President Hu goes to Washington (PO)

M D Nalapat

Giving a rival credit is always difficult, so it is no wonder that few commentators in Europe, North America and India mention the fact that the ongoing visit of Chinese President Hu Jintao to the US is pathbreaking. In the past too, Chinese Heads of State have landed up in Washington. There was Deng Xiaoping in the 1980s and Jiang Zemin in the 1990s. Both Deng and Jiang worked hard to give a positive impression of China and its people to the US public, wearing cowboy hats and boots, and in Jiang’s case, singing a song in American English. During the 1980s,China was dependent on the US for almost all its technology and its economic progress, a situation that had not dramatically changed when Jiang Zemin came calling. However, from the time he took over power in 2002, Hu Jintao has concentrated on making China a technology superpower, nurturing R & D laboratories and presiding over the growth of world-class companies such as Huawei.

For the first time in the history of relations between China and the US, it is a meeting of equals. An Indian scholar in the US estimates that in Purchasing Power Parity terms, the economy of China is already as big as that of the US. Others say that it will take China about fifteen years to reach parity. However, what is not in doubt is that China under Hu Jintao and his designated successor Xi Jinping is on course to become the world’s biggest economy within the first quarter of the 21st century. In five years time, the country will most likely be competing with Boeing and Airbus to sell Aeroplanes across the world, and in ten years, will probably produce manufactures that are qualitatively superior to those being made within the powerhouse of the European Union, Germany. Over the past decade, China has moved away from being a low-end supplier of intermediates into a producer of sophisticated finished products, thereby posing a threat to the present commercial hegemony of the US and the EU.

Although this was pooh-pooed by Indian analysts such as Raja Mohan till recently, the reality is that it is the rapid rise of China that is the factor drawing the US closer and closer to India, the other country in the world that has a billion-plus population. Despite being afflicted with corrupt and incompetent governments since it gained freedom in 1947, India has been growing at a rapid rate, the way Pakistan under Ayub Khan developed. Hopefully, India will not go the way of Pakistan, that saw first the development of monopolies (the 20 Families) and subsequently the experiments with socialism of Z A Bhutto. After the fall of the mercurial feudal lord from Sindh came the turn of Zia-ul-Haq and the Afghan war, since when Pakistan has seen its geopolitical relevance the way the British General Staff saw it in the 1940s, as a frontline state of bigger powers against the enemies of these powers. The Afghan jihad caused the militarization of the Pakistan establishment, and the radicalization of its youth. Islam is too potent and powerful a force to be in danger anywhere,but millions within Pakistan were convinced that Soviet forces in Afghanistan posed a life-threatening danger to the faith, and hence enrolled in the militias that were set up by the CIA to fight the USSR. Subsequently, hundreds of thousands more youth in Saudi Arabia took to non-conventional warfare because they were convinced that the presence of US troops in that country posed a danger to Islam.

The developed democracies have almost always forgotten the fact that India is one of the top three Muslim countries in the world, if the number of those practicing the faith is taken into account. Hence they seldom see India as relevant to the myriad challenges that they are facing in Muslim-majority states. Even in Afghanistan, the welcome given by the US and other NATO allies to the Indian presence is tepid, and kept from outright hostility only because of the need to remain friends with Delhi. The reason of course being China. There are several who seek to replicate the Cold War experience in the 21st century, replacing the USSR with China as the object of hostility and China with India as the preferred ally. It may be that relations between Beijing and Delhi may become as tension-filled as those between Beijing and Moscow from the 1960s to the collapse of the USSR in the 1990s,but if so, that would be a tragedy for both India and China. Should the two work in harmony, they would form a force that would be impossible to rival in Asia, the continent that has once again become the most important in the world.

Although there exists a powerful lobby within the US that sees China as the enemy, US President Barack Obama has rejected their prescription of treating Beijing with disdain. Unlike George W Bush,he has given President Hu the privilege of a State Visit, the way he did with a more natural ally, India’s Manmohan Singh. There is too much at stake between the US and China for a demonstration of the tantrums that some elements in that country’s leadership throw when dealing with China, notably the threat of a trade or a currency war. The fact is that such threats are empty of substance, because the US has at least as much to lose as China, should it confront Beijing that aggressively. In the period that he has been in power, Hu Jintao has ensured that the foreign exchange reserves of China are close to $3 trillion, or nearly three times the economy of India.

This figure underlines the gap between India and China, and the cost to India of following policies that benefit a few kleptomaniacs rather than the mass of the population These days, because of the ongoing war between Home Minister Palaniappan Chidambaram and the economic ministries of the Government of India, the Ministry of Home Affairs is blocking several - if not all - of the major investments that are designated for India. Even projects cleared by the Finance Ministry are held up for an interminable period “for scrutiny” by the Home Ministry. Taking a leaf from Chidambaram’s book, regulatory agencies such as the Securities & Exchange Commission (SEBI) have launched a series of harsh actions that are scaring away investors.The SEBI has been especially liberal with the use of Section 11B,under which it has the authority to order an entity to stop trading in the stock market. Several companies have been driven to the wall by the use of these powers, although these have been Indian entities. SEBI - in line with the policy framework approved by the Sonia Gandhi-led coalition, is very forgiving of foreign companies, especially those headquartered in the US and the EU. Thus, while an Indian bank may find many of its officers under arrest for suspected fraud, a huge US bank such as Citi escapes unscathed by any recourse to Section 11B or any other. Joining in the slow death of Indian enterprises, the Reserve Bank of India has made borrowing within India prohibitively expensive for Indian companies, while preventing domestic enterprises from accessing cheap foreign funds the way their foreign competitors do.

Although of course, these days Indian banks are not ready to lend at all. Because of numerous enquiries and arrests of bank managers over the past few months, thanks to the Home Minister’s British-era zeal, banks in India are these days too terrified of the police to make any loans at all, especially to sectors such as telecom, which once were among the most dynamic in India, before being run into the ground by the government. The sector that may follow is Information Technology, which is these days being harassed by the Income-tax authorities in India for the crime of being successful without paying bribes. The past six years have been a nightmare for Indian business and for the Indian consumer, now that forward trading in food grains has been permitted. As a consequence, speculation in grain has become widespread, Including by funds parked by illegal crime syndicates. The contrast with China could not be more striking.

The warm reception accorded to President Hu by Barack Obama is creating a lot of interest in Delhi, a capital whose elite sees itself as the 21st century’s ally of choice for the US. The fanfare accorded to the Chinese Head of State underlines the reality that nothing succeeds like success. That only higher economic growth will lift India to the top of the league, the way it has China, a country that has an economy three times bigger than India’s and foreign exchange reserves nine times bigger. Sadly, the desire of the politicians and officials clustered in Delhi to garner bribes by increasing regulatory barriers on domestic industry is creating the risk of a sharp slowdown in progress. What the terrorists could not achieve after years of trying ( snuffing out the India growth story) is being achieved by the venal political class of a country whose people deserve better.

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