NOVEMBER 8, 2016
In the first part this paper, it was sought to analyse Chinese perceptions, possibilities of a new world order centred on China, and its military and naval aspirations. In the second part of the analysis, the role of the Chinese in the growth of communist regimes and how the secret service in China aided that was examined. Successful cyber warfare as a key ingredient of their strategic play formed a part of the analysis. Finally the correlation of spreading Islamic fundamentalism and China and its impact on India was looked at.
China’s ascendance as an economic powerhouse and military superpower has started altering the cultural, political, social, and ethnic balance of global power and is in the process of creating a whole new world. According to conservative estimates, China will overtake the United States as the world’s largest economy by 2027 and will ascend to the position of world economic leader by 2050. But the full repercussions of China’s ascendancy have been little understood. Answers to some of the most pressing questions about China’s growing place on the world stage can be understood by looking at how China will seek to shape the world in its own image.
The Chinese have a rich and long history as a civilization-state. Ninety-four percent of the population still believes they are one race, the Han Chinese. The strong sense of superiority finds a resurrection in twenty-first century China. This is also used to strengthen and further unify the country. A culturally self-confident Asian giant with a billion-plus population, China will resist globalization as we know it. This exceptionalism will have powerful ramifications for its neighbours. As China is already cementing its position as the new centre of the East Asian economy, the mantle of economic and, therefore, cultural relevance will pass from Manhattan and Paris to Beijing and Shanghai. The relationship and attitude toward China will affect India’s peace. Therefore an attempt has been made to explain the upheaval that China’s ascendance will cause and the realigned global power structure it will create directly affecting India’s policies on economy, oil and its relations with the US.
China and Global Oil Play
According to former Chinese Premier Wen Jiabao, the short supply of energy resources is a “soft rib” in China’s economic and social development. Wen Jiabao’s statement reflects the importance China’s leaders place on the energy issue. This issue is considered a matter of national strategic significance and one that has considerable impact on whether or not China can sustain its development. It is perceived as an issue over which the Chinese have little control, given their reliance on foreign imports and foreign security of their lines of transportation. These dependencies on foreign supply (the “reliance problem”) and security (“the Malacca dilemma”, so named because of the vast quantities of oil that must pass through the Malacca Straits, which is secured by other countries’ navies) are the main threats to China’s energy security. Based on these dependencies, it is important to understand what China is doing to minimize these threats and why, despite such efforts, the lack of effective governmental mechanisms to respond in a crisis may still leave China’s energy market insecure and vulnerable.
China was a self-sufficient energy-producing country until 1993. But while its oil consumption grew by more than 55 percent from 1994 to 2000, its oil production increased by only 11 percent. Its imports grew more than twenty fold as it became the world’s second highest oil importer after Japan, and in the decade that followed, the highest importer. Foreign oil imports now account for 40 percent of China’s energy market with the gap between supply and demand continuing to widen. According to a report by China’s Academy of Geological Sciences, by 2020, China will need to import 500 million tons of crude oil and 100 billion cubic meters of natural gas annually, which is 70 percent and 50 percent of its domestic consumption respectively. The huge extent to which China’s energy market depends on foreign imports is thus a key indicator of China’s lack of energy security. Perhaps even more significant is the rate at which the country has moved from self-sufficient exporter to over dependent importer. To a country that is seemingly still to come to terms with the free-flowing dynamics of market economics and globalized trade, such newly emergent dependence on the unpredictable and uncontrollable free market is unnerving.
Energy supply disruptions and unpredictable surge in prices could undermine China’s rapid economic growth and job creation, and in turn raise the real spectre of social instability and impaired national security. There is no denying the adverse impact that problematic energy supplies can have on China’s national security. What possibly worries the Chinese policymakers more than reliance on foreign imports is the extent to which the reliance is confined to the Middle East. Not only is this region the most volatile part of the world, it is embroiled in geopolitics and is the centrepiece of American foreign policy. While 18 percent of U.S. oil comes from the Gulf, 60 percent of China’s oil comes from there; this too mostly from just three countries namely Iran, Saudi Arabia, and Oman. Because import sources are limited and the United States and Japan have a lock on much of the oil market, China is forced to find alternate suppliers.
The result is a Chinese energy policy that directly competes with energy demands of other countries. The reliance on oil from the Middle East and Africa leads to an excessive reliance on the Malacca Straits for passage of the oil tanker ships. This has always been considered highly susceptible to blockade. Without pipelines to route its oil through and only a small portion of oil coming from Venezuela (crossing the Pacific Ocean from the east), almost 85 percent of China’s oil passes through the Indian Ocean, Malacca Straits, and the South China Sea. Any interference in this strategic passageway by nations trying to contain China or by pirates or terrorists intent on disrupting the global market could halt nearly all of China’s energy supply. Thus the Chinese see the Malacca dilemma threatening their normal oil imports which in turn jeopardizes China’s economy and may imperil even its defence.
Though India has been emphatic about not letting such an eventuality come to pass, assurances do not seem to cut ice with the Chinese. China’s inability in securing its energy requirements has so far been attributed to its lack of naval power to patrol sea lanes and the presence of the Indian navy in the Indian Ocean. While China can boast of growing global influence, when it comes to energy security, the extent of China’s military and diplomatic influence is much more sober. With that factor in mind, China is now exploring both the security of its interests (the deployment of its naval vessels in the Indian Ocean region) as well as alternate means of passage (such as the Gwadar pipeline and the China-Pakistan Economic Corridor or CPEC). At some point therefore, it ceases to matter what the monetary cost of the project is; instead it is simply a question of the guarantee.
Relevance for India: The Chinese are both critical of their country’s ability to secure sea lanes and wary of developing new markets in contrast to India. To this end, a steep rise has been seen in (ostensibly) patrolling activities by the Chinese PLA Navy. It has also in recent years put the entire weight of its financial power behind acquisitions of oil fields in Africa and Central Asia. Most of these contests are a direct confrontation between the Chinese and Indian oil companies. India has usually lost to its competitors from the Middle Kingdom. This is a potential flash point between interests of both economies. The presence of the Chinese navy has also been seen with some trepidation by India, and not without reason; as was seen in the first part of the analysis, Chinese naval presence is growing at a much faster pace than India and in the years to come will be in a position to directly threaten interests, including in the traditional military/ naval sense. Simultaneously, China’s energy diplomacy aims at posturing as a partner for joint stability, prosperity, and development with concerned energy supply countries, regions, and companies. It is trying to diversify sources internally as well to include investments in wind, solar, and nuclear energy, build a strategic reserve and build naval and air capacity so it has the capability to project power in distant seas.
The world consumes a cubic mile of oil per year. This is growing by just over one percent per year and is forecast to accelerate. A third of this is used by China. By 2025 its cars alone would need another Saudi Arabia or two. Indian growth also gives similar prognosis. Oil is the world’s biggest business and economy driver and as a source of energy is indispensable, at least in the foreseeable future. The diplomatic, military or functional costs of acquiring oil are justified by the necessity of sustaining development and prosperity. Possible substitutes are either too small or slow or immature or unattractive or all of these. It is also premature to speculate about life after oil; imperative for the foreseeable future is to design realistic and practical measures to cater to this threat and align long term policies to this exigent and strident demand.
Clash and Confluence of Economies
Indians live in a world affected by domestic economic change and greater integration into the global economy. Gains from economic growth and reform mean rising commercial farm income and increased business and employment opportunities in the cities. Globalisation has meant an intersection of interests beyond electronics, academics, business, medicine, and journalism across borders.
In India, two million English-speaking college students graduate yearly, and most work for one tenth the salary that a comparable U.S. worker receives. Low cost and high quality telecommunications have opened up Business and Knowledge Processing Outsourcing options. Other outsourcing spans the technology spectrum, including software code writing, chip design, product development, accounting, Web site designing, animation art, stock market research, radiology, airline reservations, tax preparation and advice, transcribing, consulting, prayers for the deceased, and other support services, especially in Bangalore and Hyderabad.
Emerging technically talented Indian diaspora provides the skills for India to play a major role in the global information technology industry. In the late 1990s, Indian immigrants ran one third of the technology firms in Silicon Valley, California. Indian and Indian-American-owned companies in the US have become suppliers to U.S. corporates. Indian software firms raise capital in the US to acquire US companies, set up offices to interact with clients, and undertake research and innovation. India’s software sector represents a skill-based, high value export oriented sector. The sector has also attracted considerable foreign direct investment by multinationals. Indian manufacturing sector too, though still in nascent stages, has increasingly taken the world by storm. Essentially, Indian strengths lie in a young work force, increasing levels of education, cheap labour and low costs of setting up businesses.
In Mao’s China, the ideology stressed upon prices determined by the state, state ownership of the means of production, international and regional trade and technological self sufficiency, non-economic (moral) incentives, egalitarianism, socializing the population toward selflessness, continuing revolution and development of a holistic communist person. From 1952 to 1966, pragmatists, primarily managers of state organizations and enterprises vied with Maoists for control of economic decision making. But during this period, Mao and his allies won out, purging moderates from the Central Communist Party (for example, Deng Xiaoping) to workplace committees.
After Mao’s death in 1976, the Chinese, under Deng recognized that despite the rapid industrial growth under Mao, imbalances remained from the Cultural Revolution, such as substantial waste in the midst of high investment, too little emphasis on consumer goods, the lack of wage incentives, insufficient technological innovation, too tight control on economic management, the taxing of enterprise profits and too little international economic trade and relations. Economic reform, which began in late 1979, included price decontrol, decentralization, agricultural household responsibility, management responsibility among state-owned enterprises (SOEs), small entrepreneurial activity, and township and village enterprises (TVEs).
Since 1980, China has had virtually the fastest growth in the world. Chinese growth rates are overstated as they are heavily based on growth in physical output figures rather than deflated expenditure series and managers understate capacity and over report production to superiors to receive the greater reward received by those who meet or exceed plan fulfilment. But the fact remains that despite over reporting and continuing market distortions China’s growth under market reforms has been rapid (albeit uneven in some parts). China’s step-by-step approach during the last two decades of the 20th century contrasted sharply with Russia’s more abrupt changes in strategy in the early 1990s. China’s reform started as socialism with Chinese characteristics and gradually evolved to a socialist market economy. China’s weaknesses are its inability to fully integrate with the global economy, an aging work force and blatant disregard for intellectual property rights. Its continued communist hangover also contributes in no small measure to restricting growth.
Relevance for India: Despite the challenges that it faces in its transition, the Chinese economy has grown at a phenomenal rate and indeed the state apparatus is faced with a problem that it needs to sustain this high trajectory to maintain its internal cohesion. This naturally brings it into a direct conflict with the equally fast growing Indian economy, with the competition for resources, capital and captive enterprise heating up. India is also perceived as a better option for investments owing to its democratic government, stability of its capital markets and emphasis on innovation and free enterprise. Equally irrefutable is the trade equation of the two countries. Therefore it is a paradoxical situation in that there is both a confluence and a clash of the two economies. Future strategy related to China’s equation with India could be heavily influenced due to this reason and must be factored in to India’s policy decisions to obviate conflict while continuing protection of Indian interests.
Conclusion: Strategic Interests and Policies
In a peculiar situation, India finds itself increasingly at cross roads in a bid to decide the sway of its foreign policies. Traditionally non-aligned, it is now of greater importance to, and exerting greater influence on decisions both in the US and in China. The Joint Declaration signed in 2005 by US President George W. Bush and Indian Prime Minister Manmohan Singh is seen akin to President Nixon’s opening to China.
America agreed to recognize India as a responsible state with advanced nuclear technology and pledged to support its civilian nuclear program and urge others to do the same. This agreement caught observers in the strategic community by surprise. It was difficult to understand why the US made a large concession on non-proliferation rules in exchange for a vague exchange of Indian support to help the US combat AIDS, support countries seeking a Global Democracy Initiative and otherwise support India’s economic development in a number of areas.
The scenario has been repeated during the tenure of President Obama, and of late, with Indian Prime Minister Narendra Modi’s overtures, the equation seems to have turned positively convivial. This may be a possible counter to China; American policymakers feel a rich, strong, yet still authoritarian China will pose security challenges to Washington. Simply put, the US now views China as a long term strategic competitor. The move towards cooperation with India can be explained as a form of hedging against China, as the only country that competes militarily with the US. Since the end of the Cold War the US has been helping Beijing become richer and stronger, hoping to see it become democratic and rise peacefully. However, uncertain about China’s strategic intentions, the US now feels the need to create a strategic competitor and the choice narrows down to India for obvious reasons.
As the US rethinks its India policy, it finds itself confronting a host of geopolitical challenges. It is engaged in a long global counterinsurgency against radical Islamic terrorism. Simultaneously, a rising China poses a long term challenge. Hence, America must enlist allies to secure its interests and sustain the US led world order that has been the basis for economic development and relative peace. India may prove a partner in confronting both these challenges. As a liberal democratic country, New Delhi accepts that the more democracy spreads, the safer Indians will be. India has been one of the foremost targets of jihadi terrorist attacks and shares an interest with Washington in bringing them to an end. China has been a historic rival to India, and China’s growing power is viewed in New Delhi with apprehension. India too shares an interest in maintaining a balance of power in Asia ensuring that China does not predominate. Although India is a rising power with its own aspirations, it is unlikely to challenge US predominance in Asia in the short term. (Neither will it accept a hegemonic America in perpetuity).
The fact that India is a liberal democracy will help the two countries develop necessary relations with less suspicion and tension than characterizes the Sino-American relationship. India’s non-aligned foreign policy and fiercely independent strategic culture will however make the prospects for strategic partnership more difficult. In Central Asia too, the US finds its continued support to Pakistan growing untenable. Instead of accepting a Communist China led Central Asia, the US deems fit to help India posture in the region to make it compatible with the move towards democratisation. It is axiomatic that Afghanistan cannot be pacified if the border with Pakistan is unpoliced, and insurgents have free rein to come and go as they please. Yet that is what is happening. Since 9/11, Pakistan has been forced to accept formally the fall of the Taliban. But of late, evidence suggests that it is assisting the Taliban to regroup in and around the Pakistan-Afghanistan border areas. It seems a matter of time that Pakistan with its history of proliferation and support to Islamic jehadis comes a cropper as far as US support is concerned. Then the tilt would be in favour of India and it would become all the more important for India to decide its biases.
Indian policy framework would necessarily have to explore these issues with intent to providing long term solutions to them. The Chinese perspective may be different than the Indian, but may not have a different view of the future. Threats of containment based on diplomatic, political, and economic imperatives are a matter of concern to India as much as they are to China; what is required is to obviate these spiralling out of control, becoming flash points and resulting in possible military conflicts. Threats as India perceives them also affect China in similar (or slightly modified) forms; it would be incumbent on policy makers to mould the framework in such a manner that more synergies are obtained and both nations move towards mutual cooperation rather than ominous conflicts.
Amitabh Hoskote is a Strategic and Defense Professional and Scholar with varied experience in Combat, Defense Management, research in Security & Defense oriented issues, crises management, strategy planning & execution. With a Masters and PHD in Development and Conflict Studies, Finance and Economics, he has been an Honorary Fellow at the Observer Research Foundation, a leading Strategy Think Tank in India and writes regularly for the Eurasia Review on issues of geopolitical importance.
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