Combatting the China Challenge: An Overview of Ways and Means
Rising to the China Challenge: Winning through Strategic Patience and Economic Growth
By Gautam Bambawale, Vijay Kelkar, Raghunath Mashelkar, Ganesh Natarajan, Ajit Ranade, Ajay Shah
I have always wondered why India is not a superpower while our neighbour China is, given how their trajectories of economic growth appeared to be parallel. While I found some answers like, “They follow a growth model that is export-oriented, which when complemented with efficient administrative capabilities, lead to smoother functioning and faster growth of an economy,” or “the growth trajectories of the two economies are opposites, mainly because China has created and strengthened its capacities in the manufacturing sector, while India skipped this phase of development and is now known for its services industry. Besides, expansion of the manufacturing sector would mean dealing with layered administrative set-ups and hence would result in delayed implementation.” While these are true to some extent, they also feel incomplete.
The Galwan valley attack of May 2020 by the People’s Liberation Army triggered in the minds of many Indians and others worldwide that India will go to war with China. But very few asked questions like, “Why did China do this out of nowhere?” What kind of a message is she trying to pass on? Could it lead to a war-like situation? What does this act mean for India’s relationship with China?” This event led to the creation of the book, ‘Rising to the China Challenge: Winning Through Strategic Patience and Economic Growth.’
This book answers all the above-raised questions and binds the whole discussion on how India can leverage its advantages to compete against China, not by showing its military prowess, but strategically, patiently, and more importantly, by using its economic tools.
The outline of the book has been creatively dealt with, in the sense that it is logical, analytical, and practical. It states the problems and then provides solutions to those problems. This book makes a fine blueprint for all stakeholders if we are to rise to the China challenge and secure ourselves strategically.
This book is co-authored by six eminent personalities with varied backgrounds.
Ambassador Gautam Bambawale is a former Indian Ambassador to China and Bhutan, and a former High Commissioner to Pakistan. Ambassador Bambawale has dealt with China for 15 years during his diplomatic career.
Dr. Vijay Kelkar served as the Finance Secretary, the Chairman of the Thirteenth Finance Commission, and was Executive Director at the International Monetary Fund (IMF) overseeing its South Asian operation from 2000 to 2002. He was awarded the Padma Vibhushan.
Dr. Raghunath Mashelkar, a Fellow of the Royal Society, is a national research professor. He was the former Director General of the Council of Scientific and Industrial Research (CSIR) and also the President of the Indian National Science Academy. Additionally, he was a member of the Science Advisory Council of the Prime Minister for around 30 years. He is also a recipient of Padma Shri, Padma Bhushan, and Padma Vibhushan.
Dr. Ganesh Natarajan is the Executive Chairman and Founder of 5F World, a platform for skills, start-ups, and social ventures. He is a member of the board of the State Bank of India and the founder of the Centre for Artificial Intelligence and Advanced Analytics.
Dr. Ajit Ranade is the Vice-Chancellor of Gokhale Institute of Politics and Economics and co-founder and trustee of the Association for Democratic Reforms. He is also the Group Executive President and Chief Economist at Aditya Birla Group. He is also Chair of the Research Advisory Panel at the Indian Institute of Banking and Finance.
Dr. Ajay Shah is an academic and policy-oriented researcher who studies issues at the intersection of Economics, Law, and Public Administration. He has held positions at the Centre for Monitoring Indian Economy (CMIE) and the Indira Gandhi Institute for Development Research.
All the authors hold office at the Pune International Centre.
The book has been divided into six chapters, each with its witty title.
The first chapter, Divergent Growth and Trade Asymmetry highlights the diverse ways in which India’s trade patterns differ from that of China’s. It gives a factual account of the difference between India and China in terms of their economic growth and trade patterns. In 1980, the size of the Chinese economy was $305 Billion, which grew to $14 Trillion by 2019, with a compounded annual growth rate (CAGR) of 10 percent. Similarly, the size of the Indian economy in the same period grew from $189 Billion to $2.9 Trillion with a CAGR of 7 percent. These figures indicate that both economies have grown consistently.
China entered its reform era in 1978 and since has experienced long and sustained growth. This long and sustained growth can be attributed to a high investment rate, with the investment-to-GDP ratio exceeding 50 percent. By contrast, India’s growth of 7% was obtained with a lower investment-to-GDP ratio of about 30% during the same period. China was able to attract Foreign Direct Investment (FDI) because it developed mega Special Economic Zones (SEZs). These SEZs are aimed at providing low-cost labour, flexible policies, infrastructure, and some autonomy to local governments. Between 1997 and 2019, the cumulative FDI into China was $12.7 Trillion, while during the same period; India’s stood at $460 Billion. The early economic policy of China focused on capital creation while neglecting its labourers’ needs. This led to uneven splits of fruitful economic growth between labour and capital.
When Xi Jinping took office as President, conscious attempts have been made to rebalance the economy. This rebalancing was in the form of moving away from the export-led growth model to focusing on domestic growth; moving away from investment to consumption as the bigger component of the economy, moving away from industry to focus on services; moving away from industries like metals and mining to renewable energy and electric vehicles, and lastly shifting the focus from the present to the future in terms of emphasising Industrial Revolution 4.0, advanced software and semiconductors. The objective was to focus on the creation of human capital, for that investment in education, training, and skills were required.
However, at present, it seems like China’s growth may slow down due to reasons like the ageing of the population, declining labour force, slowing productivity, excessive centralization, and growing distrust of the private sector. If India plays its cards right, these reasons can cause an acceleration of its economy. To make this happen, India requires a commitment to openness, strengthening institutions of governance, improvement in all metrics of ease of doing business, and a strategy of self-reliance backed by confidence.
The second chapter, The Elephant Chases the Dragon describes the steps India took to establish a manufacturing sector in India. However, India’s efforts to grow the manufacturing sector lacked planning. Research has suggested that India needs to find structural answers on FDI inflows, exports, and tourism to weather global liquidity shocks. In recent years, the ease of business has improved. However, high government debt (65 percent of India’s GDP) and its inability to widen the tax base and monetize assets have resulted in strangled capital expenditure on infrastructure and fiscal stimulus, at a time when it was needed the most. The authors also note that China’s approach has been focused on infrastructure creation to enable a large manufacturing economy to develop.
In contrast, India has been more collaborative and consultative in its approach but has missed the opportunity to leverage manufacturing for its huge population. While it may have missed its opportunity to grow its manufacturing sector, there is still another opportunity to emulate China in some respects. By embarking on a path of minimal dependence and choosing sectors where India can build a dominant position in the world. To do this, India needs a systematic approach to think about the future and create a policy framework to build core industries that will demonstrate the country’s newly enabled capabilities.
In the third chapter, titled David vs Goliath? It picks up from the previous chapter by enlisting nine sectors, wherein the authors compare each sector in India and China. These sectors are consumer electronics, automobiles, chemicals, rare earths, agriculture, telecom, healthcare and pharma, scientific research, and artificial intelligence. The chapter goes into a detailed and statistical analysis of each of the above-mentioned sectors based on an industry overview, a country-specific market overview, and investment. It tries to imagine the outlook of the sectors based on current policies.
From the analysis, it was revealed that India falls short of achieving any of its targets because of the absence of concrete plans and investments that will be very essential in the creation of a trillion-dollar business opportunity. China’s growth is a threat to the West and its allies. Hence, India’s reluctance to support China makes India a favourable destination to foreign investors. For this to happen, India needs to overcome legal and privacy-related issues. Therefore, the authors prescribe innovations in digital payments, next-generation financial services, alternative investment funds, and smart manufacturing. These could help in streamlining capabilities within India and would also cater to the global demand. For this, India needs to invest in physical, digital, and social infrastructure in multiple locations around the country.
As chapter one suggests, there exists a trade asymmetry between India and China. The question arises, can India reduce these asymmetries? The authors answer this question by enlisting a few options like direct interaction and deal negotiation with China, and strategic interaction with major firms that manage global value chains and other countries to compete effectively with China.
Chapter five, Countering China’s Wolf Warrior Diplomacy, provides insight into how China views the world. This insight may provide answers to China’s actions at Galwan Valley in May 2020. As the book mentions, from China’s perspective, the world is shaped by power and force and not by debates, discussions, and diplomacy. The chapter also throws light on the different trade deals India has with other countries. It notes that these trade deals have not been favourable to our producers and enlists the causes of this. Perhaps the details of these deals were not discussed with industry leaders, or our exporters have not been agile and nimble enough to reap all the economies and benefits of these trade deals. There could be other structural reasons too. The authors describe other ways of reducing trade asymmetries, which include attracting FDIs, developing SEZs, making skilled labour available, developing land parcels and industrial parks, technology transfers, holding annual investor meetings, and building coalitions.
Chapter six, Shift or Drift: Reorienting Policy Responses, describes the events and ideologies that shaped today’s China. It highlights that under Xi’s regime, China has escalated conflicts with many neighbours, nursing the themes of nationalism and grievance that help populist authoritarian regimes. To tackle this, India needs strategic patience. The authors suggest some policy recommendations. By creating trust bubbles with three sets of countries, namely the Quad countries, countries with which China shares its borders, and other South Asian countries like Sri Lanka, Maldives, Nepal, and Bangladesh, among others, India will secure itself strategically.
The second is to understand the economics of national security through the Chinese lens to form alliances with other democracies. The authors also identify three problems of prime importance, namely excessive government intervention, the emergence of the ‘the administrative state,’ and the rule of law.
The authors highlight that the prime objective of the economic policy strategy should be to think at a strategic level, to help India build an advanced economy. India’s Chinese challenge is long-term wherein engaging in strategic thinking can play a massive role. To promote it, the determining factors will be economics, finance, and India’s technical and cultural prowess.
The authors believe that with strategic planning and advancing economic growth, India can tackle its China problem. They conclude by quoting Swami Vivekananda, “The time has come to arise, awaken and stop not till the goal is reached.”
Ms. Purvi Patil is a Research Assistant at Tatvita. She has pursued her graduation from the Liberal Arts Department of Savitribai Phule Pune University. Her areas of interest include International Relations, Data Protection and Privacy, and Sustainability.