Is China feeling economically threatened The Excelsior 13 may 2020

Is China feeling economically threatened The Excelsior 13 may 2020

Is China feeling economically threatened?

Is China feeling economically threatened? 13 May 2020

          Were the standoffs between Indian and Chinese troops orchestrated to convey a message or was it due to differing perceptions of borders? An analysis of recent Chinese writings would indicate that border skirmishes were intended to convey a message and possibly the future would witness more similar standoffs and increased Chinese naval presence in the Indian Ocean. The reason is India making concerted efforts to woo companies seeking to leave China.

Indian actions of wooing global companies seeking to leave China has led to their state-owned Global Times publishing op-eds conveying messages of caution. They appear to indicate that China does not desire India to be an economic power which would pose a challenge to it.  

An editorial published on 05 May stated, ‘With India’s economic rise, bilateral ties between the two emerging Asian powers are growing increasingly complicated. Benign competition probably cannot be avoided, and it should be welcomed.’ It further stated, ‘India is developing a land pool nearly double the size of Luxembourg to lure businesses moving out of China. Such words (actions) suggest that intensified Sino-India competition lies ahead.’

Despite all claims of resumption of its economy, China is aware of reality. It may project an image of confidence, however, knows that world manufacturing is pulling out. Current orders for Chinese manufactured products are depleting, leading to job losses and closure of industry. China will no longer be the world logistics hub nor global leader in production.

          In end Apr, Indian Minister Nitin Gadkari, stated in an interaction with overseas students, ‘across the world now, there is hatred for China. Is it possible for us to convert it into an opportunity for India?’ The Global Times was quick to counter and in an editorial, stated, ‘China and India could be friends rather than rivals.’ The editorial discussed Indian business environment as unsuitable for investment. It also objected to the use of the word ‘hatred.’

          China has been unhappy with India’s rising economic and military power. It knows India is the only country which can challenge its power in Asia. Currently, Chinese economy is five times larger, but with companies walking out and relocating, there could be a change. Chinese economy contracted by over 4.8% in the last quarter and it could be worse in the days ahead. If India becomes a preferred destination, the difference between the two economies would reduce.

Japan is leading the way by earmarking USD 2 Billion to support companies moving manufacturing out of China. Inputs from the US, quoted by Reuters states ‘There is a government-wide push to move US production and supply chain dependency away from China, even if it goes to other more friendly nations instead.’ The statement added, ‘US Commerce department, state and other agencies are looking for ways to push companies to move both sourcing and manufacturing out of China. Tax incentives and potential re-shoring subsidies are among measures being considered to spur changes.’ 

There are also reports that the Trump administration is seeking to create an alliance of ‘trusted partners’ termed the ‘Economic Prosperity Network’. Trump has hinted on imposition of new tariffs against China which will impact companies and civil society groups on everything from digital business, energy and infrastructure to research, trade, education and commerce. Hence, the speed of withdrawal of industry from China will gather pace.

Australia and Europe are onboard with the US and Japan on moving supply chains out of China. India is also seeking to reduce its dependency on China for active pharmaceutical ingredient requirements. This will enhance India’s position as a major global drug manufacturer.

The only possible hope with China is the forthcoming US elections. In case, Trump is not re-elected, then there is a possibility of the push being reversed. Hence, to safeguard its own national interests, it will involve itself into interfering in US elections.

It was lessons from the spread of the Coronavirus which led nations to consider moving critical industries to home ground and widening the global logistics base. Anger against China increased when the world realised that while China blocked internal flights from Wuhan, it permitted international flights, spreading the virus globally, while domestically protecting itself.

China also exploited the WHO to provide fake inputs on human to human transmission of the virus while it continued economic exploitation of effected nations. Recent economic threats by Chinese embassies against western host nations demanding an independent probe into the origin of the virus has only hardened international resolve to act collectively against China.

Nations led by the US appear to be acting on a strategy of targeting the Chinese economy by pulling out industry from China and reducing global orders for Chinese products. A poor economy enhances internal dissatisfaction against the Chinese Communist Party, restricts military preparedness and limits its ability to invest in its Belt Road Initiative projects.

Anger is already rising within China on growing unemployment due to loss of jobs on account of closure of industry. Protests demanding reduction of rent are visible in many Chinese cities. Chinese social media is rife with demands for explanation from Beijing on its brutal actions in Wuhan, with those objecting vanishing into China’s prison networks.

China has realised that Indian global standing and respect has grown manifold since the outbreak of the pandemic. India’s willingness to supply medicines and medical stores has earned it global goodwill. It is slowly filling the leadership vacuum created by the US, elbowing out an unwelcome China. Hence, India will remain a preferred destination for withdrawing companies.   

What has hurt China further is the Indian government decision to restrict Chinese inflows into the Indian stock market which could have provided it with leverage over India’s crucial industries. Towards this end, the Global Times stated, ‘China is the main source of India’s foreign investment growth. If New Delhi introduces unfriendly policies regarding Chinese investment, the Indian economy may be the ultimate victim.’

In what is seen as a final veiled warning to India, the Global Times, hinted, ‘Many think that global industry chains will reduce their dependence on China, and that trend may offer opportunities to some Southeast and South Asian countries like India. However, that view may be too optimistic. India had reported more than 46,000 coronavirus cases. Before new coronavirus cases in India drop to zero, attracting foreign investment will be just empty talk.’

Realistically, there is worry within China on its contracting economy and likelihood of industries shifting base. China is applying military pressure on ASEAN nations, including Vietnam and Malaysia, both potential destinations for companies withdrawing from the mainland. The recent border skirmishes between India and China, after a prolonged period, may also be an indicator of similar pressure, the next being movement of Chinese ships in the Indian Ocean. India is unlikely to cede to Chinese pressures, opening another round of confrontation. It will continue to attract international industry.