19 June 2020
Sanjit Paul Singh
A very clinical analysis by Mr Sanjit Paul Singh in today's Statesman Kolkata, of the apparently invincible Chinese Regime which is on the look-out to take away parts of India by unrelenting use of salami–slice strategy. China has made its evil intentions very evident by the recent brutal attack on Indian soldiers and forcible occupation of the Galwan Valley in Ladakh. In an interview the other day, Tibetan Prime Minister-in-exile Dr Lobsang Sangay recalled what Mao Tse Tung famously said 60 years ago – that Tibet was the palm of China whereas Ladakh, Sikkim, Arunachal Pradesh, Nepal and Bhutan were its five fingers. China's relentless attemps to poach into India's territory, not to forget Doklam stand-off in 2017, a stern reminder of Dr Sangay's warning. Readers may refer to the interview at: https://youtu.be/PXug128_bks. Isaac Gomes, Asso. Editor, Church Citizens' Voice.
China’s plan to dominate the world by 2021 has thrust the country on a path determined by Central Planning of the Chinese Communist Party (CCP). Its actions during the Covid crisis have led the world to believe that either China orchestrated it or was complicit in using it for strategic gains.
With an exponential rise in cases to 8 million infections and 0.5 million deaths, coupled with crippled economies and countless job losses, a global backlash has begun against China. On 31st December 2019, Taiwan notified WHO of the risk of human-to-human transmission. Had WHO taken swift action and not blindly believed China, many of the lives lost today could have been saved.
India’s leadership at WHO that will begin in July 2020 will demand transparency as well as the induction of Taiwan as a full member. This has been vehemently opposed by China. After all it was the free Chinese of Taiwan who came forward and alerted the world of impending doom. While the US media focussed its efforts on impeaching Donald Trump and the trade war with China, news of the pandemic slipped between the cracks. All along, carriers from China criminally continued to traverse the globe until several nations sprang into action and banned air travel, despite being threatened by China.
Countries likes Australia, India and the USA are leading the charge for an independent probe into Wuhan which has not gone down well with China. Japanese Prime Minister Abe has even incentivised firms to cease manufacturing in China, and President Trump has followed suit. As the world’s hostility begins to bubble up, it is a matter of time before Europe capitulates and moves out its supply chain.
China tried to flex its muscles with India by annexing territory in Ladakh which was met with resolute response from the Indian Army. The strong response from the Indian Army led to casualties on both sides for the first time since 1967. Prime Minister cosying up to Taiwan is another aspect to add to China’s woes. As payback, Beijing threatened to block API exports that Indian pharmaceutical companies rely on. India countered this by urging industry to complete its supply chain domestically within the shortest time.
Currently, there is a serious risk to the $100 billion trade between the two countries. It is worth asking why with the balance of trade heavily in favour of China, it would irrationally risk it. Is China addressing a domestic audience?
The Chinese military leadership tried to browbeat Taiwan by threatening to overrun it, and in response, the Americans moved three aircraft carriers and B-52 bombers into the region. Furthermore, they moved lethal missile batteries to South Korea. Is the neighbourhood bully being threatened in its own backyard? Chinese leaders attempted to divert the headlines by quashing the 1997 Hong Kong Treaty, and advanced the transfer of power scheduled to happen in 2047 and taking over the country. The reason behind this is simple – they needed headlines of the resistance to go away as the protests pose a direct challenge to the draconian authority of the Chinese Communist Party (CCP).
President Trump recently expanded the G7 bloc to invite India, Australia and South Korea to join. The US government has also been moving fast to delist 700 Chinese companies from American exchanges, thereby denying them access to much-needed US dollars. Additionally, the they went ahead and banned the sale of semiconductors to Huawei, the Chinese telecom equipment behemoth and blocked rollout of their 5G network. President Trump has been pushing Europe to do the same. Concurrently, Canadian courts have approved the extradition of the convicted Huawei CFO (the company founder’s daughter) to America. President Trump has roped in Brazil to join Australia in it. Without the two iron ore producing giants, China’s 1000 TPA steel capacity will quiver as it needs their supplies to exist.
China is known to get into disputes with its neighbours enclosed by the Pacific Ocean/ South China Sea. As it happens, China’s claims on South China Sea oil resources, as also wanting to control the sea lanes, also impacts Indonesia and Malyasia. This makes Beijing’s energy supply lines through the Malacca Straits and the Indian Ocean vulnerable. As it is dependent on energy imports by sea, the country can be crippled by getting into a conflict with India and Indonesia. In response China created military and naval bases in Djibouti, Maldives and Gwadar (under construction). They also have an aircraft carrier-led fleet in the Indian Ocean which cannot survive an American, Australian and Indian naval pincer if a conflict occurs.
China’s neighbours are serious worry points for its strategy planners. In the North, they have Japan and South Korea and Taiwan in the East. All are economically strong and major allies of the USA. Then there is Mongolia, a country that subjugated and ruled China for many centuries and whose substantial territory was usurped by Communist China. Finally, there is Russia (rich in oil, gas, gold) where President is awaiting extension of his coronation till 2034. Russia was world number 2 till the mid-1990s, and it is doubtful if it will play the second fiddle in the Chinese orchestra.
The Island chain has the Philippines, once an American satellite, that now vacillates between Beijing and Washington. To the South-east are Vietnam (they thrashed the Chinese army in the seventies), Laos and Myanmar, all agitated by the Chinese building dams on the Mekong and affecting the lives of down-river countries. Each of these countries have jungle terrain and a combined army of over a million. And they certainly aren’t pushovers.
Then there is India – that stands much taller, a nuclear power with $ 2.3 trillion economy, led by an assertive Prime Minister and hosts the exiled Tibetans (post annexation by China, the ethnic Tibetan population accounts for 0.13 per cent of China’s population and 13 per cent of land area, as well as owning water with the origin of three major rivers including the Brahmaputra), for decades, whose territory in Aksai Chin was captured by China in 1962. Nepal and Bhutan maintain a neutral stance; however, the Chinese have been busy seeding anti-India sentiments over there.
In the West lie the Islamic nations that spun off from the former USSR and Afghanistan. Angered by the usurious Belt Road Initiative loans given by China, they are sympathetic to the plight of the 1.5 million Uighurs detained in Chinese concentration camps. China’s ally Pakistan is its only uneconomic route to the Indian Ocean. Transporting a tonne of oil by land would cost $12 more than by sea. To gain access, they would have to take their road through Indian territory that has been under illegal Pakistani occupation and Aksai Chin.
India’s Parliament in 1990s resolved to take these back. The abrogation of Article 370 in Kashmir indicates that India has revised the timetable for action, panicking China as it has nearly $60 million invested in this supply route and projects. Gwadar Port, China’s sought-after prize, is also at risk because the Balochistan Independence Movement has picked up pace. India and Shia Iran are supportive of the Balochis. There have even been recent incidents in Pakistan-occupied Kashmir as locals resent the Chinese presence.
Emergence of trends and critical data points are needed to draw conclusions on the Chinese economy. Chinese official data is opaque and substantially unverifiable. Chinese total debt for a $12 billion GDP has hit $40 trillion i.e. 304 per cent of GDP, which signals an irretrievable domestic debt trap. Economists estimate that 40-45 per cent of the Corporate and State-owned Institution debt is irrecoverable. Banks need liquidity to tide over the bad debt as an inherent ever-greening dynamic is at play, and the cash is not available. Retail debt exceeds half of total debt, and a slowing economy is creating huge pressure on bank balance sheets as defaults occur.
Shadow banks now own buildings – residential and commercial – that nobody wants. An expat CEO recently described China’s non-coastal industrial estates as Potemkin’s villages (a facade with poor occupancy). They have a major crisis in the credit market. In 2019 the Chinese icon Jack Ma who founded Ali Baba suddenly announced his retirement and said he was selling his shares to five unnamed individuals. Post the announcement, Mr Ma does not travel “unescorted” and cannot travel internationally with his family as per expatriate Chinese industrialists.
His crime was he created a consumer lending company by leveraging his Ali Baba database and technology platform, which was a runaway success. Mr Ma had unwittingly threatened the foundation of the domestic banks and their phoney balance sheets as they rapidly lost prime retail borrowers.
Chinese industrialists realised that their survival is dependent on serving the CCP’s centrally planned interests. The exodus out of China has dramatically picked up pace. Last year over 15,000 Chinese millionaires migrated overseas. Post-Covid nearly 450,000 Chinese companies have shut down, 80 per cent of them were under three years old. Roughly 25,000 foreign companies have not applied for renewal of operating licences.
(To be concluded)
The writer Mr Sanjit Paul Singh, a veteran management professional, is Managing Partner, S&S Associates.