Bangladesh polls pose a challenge to regional stability

Elections are expected in Bangladesh soon, as by law they must take place between October 31 and December 31 this year. This is not an easy prospect either for Bangladesh or for its principal neighbor, India.

The previous general election in 2014 was marred by violence and was boycotted by the Bangladesh National Party (BNP). It saw a turnout of just 22%. The international community is hoping that the elections this time around are more credible and help stabilize the polity of this volatile country, which is witnessing the growth of Islamist radicalism.

This month, Indian National Security Adviser Ajit Doval traveled to Dhaka to attend the meeting of NSAs of the BIMSTEC (Bay of Bengal Initiative for Biodiversity and Economic Cooperation) countries. His visit was followed by that of Foreign Secretary Vijay Gokhale aimed at shoring up bilateral relations. India has old ties with the Awami League going back to the time the country fought its liberation war in 1971.

India suspicious of BNP

India’s perspectives on Bangladesh have been shaped by the experience of the governance of the BNP in the 1991-96 and 2001-06 periods, when Islamist militancy took root in the country and separatists and terrorists in India received covert Pakistani support as the Bangladesh authorities looked the other way.

Bangladesh is important for India for political, national-security and religious reasons considering that it borders no fewer than five Indian states. But it is no less important for the larger region and the world, given its large Muslim population that is being subjected to creeping radicalization.

Islamist groups such as Jamaat-e-Islami, Harkat-ul-Jihad al-Islami Bangladesh and Jamiat-ul-Mujahideen have been around for a while, and now Islamic State (ISIS) and al-Qaeda also claim a presence on its soil. And recent years have also seen suicide attacks.

For that reason, the prospect of any government other than one run by the Awami League and current Prime Minister Sheikh Hasina is viewed with some dismay by India. For the record, though, India insists it is neutral with regard to the two parties, and during her visit to the country last October, External Affairs Minister Sushma Swaraj also met with BNP chief Begun Khaleda Zia and held talks with party officials.

Some Indian officials say that their experience of working with the Awami League government on issues relating to terrorism, radicalization and curbing the activities of third-country intelligence services has been positive. They say that Sheikh Hasina has been proactive in curbing Islamist extremism in her country, while claiming that the BNP has tolerated, if not encouraged, some Islamist elements.

Credibility at stake

Clearly, any fresh elections will have to meet the challenge of credibility. As of now the BNP has said it is willing to contest the next election, but preferably with a non-partisan election commission that would take charge of the government during the elections period. In fact, in recent months it has stepped up its campaign demanding that a caretaker government conduct the polls.

The BNP is banking on the anti-incumbency factor. By itself, it is not in particularly good shape to fight elections. Begum Khaleda Zia is embroiled in some 37 different cases relating to corruption and abuse of power relating to her two terms as prime minister, and the party is being led indirectly from London by her son Tarique Rahman.

In February, Begum Khaleda and her son were convicted in a corruption case involving embezzlement from a trust. Khaleda was sentenced to five years in jail. Though her party claims that the charges were a political vendetta, endemic corruption has been a factor in the poor performance of Bangladesh’s governments.

Her principal ally of the past, Jamaat-e-Islami, has been decimated by trials relating to its role in the Bangladesh war of independence in 1971. In any case, as of 2013, the Jamaat has been deregistered and cannot contest elections, though it still retains considerable street power through its youth wing, the Bangladesh Islami Chhatra Shibir.

Sheikh Hasina’s problems are, of course, the problems of incumbency, but also that her erstwhile ally, the Jatiya Party of former dictator Hussain Muhammad Ershad, has said it will seek to contest the election on its own. The Bangladeshi economy has done well under her watch, averaging 6.7% annual growth in the last four years and growing even faster than India in 2017. Yet there are persistent weaknesses in the government system that cannot be easily overcome.

In the current situation, the Bangladesh Army has so far remained non- political, but it did step in in 2006 to prop up a caretaker government for a period of two years before elections were held bringing Sheikh Hasina to power. The corruption charges against Begum Khaleda were actually filed by the caretaker government.

If there are serious questions about the fairness of the elections under the auspices of an Awami League government, there are chances that the Bangladesh Army will once again be brought in to provide the process credibility. But Sheikh Hasina has kept the army close to herself, doubling its size and providing a generous budget with which to equip itself and build new bases.

Geopolitical hot spot

The one-sided 2014 election, which some Western countries frowned on, provided Beijing with an opportunity to reach out to Dhaka. China has a growing interest in Bangladesh both as a means of containing India and for its strategic location at the head of the Bay of Bengal, proximate to Rakhine state in Myanmar, where it has significant investment and from where it has an important pipeline that avoids the Malacca Strait and transports oil directly to its landlocked Yunnan province.

While India has been Bangladesh’s longtime trade and aid partner, China has emerged as a serious rival. China, which has invested US$3 billion in the country since 2007, has been involved in building bridges, roads and power plants in the country. It is also Dhaka’s biggest supplier of military hardware.

In his October 2016 visit, Chinese President Xi Jinping promised $20 billion worth of investments in infrastructure. One analysis says that this could rise to $31 billion and that if the commitments are actually implemented, China could emerge as the largest investor by far in Bangladesh. India cannot match China, but it has upped its credit line to $4.5 billion, the highest it has offered anywhere.

The Rohingya issue has the potential to poison both Indian and Chinese relations with Bangladesh. On one hand, China has not permitted any condemnation for the Myanmar government’s role in triggering the exodus of Rohingya Muslims, and on the other, some in India remain concerned that the Rohingya will infiltrate into India in larger numbers and pose a threat.

The question for the rest of the world and, more important, neighbor India, is what does the future look like in Bangladesh?

The worst-case scenario is that the weakening of the parliamentary parties and the growing power of such groups as Hefazat Islam (Defenders of Islam), a network of madrassa leaders who oppose the establishment of a secular polity and want sharia rule in the country. As it is, Islamist ideologues have already succeeded in shifting the national narrative by rewriting textbooks to exclude non-Muslim writers and ideas.

In 2015-16, there were attacks on bloggers, academics and Hindus by Islamists. The Awami League government only began to crack down after the massacre in the Holey Artisan Bakery in July 2016. The other alternative is a military government, which the country has experienced several times in the past.

Bangladesh is in a relatively sweet spot, but with a big “if.” It has had an old history of Islamist radicalism, but the newer and more virulent forms of Islamism could tear the country apart.

Asia Times April 17, 2018

China's Coming of Age as a Maritime Power

After addressing the Boao Forum, the Asian Davos, and delivering the message of how China sought to promote inclusive and open economies, Xi Jinping shed his suit and donned combat fatigues to board a destroyer in the South China on Thursday to participate in a huge naval review. 

There was a clear message in his act – China would deal with the world from a position of strength, in both economic and military fields, and that it was prepared for any eventuality.

For the biggest maritime parade held in China since 1949, the People’s Liberation Army Navy (PLAN) deployed 48 warships, 76 aircraft and 10,000 sailors and marines. The demonstration, in its own way, marks the coming of age of China as a maritime power.

The parade was a culmination of a series of live fire exercises involving the aircraft carrier Liaoning in the vicinity of Hainan island, near the venue of the Boao Forum. The Chinese authorities had said that these were routine annual events to enhance training and professional skills. But now the Chinese say that they will hold live fire drills in the Taiwan Straits next week, in a message to Taipei. These will be the first naval manoeuvres off Taiwan since 2015.

The Chinese action comes in response to a stepped-up US presence in the region. In the past two months, two powerful US carrier groups have operated in the region. Britain and France have also declared that they will send naval vessels to the region to contest China’s extravagant claims in the region.

According to Global Times, “all combat systems of the PLA Navy and 10 air echelons joined the parade.” China’s sole aircraft carrier Liaoning was the centrepiece of the exercise, where on board the destroyer Changsha, Xi watched the take-off of the J-15 aircraft from its deck. Besides this, the parade featured 052C destroyers, Type 071 amphibious transport dock and Type 093 submarines.

Holding the parade in the South China Sea, off Hainan island, is significant for a variety of reasons. First, it is a region which is vital for the PLAN because it hosts its principal submarine base, where its second strike deterrent is based. Second, it is an area which is disputed by the neighbouring countries and where China lost an arbitration case in 2015, bringing into question its claim over the territorial waters of the area. China has reclaimed what an arbitration court said were several low-tide elevation features and built military facilities on them.

Third, the US has been flexing its muscles in the region recently and on April 10, it sent the USS Theodore Roosevelt aircraft carrier group into the region as a show of strength. Earlier, in February, the USS Carl Vinson group had patrolled the disputed region.

Four, it is proximate to Taiwan, a region where tension has been building up between the US and China with the former’s outreach, which includes the passage of a law that encourages high-level visits to the island and the decision to license a submarine manufacturing project there.

Though US President Donald Trump undercut the economic leg of the US response to China in the region by walking out of the Trans-Pacific Partnership, his administration has been more active in pushing military patrols in the region as compared to the Barack Obama administration. US manoeuvres are taking place more frequently and are, no doubt, encouraging China to step up its own military activity.

In January, US secretary of defence Jim Mattis visited Vietnam and in early March, the Carl Vinson docked in Da Nang port. Vietnam has been the most outspoken critic of China’s claims, especially since it has lost the Paracel Islands to the Chinese, who have now been encroaching on the Spratly group and challenging Vietnam in its own EEZ.

At one level, the naval parade was a demonstration of the success of military reforms undertaken by the PLA. Over the past five years, the Chinese have changed the mission of the PLAN from being involved in coastal defence to plans relating to the high seas. The 2015 China Military Strategy document had declared that “China is a major maritime as well as a land country”. Given the assemblage of vessels, the PLAN also signalled that it would now operate as a mission-oriented fleet rather than being separated into its eastern, northern and southern orientation.

Navy personnel of Chinese People’s Liberation Army (PLA) Navy take part in a military display in the South China Sea April 12, 2018. Credit: Reuters/Stringer

Of all of Xi’s reform efforts, the most successful have been those relating to the PLA. In 2015-2016, the force was reduced in numbers and restructured into geographic theatre commands. The higher command system constituting of the Central Military Commission was flattened and a new system, involving 15 departments, institutions and commissions, created, called the “CMC Chairman Responsibility System”. Xi, of course, is the chairman of the CMC. Later, he also assumed the designation of the head of the “Joint Operations Command Centre”.

The Southern Theatre Command of the PLA which was earlier the Guangzhou Military Region is currently headed by a PLAN officer, Vice Admiral Yuan Yubai, the first non-army officer to head a regional command.

The PLA has declared that it aims to fight and win “informationised local wars”, though an increasing number of analysts say that the term should be “intelligentised local wars”, with reference to the role of integrated Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4IASR) systems.

The exercise featuring the Liaoning, an unfinished vessel formerly called Varyag that China bought from Ukraine, only marks the beginning of the PLAN as an aircraft carrier-operating naval power seeking to rival the US. The 60,000-tonne vessel is seen as a training ship which will give way to two new carriers that the Chinese are building in Shanghai and Dalian. These will be bigger and more capable ships. China, according to reports, plans to have four aircraft carrier groups by 2030.

The Wire April 16, 2018

Leapfrog? Just A Chimera Chase

A reworked bid gifts India the prospect of owning 110 medium-role combat aircraft. Nevertheless, the IAF may be down to 15 squadrons by 2032.

So, two decades after the Indian Air Force (IAF) projected a requirement for 126 medium-role combat aircraft (MRCA), we are back to the starting point. That journey had ended abruptly in 2012 when the government, after a laboured process, selected the Dassault Rafale and began negotiations for the purchase—only to have the succeeding Nar­endra Modi administration scrap the deal and dec­ide in 2014 to purchase only 36 Rafales off the shelf.

Last week, the IAF issued a request for information (RFI) for the purchase of 110 MRCA. Three-fourth of these will be single-­seaters and the balance twin-seat aircraft. Eighteen or so of the aircraft would be bought off the shelf. The rest would be ‘Made in India’ through a partnership between the manufacturer and a strategic partner. The fighters would add six squadrons to the IAF; the order could be worth between $9 billion and 15 billion.

It is no secret that the IAF is in dire straits, both because of its declining numbers and the government’s refusal to raise the defence budget. The numbers are telling. The IAF has 31 squadrons today as against a desired 42. It will lose nine in the next five years when the remaining 7 MiG-21 and 2 MiG-27 squadrons retire. And presuming it gets the two Rafale, two LCA and one more Su-30MKI squadrons, it will be at an unco­mfortable 27 by 2022. If it repeats the fiasco of the first MRCA deal, taking more than a decade to select an aircraft, it could well end up in a disaster where it is down to just 15 squadrons in 2032, when its rem­aining six Jaguar, three MiG-29 and as many Mirage 2000 squadrons also retire.

The budgetary part is vital because the IAF, at the insistence of the government, wants the bulk of the aircraft to be “Made in India”. Setting up an assembly line for just 80 or so fighters will actually require the exchequer to pay double or even triple the sum that would be needed if you simply imported the aircraft off the shelf. When India purchased the Su-30MKI from Russia directly, its average cost was Rs 270.28 crore, but some years later when its manufacture from raw material was begun by the Hindustan Aeronautics Ltd it cost Rs 417.85 crore.

But the Air Force is to blame as well. In crafting an RFI that mixes single- and twin-engine aircraft, it makes selection that much more difficult. Actually, the IAF knows what it wants—it has been saying so loudly for decades—a light fighter, cheap to run, that would be the work-horse of its fighter fleet. After the forced rejigging of the Rafale purchase in 2014, the IAF had iss­ued another RFI for buying and building 100-200 single eng­ine fighters in 2016. This had had boiled down to a competition between Lockheed Martin’s F-16 and the Saab’s Gripen.

The problem is that by the time RFIs and RFPs (request for proposals) are sent, lobbies enter the picture and muddy issues. That is what happened the last time around, and that is what is happening now. With the inclusion of twin-engine fighters, the competition is back to the future. In other words, it is a repeat of the old MRCA competition. So, Rafale can re-enter it and conceivably win it again. Because in a competition against the single-engine fighters, the heavier twin-engine fighter will end up superior—in range, endurance and capability. If budgetary issues are taken into account, as they most certainly should, it is 40 per cent or more expensive to run a twin-engine machine. Incidentally, an analysis of the accidents in the IAF has shown that twin-engine aircraft like Jaguars have had more crashes than the single-engine Mirage.

By scrapping its 2016 aim of getting a single-engine fighter, and including twin-engine fighters, the IAF has muddied the competition once again. Instead of narrowing down their choice, the IAF has broadened it to the point of incomprehension.

Given the detailed questions relating to the ToT (transfer of technology) component in the RFI, perhaps this time around, the key element in the decision-making matrix will not be the fighter’s performance alone, but the willingness of the partner to transfer technology. According to the RFI, the transferred technology would have to be state-of-the-art and boost India’s indigenous design and development, production and maintenance capabilities as well. Also, the transfer should also aid the country’s indigenous programmes.

Actually we have been doing ‘Made in India’ kind of license production of fighters since the mid-1960s, beginning with the MiG-21. Subsequently, the MiG units gave way to the Su-30MKI production line in the 1990s. Yet, we learnt little in the design and development of fighter aircraft.

The Sukhoi is now allegedly manufactured from “raw material”. But this is deceptive. For example, the raw material that goes into the fighter such as titanium and steel must be sourced from Russia, along with nuts, bolts and rivets. Likewise, while most of the engine is made with Indian-made components, key high-end composites and special alloys—some 47 per cent by value of the engine­—are imported.Countries could well be willing to offer some design and development technology but those that are being phased out by them. But they will certainly not offer their crown jewels, say, technology related to engines. This is one area where the West retains its edge and even the Russians are not quite there. The Chinese have spent an arm and a leg and only slowly moving towards developing a viable fighter engine, but not one that can be compared to what powers the western fig­hters. In any case, why would anyone offer cutting-edge technology for a deal involving 110 aircraft and $15 billion?

If India thinks the acquisition will help it leapfrog its way to acquiring world-class fighter aircraft design and development capability, it is chasing a chimera. Such capabilities, as the Chinese story suggests, take place over decades and are directed by those in authority. They involve not simply ToT, but espionage and, as the Americans now charge, forced technology transfer.

An advanced capability to design and manufacture aircraft involves thousands of engineers and technicians and takes decades to build. So, it requires a systematic build-up of design, development and manufacturing capacities, accompanied by a symbiotic effort to develop engineering and technical institutes to support the effort. Most importantly, it needs sustained higher strategic direction, much in the way that the Space Commission has provided in building up the capabilities of the Indian Space Research Organisation. The members of the Space Commission include Nripendra Misra, principal secretary to the PM, and National Security Advisor Ajit Doval, besides the Cabinet, Finance and Foreign secretaries.

The RFI suggests that the IAF wants a heavy fighter capable of everything: air defence, deep strike, reconnaissance, maritime strike, electronic warfare, buddy-refuelling capability and so on. The RFI is loaded with all sorts of possible requirements. One asking whether the fighter on offer will “allow crew members to relieve themselves and take provisions in flight”. Now, existing fighters do have provision for urine collection, but for defecation, things are more complicated. The Russian Su-34 would seem to be the only one to fit this bill since it has a small toilet and kitchen behind the tandem cockpit crew cabin. Then, the RFI wants an aircraft that “can fly in excess of 10 hours with air-to-air refuelling”. Now ten hours of flying in a fighter is way beyond human endurance. US Navy pilots, for example, are not expected to be in the air more than 6 hours at a time.

In all this, everyone seems to have forgotten that there was another important deal the IAF was looking for. That was for a fifth-generation fighter to be built jointly with the Russians—a deal that also incorporated sharing a great deal of design and development know-how. But that seems to have receded into the background, and no one knows why.

The threats we confront by 2025 will most certainly include fifth-generation fighters like the Chinese J-20 and possibly the J-31, which could even be exported to Pakistan. Speed and man­oeuvrability may matter less than sensors and weapons, and the manner in which they are fused. Beyond this is the possibility that threats will mutate to include autonomous unmanned aerial combat vehicles and drone swarms guided by artificial intelligence. In the meantime, we’ll be trying to play catch-up in a game where the rules have changed beyond comprehension.

Outlook April 23, 2018

Events and consequences

This month is likely to see a number of visits by Indian Ministers and officials to Beijing. Last month, the Union Defence Minister Nirmala Sitharaman acknowledged that she would be visiting China, probably sometime late this month. Also expected in Beijing is Union External Affairs Minister Sushma Swaraj who will attend the meet of the Shanghai Cooperation Organisation (SCO) Foreign Ministers on April 24.

Also expected in Beijing is the National Security Adviser Ajit Doval,  who is expected to attend a meeting of the National Security Advisers of the SCO countries. At this juncture, it would be premature to give a bilateral spin to the visit, though there is every possibility that he will, indeed, meet his counterpart, the recently promoted State Councilor, Wang Yi who also doubles as Foreign Minister. Wang is also likely to be appointed as Doval’s counterpart as the Special Representative for relations between India and China. Last year in December and earlier at the height of the Doklam crisis, Doval had interacted with the then State Councilor and SR, Yang Jiechi. 

For the present we must assume that while Sitharaman’s visit is part of the normal high-level intercourse between the two countries, the visits of Swaraj and Doval are linked to the SCO summit in Qingdao in June which will be attended by Prime Minister Narendra Modi. But there have been persistent reports that we may see an earlier Modi visit to China and in that event, it is possible that Doval would use the opportunity to do some preliminary spade-work.

 In all this, it is important to assess as to the longer-term perspectives of Beijing and New Delhi and whether what is happening is really a reset of sorts, or merely another round of maneuvering between two countries that remain suspicious of each other.

Doklam remains an uncomfortable backdrop of this because while the two sides have disengaged from the site of last year’s face-off, they remain in the in strength in the proximity.

Earlier in February, New Delhi had signaled a shift of sorts when in a letter leaked a day before he was to go to Beijing, Foreign Secretary Vijay Gokhale wrote to the Cabinet Secretary, P K Sinha advising  state leaders and officials to stay away from the functions of the Dalai Lama. A major annual seminar on China organized by the MOD-run Institute for Defence Studies and Analyses was cancelled because of its China connect. Observers felt that the Modi government was signaling a shift away from its “muscular” policy towards China which featured the use of the Tibet card. However later that month, it was revealed that BJP General Secretary Ram Madhav and the Union Culture Minister Mahesh Sharma would indeed visit Dharamsala to participate in the celebrations marking the 60th year of the Dalai Lama’s arrival in India.

Later in March, the Ministry of Defence took a group of journalists from Delhi to a highly publicized visit to the easternmost area of Walong and they reported that India had significantly increased patrolling in the mountain areas of the Dibang, Dau-Delai and Lohit Valleys.

The question to ask is whether New Delhi’s moves are tactical aimed at correcting the needlessly loud stand it had taken, especially on China’s blockade on India’s membership to the Nuclear Supplier’s Group and the proscription of Masood Azhar by a UN committee.

Another reason could be India’s assessment that it did not have the heft to take on China across the board in the South Asia and Indian Ocean Region and it needed to recalibrate its posture, in the light of the consolidation of power in the hands of Xi Jinping.

There have been worries, too, that prolonged confrontation with China and a possible move in Doklam, bypassing the point near the Doka La pass that the Indians had blockaded could see the Chinese on the Jampheri ridge to the detriment of Indian security. Given the ground realities, India would not be able to do anything about it, short of triggering a war. This would not be a particularly helpful prospect in view of the coming general elections in India. A perception that Modi had “lost” the Doklam advantage could be devastating for his re-election efforts.

 All this is happening even as the US and China are girding up for what could be a debilitating trade war. But even the trade war could well be a side-show for a longer contest between the two sides, given the new US National Security Strategy which is aimed not at striking some deal with China, but a complete overhaul of US policy. And just around the corner is the likely American decision to walk out of  the Joint Comprehensive Plan of Action (JCPOA) or the nuclear deal with Iran. All these events will have consequences and there will be collateral casualties and so it is important for us to understand the need to stay out of the way.

Greater Kashmir April 9, 2018

Why India and Nepal are hitting reset on bilateral ties

Nepal and India have taken a tentative step forward in normalising their relations. Nepal’s new Prime Minister KP Sharma Oli made it a point to make New Delhi the destination for his first visit abroad. For its part, India has rolled out the red carpet for Oli. The outcome of the visit suggests that ties between the two countries are in a reset mode.

New links

The agreement in connecting Raxaul with Kathmandu through an electrified rail line is a significant one, which may even one day see a linkup with a Chinese built line from Lhasa. 

But of more immediate importance are smaller links such as the 28km link between Jayanagar to Janakpur and the 18km Jogbani to Biratnagar link are expected to be completed this year. The Jayanagar-Janakpur line will be extended to Bardibas town from where a train will be run to India.

Three other similar links from the Indian side to Nepal will also be taken up. Oli could not have been unaware of the unease his election caused New Delhi. But he had also learnt his lesson from the 2015 experience. Further, with the Constitutional provision barring no-confidence motions for two years, he also feels more settled into his position which, in any case, is electorally unassailable.

The Nepali leader now speaks from a position of strength as the leader of a soon-to-be-merged coalition of the Communist Party of Nepal (United Marxist Leninist) and the United Communist Party of Nepal (Maoist Centre). The new entity, simply the Communist Party of Nepal, has emerged as the dominant political formation in the country having swept the elections of 2017 and obtained a two-thirds majority.

Oli is a veteran politician who has done 14 years in jail as a political prisoner. As Prime Minister, he had the misfortune to run into India which instituted a blockade on Nepal in the wake of the refusal of the mainstream parties in the country to amend the new Constitution to accommodate the just demands of the Madhesi plains’ people. With the help of the UCPN-M, Oli became the first Prime Minister under the new Constitution in October 2015 just as the blockade got underway.

Equation with China

Given his inclinations, Oli took a defiant stand and refused to amend the Constitution and signed a trade and transit treaty with China to counter dependence on India. But nine months later, when the Prachanda and the UCPN-M withdrew its support, allegedly at the behest of India, his government collapsed.

However, Prachanda and Oli made up soon and Oli’s CPN(UML) fought the 2017 general election in a coalition with the UCPN(M) and the two got a total of 174 seats in the 275 member Parliament. Oli became Prime Minister for the second time in February this year. China is Nepal’s other major neighbour and it is not surprising that Nepal has long sought to leverage its ties with China to seek concessions from India.

This is par for the course for small countries and New Delhi must learn not to get too worked up over it. The India-Nepal Treaty of 1950 ensures that Nepalis are treated on par with Indian nationals in a range of areas, including private sector jobs, holding of property and so on. Some six million Nepalis live and work in India which is Kathmandu’s principal trade partner and largest source of foreign investment.

Many in Nepal chafe at this and see it as a humiliating dependency. Whereas Indians feel that Nepal is being less than grateful for the generosity they are being shown. This feeds a negative narrative in the relationship between the two countries.

Shared history

Geography, culture and history link India and Nepal in a manner no other two countries are connected. But if Nepal is geographically “India-locked”, New Delhi should also know how important the country is for India, not just for security, but also our well-being.

Rivers originating in Nepal feed into the Ganga and whether in terms of their ecology or hydropower potential, they have important consequences for India. Beyond the Oli visit, both countries need to re-strategise their relations and offer a new narrative based on a mutuality of interests, rather than some cultural connect.

Like it or not, the Chinese presence in Nepal is likely to grow in the coming years. But talking down to Kathmandu on the alleged dangers of the Chinese debt trap is not a good idea. Whether it is Sri Lanka or Nepal, we must assume that their leaders are as committed to their respective nations as we are to ours.

That they would not willfully do something that would harm their own national interest. What we can do is to come up with viable alternatives and offer them, but leave it for Kathmandu or Colombo to decide what is the best option themselves.

Mail Today, April 9, 2018

On the Verge of a US-China Trade War

The world is teetering on the brink of a trade war between China and the US.

US President Donald Trump fired a new shot in the trade war on Thursday (April 5) when he said he had directed the United States Trade Representative (USTR) to consider an additional $100 billion tariff following China’s decision to retaliate against an earlier $50 billion worth of proposed tariffs.

For the record, Trump tweeted on April 4, the day the USTR listed the new tariffs on a slew of Chinese goods, “We are not in a trade war with China, because that was lost many years ago…”

An earlier round of tariffs saw the US announce 30% tariffs on imported solar panels and washing machines in January. This was followed by 25% tariff on steel and 10% on aluminium on the grounds of national security, though Mexico and Canada were exempted.

On March 22, Trump announced that the US would impose tariffs on $50 billion worth of goods. The US targeted industries like aerospace, information and communications technology, robotics and machinery. On the same day, the USTR issued a lengthy report detailing the manner in which China forced American companies to transfer key technology and trade secrets and Chinese proclivity for stealing data through hacking.

On April 2, China announced tariffs on US goods worth $3 billion on some 130 American products like fruits, nuts, wine and steel pipes, as well as pork and recycled aluminium. On April 4, following the publication of the list of items that the US would target, China listed products worth $50 billion imported from the US which would now be subject to 25% tariffs, these included soya beans, automobiles and chemicals.

The US imported $505.6 billion worth of goods from China in 2017, of which the largest category were computers and computer accessories ($77.1 billion), mobile phones ($70.3 billion), telecom equipment ($33.5 billion) and toys, games and sports goods ($26.7 billion). The current USTR lists avoid many of these items so as to spare the ordinary consumer the pain of price hikes.

The USTR action, which would cover several thousand separate tariff lines, will be reviewed further after the public notice and comment process, including hearing. It is only after all this happens that the agency will issue a final determination on the list of products that will be subject to the additional tariffs, which could now approximate $150 billion worth of Chinese imports.

There is considerable worry about where this escalation cycle can land up. There are many complexities that escape Trump’s simplistic understanding of the trade deficit issue. Actually, the issue is not just between China and the US. A “Chinese” product comprises elements from other countries.

The logo on the iPhone notes, “Designed in California, assembled in China”. The iPhone costs Apple $220. It is assembled in China for $6.50, but the rest of the cost is for its sophisticated components made in Germany, South Korea, Japan and the US. In other words, any “trade war” between these two giants will have consequences for many other smaller countries – there will be collateral damage.

The Economist says that 30% of the value of goods that China exports to the US is added elsewhere – Taiwan, Malaysia, Singapore and so on. If the situation worsens, “countries entwined in Chinese supply chains will suffer” and in its estimation, Japanese suppliers could be the worst hit in absolute terms.

As this analysis points out, Chinese value addition has the lowest value addition in the high tech sector. In the case of computers and electronics, “less than half the value added in Chinese exports come from China”. It notes that even while Chinese industrial policies are charged with trying to build up its state-owned enterprises, they account for an increasingly declining share of exports. Anyway, the big worry now is that China’s retaliation could be escalated to cover major firms like GM or Apple, even if Chinese workers are affected by it.

President Xi Jinping is expected to address the Boao Forum next week. In keeping with the Chinese posture, he will put across the country as a victim of American capriciousness and as one which is willing to play by the rules. It is also initiating a complaint in the WTO that the US was in serious violation of global trading rules by targeting Chinese goods for tariffs.

China has already signalled that it is willing to make concessions, such as those related to the opening up of the finance sector. When Trump visited China in November 2017, Beijing offered concessions like raising caps on the foreign ownership of banks and securities firms. Global firms have been cautious here because they would have to use Chinese telecom equipment for their operations and store data there as part of its laws. Chinese vice finance minister Zhu Guangyao had said that the country would allow foreign investors to own 51% of Chinese securities firms, fund managers and futures companies and allow them to own 100% three years later. The current limit on foreign ownership is 25% for large publicly traded securities firms and 49% for most other businesses. He also promised that China would raise the allowed foreign investment in insurance companies which was 50% for most companies to 51% in three years and 100% in five years.

But given the USTR focus, it seems unlikely that they will be willing to accommodate American demands which are increasingly focusing on their industrial policy that comes under the rubric of “Made in China 2025”.

This policy is key in order to modernise the country’s economy, move up the innovation chain and avoid the middle-income trap, which is something most Western economists have been telling China it must do. The Communist Party of China is fully aware of the fact that its power rests on its ability to ensure China’s positive economic trajectory. So it is unlikely to be deterred from its task by the steps taken by the Trump administration at this time.

It is not surprising that the latest round of Trump tariffs got a tough response from Beijing. Chinese authorities declared that they would fight back against US plans at any cost. Official spokespersons of the Ministry of Commerce and Foreign Affairs said that while China did not want a trade war “we are not afraid of it”.

The Wire April 6, 2018