A study conducted by ADB, “Asia 2050: Realising the Asian Century” projected that Asia will keep growing, ultimately contributing to half of global GDP but such economic ascendancy shall not be followed by a regional integration or rise in shared Asian values bringing the geo-politics of the region in common alignment. Former Prime Minister, Vajpayee had emphasised on the importance of building an Asian Century provided India and China built a stable, long lasting relationship. However, the steep rise of China to power starting from the 1990s has rendered it as an Asian hegemon ushering in an era of expansionism.
The development of an Asian century is based upon common ideals of restricting Western hegemony, Democratisation of International Trade and Finance, Establishment of a multi-polar world and Establishing a Global Energy Market. However, the last couple of decades contributed to the rise of Chinese Imperialism in both its economic, strategic as well as geo-political realm.
The 1954 Trade Agreement between India and China was a narrow one, without involving any cross border movement of labour or capital. China exported manufactured goods to India while India exported raw material contributing to a skewed pattern of trade between the two countries. Specialization in the manufactured goods sector compounded Chinese growth, granting it the comparative advantage it enjoys today in dominating market access in most of the developed and developing countries. This is evident from the fact that in the 1990s both countries had similar industrial capacity with India ahead of China in power, equipment etc. However, by 2010, India was importing sophisticated machinery and tools from China. It is important to note that contrary to the principles of free trade (which only kick in once nations have reached a particular capacity through State controlled policy of sufficient demand generation), Chinese development process has been heterodox and State controlled, highlighting marked protection to domestic manufacturing. Now, because it enjoys unrivalled market access, China is pushing for greater liberalisation measures through agreements such as RCEP which can be disastrous for other South Asian developing countries with a growing manufacturing base, struggling for competence.
Chinese debt diplomacy can be viewed in terms of projects that could be made economically viable (OBOR) as well as financial investments for strategic control. OBOR is expected to link less developed regions in China (Xinjiang) with neighbouring nations, boosting economic activity along the corridor. It will lead to generation of demand, expansion of Chinese free trade zones and a control over natural resources along the route. The political and economic control over ‘new territory’ edges on imperialistic market tendencies by infiltrating foreign markets through Chinese investments (enjoying private ‘investment facilitation’ ) and deeper integration of financial markets. The dominance of Chinese finance ushers in the neoliberal globalisation process whereby finance ends up dictating State policies and a debt trap with financial imperialism comes in conflict with nationally determined State objectives for Planning. The conditions of loans in case of the Chinese (unlike Washington consensus where the conditionalities of finance are openly outlined) are not open to the public. In a pandemic world where there are talks about an International Debt Restructuring body, China is not even a part of the Paris Club of government lenders which coordinate on issues related to debt- forgiveness. This highlights the role of China more as a hegemon than an investor. New data from the World Bank confirm that China is the largest creditor to Africa and many other developing countries. By 2018, 73 of the world’s poorest countries owed $104bn to China. This equals 20% of the total foreign debt owed by this cohort.
Port construction projects that are commercially unviable but of military importance to China such as Hambantota and Gwador ensure Chinese presence, surveying the littoral states. A 2016 CSIS report judged that none of the BRI projects in the Indian Ocean had little hope for financial success but were most likely prioritised for geo-political utility. Chinese aggression in South China sea along with its border skirmishes with neighbouring countries, including India, present an outright threat to a shared Asian century. It’s dominance over international institutions such as the UN Security Council and NSG are in conflict with India’s ascendency, which can contribute to growing multi polarity and checks Chinese balance of power in the Indian Ocean. In other words, China envisions itself as a hegemon in the Asian century, contradicting its actual values.
India’s largest dependence on Chinese imports comes from telecom and electronics products (challenging the Digital India Mission) along with India’s dependence on APIs for its pharma industries among other things. A State led boost to manufacturing in the form of subsidies, free trade zones, backward and forward linkages into viable supply chains should be practised before liberally opening trade to China. This will ensure sufficient demand generation in domestic and international markets lending not only viability but comparative advantage to Indian industries. India’s institutional policy has to complement its industrial policy and not the other way round. This means that ceding to Washington consensus without protecting and expanding its manufacturing base will lead to further impoverishment. China did not accede to the free trade principles when it was expanding. It protected its industries and between 1990 and 2010, its production capacity of machine tools turned 50 times as large.
Similarly, capital controls on finances will help in using the financial resources for our development process. Capital controls do not necessarily drive away foreign investments, as is evident from the Chinese case. China saw the highest rise in foreign investments when it had the highest manufacturing boom. The exchanges in China directed these finances to developmental use which contributed in nation building. India must emulate this economic paradigm and involve the role of State in driving decent wages, larger employment creation and in effect, a sound industrial policy. This industrial policy should then become the nucleus of diplomatic, trade and international ties.
With a population of 1.2 billion, India has tremendous potential for internal domestic demand. The pandemic that has caused disruption in global supply chains opens up opportunities for India to provide impetus to local manufacturing ushering in a long term growth path in becoming self-reliant. By distancing itself from unequal treaties such as RCEP, India garners the trust of other developing countries in Indian Ocean to not get drawn into the hegemon’s trap, instead build on a self-reliant Asian century.
Nishat is Masters in Economics at JNU with a keen interest in the development and Political economy. She has done her graduation in BSc. Economics from St. Xavier's, Calcutta. She is interested in Policy Research and likes to blog on economic issues especially on Heterodox school of economics.