India and China in rapprochement mode after Doklam crisis

Indian Defense Minister Nirmala Sitharaman’s visit to China this month will take place amid a climate of improved relations between the two countries. It will come in the wake of an important interview to the South China Morning Post last month by India’s ambassador to China, Gautam Bambawale.

The ambassador put forward a defense of India’s June 2016 intervention in the Doklam region at the India-Bhutan-China tri-junction. The area is disputed between Bhutan and China and is the subject of long-running negotiations between them.

In intervening to block the Chinese from building a small road to a ridge that overlooks the narrow Siliguri Corridor connecting  India’s northeast to the rest of the country, New Delhi had said in a press note dated June 30 that it had acted in coordination with the Royal Government of Bhutan, but that the issue was not just about Bhutanese interests but the fact that the Chinese action “would represent a significant change of status quo with security implications for India.”

In his interview, Bambawale repeatedly said India had acted in reaction to “the change of status quo by the Chinese military.” He sidestepped the uncomfortable reality that India itself has no legal claims on that area. But he repeated that in order to maintain peace and tranquility, “there are certain areas, certain sectors which are very sensitive, where we must not change the status quo.”

But his observation – and this is what makes the upcoming Sitharaman visit important – that the two sides had a deficit of strategic communication at a higher military level is significant. Sitharaman will, no doubt, meet her counterpart, the newly appointed minister of defense, General Wei Fenghe, who has been a long-standing member of the top decision-making body of the military in China, the Central Military Commission.

Bambawale’s remarks indicate that what India is seeking is a modus vivendi over the Doklam issue. Given the way Chinese policy on the border is made, it is seeking to target the decision-making authorities in the People’s Liberation Army, rather than the Ministry of Foreign Affairs. Not surprisingly, for example, the Border Defense Cooperation Agreement, the last major pact signed by the two sides on building border confidence, was made between PLA Lieutenant-General Sun Jianguo and India’s defense secretary at the time, R K Mathur.

What India is looking for is some understanding on the part of the PLA not to press on with its Doklam project, which in essence seems to involve developing a permanent position on the Jampheri ridge that overlooks the strategic Siliguri Corridor.

The Chinese had built a road in the early 2000s to a point 100 meters or so below the Doka La Pass, where there is a strong Indian military post. They would park their vehicles and walk up and chat with Indian soldiers in Doka La and then  patrol the last 4-5 kilometers to the ridge on foot. The Indian side would like the PLA to revert to this pattern because it does not essentially question the Chinese claim on Doklam, but at the same time does not immediately pose a danger to Indian security.

The Sitharaman visit could provide a larger opening for a greater thaw in the Sino-Indian relationship that could see confirmation through a visit by Prime Minister Narendra Modi to China. He is scheduled to attend the Shanghai Cooperation Organization (SCO) summit in Qingdao in June, but there could be an official visit either earlier or linked to the summit where issues that have been clouding the relationship between the two countries could be thrashed out.

Economic ties between the two countries are already doing well. Trade was at a historic high of US$84.4 billion in 2017, despite the Doklam standoff. Chinese foreign direct investment into India is growing by leaps and bounds, though it is still small compared with Chinese investments elsewhere. India welcomes  this because it also helps address the problem of the $52 billion trade deficit that India has with China.

With the return of the diplomatic discourse, the two sides could quietly work out their other issues, such as India’s membership in the Nuclear Suppliers Group (NSG) or the proscription of Masood Azhar. India has already taken steps to address Beijing’s sensitivities with regard to the Dalai Lama, but it could go further and soften its stand on the Belt and Road Initiative. Perhaps the first move could be to press on with the Bangladesh-China-India-Myanmar (BCIM) Corridor that India has already signed up to.

If India had the gumption, it could actually join the CPEC (China-Pakistan Economic Corridor) initiative and demand road access from the Indian side to Pakistan-administered Kashmir or, for that matter, to Pakistan proper, Afghanistan and Iran. Beyond that, there is a larger agenda of cross-border trade, in itself not important, but something that could  signal  a changed relationship.

With a trade war looming between the US and China, Beijing would be interested in ensuring that New Delhi does not throw all its weight behind Washington at this juncture. The Donald Trump administration’s National Security Strategy has designated China as a rival of sorts and embraced the categorization of the Asia-Pacific and the Indian Ocean as a single “Indo-Pacific” strategic region. The first meeting of a naval quadrilateral that includes India has also taken place, in 2017, a prospect that would be discomfiting for China.

Asia Times April 2, 2018

The Bolton effect

Though he has often been made out to be a cartoonish figure, John Bolton who has been appointed National Security Adviser by US President Donald J Trump, is a dangerous and clever man. He will have an immediate impact on two key areas of US foreign policy—Iran and North Korea.

Bolton was the US ambassador to the United Nations under George W Bush and has been known to have hawkish positions on most areas of foreign policy—Iran, North Korea, the UN, European Union and international agreements. The title of his 2007 memoir “Surrender is not an Option” speaks for itself. He has an abrasive personality and is known to be a bureaucratic infighter and for that reason the US Senate did not confirm him in 2002, Bush kept him in the post through a loophole process called the recess appointment. This time around, he does not need Senate clearance, though he will supervise a national security team of several hundred.

Given his reputation, it is not surprising that there is worry in South Korea that he could  be the bull in the china shop and destroy all possibilities of a negotiation settlement with Kim Jong Un over the North Korea nuclear programme. The situation is delicately poised right now with both sides agreeing that dialogue is a good idea. South Korea has enormous stakes in the process for obvious reasons. But Bolton’s record on North Korea suggests that the only way out is to use military force.

The second area where the Bolton effect could strike is in relation to the Iran nuclear deal. The deal comes up for Presidential certification on  May 12 and by then, Bolton would have had a month in office. Expectations are that Trump will follow his instincts to terminate the deal and Bolton will work out his rationale. The result will be a return of heavy sanctions on Teheran and will put the US against China and Russia, as well as Europe.

So far, Trump has been willing to fix the deal, which, in his view, should not be confined only to nuclear issues.  The deal should include Iranian action on the non-nuclear areas such as its missile programme and its activities in Syria and Lebanon. However, with Bolton there, the American policy could be one of outright scuttling of the deal.ast week, a former chief of the Israeli Defence Forces, Shaul Mofaz told a conference that Bolton tried to convince him of the need for Israel to attack Iran. Mofaz, along with three other IDF chiefs, Benny Gantz, Dan Halutz and Modhe Ya’alon are against the cancelling of the deal.  Mofaz served as chief till 2002 and was thereafter appointed Defence Minister by Prime Minister Ariel Sharon. However, the current Prime Minister Benjamin Netanyahu has for long advocated military action against Iran. 

All this comes at a time when Trump has begun to move in his long-awaited trade sanctions against China. He has announced tariffs on $ 60 billion worth of Chinese goods, but this could be just the first part of his moves. A detailed list of goods will now be released, followed by a 30-day period for comments in which lobbyists for specific industries will have a field day. In the main, the tariffs are targeting those sectors that the Chinese are promoting for their Made in China 2025 policy, strategic areas which it wants to fill out in its bid to emerge as the leading nation of the world.

The US could also announce restrictions on Chinese investment in the US and visa restrictions for Chinese citizens, especially those who want to study in the fields of science and technology.

There  is still time for the US and China to work out a deal on tariffs. Earlier this month, China’s top economic policy maker, Liu He, recently appointed Vice-President of the country, was in Washington and no doubt sought to engage the US in discussions to forestall a trade war. China has hinted at reciprocal tariffs that could hit US agri-exports which could hurt Trump’s political base.

With the US declaring that the policy of engagement with China will  now be replaced by one of competition, and the Chinese saying they have entered a New Era under Xi Jinping, we can expect greater friction between the world’s two premier powers.

A dangerous side-show here could be a changed US policy towards Taiwan. Beijing has made it clear that it will view any separatism on the part of the island republic as tantamount to treason and Xi has virtually promised reunification, by force or otherwise in his term. On the other hand, Bolton and the incoming Secretary of State Mike Pompeo are said to be very supportive of Taiwan. 

We stand, therefore at the cusp of three wars, one between the US and China on trade with the Taiwan issue that could well make it a shooting war, the possibilities of war with Iran and North Korea. Since World War II the US has not really won any war,  barring the one against Grenada in 1983. But it remains  the foremost military power in the world, capable of bringing down great, if not total destruction on its adversaries.

It is always easy to start a war,  but very difficult to know how it will end. Take the US which began a war with Iraq in 1991, invaded it again in  2003. It cost the US a staggering $ 3 trillion plus  and nearly 5,000 soldiers, it cost Iraq much, much more. It has seen devastation of their nation, the rise of the Islamic State and the collateral destruction of Syria as well. It has deepened the faultlines between the Shias and Sunnis into which the US now risks falling into. 

Greater Kashmir March 26, 2018

Why Modi has chosen not to side with the Indian military

When Narendra Modi became Prime Minister, there were expectations that the country’s military profile would increase sharply. The government went out of its way to valourise the soldiers and wrap the tricolour around itself.

But as a recent report of the Parliamentary Standing Committee of the ministry of defence has revealed, when it came to putting out money to fund India’s military, the government seems less than patriotic.

The clearest signal comes from the numbers. Defence budgets used to average roughly two per cent of the GDP, but in the last two years, that figure has come down to 1.56 and 1.49 respectively

Obsolete equipment

The committee, which is headed by a senior BJP MP, Maj Gen (retd) BC Khanduri, came to the conclusion that 68 per cent of the Army equipment was obsolete. Just 24 per cent was of the current category and 8 per cent state of the art.

Army vice-chief Lt Gen Sarath Chand explained to the committee that “allocation of insufficient funds to meet liabilities of routine maintenance, making up deficiencies, emergency procurements… will definitely have a negative effect. This shall also affect the serviceability of the equipment we are holding besides leading to legal issues of not making payments on time.” One area directly affected is the security of military facilities that has become so important after the attacks on Uri, Nagrota and Sunjuwan.

You would be mislead if you went just by the fact that the allocation for defence is a massive Rs 2,79,305crore in the coming financial year, along with an additional Rs 1,08,853crore for pensions. This is because we have one of the largest militaries in the world and a great deal of the money is spent on pay and allowances of the personnel and maintaining the existing equipment and infrastructure.

The real story comes from the fact that where the three Services projected Rs 1,72, 203 for capital expenditure for the purchase of new equipment, they were only allotted Rs 93, 982crore. This is not even sufficient to meet the “committed liabilities”, viz the payment installments for the equipment already purchased, estimated to be of the order of Rs 1,10,043crore. In other words, leave alone new equipment, the services are not even in a position to meet the payment obligations of the equipment on order.

Only Rs 3,600 cr allotted

The one area that the Army has been desperately trying to make up is that of immediate stocks of ammunition and spares to fight a 40-day war, which could see 10 days of intense fighting. The government permitted the Army to acquire the materials and contracts worth Rs 2,246crore and further agreements worth Rs 9,980crore have been negotiated. To make up for the shortfall the Army would require Rs 6,380crore, but they have been allotted only Rs 3,600crore. This means that the country cannot fight even a short war at present.

At the larger level another pernicious consequence of our dysfunctional defence system is that it is dependent on imports to sustain itself. The latest report of the Stockholm Peace Research Institute (SIPRI) shows that India has been the largest importer of major arms in the world in the 2013-2017 period; it accounted for 12 per cent of the global total and its imports increased 24 per cent between 2008-2012 to 2013-2017.

No country can become a significant military power unless it designs, develops and manufactures its own weapons. The reason is that the equipment is often tailored to the specific requirement of the manufacturer, and buying it off the shelf makes its sub-optimal in another setting.

Remarkably all this is despite the fact that the current operational directive to the armed forces from its defence minister is that they must be prepared for a collusive threat from China and Pakistan. To go by the Parliamentary Committee report, the three Services are clearly unprepared for a conflict with Pakistan, leave alone China.

Reforms required

The solutions to the problems that our armed forces face are obvious to everyone. First and foremost, they require deep reform in their higher management to ensure that the ministry of defence and the higher headquarters of the three Services work as one team.

To deal with the problems of defence organisation and policy, the political heads, viz the ministers and the Cabinet Committee on security require two streams of advice – from the uniformed personnel and from the civil service.

Unfortunately, while expert military advice is available, all they get from the non-expert civilian bureaucracy is red tape. Unable to come up with expertise, the civilians instead take recourse to procedural obstacles to establish their supremacy over the three Services. This has made the procurement policy non-functional, leaving all three Services behind in their modernisation plans by at least a decade and a half.

Mail Today March 26, 2018

After Doklam, military postures continue to escalate in India, China

In  January, we had occasion to refer to an article in the South China Morning Post by Senior Colonel Zhou Bo, an influential officer of the PLA Academy of Military Science, who often comments on international issues.

He warned that the Doklam incident in 2017 in the India-China-Bhutan tri-junction area could be a turning point on the issue of peace and stability along the Line of Actual Control (LAC) between India and China.

He added that it had already “provided China with a lesson on reconsidering its security concerns.” And as a result, “China will most probably enhance its infrastructure construction along the border.” India would respond, but given its robust economy, it would not be able to match the “speed and scale” of the Chinese actions, the Senior Colonel noted.

That future seems to have already arrived. Reports from Doklam suggest that not only is the People’s Liberation Army firmly entrenched in the area where the standoff occurred, within territory that India and Bhutan believe belongs to the latter, but it is now building a road to bypass the point of last year’s blockade, which was just 100 meters or so from the Indian post at Doka La.

The new road, 5-6 kilometers to the east and deeper in the Doklam region, would not be amenable to the type of blockade India placed last year. It would require a full-fledged Indian military operation to disrupt the road construction, something that is obviously a fraught prospect, not only because Indian forces can only legitimately intervene there at the invitation of Bhutan. There is nothing to indicate that such an invitation would be forthcoming.

A Chinese road, and the possible occupation of all of the Doklam Plateau including the Jampheri ridge, will give the PLA an overview of India’s strategic Siliguri Corridor. The Indian Army, which is strongly entrenched in the corridor and in Sikkim, views such an occupation as a dangerous development.

But Doklam is not the only region where the Chinese have stepped up their activity. India is now detecting an enhanced interest by the Chinese in developing their Tibetan infrastructure.

Readiness in Himalaya region

In the past two decades, Beijing had strengthened its communication network, focusing on rail lines and roads and barracks and settlements along them. The Chinese deployment in Tibet has been quite light, and its emphasis has been on the ability to pump forces in rapidly, in the event of conflict. Now, however, they seem to have concluded, in common with India, that the kind of politico-military crises that occur in the Himalayas may require the presence of significant forces on hand. So now there is a distinct uptick in the construction of residential and other infrastructure along the length of the LAC as well.

The most recent developments seem to be the improvement in the infrastructure to support the PLA Air Force for both fighter and helicopter operations, as well as an emphasis on training the forces to operate at high altitudes. The PLAAF has routinely rotated fighters through Tibet and Xinjiang in the past and has actually based some of its J-11 and J-10 fighters in the area. It also routinely uses its airlift capability based on its Il-76, Yun-20 and Y-9 aircraft. In addition, it deploys helicopters such as the Mi-17 and Mi-171 Hip for transportation and for combatThe Doklam standoff has seen the numbers and quality of aircraft increase. In January, there were reports that the Chinese had sent their advanced fifth-generation stealth fighter, the J-20, for a training exercise in Tibet. We may soon see other signs of a stronger military presence such as air defense systems and a further upgrading of the airfields across Tibet.

Indian buildup

But Doklam is only part of the reason for the current developments. The Chinese actions preceded that event and were actually a response to an Indian buildup.

An analysis of satellite imagery of the Lhasa Gonggar, the PLAAF’s main base in Tibet, has shown that here there were four or five J-10s or J-11s since 2010, they had gone up to eight by the end of 2014, and during the Doklam standoff there were 16 J-11s on the airfield.

Another major airbase is at Hotan in Xinjiang, proximate to the disputed Aksai Chin area. Here too the PLAAF rotates anywhere between eight to 16 aircraft every year, and the base here has seen surges involving the J-11 and the Q-5 ground attack fighters.

In the period after 2008, with its economy doing well, India began an extensive strengthening of its defenses on the border with China. This included an acceleration of the road-building program, reactivating seven advanced landing grounds in Arunachal Pradesh state, and deploying the advanced Sukhoi Su-30MKI to bases in Assam. In addition, two new divisions, two armored brigades and a Mountain Strike Corps were raised or authorized.

In Ladakh, authorization was given to establish a full-fledged fighter base at Nyoma in its southeastern corner and road construction began to link to Daulat Beg Oldi. Beijing’s response was to propose a freeze in construction on both sides of the LAC, something that New Delhi rejected outright considering the disadvantaged position that Indian forces were in the region in comparison with the PLA.

No doubt the Indian military is closely monitoring the developments in Tibet, and we are likely to see a further strengthening of the Indian posture facing the Himalaya. Recently there were reports that India had also moved some Su-30MKI aircraft to Hashimara air base, which is close to the Doklam area.

On the other hand, both sides are moving politically to defuse the situation. In February, Indian Foreign Secretary Vijay Gokhale, who was earlier ambassador to China, carried out a low-key visit to Beijing and held talks with his Chinese counterparts. Subsequently, India has pointedly avoided using the Dalai Lama card and it canceled a major conference relating to China being hosted by the Ministry of Defense’s think-tank.

The new Chinese State Councilor Wang Yi noted at a recent interaction that the two sides must manage their differences and called for removing mistrust between the two sides. He added colorfully, ”The Chinese dragon and the Indian elephant must not fight each other but dance with each other.”

Asia Times March 23, 2018

India’s Seychelles Military Base Roadblock Has a China Subtext

An agreement between India and the Indian Ocean island of Seychelles to build a military base has run into rough weather. Signed during Prime Minister Narendra Modi’s visit to the island in March 2015, the agreement remained unratified by the country’s National Assembly. Then, it was revised this January and was to have been tabled for ratification this month, but the process has been postponed till April.

On the eve of the National Assembly taking it up on 6 March, the text of the revised agreement was leaked online. As it is, it had been facing vociferous opposition from a group of activists led by the former tourism minister. The government of President Danny Faure is in a minority in the National Assembly, but the Opposition leader Wavel Ramkalawn had agreed to support the revised agreement which was drafted after the 2015 agreement was shared with him. Subsequently, on 5 March, the country’s ombudsman was also given a copy of the agreement.

Not a Tourist Brochure Paradise for India

Given Seychelles’ size and location, it has faced some external threats. In 1981, a group of white mercenaries led by British-Irish ex-paratrooper Mad Mike Hoare attempted to overthrow the government. Sensitised by this experience, the country reached out to India and twice in 1986, New Delhi helped prevent a coup against the Seychelles government. The two countries signed an MOU on defence cooperation 2003 and as part of this, in 2009, Indian naval ships were sent to patrol the country’s EEZ against Somali pirates.

Since then, New Delhi has donated helicopters, patrol boats and a Dornier maritime surveillance aircraft to build the Seychelles’ capacity for surveillance and policing of its own EEZ. As part of the 2015 agreements, India has built a network of 6 coastal radar stations which are manned by Seychelles Coast Guard personnel.

Indo-Pacific Bonhomie

It was during Prime Minister Modi’s visit to Seychelles in March 2015 that the two sides signed the first agreement for the development of Assumption Island. The agreement sought to build facilities to enhance the maritime surveillance and search and rescue capabilities of Seychelles. Under this agreement, India was to renovate an airstrip in the island, upgrade its jetty and construct housing facilities for the Seychelles Coast Guard.

It gave both India and Seychelles the right to use the facilities and noted that third parties could use it, provided they were not inimical to the “national interest of either party.” The Opposition had at the time criticised the government for hiding things from them, charging that the island was being sold or leased to India. The agreement, however, went into a limbo in 2016 as the government went into a minority in the National Assembly where it needed to be ratified.

PM Narendra Modi unveiling plaque and operationalisation of radar for the CSRS India-Seychelles Cooperation project in Mahe, Seychelles.

(Photo Courtesy: Twitter.com/PIB_India)

When the Waters Got Choppier

By this time, significant opposition had developed, led by activists who had organised weekly protests from the beginning of the year. Among those leading the protests was a former minister in the government who charged that a world heritage site could be affected through the implementation of the agreement.

At a public hearing on the deal, there were charges that the agreement was about establishing an Indian military base and that New Delhi was using Seychelles’ facilities to carry on its war against China.

The leak through a YouTube video provides links three URLs to Google Drive folders containing the entire text of the 2018 agreement, the 2015 version, and a letter detailing the conditions under which Indian military personnel could operate in the island. The video has deliberately sought to give a dramatic gloss to the fairly routine agreement which focuses more on logistics and building up of capacity of the Seychelles.

The Secrecy Storm

A comparison reveals little substantive change in the agreements on 2015 and 2018. The tweaks are more by way of satisfying Seychellois opinion and the issue could have been avoided if the agreement had been made public at the outset.

It said that the purpose of the agreement was to develop and manage aviation, maritime and communications facilities on part of Assumption Island. It explicitly noted that Seychelles would own the facilities while their management would be joint, with India taking the burden of developing the infrastructure, providing the equipment and its maintenance. There were no changes in the provision relating to the functioning of Indian military personnel, though they were made subject to Seychelles law.

Further, India could not bring nuclear weapons into the facilities nor use them “for the purposes of war.” Likewise, there was no change on a crucial provision which said that there would be no restriction on the use of the facilities by even military vessels of third parties, “provided they are not inimical to the interest of either party.”

No Fair Winds for India?

The big question in everyone’s mind is whether after the recent Maldives problem, the Seychelles event represents a setback for India.

This it does, though the two cases are different. In the Maldives, there is a domestic context, whereas the Seychelles’ public protests are somewhat suspicious since the Opposition leader is ready to support the agreement.

China is the subtext of India’s troubles in both the Maldives and the Seychelles, though its hand in the Maldives is clearer. But this is par for the course. Small countries like Seychelles, Mauritius, Maldives and even Sri Lanka are prone to external meddling. But, they also find it useful to play off two larger countries in their own interests, and you cannot begrudge them that.

China is a new entrant into the Indian Ocean, and there is a lot of concern over its development of ports and infrastructure and links with various countries. We should not overstate their significance. As a major trading nation, China will develop and manage ports, and seek secure sea lanes.

But as of now and probably for the next 15 years and more, China will not have significant military capability in the Indian Ocean, at least nothing compared to what India and the United States possess.

Illustration used for representational purposes.

(Photo: The Quint)

India’s current focus in its ties with the Indian Ocean island states is to push forward its its maritime domain awareness project. This involves working together with the island states to help police their EEZs by tracking the movement of various vessels through a chain of coastal radars that India has funded and established. The goal is to assist capacity-building of the facilities, something New Delhi has been involved with well before China came into the picture, rather than any sinister military purpose.

“Made in China 2025”

So the West  has begun to work along a new  strategy which views China as a rival, rather than a country that should be encouraged and helped to join the world order. As China works along a strategy to expand its influence using its new wealth, the US and Europe are pushing back.

For more than four decades most US policy makers and business elites believed that economic integration of China into the world system would lead to it becoming more liberal. Today things have changed. In January, for example, the US Trade Representative declared that the US had made a mistake in encouraging China to join the World Trade Organisation. Right now, the US is readying to hit China with a range of tariffs which could trigger a trade war.

The first shot of this putative war was fired on March 8 when the US announced that it would raise tariffs on steel and aluminum that would come into effect on March 23. Though this affects many countries, China is its principal target. Another shot came   last week when the Trump Administration blocked a hostile bid by Singapore based Broadcom to buy its rival chip company, Qualcomm.

At the same time, the US Congress is considering a bill to expand the powers of the Committee on Foreign Investment in the United States (CFIUS). This Committee can and does often block foreign acquisitions of American firms on national security grounds. One such acquisition it prevented was that of Midea, a major German chip manufacturer. German laws by themselves would not have blocked the acquisition, but the fact that the company had American links enabled the CFIUS to intervene.

A new American bill called the Foreign Investment Risk Review Modernisation Act (FIRRMA) is being mooted  to expand CFIUS powers  to target Chinese tactics more effectively. Another bill, the Foreign Agents Registration Act(FARA) is being drafted to get Chinese supported Confucius Institutes to be categorized as “foreign agents.”

Beyond this, the US is considering more stringent visa requirements for Chinese nationals, especially those who want to come in on the STEM (Science, Technology, Engineering and Mathematics) stream.

Finally, after a slew of Chinese acquisitions of European companies, a debate has emerged where Germany, France and Italy are calling for a European mechanism to vet foreign takeovers. The big shock came when, in 2016, a Chinese company purchased Kuka, one of the world’s leading robotics manufacturer. So, in 2017 Germany passed a law requiring deals to be scrutinized on national security grounds wherever an investor’s stake reaches 25 per cent.   

While the Americans talk and act tough, the Europeans are a bit cautious because they do not want to offend the Chinese because they are looking for Chinese investments and seek their markets. Just as in the ASEAN, China has succeeded in dividing the European Union on political issues. Countries like Greece and Hungary have been willing to back Beijing on issues such as the South China Sea and human rights, undermining the EU’s ability to take a strong stand.

IN September 2017, the European Commission president Jean-Claude Juncker proposed the creation of an EU system to screen deals involving China as a first step towards a CFIUS kind of a system to cover EU.  But there is a lack of unity. Germany, for example, is divided on the issue considering its huge investments in China.

Countries like Japan, UK, Australia and Canada have strengthened their respective mechanisms to put in place restrictions on foreign investments relating to national security.

Increasingly, China is using new ways to bypass these restrictions. In February, Li Shufu acquired a $ 9 billion stake in Daimler, one of Germany’s star companies. Li, who is chairman of the Chinese car maker Geely, used a Hong Kong shell companies, derivatives and bank finances to acquire small blocks of shares and suddenly emerge as the largest shareholder in the company, bypassing  German regulators and Daimler’s resistance. Geely bought up the Swedish car maker Volvo  in 2010 and is now eyeing Volvo Trucks. All this is part of a larger Chinese national strategy of becoming a world leader in electrical cars in the coming decades.

Under “Made in China 2025” strategy, the cash-rich Chinese have identified a slew of companies in automotive technology, chip fabrication, robotics, aerospace and aeronautical equipment, modern rail transport, power equipment, pharmaceuticals which they seek to acquire as a quicker means of enhancing the quality of their own products. These are legitimate tactics in the world of business, the only problem being that the Chinese themselves restrict investments in areas they deem sensitive.  

Now, the Chinese are facing a larger geopolitical push back but they appear confident that they have the means of fighting off the challenge. The reason is that they are integrated into the world economy and any effort to dent Chinese advances could have negative blowback  for the US and Europe as well. Businesses around the world seek Chinese markets and investment and are loath to deprive themselves of the opportunity to make money.

Greater Kashmir March 19, 2018