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January 22, 2000


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China doesn't matter: Part I

In the opinion of most pundits -- Westerners and Indian 'progressives' alike -- India has been a tremendous failure, and China has been an incredible success, in the last 50 years or so. Even though people do pay lip service to the open democratic nature of India, and contrast it favorably with the totalitarianism in China, there is the underlying consensus that China has succeeded in becoming a major economic power, never mind such fluff as human rights.

In fact, the West bends over backwards to protect perceived Chinese interests; in particular America is afflicted by this syndrome, which is partly the view of US multinationals that have invested China. All in all, it has become an axiom, and nearly a self-fulfilling prophesy, that China will be the biggest Asian power in the near future.

However, based on my reading of the occasional dissenting voice and the odd piece of data that contradicts all this, I believe that China is in much more parlous shape than is generally believed. I think China has been brilliant only in one thing -- propaganda. It has managed to convince a gullible America that it is a very important nation, economically, militarily, and politically.

But why, you might wonder, is an Indian worried about China's problems? This is because geography is destiny. China is India's neighborhood bully, as well as the self-appointed patron saint of Pakistan. Even as I write this, General Musharraf, CEO-aka-caudillo of Pakistan, has made his first visit to a non-Muslim country: to China, to receive a red-carpet welcome. "No manner what changes occur in the international situation or domestically on either side," Premier Zhu Rongji promised a comprehensive partnership with Pakistan.

In other words, coup d'etat, terrorism, hijackings, whatever, China and Pakistan are the best of friends -- and China will support Pakistani adventurism in Jammu & Kashmir to the fullest, adding its own twist in India's Northeast. In return, Pakistan winks at China's severe oppression of the Uighur Muslims of Xinjiang. Very cozy arrangement, this Faustian bargain. Uighurs must be second-class Muslims, children of some lesser God -- this is why there are no calls by the self-styled saviors of Islam for jihad in Xinjiang.

As a layman looking at China's actions, I find it hard not to believe that it is China's express intent to contain, cripple and destroy India. There is a noticeable Chinese pattern of surrounding India: sponsorship of Pakistan's military and nuclear (and very likely terrorist) ambitions, cozying up to Burma's military junta, the SLORC, to gain access to the Andaman Sea and encouraging Sri Lanka's Maoist rebels.

There are three reasons, in my opinion, for all this: one, China's recognition that India is the one country in Asia that is massive enough to threaten its quest for regional supremacy; two, India's strategic location astride the sea-lanes of the Indian Ocean. And, three, a gamble that India's leadership is so poor, her centrifugal forces so great, and her self-esteem so weak, that she will never be able to articulate a coherent sense of purpose.

The second reason is worth exploring in a little more detail: as Chinese energy needs increase, it will be increasingly dependent on West Asian oil that has to pass through the Arabian Sea, the Indian Ocean, and the Straits of Malacca. This of course assumes that Central Asian oil and gas will not be transported to China overland (the Americans have other plans -- pipe it through Afghanistan to Karachi's harbour where Amoco's tankers wait), and that it will not be able to develop the reserves in Xinjiang because of political turmoil there.

The Americans have recognised that the Indian Ocean shipping lanes are potential choke-points for both Japan and China, and have established their enclave at Diego Garcia. However, an Indian blue-water navy with sophisticated satellite-based command and control and nuclear weapon capability would be more capable of controlling these waters than the small American presence; this is a potential area of collaboration between the US and India.

Then there is Tibet, and the 1962 India-China war. I believe that Tibetans are the oppressed Jews of our time; and that Chinese cultural and ecological holocausts in Tibet (after all, the Indus, the Brahmaputra, the Mekong and the Ganges originate in the Tibetan plateau and are in danger of radiation poisoning from Chinese nuclear waste dumps there) have grave consequences.

The historical Chinese claims on Tibet are extremely dubious -- as Claude Arpi details in The Fate of Tibet (Har-Anand), the Mongols (Kublai Khan et al) ruled both Tibet and China; pretty much on the basis of this, China claims Tibet. By the same token, India should claim Australia, Canada, and the United States, right? After all, they were all ruled by the British.

The less said about China's shameful attack on India in 1962 -- the moral equivalent of Pearl Harbor -- the better. A completely unprepared India, which had condoned the brutal conquest of Tibet in the hope of good-neighborly relations, found 35,000 square miles of its Himalayan territory swallowed up by China. India did not even have mountain divisions there! (See Rajeev Srinivasan's earlier columns, The Danger from China and The Dragon and the Elephant.)

For all these reasons, I was glad to come across a devastating article in the respected journal Foreign Affairs, entitled 'Does China Matter?', thanks to Claude who directed me to it. This article, written from a Western strategic perspective, concludes that China really does not matter. Its author is Gerald Segal, Director at the International Institute for Strategic Studies in London.

Here is the abstract of Segal's article, which appeared in the Sept/Oct 99 issue of Foreign Affairs:

"Odd as it may seem, the country that is home to a fifth of humankind, China, is consistently overrated as an economy, a world power, and a source of ideas. Economically, China is a relatively unimportant small market; militarily, it is less a global rival like the Soviet Union than a regional menace like Iraq; and politically, its influence is puny. The Middle Kingdom is a middle power. China matters far less than it and most of the West think, and it is high time the West began treating it as such."

According to Segal, "China is a second-rank middle power that has mastered the art of diplomatic theater: it has us willingly suspending our disbelief in its strength." In other words, the success of propaganda over substance; diplomacy as make-believe.

Here, from a Western point of view, are the comparative numbers for China (from Segal):

Measure China Ranking or % Who's just ahead of and behind China
% of world GDP 7th, 3.5% Italy, Brazil
Per Capita GDP 81st Papua New Guinea, Georgia
Human Development Index 107th Albania, Namibia
% of world trade 3% Netherlands, South Korea
% of Asia trade 11%  
% of US's exports 2.4% Australia, Belgium
% of UK's exports 0.5% Malaysia, Sri Lanka
% of Singapore's exports 2.4% Taiwan, South Korea
% of Australian exports 4.5% Singapore

Clearly China is only a mediocre player in world trade, despite the fact that every low-tech item at Wal-Mart is 'Made in China'. While granting that China has done much better in the last 10 years than over the previous 200 years, Segal points out:

"Few economists trust modern Chinese economic data; even Chinese Prime Minister Zhu Rongji distrusts it. The Asian Development Bank routinely deducts some two percent from China's official GDP figures, including notional current GDP growth rates of eight percent. Some two or three percent of what might be a more accurate GDP growth rate of six percent is useless goods produced to rust in warehouses. About one percent of China's growth in 1998 was due to massive government spending on infrastructure. Some three percent of GDP is accounted for by the one-time gain that occurs when one takes peasants off the land and brings them to cities, where productivity is higher. Taking all these qualifications into account, China's economy is effectively in recession. Even Zhu calls the situation grim."

This is the 'economic miracle'? Add to this the widely-held suspicion that a very large fraction of all bank loans in China are non-performing assets, which might mean a staggering $270 billion to $360 billion (30 to 40% of GDP) has to be written off, according to The Economist, October 1998. This is part of the nexus between state-owned enterprises and banks that are forced to lend to them, even if there is no business reason to.

The debt-equity ratios of state-owned enterprises (SOEs) have rocketed from 82% to an incredible 570% in 1995. This is sustained by the admittedly phenomenal 40% savings rate among the ordinary public -- but surely they will demand a reckoning one day. As for the SOEs, the The Economist says: "China's state enterprises as a group are efficient destroyers of wealth. It would be cheaper to close them all down, and still keep paying the workers."

On to Part II of China doesn't matter

Rajeev Srinivasan

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