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Shyam Saran shows good awareness of the challenges facing a new govt.
X-posted...
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.
- 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.
- 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.
- 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.
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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 http://www.southasiaanalysis.org/papers3/paper241.html. 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:
andShyam 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 guess India has to develop multiple hedging strategies and invest accordingly while ensuring that no black swan or kala kauvva stops us.
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.
We need to be more focussed in our understanding of the different shades of the relationships.
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Read this with the Shyam Saran speech posted before.
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.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.
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?
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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.