Thursday, 22 December 2016

A Chinese prediction: What will Trump's China Policy Be?

       Reading the Chinese press these days the one issue that re-occurs with increasing frequency is; what would Trump's China policy be like? Most commentators profess bewilderment, partly because there is so little material, published or otherwise, to base judgment on and partly because some also subscribe to the view that Trump is both mercurial and impulsive. Therefore making a prediction becomes problematical. Nevertheless, based on what ever material is available, some Chinese commentators have been willing to stick their neck out and hazard a guess. If these views are amalgamated, the following would seem to be the current thinking on what Trump's policy towards China might eventually pan out to be. Since the Chinese press is "controlled" it would be fair to assume that it invariably reflects official thinking.
     The Chinese seem to have placed great reliance on the views expounded by Kissinger on Trump on his last visit to China, where he also met with President Xi Jinping. The Chinese have noted that Kissinger arrived in China, after he had met Trump and therefore his views on what Trump's policy is likely to be is assumed to carry Trump's imprimatur. Kissinger is reported to have told the Chinese that Trump was not an isolationist and that isolationism was not an option for US policy. Based on this assumption the Chinese are convinced that no matter how much the situation changes, the two countries need each other and therefore they do not expect "too much turbulence" in Sino-US relations.
    This assumption is further fortified by the belief that Sino-US economic relations are far too vast and varied and inter-dependent and that any unilateral action, such as trade sanctions, would lead to a trade "war" that would be totally ruinous for both countries. Sino-US bilateral trade last year touched US$ 558 billion, with direct US investment into China touching nearly US$ 70b. Similarly Chinese investment into the US has touched US$ 46b. The Chinese market is also the main source of income of several important US companies. On the other hand, if Trump does levy anti-dumping or countervailing duties on Chinese goods imported into the US, then China is prepared to go to the WTO to challenge Trump's impositions. The Chinese feel that they now have developed sufficient competence to handle such trade disputes in WTO and "win" them.
    The Chinese are convinced that Trump will not fundamentally change the US alliance system in the Asia-Pacific as that has been the fulcrum of US policy. It is far too important a strategic asset for the US. It is conceded that the US would "demand" greater coverage of "costs" of military deployment and probably both Japan and South Korea would oblige. It is also conceded that Trump, in line with his statements that he would prefer a "strong US military", may indulge in a Naval expansion that would see the US Navy expand from its present strength of 274 ships to 350 ships. This would also be in line with Trump's rhetoric that the US military should be so strong that "no one would make trouble for us". 
    The real trouble and exasperation for the Chinese is in discerning what Trump might do with regards to Taiwan. No Chinese commentator seems to be sure and apart from saying that the subject was very "sensitive"; there is no one unified view emerging. But all seem to urge Trump not to be "hasty", whatever that might mean! It is for this reason that the Chinese reaction to Trump's telephone call to the Taiwanese leader Tsai, was rather very mild and seemed to pin the blame more on the Taiwanese leader than on Trump. Chinese rhetoric on the subject, on the other hand is quite clear, that the "one China" policy must be maintained by the US. The Chinese see no allowance for any dithering on the question of Taiwan. All Chinese commentators maintain that US commitment to a "one China" policy is the bedrock of Sino-US relations and that this must not be disturbed under any circumstances.
    There is no doubt that the Chinese leadership is faced with an acute dilemma. Should they adopt a hardline policy towards Trump at the very beginning? Or should they wait to see how Trump's policies develop? The fact that the incoming Trump Administration has been filled with persons like Peter Navarro, who have written and expressed extreme hardline views on China, cannot but be a  cause for concern for the Chinese leadership. Like most countries the Chinese too wait patiently to see what happens next!

Friday, 16 December 2016

China Slams India on HH Dalai Lama's Meeting With President Mukherjee

       Ever since His Holiness the Dalai Lama [HHDL] took refuge in India in 1959, the Chinese authorities have lost no opportunity to slam the government of India for allowing HHDL to meet high dignitaries in India. Not only that even on his visits abroad, the Chinese authorities have taken deep umbrage if any foreign leader met with HHDL. The Chinese have even gone to the extent of threatening economic and political consequences. As the Chinese economic and military strength grew exponentially, most states began to defer to the wishes of the Chinese authorities. It was therefore a very pleasant surprise when little Mongolia, on China’s northern doorstep, refused to bow to a Chinese dictate and received HHDL and was even prepared to face the consequences of defying China. The Chinese were livid and demonstrated their ire when they unilaterally blockaded the Sino-Mongolian border and refused to allow any trans- shipment of goods. Mongolia being land locked is heavily dependent on China; just as Nepal is on India.

   However the recent Chinese outburst against the “Indian side” for allowing HHDL to meet with President Mukherjee during a children’s conference shows just how touchy the Chinese authorities have become. A Chinese Foreign Ministry spokesman, Geng Shuang had the following to say: “The Chinese side is strongly dis-satisfied with and firmly opposed to the meeting. We urge the Indian side to see through the anti-China separatist nature of the Dalai-clique, fully respect China’s core interests and major concerns, and take effective means to remove the negative impact caused by the incident to avoid any disturbance to the China-India relationship”. Of particular point to note in this statement is the reference to China’s “core interests”, as also to “major concerns” when referring to HHDL. What has not been clarified is whether HHDL is a “major concern” or whether the reference to “core interests” is a reference to Tibet. If HHDL has now become a “major concern”, it obviously means that the Chinese authorities are sufficiently rattled to go to the extent that they did with Mongolia to order a blockade. What made the Chinese even more irate was the appeal of the Mongolian Ambassador to India, Gonchig Ganhold that India should help Mongolia to deal with “China’s counter-measures against Ulan Batore”.

    It was not very long ago that the Chinese authorities were proclaiming a “new peripheral” policy that was designed to bring states on its borders closer together and to attempt to encourage them to take advantage of the rise of China as an economic power. The “One Belt, One Road [OBOR]” was one such major initiative of President Xi Jinping. The Chinese authorities were never tired of proclaiming a “win-win” situation, if states accepted the OBOR concept. As President Xi said “China should promote neighborhood diplomacy that turned its neighboring areas into a community of shared destiny”. But at the same time, President Xi emphasized that while China would adhere to the path of “peaceful” development; it would not abandon its legitimate rights and interests, or the nation’s “core interests”. Therefore the message was quite clear. If the circumstances so required, the Chinese leadership was prepared to play rough as well.

   In view of recent Chinese belligerence, I requested Prof John Garver, who is the Professor Emeritus in the Sam Nunn School of International Affairs at Georgia Tech and who has done seminal work on Chinese foreign policy, as to what he thought about recent developments in China’s peripheral policy. Prof Garver’s views are as follows:


 China under Xi Jinping has abandoned Deng Xiaoping's wise directive of 1990: "keep a low profile, hide your brilliance under a basket, and never claim the lead." Now, under Xi Jinping, China's interests and ambitions will grow as China's power grows. Chinese analysts expect "China's rise" to produce some initial resistance.  But eventually other countries [first and foremost China's neighbors] will recognize the wisdom of coming to terms with a rising China. The dream of many Chinese is for China to become the leading Asian power and a co-equal of the United States as a global leader. Demonstrable progress toward that "Dream" of the "great rejuvenation of the Chinese nation" justifies and legitimizes the absolutist rule of Xi Jinping and the CCP party-state.

    China will expect its neighbors to "respect China's core interests” as the quid pro quo for China's "friendship."  Abstaining from activities facilitating the efforts of "splitists" [as Beijing dubs the Dalai Lama to be] is, from Beijing's perspective, an essential part of this requirement. I don't think China's leaders fully understand how China's neighbors perceive China and its policies. I think the most likely course over the next decade or so will be a steady growth of Chinese assertiveness and, contrary to China's expectations, slow formation of a coalition of China's neighbors increasingly apprehensive of China's power.


     Thus the Chinese authorities probably expect that India would desist from permitting HHDL from playing any public role, other than living quietly in Dharamsala. But the reality is that Chinese peripheral policy is not making much progress, for with the notable exception of Pakistan, the Chinese are having issues with almost all their important neighbors. While relations with North Korea remain unequivocal, those with South Korea have recently soured. With Japan the dispute over the Senkaku [Diaoyu] islands remains as tense as ever. And with Trump rattling the Taiwan issue and US Admiral Harris raking up South China Sea dispute; China’s periphery is suddenly alive. Having successfully stoked the fire of nationalism and having made it synonymous with the Chinese “dream”, it remains to be seen how President Xi Jinping handles these delicate foreign policy issues. A deemed failure could also have domestic political repercussions, considering that the next party Congress is only a year away.

Tuesday, 13 December 2016

Increasingly Flustered and Alarmed China Cautions Trump on Taiwan

         President- Elect Trump's tweets and his recent interview with Fox News on Taiwan has made the Chinese leadership not only anxious, nervy but increasingly uneasy. The Chinese leadership responded to Trump's rhetoric by a People's Daily Commentary [less serious than an editorial or a signed article] that for China the "one-China" principle was the foremost pre-condition for building formal ties with other countries. The People's Daily reiterated that "no country is willing to bargain over core national interests and that China is no exception.... that there was no room for compromise". On the other hand, the Chinese leaders also did not wish to jeopardize relations with Trump and therefore quickly sent State Councilor Yang Jiechi to meet with Trump officials, notably NSA-designate Flynn.
      The question that therefore assumes importance is: Will Trump, after he assumes the US presidency in January 2017, persist with his present stance on Taiwan and Sino-US relations; or will he significantly modify his views? Should Trump persist, under what circumstances might this lead to a conflict situation arising between China and the US in the Asia-Pacific region? To answer this very important question, I put this across to Prof. John Garver, who is the Professor Emeritus at the Sam Nunn School of International Relations at Georgia Tech[Atlanta]. Prof John Garver is the author of eleven books and over a hundred articles dealing with China's foreign relations. His book entitled "The Protracted Contest: India-China Rivalry in the 20th Century" is considered a seminal work on Sino-Indian relations. Prof John Garver, is one of the most renowned scholars in the US on China and on Chinese foreign policy.
    This is what Prof John Garver had to say:
   [Begins] :
    I don't think this is very likely.   Both Beijing and Washington
    know a full scale war between them would be immensely costly,
    dangerous and very difficult to "win."  A war with the United States
    would undermine China's currently highly successful "rise" (still
    enjoying U.S. support).  For the Beijing regime a perceived "defeat"
    also carries the danger of regime collapse.  Beijing might threaten war
    over Taiwan, scaring a lot of people, but that is likely that this
    will be psychological, not bloody warfare.   
    The most likely scenario would be some provocative action by North
    Korea that triggered a South Korean response leading to renewal of
    the war suspended since July 1953.     If South Korea and the US
    moved to preempt (via conventional air and missile strikes) North
    Korea's nuclear capabilities, a war could result.   Seoul and
    Washington would do everything possible to secure Chinese acceptance
    of North Korea's forceful de-nuclearization and possibly the
    demise of the North Korean regime along with Korean unification
    under Seoul's leadership. But if China faced the prospect of a
    US-South Korean unification of the Korean peninsula under the
    Republic of Korea framework (i.e. alliance with the United States
    and the prospect of US troops on China's northeastern borders),
    China might intervene militarily, primarily to have a strong voice in
    the terms of the post-war settlement regarding the future of the
    Korean peninsula. I suspect that Beijing and Washington would
    maintain close contact during a second Korean war to avert
    miscalculations as occurred in 1950. 
    Accidental collision of Japanese and Chinese airplanes or ships in
    the East China Sea would lead to eruptions of anti-Japanese
    nationalism in China which, in turn, could compel the regime to
    "teach the dwarf pirates" (China's affectionate name for Japan) a
    lesson." The U.S. would intervene to end this Sino-Japanese
    confrontation, and I suspect that Beijing would be willing to go
    along. Beijing understands that bloodshed could prompt Japan to
    more quickly and more completely rearm --- to China's disadvantage.
    Of course, Beijing could also calculate that bloodshed in the East
    China Sea would mobilize Japan's pacifist forces and sentiment,
    helping to thwart Shinzo Abe's efforts to make Japan a "normal"
    (military) country.  [Ends].
         Quite clearly therefore the shrill words being exchanged between the US and China over Taiwan are more psychological in content than confrontational. As the People's Daily sermonized, the US needs to be "rational, respectful rather than impulsive". Is Trump listening?




Friday, 9 December 2016

India's Trade Deficit With China Skyrockets to US$52.69 billion.

      India’s trade deficit with China in 2015-16 stands at US$52.69 billion. And it is expected that this will go up even further this year. This by itself should not be a cause for worry, as India runs deficits with sixteen out of its top twenty five trade partners. The fact is that India buys more than it sells world- wide. But the real problem is that there is no obvious solution in sight as yet and therefore the question that arises is for how long can this huge deficit with China be maintained?

    India’s trade relations with China have had a checkered history and unfortunately continue to remain hostage to political developments between the two countries; albeit much less now than earlier. It is to the enormous credit of Rajiv Gandhi that he was the first Indian leader to realize that a solution to the vexed issue of the boundary dispute was not going to be forthcoming in the near future and therefore to delay normalization and development of trade and economic relations with China would only be counter-productive. It was Rajiv Gandhi who took the decision to de-link the two issues. It was also during his visit to China in December 1988, that for the first time a ‘Joint Economic Group’ was established. However it must be pointed out that no one in the Indian leadership at that time paid much attention to this aspect of the relationship, for no one anticipated that bilateral trade volumes would develop so fast. And develop they did with bilateral trade in 1991 jumping from a paltry US$ 265m to mushroom to a healthy US$ 70.73 billion in 2015-16. Of interest is the fact that India’s current bilateral trade with China is larger than its combined bilateral trade with Britain, Germany and Japan.

   Almost everyone recognizes what the real problem behind this massive trade deficit is. India’s trade basket consists of cotton, gems and precious metals, copper and iron ore. All are commodities. China on the other hand, exports manufactured capital goods mainly for the power and telecom sectors. The fact is that India just does not produce enough high quality manufactured goods for exports, let alone for its own billion plus consumers and therefore has to rely on quality imports from the outside world. There are many experts who feel that the inordinately high trade deficit between India and China of US$ 52.73b is not a very serious issue, for a country such as India that is on its way to establishing an industrial base and seeks high growth rates; a larger import profile is but unavoidable. Since China is the major source of technology intensive products that are cost effective, running a high deficit with China is but inevitable.

    However running trade deficits with China may not be necessarily inevitable as presumed. According to the Chinese, the problems faced by India are elsewhere and essentially relate to restrictive labor practices, land and tax laws, rickety infrastructure and inadequate power supply. In addition while China is a part of the global supply chain, being the last stop of the manufacturing chain in East Asia; India is no- where near being a part of this global chain. Both India and China are likely to be among the four largest economies in the world by 2020 and yet India still does not have a full time trade negotiator on the lines of the US Trade Representative [USTR]. Trade negotiations with China are therefore only but episodic.

   So what can be done? Two things stand out for immediate consideration.   

      The Chinese say that in the next few years they will import goods worth US$10 trillion and invest abroad about US$ 500 billion. We need to tap into this urgently. At present Chinese FDI into India is rather abysmal, with the total reaching a mere US$ 396m for the period 2000 to 2014. This figure is about 1 per cent of the total received by India and of this US$251m came in the last two years. During the visit of the Chinese President Xi Jinping to India in September 2014, he promised a further Chinese investment of about US$20b. The Chinese also proposed to set-up Industrial parks in India and every effort should be made to speedily execute these projects. Take the example of the manufacture of the iPhone in China. Most of its parts are imported into China from South Korea and Japan and China is the last stop in the manufacturing chain in East Asia. China only value adds a small proportion to the full product, but the important point is that it is a part of the Asian value chain. India needs to join this chain.    

   The second point for consideration is that there is a general lack of awareness in India about tapping the highly lucrative Chinese foreign tourist market. About 150m Chinese travel abroad annually and are estimated to spend about US$229b abroad. The number of Chinese tourists visiting India is abysmally low, but this may also be due to the visa regime being rather strict due to perceived security reasons. PM Modi during his last visit to China took a decisive step and introduced the concept of e-visas for facilitating travel by Chinese tourists, but much more needs to be done to attract Chinese visitors. The Buddhist circuit based on Gaya and Nalanda in Bihar needs to be directly air linked to Asian cities such as Bangkok, Singapore and Shanghai to facilitate travel. It is time for India to play the Buddhist tourist card.

   Ever since 1988 it has been India’s policy to limit our differences with China, contain them and  to narrow the strategic deficit, but at the same time to enlarge the scope for co-operation and collaboration. Let not the mushrooming trade deficit become yet another milestone around the neck of Sino-Indian relations. The time for taking decisive steps is there for the asking.

Sunday, 4 December 2016

Trump's Phone Call to Taiwanese President Rattles China

     Trump’s decision to speak to the Taiwanese President Tsai has left almost everyone befuddled. Was it a deliberate decision or was the President-Elect demonstrating his colossal ignorance of international affairs? The Taipei Times recalled that “Trump reportedly agreed to the call, which was arranged by his Taiwan friendly campaign staff after his aides briefed him regarding Taiwan and the situation in the Taiwan Straits”. So if the Taipei Times story is accurate then this wasn’t an impromptu call at all, nor was it done in a fit of absent mindedness. It is reported that John Bolton, the former US representative to the UN, visited Trump the Friday before the call for undisclosed reasons. Bolton is known for his extreme right wing views and his thoughts on China/Taiwan expressed in a Wall Street Journal op-ed published in January 2016, call for the eventual establishment of diplomatic relations with Taiwan. There are also reports that the Trump family is interested in a stake in the lucrative Taoyuan Aerotropolis project. Although this may have been the first time that a US President or a President-Elect has spoken to a Taiwanese leader since the normalization of relations with China since 1979, yet to be fair, even President-Elect Reagan had invited senior Taiwanese leaders to his inaugural in 1981. Then as now the Chinese were livid.

     There were two choices open before the Chinese leadership on how to react. The first was to play down the incident as trivial and of no consequence, or to escalate matters. The Chinese chose the first option. Foreign Minister Wang Yi dismissed the phone call as the “Taiwanese side engaging in petty action”, although his Ministry was rattled enough to lodge “stern representations” with the “relevant US side”. By blaming the Taiwanese exclusively, the Chinese clearly had no intention to rile the new incoming President just yet. The well- known Chinese strategist, Shen Dengli [Fudan University] appeared to absolve the Americans of culpability by saying that the Chinese can hardly object to a “private” citizen [Trump] talking to the Taiwanese leader! But the Chinese leadership is clearly flustered by what Trump has done and watches with increasing trepidation on what he might do after he assumes the presidency. The main fear is that President Trump maybe no different from candidate Trump.  

     One of the most prescient and authoritative observations on the thinking of the Chinese leadership on Trump was recently penned down by Jin Keyu, who teaches at the London School of Economics and is the only child of Jin Liqun, the President of the AIIB. Jin Liqun is a former Vice-Minister of Finance in China, has held a string of important and powerful financial appointments and is considered to be one of President Xi Jinping’s closest economic advisors. According to Jin Keyu, the Chinese leadership’s expectations of Trump are as follows:

    [a] The Chinese leadership is neutral on Trump’s victory. They have noted that Trump posted a video of his grand-daughter reciting a poem in Mandarin. They do not expect Trump to follow through on his campaign rhetoric regarding climate change [“hoax cooked up by China”] or the imposition of 45 percent duty on Chinese goods imported into the US. Thus the Chinese leadership feels that Trump’s campaign rhetoric on economic matters bears little relation to reality.

   [b] But what is the reality? According to the Chinese, if 45 per cent imposts are put on Chinese imports then [1] the non- availability of inexpensive Chinese goods would no longer put down ward pressure on prices which has been a boon for low income American house-holds, thus effectively raising their purchasing power [2] prices in US would rise undermining consumption, impeding economic growth and exacerbating inequality. [3] low- cost manufacturing would in any case not go back to the US, but would gravitate to countries such as Vietnam and Bangladesh that have even lower labor costs than China.

  [c] China is one of the largest purchasers of US Treasury Bonds and continues to finance American consumption and investment. US should not rule out that the Chinese are capable of financing Trump’s proposed large infrastructure projects, thus reducing pressure on the US budget. Thus the anticipation is that there will not be much change in US economic policy.

  [d] It is in the Strategic and political area that the Chinese leadership feels that Trump is far from inconsequential. He is no ordinary American President. Trump should be taken seriously, though not literally to borrow a phrase from the ‘Atlantic’s’ Salina Zito. The fact that Trump wishes to put “America First” means that so far he has shown little interest in the SCS dispute. China would welcome less US involvement in Asia.

   The Chinese have noted that Trump has assured both the South Korean and Japanese leaders that the US commitment to their security would continue and he has not raised the campaign rhetoric of asking both South Korea and Japan to pay “more” for US bases. The Chinese leadership does not want any instability in North-East Asia.

   The Chinese leadership is aware of what Trump has said about Russia and President Putin. If Trump mends fences with Russia, it would mean that there would be “subtle” changes in Sino-Russian relations.

       Finally, Jin Keyu says that the Chinese leadership is focused on what it considers really important. That is the absolute need for a co-operative relationship with the incoming Trump Administration.

Thursday, 1 December 2016

President Xi Jinping planning for a major new geo-political initiative?

     With the decision of the US President- Elect Donald Trump to withdraw from the Trans Pacific Partnership [TPP] on day one of his assumption of power as the next President of the US, the South China Morning Post [SCMP] from Hong Kong reports that the Chinese President Xi Jinping is planning for a major new geo-political initiative. At the heart of the proposal is to hold a summit level meeting of about 30 State leaders in China on the Chinese proposed "One Belt-One Road"[OBOR] initiative and that this summit is slated to surpass and perhaps even eclipse the G-20 summit held at Hangzhou earlier this year. President Xi sees this as an opening to give China's geo-political ambitions a "push" forward to further extend China's influence. The US decision to withdraw from the TPP is seen as the catalyst that has presented the Chinese leadership with an opportunity to fill the gap. The Chinese leadership also realizes that important states are at present beset with domestic problems and therefore the timing of the Chinese initiative is just about right.
    Connected with the OBOR proposal was the Chinese decision to establish the AIIB Bank that is slated to offer finance for infrastructure projects, particularly in Asian countries. Recently the President of the AIIB, Jin Liqun stated that the financing targets of the Bank are on track, with US$ 1.2 billion expected to be disbursed in the first year of operations. So far the Bank has disbursed US$829 million to six projects in Pakistan, Tajikistan, Indonesia and Bangladesh. It would be noted that all six countries are close to the periphery of China, where it has deep strategic interests. Only two major countries are outside the ambit of the AIIB at present--the US and Japan.
    However some significant problems for the Chinese leadership persist. The Chinese leadership is not at all sure which way its relationship with the Trump Administration is slated to go. While they are distinctly relieved that Trump has decided to "dump" the TPP and has not referred to his campaign promises of labelling China as a "currency" manipulator, nor has he mentioned about the imposition of a 45 per cent import duty on all Chinese imports into the US, yet they remain sanguine about whether Trump might push for confrontation on security and trade issues. In that eventuality, the Chinese would have a difficult time in managing their investments planned under the OBOR initiative.
   Secondly the Chinese are aware that with their shrinking foreign exchange reserves, limits to their ambitions would necessarily have to placed with a tightening of controls on the outward flow of the Renmenbi [Yuan]. Chinese investments are bound to slow down, although the Chinese maintain that OBOR projects would not be affected. It is however clear that while the Chinese currency may have depreciated against the US dollar, yet it has actually appreciated against the currencies of the SE Asian countries. The Chinese leadership does not expect that the Yuan's depreciation against the US dollar would seriously impact its proposed infrastructure projects.
    The Chinese are also conscious of the fact that two important states of Asia--India and Japan continue to remain skeptical of the OBOR and it is likely that President Xi Jinping may make one more effort to bring both India and Japan on board to see the merits of the OBOR. Should India begin to show interest, it may even receive an invitation for the proposed OBOR summit conference. Otherwise, in the fast paced evolving geo-strategic events in South and East Asia, India may just be left standing as a mere spectator!