healthcare, tourism, cultural exchange, and agriculture. India and China provisionally resolved the long standing dispute over Sikkim and agreed to cooperate in developing foreign petroleum and natural gas resources.[4]

Only a few months later, on June 28th, India’s Defense Minister Pranab Mukherjee met with U.S. Secretary of Defense Donald Rumsfeld to sign the New Framework for the U.S.-India Defense Relationship.[5] This agreement set forth detailed measures involving joint military exercises, defense and technology trade, missile defense, and exchanges on defense strategy, and intelligence. On July 18th India’s Prime Minister Manmohan Singh and U.S. President George W. Bush issued a joint statement, further expanding the scope of the existing India-U.S. Next Steps in Strategic Partnership (NSSP) and High Technology Cooperation Group (HTCG). The United States committed to signing a Science and Technology Framework Agreement, to building closer ties in space exploration, satellite navigation and launch, facilitating a U.S.-India Working Group on Civil Space Cooperation, and to removing certain Indian organizations from the Department of Commerce’s Entity List. Most notably, the United States agreed to seek adjustment of U.S. laws for full civil nuclear cooperation and trade with India, including reactor fuel supplies, and to consult with its partners on India’s participation in the International Thermonuclear Experimental Reactor (ITER) and in the Generation IV International Forum.[6] These proposals are under debate in the U.S. Congress and will require amendment of the Atomic Energy Act of 1954 and the Nuclear Nonproliferation Act of 1978, as well as the acquiescence of the Nuclear Suppliers Group (NSG) before full cooperation begins.[7] This time lag offers an opportunity to reflect on the impact of dual-use cooperation on India, China, and ultimately the United States.

U.S. Assistance, Indian Indigenization, and the Impact on China

In spite of emphasizing self-reliance in the wake of sanctions following its 1998 atomic tests, India is not new to foreign assistance.[8] Nor is India a novice in creating linkages between its civilian nuclear and space advances and its nuclear weapon and missile programs. India’s initial nuclear test in 1974 utilized plutonium from its Canadian and ostensibly civilian Cirus nuclear reactor, while its 1989 launch of the first Agni ballistic missile comprised technology gained from the U.S. Scout satellite launcher. Similarly, the dual-use technology mentioned under the Indo-U.S. defense framework and joint statement may assist India in its ongoing pursuit of advances in nuclear weapons technology, longer range ballistic missiles, and submarine-launched ballistic missiles.

Indigenization and Nuclear Assistance

The most significant shift in U.S. policy brought on by the July 18th U.S.-Indian joint statement relates to dual-use nuclear cooperation. India has already managed to parlay decades of Russian, U.S., German, and French assistance into what is now a robust indigenous civilian and military nuclear program. While nuclear power only occupies an estimated 3.3 to 5 percent of India’s energy production, India is actively pursuing nuclear power development with important civilian as well as military implications.[9] In October 2004, India launched the commercial phase of its 500 MWe Prototype Fast Breeder Reactor (PFBR) at Kalpakkam.[10] Four more such fast reactors have been announced for construction by 2020. During April 2005, the Bhabha Atomic Research Center (BARC) also commissioned an Integral Test Loop (ITL) to simulate the main heat transport system and safety system of the thorium-based Advanced Heavy Water Reactor (AHWR).[11]

For uranium-poor and thorium-rich India,[12] the development of thorium-fed fast breeder reactors makes it even less susceptible to the vagaries of international fuel supply and sanctioning. Fast breeder reactors produce more than they consume, offering India a steady and renewable future supply of weapons grade fuel. AHWRs in particular burn thorium/U-233 oxide producing spent fuel that can be reprocessed.[13] India’s PFBR at Kalpakkam and its Kamini 40 MWt Fast Breeder Test Reactor (FBTR) both breed U-233.[14] While less of a proliferation risk due to its high radioactivity, U-233 has fissile properties comparable to U-235 used for nuclear weapons production.[15] India’s recent technical developments suggest that it has made significant strides towards mastering, indigenizing, and expanding the scope of its nuclear fuel cycle.

However, not all components of India’s nuclear program are moving forward. David Albright, executive director of the Institute of Science and International Security (ISIS), and Henry Sokolski, executive director of the Nonproliferation Policy Education Center, have pointed to India’s less than proven track record in successfully operating its fast breeder reactors and reprocessing plants.[16] This is where U.S. technological assistance to India’s civilian nuclear program can offer a degree of streamlining for both India’s civilian and, by extension, military nuclear programs. Fusion technology, whether garnered through the ITER project or under the U.S.-India Energy Dialogue, could help overcome some of India’s civilian and military technological gaps.[17] India’s alleged failed detonation of a thermonuclear weapon during its multiple 1998 tests is just one such lacuna.[18] Fusion technology not only has applications in thermonuclear weapons, but also could assist in nuclear warhead miniaturization to extend missile launch range and payload capacity. This will enable India to produce a higher nuclear yield and to successfully mount its nuclear weapons on missiles to fly greater distances.

Beyond hypothetical assistance and rhetoric, as of August 30, 2005, the United States has already removed Tarapur (TAPS 1 and 2), Rajasthan (RAPS 1 and 2), and Kudankulam (1 and 2) from the U.S. Entity List, mitigating export licensing requirements.[19] For these particular reactors, assistance will be monitored under International Atomic Energy Agency (IAEA) safeguards. However, for other reactors and facilities demarcating the dividing line between civilian and military use will be a tedious, and many Indian and U.S. analysts suggest impossible, process. Although management of the AHWR unveiled in August 2005 has been ostensibly transferred to the civilian Atomic Energy Regulatory Board (AERB), the unit has the ability to produce U-233 that can be reprocessed for nuclear weapons. Furthermore, it was designed by BARC, a known contributor to India’s nuclear weapons program.[20] Due to the overlap between India’s civilian and military programs, there remains the potential for diversion of technology, equipment, and potentially even materials to nuclear weapons programs.

Nuclear Impact on China

Whether U.S.-assisted or indigenous, India’s nuclear advances carry strategic weight for Sino-Indian relations. Both countries espouse a nuclear doctrine based on minimum deterrence. Yet, India continues to engage in fissile material production to augment its stockpile. The 2005 edition of the book Deadly Arsenals has already expanded its Indian weapons estimates to 75-110 nuclear devices.[21] ISIS further provides an indication of India’s capabilities for future nuclear arsenal expansion, estimating in August 2005 that India possesses a total of between 13.9 and 14.9 metric tons of civilian and military highly enriched uranium (HEU) and plutonium (Pu).[22]

In comparison, China has stopped fissile material production, but is believed to have a sufficient stockpile, estimated at 31.1 civilian and military metric tons of HEU and Pu[23] to double or triple its current arsenal of approximately 400 nuclear weapons.[24] Despite the current differential, there is nothing in the U.S.-India joint statement that suggests India will be constrained in its current fissile material build-up. Any future commitments to a contentious Fissile Material Cut-Off Treaty aside, India has repeatedly stated that it will continue to build up its plutonium stockpile until it reaches a level that provides a strategic comfort zone vis-à-vis China and Pakistan. If India continues to expand its fissile material stockpile and receives U.S. technological and material transfers, China’s willingness and incentive to maintain a freeze on its own fissile material production may erode. This could lead to intensified efforts by China to assist Pakistan’s weapons programs, to expand its own arsenal, or both.

In the meantime, China’s current nuclear capabilities, stockpile, and arsenal gives it the edge over India. If India maintains its stance of minimum deterrence, it is unlikely to attempt to surpass China’s nuclear strength. Instead, U.S. nuclear assistance to India has a greater potential for proliferation ricochet to other countries. Among suppliers, Britain quickly followed the U.S.-India joint statement in July by announcing its decision to modify its own sanctions against India in August.[25] Russia voiced its own approval in September with its sights set on legitimizing its nuclear trade with India and, by extension, Iran.[26] After winning a deal to supply India with 6 submarines and 43 Airbus planes, France also acknowledged and pledged to work within the NSG for “full international cooperation with India in the civilian nuclear field.”[27] Pakistan also staked its own claim in September with its ambassador to the United States, a former Army chief, stating that the U.S. deal with India “should leave the door open for other countries that meet the same criteria.”[28] As Iran, North Korea, and countless others witness acceptance of and the benefits accrued by a country that has rejected the NPT and tested nuclear weapons, voluntary nuclear freezes on incipient nuclear weapons programs or fissile material production may vanish for more parties than just China.

Indigenization and Ballistic Missile Assistance
Dual-use space technology cooperation under the India-U.S. joint statement will also help India upgrade systems with military potential that were originally established using U.S. and Russian transfers as a base. As early as December 2001, the U.S. National Intelligence Council (NIC) issued a report that India could convert its Polar Space Launch Vehicle (PSLV) into an intercontinental ballistic missile (ICBM) within a year or two.[29] In May 2003, India launched its second Geostationary Satellite Launch Vehicle (GSLV), hoisting a 1,800 kg payload, the “heaviest payload ever launched from Indian soil.”[30]

India has demonstrated the technical ability in its space program to domestically manufacture cryogenic engines, develop solid-propelled missiles for more rapid deployment, deliver significant payloads, and create staged missiles for longer-range ballistic missile launches. These advances do not make future U.S. assistance obsolete, rather they indicate a much faster rate of absorption, reverse engineering, and improvements if such technology is transferred. U.S. supercomputer technology, which can be used in nuclear weapon and missile design, is just one of the types of transfers that promises to assist India’s burgeoning supercomputer industry.[31]

Under Phase I of the NSSP, by the end of 2004, the United States has already agreed to provide India’s Saha Institute of Nuclear Physics with a Cray XD1 supercomputer, equipped with 96 computer processors capable of over 422 billion calculations per second.[32] In April 2005, India’s Tata Institute of Fundamental Research (TIFR) also announced a partnership with U.S. company Hewlett Packard to implement High Performance Computing (HPC) solutions at its Computational Mathematics Laboratory (CML).[33] In any number of technologies relating to space and nuclear programs, the United States can offer India technology relating to computer simulations, as well as missile launch, staging, guidance, and range.

Beyond hypothetical developments and rhetoric, in September 2004, the United States removed India’s Indian Space Research Organization (ISRO) from the Department of Commerce Entity List.[34] By August 2005, the United States also removed several key ISRO subsidiaries, including ISRO Telemetry, Tracking and Command Network (ISTRAC), ISRO Inertial Systems Unit (IISU), and Space Applications Center (SAC).[35] ISRO as the parent organization is responsible for the gamut of India’s space launch vehicles that possess the same technology as applied in ballistic missile launch, guidance, and tracking. The three ISRO subsidiaries focus on satellite technology, such as high-resolution commercial imaging that can be used in missile targeting accuracy and digital inertial navigation systems that can be used in Post Boost Vehicles (PBVs) to enhance ballistic missile accuracy on reentry. U.S. fusion technology may also be applied to super-conductive magnets employed in strategic military developments in outer space and ballistic missile defense. U.S. technology will contribute to a space program that has tremendous military potential not only in missile development, but also in the weaponization of space.[36]

Ballistic Missile Impact on China
India is highly motivated to expand its missile program, not only to counter threats from its neighbors but also to strengthen its regional competitiveness and boost its scientific and international prestige. China poses a distant strategic threat to India, while Pakistan’s barrage of tactical and strategic missile improvements keeps India occupied in an immediate contest. Pakistan’s test of its nuclear-capable Babur cruise missile less than a month after India announced mass production of the Brahmos cruise missile is a recent example.[37] Predictably, an Indian Defense Ministry official stated that the Babur looks like a repainted Chinese missile.[38] Prasun K. Sengupta has further alleged in the magazine New Delhi Force that China's state-owned China National Precision Machinery Import and Export Corp (CPMIEC) transferred this technology to Pakistan's state-owned National Development Complex (NDC).[39] Bilateral Indo-Pakistani competition, which India continues to view as fueled by China, has led the two countries to advance their ballistic missile ranges well beyond each others borders.[40]

One significant measure of India’s missile program is its ability to target Chinese cities. In April 1999, India first test-fired its Agni-II, whose range of more than 2,000 km[41] enables it to reach China’s ancient capital of Xi’an. With a test launch of the 3,000-3,500 km-range Agni-III anticipated by the end of 2005, India is rapidly approaching the range necessary to reach China's capital Beijing with a nuclear payload.[42] In spite of delays and concerns over the speed of its missile development, such as postponement of a test in 2003,[43] India appears ready to make the next leap towards an Agni-III on the basis of indigenous resources. And regardless of pronouncements on Indian PSLV capabilities, the ICBM dubbed Surya remains a source of mere speculation at this stage.[44] U.S. assistance to India’s space program, especially in guidance and staging, could play a critical role in enabling it to achieve the next level of accuracy and range, and in acquiring ICBM capabilities that would effectively start to bring not only China but also the U.S. and its allies into range.

3. India's Agni-II missile
Submarine-Launched Ballistic Missile Indigenization and Assistance

U.S.-Indian cooperation in the transfer of conventional military hardware and dual-use technology also promises a boost to India’s military modernization. The Soviet Union traditionally dominated this trade, providing India with Foxtrot Class submarines in 1968 and a Charlie Class nuclear powered submarine in 1988.[45] Russia continued this trend throughout the 1990s and by April 2004, concluded a lease agreement to supply India two Akula-II class nuclear submarines.[46] Yet there have been increasing reports of Russian submarine mishaps and the quality of Russian naval vessels sold to India has been less than optimal, with the aircraft carrier Admiral Gorshkov requiring significant retrofitting.[47] While still central, the Russian Navy is rapidly becoming an outmoded supplier for India’s naval modernization.[48]

Currently, India has a total of approximately 15 submarines, 10 of them diesel-powered, known as the EKM or Sindhu class. Among the missile systems, India has sought to launch the short-range Sagarika or Prithvi-III from a submarine base. Indian analysts boast that the system will offer India a second strike capability against Pakistan while serving as a long-range nuclear deterrent. These analyses suggest an expansion of missile range to 2,500 kilometers.[49] A modest 300 km test in October 2004 suggests, however, that the Sagarika has a long way to go before developing into a long-range strategic nuclear deterrent.[50] Since its inception in 1992, the Sagarika missile program, like India’s submarine program, has suffered numerous delays.[51]

India’s Sagarika and submarine programs could benefit from U.S. conventional military equipment transfers and space-related technology transfers, invigorating India’s pursuit of the final leg of its nuclear triad.[52] However, aside from anticipated naval drills and potential transfer of the outdated USS Trenton,[53] there is little current indication of U.S. support for India’s naval programs. In naval terms not much has changed from the Cold War. Although a joint naval exercise is scheduled for late September 2005, U.S. naval sales continue to show a greater inclination toward Pakistan, which is destined, according to a September 2005 media report, to receive two U.S. frigate warships and eight P-3C Orion Patrol aircraft.[54] India remains dependent on Russian assistance as with the Akula-II. The relative lack of U.S. focus on India’s naval development may demonstrate that China is not the only country leery of India’s ability to dominate the Indian Ocean.

Submarine-Launched Ballistic Missile Impact on China

Of all the potential theaters for conflict, the Indian Ocean is the most likely locus of Chinese, Indian and U.S. contention.[55] India’s Ministry of Defense report of 2003-2004 pinpointed Chinese development of a blue water navy, enhanced ties with India’s neighbors, and growing presence in the South China Sea and Indian Ocean as emerging challenges.[56] Access to sea lanes will grow in importance as competition accelerates for oil and military and trade routes. Deployment of a submarine-launched ballistic missile (SLBM), especially an intermediate range one, would assist India in gaining depth, flexibility, and second-strike capability in its targeting of Pakistani and Chinese territory. An SLBM could also play a tactical role if short in range and conventional in payload. Yet, India’s nuclear submarine and Sagarika program, which both began in the early 1990s, have been slow in meeting the advancing demands of regional development and security. The Sagarika has yet to prove itself as a strategic deterrent with the range to strike within China’s borders.

Like India, China has been struggling with building its own submarine fleet with reports of fire, leakage, and accidents. China’s submarine force currently consists of four Kilo attack submarines from Russia, an indigenous diesel Song attack submarine, five Han nuclear attack submarines, and one nuclear-powered ballistic missile submarine known as the Xia.[57] The U.S. Department of Defense in its Annual Report on the Military Power of the People’s Republic of China suggests that China’s next-generation nuclear submarine programs are likely to receive a “significant amount” of Russian assistance.[58] By contrast, India will have access to not only Russian technology and equipment but also U.S., European, and Middle Eastern sources. The delayed but much-anticipated arrival of the Scorpene submarine from France is just one example.[59] Even if the European Arms Embargo on China were to be lifted, China would continue to face U.S.-initiated obstacles to suppliers.

4. Chinese submarine

Despite increased naval competition, India and China are not necessarily on a collision course for resources and access to shipping lanes in the Indian Ocean. Chinese and Indian companies are already partners in Sudan’s Greater Nile Oil Project.[60] They also plan to cooperate in a joint $4 billion oil pipeline project with Iran following establishment in April 2005 of a Joint Working Group for joint projects in oil exploration and notification.[61] India and China are also actively cooperating in regional energy transport links. India’s petroleum minister, Mani Shankar Aiyar, following India’s recent loss of a bid to China for Kazakhstan’s third-largest oil producer PetroKazakhstan Inc. stressed the “need for China and India to adopt a collaborative approach in bidding.”[62] China also has the incentive to cooperate with India to avoid a “Malacca Dilemma,” through which India or another country blocks China’s access to oil imports from the Middle East and Africa.[63] Indeed, India and China are expected to sign memorandums of understanding in November 2005 focusing on oil exploration and development in the Caspian Sea region, Central Asia, Africa and Latin America on behalf of India's Oil and Natural Gas Commission (ONGC) and the Indian Oil Corporation and China’s Sinopec, China National Petroleum Corporation, and China National Offshore Oil Corporation (CNOOC).[64] The agreements not only promise to solidify their economic and resource cooperation but indicate the expanded geographic reach of both nations.

Sino-Indian Realities Versus Perceptions

United States conventional military cooperation, combined with missile assistance in the guise of space technology, has the potential to strengthen India’s quest for parity with China. In the near-term, however, China is likely to dominate militarily. This assessment is based on qualitative improvements and a defense expenditure that is twice to four times that of India’s, depending on whether Chinese or U.S. estimates are used.[65] Despite U.S. efforts to hinder its military growth, China remains engaged in extensive military modernization, with a declared military budget of $29.9 billion for 2004.[66] China has announced increases in military spending nearly every year for more than a decade, with U.S. estimates for China’s modernization even higher. These advances, in line with China’s rapid economic growth, highlight the difficulties that India will face should it seek to “catch-up” to China.

Depending on which Chinese defense figure is used for comparison, India’s own growth in military spending, while a strong 27 percent increase reaching approximately $17.6 billion for the period from 2004 to 2005, is at best a little over half that of China.[67] However, there is one area in which India is rapidly gaining speed: procurement. According to an August 2005 U.S. Congressional Research Service report, India ranked first in the world in the value of arms transfer agreements from all countries by $500 million between 1997 and 2004.[68] In 2004 alone, India ranked first in this area among all developing nations weapons purchasers, with $5.7 billion in such agreements.[69] The U.S. is the world leader in arms sales to developing nations with deliveries estimated at $9.7 billion in 2004.[70] Even if India does not buy U.S. wares, it enjoys the long-term negotiation and planning leverage that China lacks. India’s nuclear and missile program quest for indigenization has been supplemented by pursuit of supplier diversification.

In spite of incitements to react, the Chinese government response to the U.S.-Indian joint statement and defense agreement of 2005 has been relatively muted. China has focused more on threats posed by the United States than those created by a well-armed or technologically-advanced India. In fact, Chinese popular and official media portray India as a developing nation that has been duped by the United States. The People’s Daily cloaks its views behind unnamed “analysts” (fenxizhe) to say that the U.S.-Indian defense framework and joint statement have expanded U.S. efforts to encircle and contain China.[71] It also lambastes U.S. hypocritical assistance to India, in light of U.S. tandem efforts to convince Iran and North Korea to abandon their nuclear programs and to pressure Europe to maintain its arms embargo against China.[72]

China adds India to a long list of countries or territories, including Taiwan, Japan, South Korea, Kazakhstan, and Afghanistan, that have been incorporated into expansive U.S. strategic, military and economic frameworks directed toward containing China. China’s own policies of establishing regional cooperative groups like the Shanghai Cooperation Organization (SCO) and its growing cooperative relationships with ASEAN and Indian Ocean nations may be understood in part as efforts to create patterns of regional solidarity to forestall this perceived U.S. encirclement. India’s observer status in the SCO combined with its attendance at August 2005 Sino-Russian military exercises, euphemistically dubbed “Peace Mission 2005,” are indicative of Chinese efforts at inclusive diplomacy, keeping its partners close and potential adversaries even closer: economically, politically, and increasingly militarily.[73]

In 2003, China and India engaged in unprecedented naval exercises as a major step toward military confidence building measures at a time when they were beginning to undertake joint energy programs.[74] Articles on future Indian participation with China and Russia in SCO military exercises also fuel speculation of counterbalancing U.S. hegemony.[75] There is abundant evidence that China seeks to strengthen its economic, political, cultural, and even military ties with India to pre-empt U.S. incorporation of yet another state at its borders. Yet, India and China also share concerns ranging from energy development to trade in the Indian Ocean and elsewhere, suggesting that the United States is significant but not the only driving force in their desire to cultivate cooperation over competition.

India has made a major strategic shift in its perceptions of China, from the time when officials such as former Indian Prime Minister Atal Behari Vajpayee and former Defense Minister George Fernandes cited China as the primary impetus behind India’s nuclear tests and Agni missile program.[76] Recognizing the potentially adverse effects on Sino-Indian economic and political relations, Indian authors and politicians alike have been extremely careful to emphasize that cooperation with the United States does not target China. India’s Prime Minister Manmohan Singh has repeatedly stated variations of the following: “We see new horizons in our relations with China. What we have done with the United States is not at the cost of China or any other country.”[77]

At the same time, Indian authors are cautious not to exaggerate the warming trend in Sino-Indian relations. While Chinese articles tend to discount the threat posed by India, for Indian strategic analysts China remains a source of concern for perceived designs on regional hegemony. The 1962 India-China conflict still looms in the writings of many Indian analysts. The litany of Indian articles on China’s contributions to Pakistan’s Babur missile illustrates ongoing perceptions of China using a regional proxy to threaten India. India maintains a complex combination of emulation and distrust when it comes to China.[78] Emulation for China’s rate of growth and ability as a developing country to place itself on the geopolitical map. Distrust over China’s growing economic and military strength, and expansive diplomacy, focused on discussion of its “real intentions”.[79] In addition to the anticipated technological benefits gained from cooperating with the United States, India seeks a counterweight even as it pursues cooperative relations with China.

China also serves as an asset for India in its efforts to cultivate stronger relations and inducements from the United States. U.S. relations with Pakistan and historical assistance to its military programs during the Cold War mark Indian perceptions of questionable U.S. loyalties and unreliability. Even with the economic and technological gains contained in the joint statement with the United States, numerous Indian articles lament that India’s defense and arms relationship with the United States is tantamount to selling off the Indian Ocean, relinquishing its nuclear autonomy, and constraining its future fissile material production. India prides itself on preserving its position as an independent actor and continues to be acutely sensitive to discrimination or power politics.[80] Continued Indian efforts to promote multilateralism with China and Russia, while courting the United States, suggests Indian wariness not only towards China but also towards the United States.


For both China and the United States, cooperation with India is emblematic of India’s growing political, economic and military strength. Among the many goals of issuing a joint statement with India, the United States may have designs on bolstering India vis-à-vis China.[81] If this is the case, however, the effect may prove to be the reverse. China has been pushed to accelerate and expand its own incentives, in part, to avoid United States entrenchment in another country on its borders. Similarly, the United States is compelled by China’s actions to stifle any move toward a Sino-Indian alliance or Sino-Indian-Russian triangle.[82] In the midst of this array of partnerships, India has been able to diversify its political partners, just as it has diversified its suppliers of technology.

China is but one factor in U.S. technological and military engagement with India. Also present is the realization that many of India’s nuclear and missile developments are already indigenous and increasingly beyond U.S. control and sanctions. Concurrently, while a technological innovator, India has also become one of the largest recipients of foreign arms agreements and transfers. The United States is faced with a choice of participating as a supplier or running interference as Russia, Israel, France and other countries attempt to benefit from India’s procurement frenzy. Profit motive may be guiding the United States as much if not more than the strategic considerations involving China and regional hegemony.

Regardless of motive, the United States is systematically removing licensing requirements on many firms that contributed to India’s nuclear weapons and missile programs. Lifting of these sanctions combined with the joint statement on dual-use technology can only strengthen efforts by other countries defying U.S. and international nonproliferation norms. U.S. dual-use technology is also likely to contribute to assisting India in realizing advanced fusion technology for its nuclear weapons and advances in targeting and staging for its missiles, placing the United States and its allies in nuclear-capable ballistic missile range. Even U.S. anticipation of garnering enhanced Indian support for its agenda abroad is diminished by India’s long-standing cooperation with Chinese and Russian multilateral initiatives, most recently on Iran.

China and the United States have long engaged India’s adversaries, while demonstrating reluctance to form strategic partnerships with India. Despite similar early trajectories and lingering ties to Pakistan for both countries, current Chinese and U.S. cooperation with India is distinctly different. China has worked to reduce tension with India by establishing a relationship based on stronger cooperation in the realms of trade, cultural exchange, and energy exploration. Politically and economically, the United States has also created inducements for closer Sino-Indian cooperation. Yet, by making dual-use transfers in nuclear and space technology the core of the United States’ other economic, political and strategic inducements to India, the long-term strategic price may be greater than the dollars or short-term political leverage earned. The technology and military hardware provided by the United States promises to expand India’s political, strategic and military footprint even beyond China. U.S. interference further strengthens China’s incentives to cooperate with India. Rather than pitting India against China, the United States may be setting up India to instead serve as a future strategic counterweight to U.S. interests in Asia and abroad.


[1] “India’s China Policy: Importance of a Strategic Framework,” in “India Urged to Formulate ‘Clear’ China Policy to Achieve Strategic Objectives,” New Delhi, Bharat Rakshak Monitor, FBIS SAP20050714000091, April 1, 2005.; “The New Chapter of Relationship,” in “Editorial Lauds Growing India-China Friendship to Counter US Dominance in Asia,” New Delhi Rashtriya Sahara, FBIS SAP20050413000025, April 13, 2005.
[2] Lu Yansong, “Short-sighted Nuclear Deal,” in “PRC: RMRB Article Views US-India ‘Nuclear Deal,’ US Plan to Counter PRC with India, Japan,” Beijing, Renmin Ribao, FBIS CPP20050819000088, August 19, 2005.; “RMRB Cites Huanqiu Shibao Article on Washington Drawing India in Against China,” Beijing, Renmin Ribao, FBIS CPP20050708000034, July 7, 2005.; Palash Kumar, “AFP: US Feting India to Balance Power in China-Dominated Asia: Analysts,” Hong Kong AFP, FBIS JPP20050719000088, July 19, 2005.
[3] “Full Text of Joint Statement of China, India,” People’s Daily Online, April 13, 2005, available at, accessed on August 13, 2005.; “PM’s Statement in the Lok Sabha on the Visits of Chinese Premier and Pakistan President,” Indian Embassy, April 20, 2005, available at ... ril/15.htm, accessed on August 13, 2005.
[4] “The Joint Communiqué of the Informal Meeting Between the Foreign Ministers of the People’s Republic of China, the Russian Federation and the Republic of India,” Foreign Ministry of the People’s Republic of China, June 3, 2005, available at, accessed on August 13, 2005.
[5] “New Framework for the U.S.-India Defense Relationship,” United States Embassy, New Delhi-India, June 28, 2005, available at, accessed on July 14, 2005.
[6] “India - USA Joint Statement,” Department of Atomic Energy, Government of India, available at, accessed on July 20, 2005.
[7] Sharon Squassoni, “U.S. Nuclear Cooperation with India: Issues for Congress,” Congressional Research Service Report for Congress, July 29, 2005, pp. 4, 5.
[8] “Unclassified Report to Congress on the Acquisition of Technology Relating to Weapons of Mass Destruction and Advanced Conventional Munitions,” U.S. Central Intelligence Agency, 1 January Through 30 June 2002, available at, accessed on August 31, 2005.
[9] “Nuclear Power in India and China,” World Nuclear Association, September 2004, available at, accessed on February 17, 2005.; Aziz Haniffa, “’India Will Consume More Energy to Fuel Economic Growth,’” India Abroad, Vol. 35, No. 46, August 12, 2005, p. A8.
[10] Sunil Saraf, “Prime minister marks beginning of India's commercial breeder,” Nucleonics Week, October 28, 2004, available at, accessed on August 17, 2005.
[11] “BARC Commissions Integral Test Loop Facility for AHWR: Banerjee,” The Press Trust of India, April 12, 2005, available at, accessed on August 31, 2005.; T. S. Subramanian, “Advanced Heavy Water Reactor Construction Next Year,” The Hindu, October 24, 2003, available at, accessed on August 31, 2005.
[12] Estimates in the World Nuclear Association online journal suggest that India has approximately six times more thorium than uranium in its domestic mineral deposits. “Thorium,” Information and Issue Briefs, World Nuclear Association, November 2004, available at, accessed on September 7, 2005.
[13] “Thorium,” Information and Issue Briefs, World Nuclear Association, November 2004, available at, accessed on September 7, 2005.
[14] “Advanced Nuclear Power Reactors,” Nuclear Issues Briefing Paper 16, May 2005, available at, accessed on September 7, 2005.
[15] “A ‘Proliferation-Proof’ Reactor?” NUKEM Market Report 1997, NUKEM Nuclear Technologies, available at, accessed on September 7, 2005.
[16] David Albright and Kimberly Kramer, “Separated Civil Plutonium Inventories: Current Status and Future Directions,” Institute of Science and International Security, June 10, 2005, Revised July 8, 2005.; Henry Sokolski, “The India Syndrome – U.S. Nuclear Nonproliferation Policy Melts Down,” The Weekly Standard, August 1, 2005, pp. 15, 16.
[17] Andre Gsponer and Jean-Pierre Hurni, “ITER: The International Thermonuclear Experimental Reactor and the Nuclear Weapons Proliferation Implications of Thermonuclear-Fusion Energy Systems,” Independent Scientific Research Institute, Switzerland, August 10, 2005.; Sridhar K. Chari, “India on Way to Joining the Fusion Club,” The Tribune, August 24, 2005, available at, accessed on August 26, 2005.
[18] “India May Test Again Because H-Bomb Failed, U.S. Believes,” Nucleonics Week, Vol. 39, No. 48, November 26, 1998, pp. 1, 9, 10.
[19] “Removal of License Requirements for Exports and Reexports to India of Items Controlled Unilaterally for Nuclear Nonproliferation Reasons and Removal of Certain Indian Entities from the Entity List,” Bureau of Industry and Security, U.S. Department of Commerce, Federal Register, Vol. 70, No. 167, August 30, 2005, available at, accessed on August 30, 2005.
[20] “BARC Commissions Integral Test Loop Facility for AHWR: Banerjee,” The Press Trust of India, April 12, 2005, available at, accessed on August 31, 2005.
[21] Aziz Haniffa, “Deadly Arsenals: India, Pakistan Can Have 110 Nuclear Bombs,” India Abroad, Vol. 35, No. 47, pp. A1, A7.; Joseph Cirincione, Jon B. Wolfsthal, and Miriam Rajkumar, Deadly Arsenals – Nuclear, Biological, and Chemical Threats, Second Edition, Washington, DC: Carnegie Endowment for International Peace, July 2005.
[22] “Table 2 Plutonium and HEU Holdings by Country, end 2003, in Tonnes,” Global Stocks of Nuclear Explosive Materials: Summary Tables and Charts,” Institute for Science and International Security, July 22, 2005, Revised August 22, 2005.
[23] Ibid.
[24] “Global nuclear stockpiles, 1945-2002,” The Atomic Scientists Bulletin, available at, accessed on September 5, 2005. "China's Fissile Material Stockpile," Nuclear Threat Initiative, available at, accessed on September 19, 2005.
[25] “Britain to ease nuclear sanctions against India,” Press Trust of India via India Info, August 11, 2005, available at ... clear.html, accessed on September 7, 2005.
[26] Abbas Razza Khan, “Russia endorses nuclear pact between US and India,” Press Trust of India, September 16, 2005, available at, accessed on September 16, 2005.
[27] “France Backs India’s Nuclear Energy Plans After Winning Sub, Airbus Deal,” Yahoo News, September 12, 2005, available at, accessed on September 13, 2005.
[28] Foster Klug, “Pakistan Wants Civilian Nuclear Deal,” The Associated Press via The Washington Post, September 8, 2005, available at, accessed on September 8, 2005.
[29] “Foreign Missile Developments and the Ballistic Missile Threat Through 2015,” National Intelligence Estimate, National Intelligence Council, December 2001, available at ... at2001.pdf, accessed on August 11, 2005.
[30] K. S. Jayaraman, “GSLV Launch Helps Move India Closer To Self-Reliance in Space,” Space News, available at ... 52003.html, accessed on August 25, 2005.
[31] After delivery of Norwegian Norsk Data ND 100 and ND 500 type computers between 1983 and 1984 and arrival of a U.S. Cray XMP-14 supercomputer in 1987, by September 2002 the Bhabha Atomic Research Center (BARC) developed the ANUPAM-PIV 64-node supercomputer with a speed of 43 giga flops. In 2003, India’s Centre for Development of Advanced Computing (C-DAC) went one giant step further by developing the PARAM Padma which has a speed of one teraflop, a trillion floating point operations per second. "Norsk Data Computers Used in Indian Nuclear Program,” Oslo, Dagbladet, May 4, 1990, FBIS JPRS-TND-90-011, accessed on September 7, 2005.; “India's BARC develops fastest supercomputer in the country,” Asia Pulse, September 16, 2002, available at, accessed on August 31, 2005.; Sharad Purohit, R.K. Arora, S.P. Dixit, N. Mohan Ram, P.K. Sinha, V.C.V. Rao, “PARAM Padma – A Teraflops Computing System And High Performance Computing in India,” Centre for Development of Advanced Computing, 2003, available at, accessed on September 5, 2005.
[32] Indrani Bagchi, “India hopes to get sanctions revoked,” Times of India, October 11, 2004, available at ... 880726.cms, accessed on September 11, 2005.; “Foreign Secretary: India Wants 'More Symmetrical Relationship' With US,” Mumbai, The Times of India, October 11, 2004, FBIS SAP20041011000006, accessed on August 30, 2005.
[33] “TIFR announces tie-up with HP,” in “India: Pune-Base Supercomputer Param 1000 Announces Tie-Up With Hewlett Packard,” Chennai, Business Line, April 20, 2005, FBIS SAP20050421000073, accessed on August 30, 2005.
[34] “Announcement on U.S.-India Next Steps in Strategic Partnership,” Bureau of Industry and Security, U.S. Department of Commerce, September 2004, available at, accessed on February 16, 2005.
[35] “Removal of License Requirements for Exports and Reexports to India of Items Controlled Unilaterally for Nuclear Nonproliferation Reasons and Removal of Certain Indian Entities from the Entity List,” Bureau of Industry and Security, U.S. Department of Commerce, Federal Register, Vol. 70, No. 167, August 30, 2005, available at, accessed on August 30, 2005.
[36] Indian Air Force Chief Marshal, Srinivaspuram Krishnaswamy stated as early as October 2003 that India has begun “conceptualizing” space weapons command systems and operational command. In November 2003 and again in December 2004, India made a potentially significant step in this direction by signing onto Russia’s Global Navigation Satellite System (GLONASS), a space platform that could be used for improving the accuracy of its missile systems and expansion into other weapons systems. “IAF Working on Weapon Platforms in Space,” The Hindu, October 7, 2003, available at, accessed on August 24, 2005.; “India Working on Space Weapons: IAF Chief,” The Press Trust of India, available at, accessed on August 29, 2005.; “Memorandum of Understanding Between the Russian Aviation and Space Agency and the Indian Space Research Organization on Cooperation in the Exploration and Use of Outer Space for Peaceful Purposes,” The Embassy of the Russian Federation in the Republic of India, November 11-13, 2003, available at, accessed on August 31, 2005.; “India and Russia to Revive Glonass,” Flight International, December 14, 2004, available at, accessed on August 30, 2005.
[37] Vivek Raghuvanshi, “Pakistan’s Missile Tests Jolts India,” Defense News, August 22, 2005, p. 50.
[38] Ranjit Kumar, “China Gave ‘Babar’ to Pakistan,” in “India: US Military Expert Says Pakistani ‘Babar’ Missile Imported from China,” New Delhi Navbharat Times, FBIS SAP20050823000021, August 23, 2005, August 26, 2005.
[39] Prasun K. Sengupta, "Babur's Flight,” in “India: Report Notes China's Involvement in Pakistan's Hatf VII Cruise Missile,” New Delhi Force, FBIS, September 9, 2005, SAP20050909000103, accessed on September 10, 2005.
[40] G. Parthasarathy, “Cruise Missiles in Neighborhood – A Result of Sino-Pak Growing Nexus,” Bharat Rakshak, August 29, 2005, available at http://www.bharat-rakshak, accessed on August 30, 2005.
[41] “Proliferation: Threat and Response,” Office of the Secretary of Defense, U.S. Department of Defense, available at, accessed on August 28, 2005, p. 24.; Amitabh Mattoo, “Indian Agni-II Missile Said Aimed at China,” Calcutta The Telegraph, available at, accessed on August 25, 2005.
[42] Rahul Bedi, “New Delhi Reveals Latest Schedule for Missile Tests,” Jane's Defense Weekly, November 12, 2003, p. 4
[43] “Indian Defence News,” New Delhi, Chanakya Aerospace and Maritime Review, Vol. 31, No. 5, May 1, 2005, FBIS SAP20050623000018, accessed on August 15, 2005.; “Proliferation: Threat and Response,” Office of the Secretary of Defense, U.S. Department of Defense, available at, accessed on August 28, 2005, p. 24.
[44] Press reports as early as 1999 suggest an imminent test of India’s ICBM. “India to Test New Long-Range Ballistic Missile: Official,” AFX News Limited, November 7, 1999, available at, accessed on August 25, 2005.; “India: Ballistic Missiles Under Development,” BBC Monitoring South Asia, May 18, 1999, available at, accessed on August 25, 2005.
[45] Mark Gorwitz, “The Indian Strategic Nuclear Submarine Project - An Open Literature Analysis,” December 1996, available at, accessed on August 29, 2005.
[46] “Indian Military Bolstered by Foreign Purchases, Cooperation,” JINSA Online, April 23, 2004, available at, accessed on September 7, 2005.
[47] “No Gorshkov, but Accords Look to the Future,” Times of India via Bharat-Rakshak, February 9, 2002, available at, accessed on September 7, 2005.
[48] “Bellona To Seek Intl Action Over Sunken Russian Sub,” Moscow Interfax, FBIS CEP20050830950045, August 30, 2005.
[49] Vivek Raghuvanshi, “Salvaging the Sagarika: India Seeks Russian, Israeli Help in Missile Development,” Asia and Pacific Rim, Defense News, February 21, 2005, p. 14.
[50] T. S. Subramanian, “Prithvi-III Test Fired for First Time,” The Hindu, October 28, 2004, available at, accessed on August 11, 2005.
[51] Rahul Roy-Chaudry, “India-Defense: India Developing Sea-Based Missile System,” IPS-Inter Press Service, September 29, 1994, available at, accessed on August 25, 2005.; “N-Submarine Project Yet to Take Off,” The Hindu, October 28, 1998, available at, accessed on August 31, 2005.
[52] “New Army ‘Doctrine’ Ready for Release,” India, The Statesman, October 24, 2004, available at, accessed on August 11, 2005.
[53] “Navy: Busy Year of War Games Ahead,” in “Indian Navy to Join War Games with US, Russia, France,” New Delhi, The Asian Age, July 5, 2005, FBIS, SAP20050715000020, accessed on September 7, 2005.; Shashank Sinha, “Indian Navy Interested in USS Trenton,” in “Indian Defense Think Tank Says ‘USS Trenton’ May Be ‘Great Asset’ for Navy,” New Delhi, India Defense Consultants, August 15, 2005, FBIS SAP20050815000054, accessed on September 7, 2005.
[54] “Talks with India Remained Warm for Six Months, Now There is Chilliness: Chief of Naval Staff,” in “Pakistan Gets 8 P-3C Orion Aircraft, Two Frigates from US; CNS Lauds US Help,” Rawalpindi, Nawa-e Waqt, September 1, 2005, FBIS SAP20050902000048, accessed on September 7, 2005.
[55] China is not the only concern of Indian strategists charting developments in the Indian Ocean. The U.S. driven Proliferation Security Initiative (PSI), under which illicit transfers are interdicted during shipment, has also come under scrutiny. A number of Indian critics have expressed concern that the United States is manipulating their partnership to gain “back door entry” into the Indian Ocean for the PSI, which many deem as already on shaky legal ground given Part VII of the 1982 UN Convention on the Law of the Sea. India’s own reluctance to fall in line with the United States has been made particularly evident with the omission of PSI from the Indo-U.S. joint statement and India’s refusal to join August 2005 U.S.-organized multinational PSI naval exercises in Southeast Asia. Seema Mustafa, “India Surrenders Ocean to US,” in “India Said to Surrender Ocean to US in Defense Pact,” New Delhi, The Asian Age, FBIS SAP20050706000017, July 2, 2005.; Ranjit Kumar, “India Did Not Join the PSI Military Exercise,” in India Stays Away from Joint Naval Exercise to Monitor Illegal Arms Transport,” New Delhi, Navbharat Times, August 17, 2005, FBIS SAP20050817000023, accessed on September 7, 2005.
[56] “Annual Report – 2003-2004,” Ministry of Defence, Government of India, available at, accessed on August 15, 2005.
[57] “The Military Power of the People’s Republic of China,” A Report to Congress Pursuant to the National Defense Authorization Act Fiscal Year 2005, Office of the Secretary of Defense, U.S. Department of Defense, 2005, pp. 23, 24, 33.
[58] Ibid.
[59] Rajat Pandit, “Wait For Scorpene May Soon Be Over,” The Times of India, March 16, 2005, available at, accessed on August 11, 2005.
[60] “China, India Seek Cooperation in Global Oil Quest,” Embassy of the People’s Republic of China in India, April 4, 2005, available at, accessed on August 15, 2005.
[61] “India, China to Set Up Joint Group to Forge Oil Cooperation Deals,” New Delhi, The Press Trust of India, August 9, 2005, FBIS SAP20050809000099, accessed on August 10, 2005.
[62] Penny Macrae, “AFP: India Says China Oil Cooperation at Early Stage,” Hong Kong Agence France Presse, August 26, 2005, FBIS JPP20050826000017, available at, accessed on August 26, 2005.; “China Beats India to Acquire PetroKazakhstan,” New Delhi, The Press Trust of India, August 22, 2005, FBIS SAP20050822000064, available at, accessed on August 26, 2005.
[63] “The Military Power of the People’s Republic of China,” A Report to Congress Pursuant to the National Defense Authorization Act Fiscal Year 2005, Office of the Secretary of Defense, U.S. Department of Defense, 2005, p. 33.
[64] “India says China oil cooperation at early stage, will still compete,” Agence France Presse, August 26, 2005, available at, accessed on August 31, 2005.
[65] “The Military Power of the People’s Republic of China,” A Report to Congress Pursuant to the National Defense Authorization Act Fiscal Year 2005, Office of the Secretary of Defense, U.S. Department of Defense, 2005, pp. 21, 22.
[66] Ibid.
[67] “Defense Expenditure, 2004-2005,” Ministry of Defense, Government of India, available at, accessed on September 8, 2005.
[68] Richard F. Grimmett, “Conventional Arms Transfers to Developing Nations, 1997-2004,” Congressional Research Service Report for Congress, August 29, 2005, available at, accessed on September 9, 2005.
[69] Ibid.
[70] Ibid.
[71] “Mei Dui Yin Kaiqi He Da Men – Yu Lianhe Yindu Ezhi Zhongguo Fazhan,” (The United States Opens the Nuclear Door to India – In a Desire to Contain China’s Growth), People’s Daily, July 20, 2005, available at, accessed on August 14, 2005.
[72] “Mei Yin He Hezuo Shi Yi Zhao Xianqi Hai Shi Yiji Miaozhao?” (Is Nuclear Cooperation between the United States and India a Dangerous or Clever Chess Move?),, July 21, 2005, available at, accessed on August 14, 2005.; “Mei Dui Yin Kaiqi He Da Men – Yu Lianhe Yindu Ezhi Zhongguo Fazhan,” (The United States Opens the Nuclear Door to India – In a Desire to Contain China’s Growth), People’s Daily, July 20, 2005, available at, accessed on August 14, 2005.
[73] “Indian Defence Officials Watch China-Russia Military Exercises,” New Delhi, The Press Trust of India, FBIS SAP20050823000109, August 23, 2005, available at, accessed on August 26, 2005.
[74] “Zhong Yin Nengyuan Xuqiu Zengjia Tiaozhan Meiguo?” (Will China and India’s Energy Needs Increase the Challenge to the United States?), Muzi News,, August 12, 2005, available, accessed on August 14, 2005.; Christopher Bodeen, “China, India Conduct Joint Naval Exercise,” The Associated Press, The Washington Post, November 14, 2003, available at, accessed on November 14, 2003.
[75] “Zhong Yin E Goujian Zhanlue Sanjiao – Xin Anquan Guanzhu Daoxia Chuanmian Hezuo,” (China, India, and Russia Build a Strategic Triangle – Their New Concept of Security Spans All Areas) Army News,, June 10, 2005, available at, accessed on August 14, 2005.; “Russia-China-India Maneuvers May Be Held in 2006,” Moscow, Agentstvo Voyennukh Novostey, August 26, 2005, FBIS CEP20050826027004, accessed on August 26, 2005.
[76] George Perkovich, India’s Nuclear Bomb – The Impact on Global Proliferation, University of California Press, Berkeley, 1999.
[77] “India, United States Not Ganging Up Against China, Indian PM,” Agence France Presse, August 3, 2005, available at, accessed on August 15, 2005.; “India, US Ink Pact for Comprehensive Defence Cooperation,” The Press Trust of India, June 29, 2005, available at, accessed on August 17, 2005.
[78] Sheela Bhatt, “The Big Question: Can Singh Emulate China?” India Abroad, Vol. 35, pp, A1, A12.
[79] Dr. Subhash Kapila, “China-India Strategic Alliance – Should Not Be Unthinkable: An Analysis,” South Asia Analysis Group, Paper No. 1375, May 12, 2005, available at, accessed on August 13, 2005.
[80] “Treat India Like Other N-States,” The Hindu, October 29, 1998, available at, accessed on August 31, 2005.; S. G. Roy, “Gandhi: India Will Reprocess Nuclear Fuel,” United Press International, August 11, 1982, available at, accessed on August 31, 2005.
[81] “Engaging India as a Global Strategic Partner,” Republican Policy Committee, United States Senate, July 19, 2005, available at, accessed on September 8, 2005.
[82] “PRC Scholar ‘Broad Prospects’ for India-Russia-China Strategic Triangle,” Beijing, Beijing Review, FBIS CPP20050804000129, available at, accessed on August 15, 2005.

Lora Saalman is a Research Associate at the Wisconsin Project on Nuclear Arms Control. Her analyses have appeared in the online journals of the Power and Interest News Report, the Nuclear Threat Initiative, the Monterey Institute of International Studies, and the Center for Nonproliferation Studies. She wrote this article for Japan Focus. The views expressed in this article do not necessarily reflect those of the Wisconsin Project on Nuclear Arms Control. Posted September 21, 2005.
Last edited by renukb on 21 Mar 2009 18:37, edited 1 time in total.

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Re: US and PRC relationship & India -1

Postby renukb » 21 Mar 2009 15:33

This was long overdue.... this should help stabilize Indo-Pak-Chinese relations a bit further.... When that happens the US influence in the region could decrease, but also give an edge to Russians in the region to play their games....

India should align more with the regional players and Russia than the US and the west who had the history of colonial past... This will not only normalize and stabilize the region, but will keep the invaders away.... I would even go ahead and recomend that let these nations drag Japan into the SCO and form a regional social, economical and security alliance... to stabilize the region... Say no to non regional players who doesn't understand our culture and sociual fabrique...

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

[As the US seeks to isolate Iran and pave the way for UN sanctions that would legitimate an attack on Iran, China and Russia have taken important steps to expand their regional organization. The Shanghai Cooperation Organization constitutes the major regional challenge to American power in the Asia Pacific region. The invitation to Iran comes at a time when that nation faces extreme international isolation, and raises the stakes in the US diplomatic and military efforts to pressure Iran to terminating its nuclear program.]

The Shanghai Cooperation Organization (SCO), which maintained it had no plans for expansion, is now changing course. Mongolia, Iran, India and Pakistan, which previously had observer status, will become full members. SCO's decision to welcome Iran into its fold constitutes a political statement. Conceivably, SCO would now proceed to adopt a common position on the Iran nuclear issue at its summit meeting June 15.

Speaking in Beijing as recently as January 17, the organization's secretary general Zhang Deguang had been quoted by Xinhua news agency as saying: "Absorbing new member states needs a legal basis, yet the SCO has no rules concerning the issue. Therefore, there is no need for some Western countries to worry whether India, Iran or other countries would become new members."

The SCO, an Intergovernmental organization whose working languages are Chinese and Russian, was founded in Shanghai on June 15, 2001 by China, Russia, Kazakhstan, Kyrgystan, Tajikistan and Uzbekistan. The SCO's change of heart appears set to involve the organization in Iran's nuclear battle and other ongoing regional issues with the United States.

Visiting Iranian Deputy Foreign Minister Manouchehr Mohammadi told Itar-TASS in Moscow that the membership expansion "could make the world more fair". And he spoke of building an Iran-Russia "gas-and-oil arc" by coordinating their activities as energy producing countries. Mohammadi also touched on Iran's intention to raise the issue of his country's nuclear program and its expectations of securing SCO support.

Leaders of the SCO at its founding meeting in Shanghai in 2001

The timing of the SCO decision appears to be significant. By the end of April the director general of the International Atomic Energy Agency is expected to report to the United Nations Security Council in New York regarding Iran's compliance with the IAEA resolutions and the Security Council's presidential statement, which stresses the importance of Iran "reestablishing full, sustained suspension of uranium-enrichment activities".

The SCO membership is therefore a lifeline for Iran in political and economic terms. The SCO is not a military bloc but is nonetheless a security organization committed to countering terrorism, religious extremism and separatism. SCO membership would debunk the US propaganda about Iran being part of an "axis of evil".

The SCO secretary general's statement on expansion coincided with several Chinese and Russian commentaries last week voicing disquiet about the US attempts to impose UN sanctions against Iran. Comparison has been drawn with the Iraq War when the US seized on sanctions as a pretext for invading Iraq.

A People's Daily commentary on April 13 read: "The real intention behind the US fueling the Iran issue is to prompt the UN to impose sanctions against Iran, and to pave the way for a regime change in that country. The US's global strategy and its Iran policy emanate out of its decision to use various means, including military means, to change the Iranian regime. This is the US's set target and is at the root of the Iran nuclear issue."

The commentary suggested Washington seeks a regime change in Iran with a view to establishing American hegemony in the Middle East. Gennady Yefstafiyev, a former general in Russia's Foreign Intelligence Service, wrote: "The US's long term goals in Iran are obvious: to engineer the downfall of the current regime; to establish control over Iran's oil and gas; and to use its territory as the shortest route for the transportation of hydrocarbons under US control from the regions of Central Asia and the Caspian Sea bypassing Russia and China. This is not to mention Iran's intrinsic military and strategic significance."

Russian Foreign Minister Sergey Lavrov said: "I would not be in a hurry to draw conclusions, because passions are too often being whipped up around Iran's nuclear program ... I would also advise not to whip up passions."

Sergei Kiriyenko, head of Russia's nuclear power agency and a former prime minister, said Iran was simply not capable of enriching uranium on an industrial scale. "It has long since been known that Iran has a 'cascade' of only 164 centrifuges, and obtaining low-grade uranium from this 'cascade' was only a matter of time. This did not come as a surprise to us."

Yevgeniy Velikhov, president of Kurchatov Institute, Russia's nuclear research center, told Tier-TASS, "Launching experimental equipment of this type is something any university can do."

By virtue of SCO membership, Iran can partake of the various SCO projects, which in turn means access to technology, increased investment and trade, infrastructure development such as banking, communication, etc. It would also have implications for global energy security.

The SCO was expected to set up a working group of experts ahead of the summit in June with a view to evolving a common "energy strategy" and jointly undertaking pipeline projects, oil exploration and related activities.

A third aspect of the SCO decision to expand its membership involves regional integration processes. Sensing that the SCO was gaining traction, Washington had sought observer status at its summit meeting last June, but was turned down. This rebuff - along with SCO's timeline for a reduced American military presence in Central Asia, the specter of deepening Russia-China cooperation and the setbacks to US diplomacy in Central Asia as a whole - prompted a policy review in Washington.

Following a Central Asian tour in October by US Secretary of State Condoleezza Rice, Washington's new regional policy began surfacing. The re-organization of the US State Department's South Asia Bureau (created in August 1992) to include the Central Asian states, projection of US diplomacy in terms of "Greater Central Asia" and the push for observer status with the South Asian Association for Regional Cooperation (SAARC) should be seen in perspective.

US diplomacy is working toward getting Central Asian states to orientate toward South Asia - weaning them away from Russia and China. (Hamid Karzai's government in Kabul has also failed to respond to SCO's overtures but has instead sought full membership in SAARC.)

But US diplomacy is not making appreciable progress in Central Asia. Washington pins hopes on Astana (Kazakhstan) being its pivotal partner in Central Asia. The US seeks an expansion of its physical control over Kazakhstan's oil reserves and formalization of Kazakh oil transportation via Baku-Ceyhan pipeline, apart from carving out a US role in Caspian Sea security.

But Kazakhstan is playing hard to get. President Nurusultan Nazarbayev's visit to Moscow on April 3 reaffirmed his continued dependence on Russian oil pipelines.

Meanwhile, Washington's relations with Tashkent (Uzbekistan) remain in a state of deep chill. The US attempt to "isolate" President Islam Karimov is not working. (Indian Prime Minister Manmohan Singh is visiting Tashkent on April 25.) Again, Tajikistan relies heavily on Russia's support. In Kyrgyzstan, despite covert US attempts to create dissensions within the regime, President Burmanbek Bakiyev's alliance with Prime Minister Felix Kulov (which enjoys Russia's backing) is holding.

The Central Asians have also displayed a lack of interest in the idea of "Greater Central Asia". This became apparent during the conference sponsored by Washington recently in Kabul focusing on the theme.

The SCO's enlargement move, in this regional context, would frustrate the entire US strategy. Ironically, the SCO would be expanding into South Asia and the Gulf region, while "bypassing" Afghanistan.

This at a time when the North Atlantic Treaty Organization is stepping up its presence in Afghanistan. (General James L Jones, supreme allied commander Europe, said recently that NATO would assume control of Afghanistan by August.)

So far NATO has ignored SCO. But NATO contingents in Afghanistan would shortly be "surrounded" by SCO member countries. NATO would face a dilemma.

If it recognizes that SCO has a habitation and a name (in Central Asia, South Asia and the Gulf), then, what about NATO's claim as the sole viable global security arbiter in the 21st century? NATO would then be hard-pressed to explain the raison d'etre of its expansion into the territories of the former Soviet Union.

M K Bhadrakumar served as a career diplomat in the Indian Foreign Service for more than 29 years, with postings including India's ambassador to Uzbekistan (1995-1998) and to Turkey (1998-2001).

This article appeared in Asia Times on April 18, 2006. Posted at Japan Focus on April 18, 2006.
Last edited by renukb on 21 Mar 2009 18:24, edited 1 time in total.

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Re: US and PRC relationship & India -1

Postby renukb » 21 Mar 2009 15:38

brihaspati wrote:Russia will play for India if India promises Russia access through Indianized Pakistan to the Indian Ocean. That is Russia's greatest objective.

Russians gain a lot by aligning and forming stronger strategic relations with India in the future. If Russia doesn't play for India, they have a lot to loooose... politically, geographically and strategically. They might even loose their identity, if Russians don't forge stronger regional alliance to counter NATO. The sooner Russians realize this better for them.

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Re: US and PRC relationship & India -1

Postby renukb » 21 Mar 2009 23:10

China inoculates itself against dollar collapse
By W Joseph Stroupe ... 8Cb01.html

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