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January 24, 2000

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E-Mail this column to a friend Rajeev Srinivasan

China doesn't matter: Part II

Read from the beginning

The Economist also talks about 100 million Chinese peasants who have been permanently displaced from their farms -- they form an underemployed, dangerous underclass in the cities they have migrated to, where they are often officially 'non-persons'.

Even the much-ballyhooed Foreign Direct Investment numbers, according to Segal, are misleading. He says that even in 1997, the peak year for FDI, 80% of the $45 billion inflow came from ethnic Chinese, mostly in East Asia. He also thinks that that year saw capital flight of almost $35 billion. Besides, he says, "investment" could well be money that made a round-trip from China to some other part of East Asia and came back as FDI to attract tax concessions.

This stands to reason -- for, it has been proven time and again that there is no money to be made in China, despite all those grandiloquent promises of a billion Chinese consuming more of whatever, television sets or pork chops or cellphones.

I mentioned some months ago the experiences of Matsushita, the Japanese electronics giant. Despite being one of the first to enter the newly-'liberalised' China, 17 years later Matsushita is still in the red. Apparently, any profits are siphoned off by local partners. Some 120,000 foreign enterprises or joint ventures employ about 17m people, equivalent to one-tenth of the urban workforce. Yet more than half the multinationals operating in China are not making money, according to A T Kearney.

Cuttingly, Segal suggests that China reminds him of de Gaulle's gibe about Brazil: "It has great potential, and always will."

In comparison with its Asian neighbors, here is how China fares: data from the Economist Intelligence Unit, November 1, 1999:

Country

GDP per head, nominal US$, 1999

GDP per head at Purchasing Power Parity, US$, 1999

Japan

34200

24400

Singapore

28500

22580

Hong Kong

22000

23310

Australia

20600

22520

Taiwan

13100

21200

South Korea

8600

14330

Malaysia

3700

11140

Thailand

2000

6820

Philippines

1000

3600

Sri Lanka

840

2700

Indonesia

710

3130

China

790

4260

India

470

1890

Pakistan

460

1660

Vietnam

350

1860

Bangladesh

280

1020

Myanmar

90

860

This table indicates that China is really a very poor country still, nowhere near most of its wealthy neighbors. But it is also apparent that, if you can believe the purchasing power numbers (which Segal is dubious about), Chinese peasants are considerably better off than their Indian counterparts.

As far as military might is concerned, Segal points out that China is only strong in its own region, accounting for 25.8% of all military expenditure in Asia, and posing a real threat to its neighbors, for instance the Philippines, and perhaps to Taiwan, but not much to Japan. Worldwide, it accounts for only 4.5% of military spending, with the US leaving it in the dust with 33.9%.

China, of course, has a few nuclear missiles pointed at the US, plus various spy scandals and the Cox report show that they actively engage in espionage for missile and nuclear technology. But there is apparently a wide, and growing, technology gap between the West and China.

China does make $1billion or so worth of arms sales, most of it going to Pakistan, Burma, Sri Lanka and Iran. (See the data on sales to Pakistan, Iran and Iraq in Rajeev Srinivasan's earlier column The End of Nuclear Virginity.) See a pattern here? Encircle India, and establish a Sino-Islamic alliance.

In terms of the power of China's political ideas, Segal is dismissive. Says he: "Fifty years after the Chinese communist revolution, the party that gave the Chinese people the Great Leap Forward (and 30 million dead of famine) and the Cultural Revolution (and perhaps another million dead as well as a generation destroyed) is devoid of ideological power and authority... China's great past and the resultant hubris make up much of the problem. A China that believes the world naturally owes it recognition as a great power even when it so patently is not -- is not really ready to achieve greatness."

China is no longer a beacon, except for the Pakistani army and the misguided Marxists of India. Interesting menage a trois, these strange bedfellows -- food for thought. I expect columnist Ashoka Mitra and Frontline magazine to come up with yet more paeans to China any day now, explaining why it is good for India that Parvez Musharraf and Zhu Rongji are thick as thieves.

Segal concludes: "... until we treat China as a normal middle power, we will make it harder for the Chinese people to understand their own failings and limitations and get on with the serious reforms that need to come."

Having said all this, however, I must put in a little disclaimer. Yes, much has improved in the coastal cities and perhaps some villages in China in the last few decades, as reader Anil from Saratoga, CA, pointed out. They have slammed the brakes on population growth. Per capita GDP has risen dramatically. There is not so much visible poverty as in India.

India simply has not done quite so well in the last few decades. So there is a certain amount of sorrow, and perhaps, yes, envy, that the Chinese were able to do better by their citizens than Indians did. But China can't be such a paradise if Chinese are dying while trying to sneak into the US as stowaways in cargo containers!

In the medium term, India's pluralistic, democratic and free system is more viable than China's top-down command system. This is, of course, what the US always preached while marketing itself vis-a-vis the Soviet Union. And it has proven to be so. This is the reason why in globalised markets, India is a much stronger bet -- as is demonstrated by India's world-class infotech companies. You cannot mandate innovation, flexibility and nimbleness.

It's a bit hypocritical of Americans then to not support India, which practices what the US preaches, but to vainly pander to a China which threatens the US with nuclear weapons, thinks of itself as the competitor and equal to the US in every way, and is a brutal, totalitarian and barbaric state to boot. But then the US has a history of ungodly alliances with dictatorships.

One of these days Americans will recognise the folly of propping up the Chinese gerontocracy -- the place may implode, with the frustrated national aspirations of the Uighurs, Tibetans, and Mongols coming to the fore; and the resentment of the coastal areas at having to 'support' the hinterland causing them to effectively break away -- as it is, the machinations of the Guangdong GITIC which went under with $2.5 billion in debt is proof of increasing 'warlordism' among the coastal provinces. Or else it might start on military adventures regarding Siberia, Taiwan, Japan, the Philippines and anybody else in the vicinity.

Going back to my comment about Potemkin Villages in my previous column The making of a soft state, the prosperity and the shiny new office blocks in Shanghai, Guangdong etc conceals the reality in the interior provinces -- "a region of satanic pollution, shoddy products, mounting state losses -- and little private investment to speak of."

Part of the advantage, so to speak, that China has is its lack of transparency. When 100,000 people died after a dam collapsed in the 1970s, nobody knew about it -- they suppressed the information for 20 years. (Compare this to the Orissa tragedy in India which was instantly known globally, as it should be.) Similarly, it is only now coming to light that during China's Great Leap Forward, food was so scarce that instances of cannibalism were not unheard of! By carefully filtering information, China has been able to maintain its fašade.

The lesson, then, to be learned from China -- propaganda works, and you can fool all of the people some of the time, and some of the people all the time, but sooner or later, things do fall apart. India's bitter foe is not nearly the legend that it is in its own mind, or alas, in the imagination of Indians who are dazzled by its marketing.

Therefore, if India wants to try, foolishly, to appease China, as she appeared to do in the case of the Tibetan boy-monk, let her do so with her eyes wide open to the realities of a threadbare China, not because of Chinese posturing, bluster and theater. Chinese diplomacy is like traditional Chinese opera -- a lot of wailing and shrieking and gnashing of teeth and sound and fury, but not much of substance behind all that.

Postscript

I received more than a 100 emails about 'The making of a soft state' -- I apparently struck a chord amongst the disappointed diasporic population. Once again, I apologise for not responding to individual emails.

I too had been gravely disappointed by what looked like a thoughtless and impulsive caving-in against the Pakistani terrorists during the hijacking crisis. What looked like a further caving-in to the Chinese, who are the spiritual masters of the Pakistanis, and probably their paymasters as well, was a bit too much to take. So I have to admit that I wrote that column rather impetuously.

Now that more facts have come to light, as readers Mukund, Dinesh, Jayanti and others pointed out -- unease about whether the boy-lama could really have evaded Chinese troops on his entire journey; how this could be a Chinese ploy to cause problems in Sikkim by splitting the Tibetan Buddhist sect there; and how not providing asylum (but refugee status) is standard procedure in the case of Tibetans -- maybe this was not such a bad decision at all.

However, it all depends on how it is presented -- the government should have made its case much more forthrightly instead of saying nothing. The Indian government continues to appall in its lack of media-savvy. Where are the advertising agencies and the spin-meisters?

But I disagree with reader Balakrishnan who thinks India must walk on egg-shells lest we offend China. For China is already doing the offending by deliberate design -- India should reciprocate by enflaming Uighurs and arming Vietnamese and Taiwanese. China understands brute force.

Return to China doesn't matter: Part I

Rajeev Srinivasan

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