How do you solve a problem like China?

J Mulraj | Updated on July 17, 2020

Let’s do this together Many believe that India should build a collective resistance, with strategic overtures towards China’s restive neighbours such as Taiwan, Vietnam and South Korea pti/swapan mahapatra

China rues its lost century, a hundred years lost after it lost the opium wars and had to lease a part of it (Hong Kong) to Britain. This, perhaps, explains its recent aggressiveness to several countries, including India, Australia, Canada, the Philippines and others in the region. This is backed by equally aggressive military maneovuvers, including border skirmishes versus India.

Currently, diplomatic efforts have eased the situation but China still lays claims to a lot of Indian territory and could renew its actions later. India has responded by banning Chinese apps (where India is a large market, especially for the most popular, Tik Tok) and depriving telecom giant Huawei access to India’s large user base.

China’s nominal GDP, once equal to India’s, is now at $14.1 trillion, compared to $2.9 trillion for India. This was because Deng Xiaoping started economic reforms in 1978, freeing up the economy, starting with agricultural and land reforms, much before India did, in 1992. That delay of 14 years allowed the Chinese economy to grow, providing funds for a far better infrastructure as well as modern weaponry. During the period 1978 to 92 India’s polity was embroiled in a series of scandals like the cement scam - 1981, the Bofors scam - 1987, Harshad Mehta scam - 1992 and others.

Even after the economy was greatly freed of the License-Permit Raj, there were still scams, often triggered by ‘permissions’ and ‘allotments’ needed. So, if India is to strengthen its economy it has to tackle the twin problems of corruption and the slowness of the judiciary. If we wish to attract FDI, moving away from China, we need to make sure that contractual rights and property rights are ensured, and, if violated, justice is swift. Why would Japan, whose Government is now paying companies to leave China and manufacture elsewhere, opt for India when its companies such as Daiichi Sankyo are still to encash a $400 million arbitration award won in 2016, due to the judicial system?

Another of China’s strengths is a lead in the technologies of the future. This lead was due to a Government initiated plan, launched in 2015, called ‘Made in China 2025’. Some of these areas are 5G telephony, artificial intelligence, internet of things (IoT), robotics, new energy vehicles, aerospace, naval industry, railway transport, new materials etc. For 5G China’s champion Huawei has managed to become a global leader and China is believed to have pumped in $75 billion into it.

Competitors Nokia and Ericsson lag behind Huawei. But, there is an alternative, an innovative Japanese firm Rakuten, which is offering 5G on the cloud, at a lower installation and operating cost.

Reliance Jio, at its AGM held virtually, displayed Jio Glass, which enables interactions with virtual ‘avatars’, or holographic depictions of persons and makes virtual meetings more productive. It announced that it would set up its own 5G system. Since it has already laid out a fibre network, it may be able to use a Rakuten like model to quickly roll out its 5G offering.

This would decimate other telcos, who, straining under the burden to pay dues based on AGR (adjusted gross revenue), will be unable to undertake the capex required for a 5G rollout.

So, India would need to do a SWOT analysis of China. Its weakness is an aging population especially when it needs to rely less on an export market and more on its domestic market, and a political system that relies on the goodwill of its people to survive. This goodwill is coming under stress due to natural calamities hitting China. India would also need to increase alliances with other nations. China has flexed its economic muscle and weaned away friendlies like Nepal and Iran. For investors, caution is advocated as the geopolitical situation is fraught with uncertainties.

Published on July 17, 2020

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