CBI verdict: With hand caught in the Bureau

No matter how spinmeisters spin it, the Supreme Court’s order to reinstate Alok Verma as Central Bureau of Investigation (CBI) director is a tight rap on GoI’s knuckles. The court has set aside the October 23, 2018, order of the Central Vigilance Commission (CVC) and GoI divesting Verma of his powers, and appointing M Nageswara Rao as the interim chief.

The apex court has added that Verma would not have the power to take major policy decisions till a high-powered committee that selects and appoints a CBI director takes a decision on the matter. They ordered that this committee, which comprises of the PM, the leader of the Opposition and the Chief Justice of India (CJI), be convened within a week and take a decision on the basis of a CVC inquiry against Verma, whose report had been given to the court in a sealed envelope in November.

Last October, GoI had, in a midnight action coordinated by National Security Adviser (NSA) A K Doval, sent both Verma and his deputy, Rakesh Asthana, on leave, saying that they had no option as the two officers were locked in a bitter feud. CBI had earlier booked Asthana as a prime accused in a bribery scandal.

Verma had challenged the order saying that it went against the rules that mandate a fixed tenure of two years for the CBI chief. An NGO, Common Cause, had also filed a petition against the government move.

The court’s view of the shoddy situation was evident from the fact that it asked a retired judge to supervise the CVC inquiry against Verma. Simultaneously, it had ordered that interim director Rao could not take any policy decisions. In essence, what the court has now done is to shore up CBI’s autonomy that it had established since the Vineet Narain judgment of 1997.

Key to this was the direction that the appointment and dismissal of the CBI chief take place as per the process of the law. In this case, it required the concurrence of the three-man committee, and this did not have any role for the CVC in it.

Prime Minister Narendra Modi stayed largely aloof from the controversies generated by the Asthana-Verma spat last year. This was despite the charge that Asthana, a Gujarat cadre officer, was a protégé of his. But, now, as the chair of the three-man committee that has to deal with the issue, he has the hot potato in his hands.

The issue is even more salient because of reports suggesting that Verma was removed because he was seeking to investigate the Rafale deal on the basis of a complaint submitted to CBI by Arun Shourie, Yashwant Sinha and Prashant Bhushan.

But the PM only has himself to blame for all this. GoI agencies have been misused in the past as well. But the track record of this government is arguably in a class of its own. The ‘coup’ against CBI had elements of arbitrariness as well as incompetence, a lethal combination.

Whether it is universities, the Right to Information (RTI) system, or even the Reserve Bank of India (RBI), we have seen convention — and even the law — being ignored so as to get it one’s way. Instead of using his considerable political authority to reform and restructure the economy and build institutions to modernise the country, Modi’s goal seems to have been a desire to shore up his personal authority and prestige.

Institutions like the Central Information Commission (CIC) have been made virtually comatose by leaving vacancies for information commissioners vacant. GoI has moved amendments to the RTI Act to undermine its autonomy. On the other hand, it has not hesitated to stake out powers to track the information of the ordinary citizen through a variety of administrative orders relating to phone and internet surveillance.

All this smacks of an arrogance that earlier led to ‘unilateral’ decisions like demonetisation in November 2016, and the Nepal blockade in 2015. Sadly, given the past experience, GoI will probably take all the wrong lessons from the Supreme Court’s rap. It may look for ways and means to undermine the judgment —as we see happening in the case of Aadhaar, where GoI is trying to amend the law to bypass a Supreme Court verdict.

Economic Times January 8, 2019

India to lose out in new-era wars

WE  need to take a balanced view of Chinese President Xi Jinping’s ‘order’ to the People’s Liberation Army (PLA) to continue strengthening its combat capabilities and be always ready for battle. This is the kind of message that leaders all over the world are expected to give to their militaries, so it should not be taken to mean that the PLA is about to embark on a new wave of aggressive behaviour. 

In his speech, Xi did emphasise that China faced unprecedented risks and challenges and so China’s armed forces needed deeper “preparation for war and combat” to ensure an effective and efficient response “in times of emergency”.  

Though probably aimed elsewhere, there is a message there for the Indian military, which confronts China across a 4,000-km disputed border and is learning to cope with the PLA Navy movements across the Indian Ocean. Since the Doklam episode in 2017, the land border has been more active than ever; in the past year, there have been reports of the PLA upgrading its posture across its length. 

 Xi’s remarks came two days after he raised the temperature on Taiwan by calling for ‘peaceful reunification’, while asserting that his government made “no promise to renounce the use of force” in relation to the issue. The ‘Taiwan contingency’ remains the premier focus of the PLA’s deployments, followed by the South China Sea. On both accounts, it must contend with the fact that its premier adversary is the US, by far the much stronger power in the western Pacific. 

 Overall, the message seems to be that the PLA needs to double down on reform and restructuring that began in 2013. This is more so when Beijing is confronting an unprecedented political challenge from the US, which has now categorically designated China as a strategic challenger. Technology has emerged as a major area of this rivalry and the US is convinced that China has been systematically working to acquire western technology through acquisitions, forced transfers and thefts to gain strategic advantage.

The threat of an all-out war between, say, the US and China, or India and China is remote. But what is real is the jockeying for advantage in which both sides worry that emerging technologies could provide the other with some as yet unknown battle-winning edge. However, as of now, the PLA is still in the midst of its restructuring and reform process that has led to considerable disruption through its reduction of numbers, as well as reorganisation into theatre commands. 

 For obvious reasons, the PLA is emphasising the reform of military education and training to accompany the acquisition of new equipment. The PLA’s joint operations research and experimentation has revealed weakness in its military training institutes, joint proficiency of its officer cadre, joint training, doctrine and tactics and logistics, and command structures, all of which are being addressed in the current reform.

The key thrust of the reform process has been jointness. Over the years, the PLA has been moving from ‘coordinated joint operations’ to ‘integrated joint operations’. It took a major step under the 2013 reforms, with the creation of theatre commands and the establishment of joint headquarters to create optimal joint operational capability.   

The foundation of integrated joint operations lies in developing an effective system of systems capability. This, in essence, is the fusing of various components-weapons, equipment, units beyond their individual capacity to provide synergy. At the heart of this lies the development of integrated command, control, communications, computer intelligence, surveillance and reconnaissance (C4ISR) structure which will not just link the systems and forces, but also enhance their joint operational capacity. 

The PLA’s Strategic Support Force (PLASSF), set up on December 31, 2015,  has sought to integrate capabilities in space, cyberspace and the electro-magnetic spectrum into the PLA’s combat arms. Its goal is to meet the PLA’s military strategic guidelines of being ready to fight and win ‘informationised’ wars. 

The SSF has been involved since 2016 in the PLA’s key annual Stride exercises. But, say observers, it is still some way from developing its fifth generation of operational regulations (the previous set was issued in 1999) that will guide its operations in space and the cyber domains. 

 The shift of the PLA from being a continental force to one capable of integrated joint operations within China’s borders and without could easily span a generation. Clearly, at present their capabilities remain far behind those of advanced countries like the US and Japan. In that sense, Xi’s injunctions and those of the PLA Daily are by way of being exhortations to do better. Under Xi, the deadlines have been advanced. In the 19th Party Congress, Xi announced that modernisation of the PLA would be complete by 2035. Earlier, the third stage of the plan was for it to be completed by 2049.  However as Xi himself noted, the PLA is not likely to become a world- class military till the mid-century. The US will remain the dominant global military power for the foreseeable future and can look after itself. 

The big questions are for India, which has failed to push through any significant reform and reorganisation in its defence system. The political leadership seems to be uninterested in it. Meanwhile, its component force (Army, Navy, Air Force) leaders periodically boast about capabilities they don’t have and so, we are simply not ready for the new generation of warfare. 

The Tribune January 8, 2019

Blowing hot and cold: PM is right, it will take time for Pakistan to change, but smart policy would make that time shorter

Despite the criticism that it was more of a monologue, Prime Minister Narendra Modi’s recent interview provided important insights into the man and his policies. Nowhere did they appear more problematic than when he spoke about Pakistan.

In response to a question as to why cross-border terrorism had not stopped despite the so-called surgical strikes two years ago, he declared that it would “take more time for Pakistan to mend its ways”. He attacked those criticising the surgical strikes for speaking “the language of Pakistan”, said that terrorism and dialogue could not go together, and claimed that India had “managed to isolate Pakistan on the global arena”.

Coming from a politician about to go into an election some of this was understandable, but coming from the PM who should have led a coherent policy towards a country which is arguably the biggest foreign policy challenge to India, it was disappointing.

In 2014 and 2015, Modi’s approach to Pakistan veered from warm embraces to sudden put-downs. The next two years, 2016 and 2017, saw hot exchanges: cross-border attacks, surgical strikes, loud campaign to push for a comprehensive convention on international terrorism (CCIT) and “isolate” Pakistan.

None of this worked, so in 2018, things cooled down, New Delhi sought to curb cross-border violence and agreed to implement the 2003 ceasefire accord. There was another edition of the farcical process when India agreed to a dialogue and then called it off. Later in the year, India and Pakistan agreed to create a corridor from India to Gurdwara Darbar Saheb, where Guru Nanak lived for the last 18 years of his life, in what is now Pakistan. On Thursday, Modi claimed ownership for the initiative which, we all know, has had a somewhat more jaded history.

Just how policies did not work out is best brought out by the surgical strikes. They were meant to deter cross-border attacks. But they did not. Just two months after, there was a far more serious attack in Nagrota, the headquarters of 16 Corps. India did not react. Neither was there any response to a Jaish attack on Sunjuwan camp near Jammu in 2018. As for Pakistani BAT attacks, they have been going on constantly, the most recent being the failed one of December 30. After publicising and hyping the surgical strikes, India needed to respond to every attack, if it wanted to reinforce deterrence.

For the record, whatever the PM may say now, it was his party that has politicised the action, first by disclosing it, then by using it in the UP elections, and confirmed this by celebrating what is a relatively minor military action as a ‘Surgical Strike Day’ across universities and educational institutions.

The consequences of the failure of the Pakistan policy are many. There are opportunity costs to be paid for the constant tension on our western borders and for our failure to integrate South Asia into a single economic area. As of now, New Delhi appears to have no intelligible policy response to the current developments in Afghanistan. The Sino-Pak axis continues to gather strength, now expanding outwards in the Arabian Sea.

Sure, as the PM says, Pakistan is not going to change overnight because of war or some surgical strike. Change can only come through a careful and consistent combination of policies that encourage good behaviour and penalise the bad. It also requires patient diplomacy involving third parties – China, Saudi Arabia, the US or Russia. But most of all it needs an understanding that change has to come from within Pakistan itself. You cannot shift the behaviour of a country which you demonise for domestic political purposes.

Managing Pakistan effectively is a pre-condition for India’s putative rise. Modi is not wrong when he says it will take time for Pakistan to change. But smart policy would make that time shorter, rather than doing things that is stretching it, unconscionably, far into the future.

Tiimes of India January 5, 2019

India’s tryst with 2019

The one big event for India in 2019 will be the Lok Sabha elections. Once considered a cakewalk for Prime Minister Narendra Modi, the elections now look competitive. Further, as the recent Assembly polls showed — predicting any outcome would be a hazardous exercise.

Modi has been in election mode since the beginning of 2018, if we are to go by Prime Ministerial inaugurations.

From tunnels, bridges, giant statues, airports, chocolate factories, hospitals, to partially-constructed highways, and sections of the Delhi Metro, nothing has been too small to escape the PM’s attention. According to reports, January 2019 could see a huge shower of election-related sops.

BJP’s jaded rhetoric

The Bharatiya Janata Party used the weapon of anti-incumbency to devastating effect in 2014. Since then, it has sought to keep on reshaping this message. Whether people buy the view that Jawaharlal Nehru was responsible for the country’s current ills, is another matter. One of Modi’s greatest skills has been his ability to shape the narrative. This was evident right through demonetisation, but since then there has been considerable erosion.

The big challenge for PM Modi is to shape a new narrative. (Photo: Reuters)

No matter what the government does, it cannot convince the farmers that everything is hunky dory — or that the crop insurance scheme, high minimum support price, or rural livelihood missions will solve their problems. Nor can it convince people that it has excelled on the job front.

The big challenge now is to shape a new narrative. The obvious one is the need for a renewed mandate for Modi to enable him to complete the tasks he has been doing so well till now. This, however, gets caught in the glass ‘half full’ or ‘half empty’ binary.

It is difficult to escape the feeling that overall the Modi-government has failed to provide the critical push needed to transform India into a modern and prosperous country. Instead, there has been a dangerous tendency to polarise the populace on the basis of caste, creed and substitute rhetoric for action.

Trump and trade wars

The second major development to look out for in 2019 will be the US-China trade war. March 1 is the deadline set by the truce the two sides worked out on the sidelines of the G-20 summit in December.

What are the chances they will be able to meet it? Perhaps what we will see is its extension bought by Chinese trade concessions.

But we are unlikely to see a return of Sino-US relations to the entente that existed earlier. The rapidity of China’s growth in a range of areas has now convinced the US that Beijing has become a peer competitor whose goal is to displace America as the number one country in the world. Given its economic trajectory, China will be the world’s leading economy, but the US will remain the premier military power for some time to come. This is owing to the geography of the United States, and that its defence spending is nearly thrice more than China’s.

As of now, there are no signs that the Republican Party is ready to abandon Trump. (Photo: Reuters)

Another development to watch out for is the continued unfolding of the Trump presidency. Many argue that the US President Donald Trump has now, at last, rid himself of establishment figures and is set to run the show on his own terms, pushing policies that he deeply believes in. However, the Mueller investigation into allegations of Russian interference in the US elections and wider poll violations by Trump remains a wildcard. As of now, there are no signs that the Republican Party is ready to abandon Trump. Unless the party changes its attitude, we are destined to see more of the same in the US in 2019.

UK’s road to Brexit

A fourth significant geopolitical change scheduled for 2019 is the UK’s departure from the European Union — or Brexit — in March 2019.

Will the UK stick to the withdrawal agreement that has been worked out with EU? There are various other possibilities here, but British politics has been so messed up that no one is willing to bet on anything. Even though experts have forecast doom and gloom for UK outside EU, so far, the economy has been doing reasonably well.

The UK is the world’s fifth largest economy and there are indications that it could overtake Germany to become Europe’s largest economy in the coming decade. As a member of the UN Security Council, Britain is a power in its own right. But working through the EU’s 28-member grouping, it was able to extend its power and influence even more.

Brexit may close British choices in one direction but could provide newer opportunities for the country in its ties with the US and China.

Mail Today,December 31, 2018

The US-China trade war dynamic: What’s in it for India?

26 December marked the 125^th anniversary of Mao Zedong’s birthday. Speaking in the mid-December celebration of the 40^th year of reform and opening up, President Xi Jinping hailed Mao for laying the foundation for the successful transformation of China. 1 January 2019 will mark the 40^th anniversary of the establishment of the diplomatic relations between the United States and the People’s Republic of China, though it is unlikely that this event will be celebrated at this fraught juncture in Sino-US relations.

The two countries are locked in what began as a conflict over trade and tariffs, but has now become all-consuming and is affecting their relationship across the board. Relations between them are probably the worst they have been since 1979.

Reports say that a US team will travel to Beijing on 7 January to hold trade talks with Chinese officials. It will be led by the Deputy US Trade Representative (USTR) Jeffrey Gerrish and will also include Treasury Undersecretary for International Affairs David Malpass. These will be the first face-to-face discussions since Presidents Trump agreed in his meeting with President Xi in Argentina, to postpone the imposition of additional sanctions on $200 billion worth of Chinese goods (imposed until 1 March).

Beijing is now battling an economic slowdown, as well the headwinds in its relations with the US. The economy continues to be weighed down by debt and the impact of US tariffs are only now beginning to tell.

The latest signals coming from Beijing, through the outcome of the Central Economic Work Conference (CEWC) that concluded last week signals that the Chinese will make efforts to stimulate their economy and at the same time work towards a trade deal with the US. ^[i] This is a key meeting of top officials chaired by Xi Jinping that was aimed at setting the tone of the Chinese economy for 2019.

The third quarter saw the slowest quarter of growth since 2009. It stood at 6.5 per cent. Some are forecasting Chinese growth to slip below 6.5 per cent in the coming year. The World Bank, however, says China’s economy “remains resilient” and has projected China’s growth rate in 2018 to 6.5 per cent and 6.2 per cent in 2019. ^[ii]

The CEWC signalled that that China planned to continue to promote the development of high-end manufacturing and make China a “high end manufacturing powerhouse.” ^[iii] More important, the CEWC statement struck an upbeat note declaring that “China is still and will be in an important period of strategic opportunity for development for a long time to come.” ^[iv]

Meanwhile China is signalling that it is willing to adjust its policies to meet what has now become near-universal criticism. As a result of the G20 meeting, China announced a third round of tariff cuts on 700 goods from 1 January to open up the economy. China also removed retaliatory duty on US automobiles and began buying US crude oil, LNG and soybeans again. ^[v]

Meanwhile the US continues to pile on pressure on China. In November the US Commerce Department asked for public comment on putting tough export controls on a list of 14 new technologies which could have dual national security implications such as genomics, computer vision and audio manipulation technology, AI chips, quantum computing, mind-machine interfaces and flight control algorithms.

The Huawei drama continues to unfold in slow-motion. Its CFO Meng Wanzhou was released on bail earlier in December and even though China has taken three Canadian nationals hostage, it is unlikely that Ottawa will unbend on the issue. As of now the US has not formally sought her extradition.

Last week, the US Justice Department announced charges against two absconding Chinese nationals for participating in a global hacking campaign to steal tech company secrets and IPR, including the data of more than 1000,000 US Navy personnel. According to the legal documents, the two, operating in conjunction with the PRC’s Ministry of State Security stole information from at least 45 US companies in a campaign that began in 2006. ^[vi]

Later that day, in coordinated announcements by UK, Australia, Canada and New Zealand, attacked China for its 12-year campaign of cyber-espionage targeting their technology companies. According to reports, initial plans were for a simultaneous announcement of financial sanctions on those implicated in the hacking. ^[vii]

The CEWC did make favourable noises about quickening reform, enhancing foreign investor access, protecting IPR of foreign companies, and removing ownership caps in more areas and “implement the consensus from the China-US summit (in Argentina).” But so far the Chinese have not provided any detailed concessions that could meet the heightened expectations of the Trump-Xi meeting. Indeed, what they are worried about it US piling on demands in the face of Beijing’s concessions.

Who is winning and who is losing the trade war 

Conventional wisdom has it that the standoff between the world’s largest economies will end up with losers all around. But the situation could be more nuanced.

According to a study by European Network for Economic and Fiscal Policy Research (Europe Econpol), 20.5 per cent of the cost of the 25 per cent tariffs that the US has imposed on $250 billion worth of Chinese goods will fall on Chinese producers, while the US consumers will only pay 4.5 per cent. ^[viii]

A September 2018 survey by the American Chamber of Commerce (AmCham) China and the American Chamber of Commerce (AmCham) Shanghai says US companies doing business in China have been hurting. They based their findings on a survey of 430 companies doing business in China. Nearly two-thirds of respondents said that cross-tariffs of $50 billion each imposed by China and the US were already affecting their business operations. Additional tariffs would affect a higher proportion of businesses, the survey noted. However, all but a handful of them said they would remain in China for the near future. ^[ix]

A study by Nomura Global Research suggests that there could be companies, industries and even some small economies that could benefit. ^[x] According to the study some would benefit from import substitution, others from production relocation. A country like Malaysia, for example, could gain in the area of electronic integrated circuits, while Pakistan could benefit in cotton yarn. India, along with Malaysia and Singapore could benefit from a diversion of FDI and production from China.

The AmCham study suggests that the bulk of the 430 companies surveyed would not shift, but of those that would, the bulk would go to Southeast Asia and some to the Indian subcontinent, and only a few would relocate back to the US. 

More detailed analysis in the study shows that India does not benefit from the import substitution by countries on account of the US tariffs on Chinese imports. Whereas it does gain marginally from the import substitution on account of Chinese tariffs on US imports.

India’s gains could come from the diversion of production and FDI from China which could occur were the trade war become prolonged. 43 per cent of China’s total merchandise exports depend on foreign investment, pointing to their potential for relocation. This may not hurt China’s giant economy, but would certainly benefit the economies to which the diversion occurs.

India’s market size and potential make it a likely destination of countries wanting to relocate. But the Nomura Production Relocation Index puts India at the fourth position after Vietnam, Malaysia, and Singapore. 

Looking forward

At this stage the outcome of the US-China negotiations remain in the realm of speculation. The Chinese could decide that it was prudent to keep on the right side of the US and make the changes in their economy that the Americans wanted, which would actually amount to carrying out the reforms they have themselves sought but have been unable to make.

On the other hand, they could double down and refuse to make the changes and hope to buy off the US by increased purchases of energy and agricultural products like soybeans and put on a show that they are working hard to meet US goals. As speeches go, Xi’s have a mixed record. In his major speech on the anniversary of reforms, Xi took a hard line and insisted that only the Communist Party of China (CPC) dominance would allow China to continue its remarkable economic transformation. ^[xi] On the other hand, the statement at the CEWC, chaired by XI signalled that China was willing to make a deal.

To show that they are serious in addressing US concerns, a standing committee of China’s legislature, the National People’s Congress, recently began discussion a draft proposal that would prohibit the forced transfer of technology to domestic companies using administrative measures. Just how this would work is not clear since the draft agreement speaks of promoting “voluntary technological cooperation based on business rules.” ^[xii] Critics, however say that the draft law is a formal document, whereas technology transfers take place in actual practice. It’s not clear when the NPC will actually pass the new proposal as a law. It could actually take another year and more for the process to be completed. ^[xiii]

Even so, the Chinese are being careful in handling the US. After targeting Trump’s constituency — soybean growers, the Chinese are once again purchasing it. They have not behaved as they did with Japan in 2010 when they placed a temporary ban on rare earth exports and targeted sales of Japanese companies like Toyota and Honda.

A great deal of the US-China trade outcome depends on just at what point does the US wants to compromise. The American position, of course, is known only to President Trump. He could have his officials negotiate hard with the Chinese and then cut a deal which would meet his trade demands, but cut the Chinese some slack on the issue of its industrial policy. For Beijing, that could well be a best case scenario which would drastically reduce the current antagonism and prevent what is clearly looking like a train-wreck in Sino-US relations. He has so far, for example, not only let of ZTE off the hook, but also signaled that he may be willing to have a look at the extradition of Meng Wanzhou, if the Chinese so requested. ^[xiv] One disturbing development for Beijing, however, is that despite the US going it alone, its allies are now lining up behind it to raise the issue of China’s industrial policy and cyber espionage in a united front.

There are hazards not just for India, but the global economy in the event of the trade war deepening. Among the more dire ones is the decoupling of the two economies into two mutually exclusive Chinese and American camps. China took the lead in the process by walling off its internet from the global product.  Now, counter-moves are afoot to exclude Chinese companies from the United States.

Countries like India, which are not major players, be forced to choose, but they will also be compelled to be part of this or that global value chains. A wrong choice will obviously have you on the losing side.

orfonline.org  December 29, 2018

---

^[i] Yu Hairong, Zhang Xin and Denise Jia “Update: China Vows Deeper Tax Cuts, More Spending”, Caixin December 1, 2018.

^[ii] The World Bank, China Economic Update—December 2018.

^[iii] Ibid

^[iv] “China holds key economic meeting to plan for 2019”, Xinhua December 21, 2018.

^[v] “China Heads into Trade Talks Bracing for More US Demands”, Bloomberg News December 27, 2018.

^[vi] Kate Fazzini and Kevin Breuninger, “Justice Department charges Chinese nationals in ‘extensive’ global hacking campaign” CNBC December 20, 2018.

^[vii] Ellen Nakashmia and David J Lynch, “US charges Chinese hackers in alleged theft of vast trove of confidential data in 12 countries”, Washington Post December 21, 2018.

^[viii] “Chinese exporters bear costs of Trump’s trade war, say EconPol researchers” European Network for Economic and Fiscal Policy Research November 19, 2018.

^[ix] “US Companies hurt by tariffs fear more pain ahead”.

^[x] “A US-Sino trade war is not all lose-lose: We assess the potential beneficiaries in Asia, “ Nomura Asia,  Special Report, Global Markets Research 20 November 2018

^[xi] “Xi underscores Party leadership over all work”, Xinhuanet December 18, 2018.

^[xii] Keegan Elmer, “Will China’s new forced technology transfer law satisfy US concerns”.

^[xiii] “NPCSC solicits public comments on draft foreign investment law (updated)” NPC Observer December 27, 2018.

^[xiv] "Highlights: Key quotes from the Reuters interview with Trump"

The US-China Tariff War Has Widened to Concerns Over Military Technology

January 1, 2019 will mark the 40th anniversary of the establishment of diplomatic relations between the US and the People’s Republic of China. It is unlikely that the anniversary will be remembered amidst the current tenor rife with suspicion and antagonism. 

The US has virtually told China that it must stop trying to be No. 1, but Beijing continues to push back. Relations seem to be at their worst since 1979The two countries remain locked in what began as a conflict over trade and tariffs, but has now become all consuming and is affecting their relationship across the board. In the meantime, the clock is ticking for the March 1 deadline before which the two countries are supposed to work out their trade issues. Donald Trump had extended the deadline by three months after meeting Xi Jinping at the G-20 in Argentina earlier this month for the two to work out issues before the US clamps down additional tariffs on $200 billion worth of Chinese goods.

The signals coming out of the Central Economic Work Conference (CEWC) that concluded in Beijing last week suggest the Chinese will make efforts to stimulate their economy to combat a slowdown and at the same time work towards a trade deal with the US. The resolution following the CEWC indicated that as of now, there are no changes in China’s plans to become a “high end manufacturing powerhouse”. The Chinese Communist Party still views the current period as one of “strategic opportunity.”

To show that they are serious in addressing US concerns, China’s legislature recently began discussion a draft proposal that would prohibit the forced transfer of technology to domestic companies using administrative measures. Just how this would work is not clear, since the draft agreement speaks of promoting “voluntary technological cooperation based on business rules”.

Meanwhile there is serious business ahead, early in the New Year. The CEWC did make favourable noises about quickening reform, enhancing foreign investor access, protecting IPR of foreign companies and removing ownership caps in more areas and “implement the consensus from the China-US summit (in Argentina).” But so far, the Chinese have not provided any detailed list of concessions that could meet the heightened expectations of the Trump-Xi meeting.

Two spheres of technology

Some within the Trump administration, like Peter Navarro, want to shift supply chains out of China and even foresee two distinct technology areas – one Chinese and the other Western. They point out that it is the Chinese themselves who have created that division by excluding global giants like Facebook, Amazon, Google and Instagram from China.

Now the west is gearing up to exclude Chinese companies like Huawei from its sphere. It’s not that the Chinese sphere is backward – features in WeChat are better than those of WhatsApp – Alibaba and JD.com are difficult to beat in China.

But from the hardware point of view, in the short-to-medium term, there are the linkages, say in ICT, between Japan, Singapore, South Korea and Taiwan and China, and any disruption could be disastrous for all of them. Likewise, while Vietnam and Bangladesh are important garment producing centres, in the longer term, they cannot match China in terms of scale and integrated supply chains.

Yet, US business leaders are keen for a quick compromise before their bottom lines are hit. Notwithstanding the problems that some of them face in China, others are making huge profits. In November, Navarro criticised Wall Street leaders for trying to pressure the US President into compromising with China.

As of now, we are not clear as to what the US wants from the Chinese. While the conventional line is that they are seeking to balance their trade, it is well known that issues have gone well beyond that. At one level, the US has cracked down on visas for Chinese science, technology, engineering and mathematics (STEM) students, at another, they are in the process of instituting export controls in 14 new areas ranging from genomics to AI chips, quantum computing and flight control algorithms.

US President Donald Trump holds a signed memorandum on intellectual property tariffs on high-tech goods from China, at the White House in Washington on March 22, 2018. Credit: Reuters/Jonathan Ernst/Files

The real undercurrent of US concern

The real undercurrent of concern in the US relates to how many of these technologies can enhance Beijing’s rising military capabilities. According to Christopher Ashley Ford, US assistant secretary for the Bureau of International Security and Non Proliferation, the Chinese want to ensure that they will be part of the next revolution in military affairs (RMA). The chine believe this would be based on intelligent military technology involving the incorporation of artificial intelligence into military systems and doctrines.

Americans express greater concerns to the Chinese policy of “Civil Military Fusion” (CMF), which seeks to ensure that new technologies developed by the private sector are shared by the military. In January 2017, Xi also became the Chairman of the a new Central Commission for Integrated Military and Civilian Development (CCIMCD), which is the apex body to promote this integrationAccording to US specialist Lorand Laskai, rather that waiting for technologies to develop, “China’s leadership is determined to bake Civil Military Fusion (CMF) into the overall design of emerging sectors through top-level planning. In some ways, this process is partly modelled on that of the US. Perhaps for that reason, the US is worried.

What really worries the US is that in certain areas of technology, China is feeding off US research. It is well known, for example, that the leaders of Chinese AI research like Baidu have had a research lab in the US since 2014. Huawei promised $1 million for AI research to University of California, Berkley. The Chinese company CETC has partnered with the University Technology of Sydney in AI projects.

An Australian study found that the People’s Liberation Army had sent 3,000 scientists to universities in the west over the past decade to focus on AI disciplines. Chinese entities have funded 10-16% of all venture capital deals between 2015 and 2017 in Silicon Valley, according to a study by an outfit linked to the Pentagon.

The Wire December 27, 2018