This is the best time
for a multi pronged response, notwithstanding COVID, as probaly China is most
vulnerable now, in a long time. The three major areas where “fronts” can be
opened in Military, Diplomatic and Economic.
Economy.
China is currently very
strong on the economic front. 15% of world debt and 3% of foreign exchange
reseves of the Countries in the world is in Chinese
Yuan (Renminbi), next only to the US$. Although this may not look too much in
comparison, there is no other currency in the world which has any significant
presence in these areas.
China which owns an
estimated $1.1 trillion in U.S. Treasuries, is the number-two investor among
foreign governments, according to the January 2020 figures released by the U.S.
Treasury. This amounts to over 21% of the U.S. debt held overseas and about
7.2% of the United States’ total debt load. This may seem like a potential danger. Although the reason
can get highly technical, in short, China buys Treasuries to help depress the
value of its currency, the yuan. A cheaper yuan makes the country's exports
less expensive for foreign buyers, thereby keeping the country’s export-based
economy chugging along. Consequently, the Chinese economy would suffer as much,
if not more than, that of the United States if China were to suddenly stop
buying U.S. debt. Having said that, if driven to the wall China can use this as
a bargaining chip, like it used it with Japan in 2012.
The People’s Bank of China is testing
a state-backed digital currency, despite a recent ban on cryptocurrencies
and ICOs. The aim is to get a pie of the international cash transactions. Today
most cash transactions between countries, except within the EU, takes place in
US$ trough a process via The SWIFT payment system which enables to
securely send and receive information on financial transactions in a
standardized way. This ultimately allows money to be sent from one bank to
another, virtually anywhere in the world and in many different currencies. But
this system is far from perfect. SWIFT does not actually send money, it simply
sends messages between the banks – the currency calculations are in US$
depending on the exchange rate of that currency on the day of the transaction –
meaning the currency of trade is always in US $. China wants to eat into this
pie by introducing its own digital currency.
China is the established manufacturing base of
the world. Most big Companies have established facilities for making products
in China. Consequently, the supply chain for components that go into making
these products are also in China. This, in short, means that if Apple moves out
of China lock stock and barrel, all the MSMEs that make components which go
into the making of Apple products will also have to move out of China. These
MSMEs are typically not owned by Apple. Moving manufacturing units is not an overnight
process – it takes time. When productivity is at its low because of the
pandemic, it is anybody’s guess how many businesses will shift base
immediately. At best t will be a long drawn out process. When it comes to
choose between business and sentiments, the choice is very clear.
Lastly, over years, China has aggressively
invested in most economies around the world, including in India.
Military
China has the second most powerful military
power, next to only the US with which it has to contend in search of being a
super power. As if to show case its military prowess, China often flexes its
muscle in the South China sea and the Indian Ocean. Now and then it also
threatens small countries like Taiwan and Japan with military actions. It has
cultivated other small states in the region like, Pakistan and N Korea, to whom
it has supplied nuclear and missile technologies and others like Sri Lanka,
Nepal and Myanmar with economic aids.
The only other sizable military power it will
have to actually face on a daily basis is on its Southern borders, India, with
who it has a long-standing border dispute. The history of this dispute is well
known to all of us .
This being the case the importance of India to
the world as a strategic counterweight to China is evident.
Diplomacy
China is not known for its nuanced diplomacy. Recently
it has unleashed its “wolf diplomats” on twitter. Firstly, it has a monolithic
form of Government continually suppressing internal dissent of any kind.
Secondly, being a very insulated Nation, the world is unaware of what exactly
is happening within China. The recent spread of COVI-19 is a stark example.
In diplomacy, the world (and India) will do well
to aggressively support Taiwan and Hongkong.
The present problem here is “Who will take up the
leadership role of the world” against China. the US? Is it ready for the job?
Will the EU come on board? Should India take over this vacancy of the CEO, of
anti-China Company.
The situation is fluid. COVID-19 world over is on
top and in China it seems to be receding (or is it really?) Either which way,
for sure is it now or never occasion to attack China diplomatically. Especially
for India. Else, China which already has the base economically and militarily, will
pull away fast from the pack.
Tail piece: The biggest problem with Defence expenditure in our country is that almost all the spending except pension and
salaries is for import of equipment. If you have noticed all major economies of
the world (except Japan) have a robust domestic defence industry. A small and
younger country, Israel, has a very big dfence industry which, besides catering
to the IDF, also exports a lot – a major part of it to India. A domestic
defence industry helps to increase the industrial output, creates jobs,
improves self reliance, introduces new technologies to other industries, helps
in maintaining favourable balance of payments, contributes to GDP and generally
props up economy. It is never too late to start making in India.
