Category: International Relations

Professional’s Guide to Understanding China

I had been hearing a lot about China for the past many years. Mostly, my understanding was based on the news from US & European media and to some extent from the Indian press. The news, either was dominated by over-optimism of the Chinese Economic miracle or by pessimism of an economic collapse or sometimes by concerns of national security & impending conflicts.

This swinging pendulum often confused me and I am sure many of you will agree. China for long had been a closed country and the cold war paranoia didn’t help. The sudden opening up of the economy has helped Chinese and global economies to establish deep ties. But the gap in understanding Chinese economy, business environment, politics, culture, and society still remains.

India & China are neighbors with the potential for bilateral trade to cross US & China’s in the coming decades. But I feel that people from both sides seem not to have a good grasp of the other. In fact, people from both countries have a far better understanding of US than each other.

China is here to stay. Sooner or later, most professionals will encounter Chinese as potential suppliers, clients, business partners, colleagues & even make a few friends. Although the best way to start understanding a different culture/society is by learning the local language. However, for a lot of working professionals with packed schedules taking a significant time out to learn Mandarin might be a bit difficult.  For the enthusiasts,  better get enrolled in the nearest Confucius Institute.

For the rest, I have shared my own experience of how I went about exploring China. It initially started as a curiosity, but later I became engrossed in learning more and more. It was quite haphazard for me….so, I have given it a bit of structure

China and the World

Books form an important component of this journey as Chinese history, society and political-economic system has evolved very differently. There is a need for depth to understand & analyze any news/information regarding the Middle Kingdom. My only suggestion is to keep an open mind.

Books that I have read:

Dealing with China by Henry Paulson Jr (By far the most comprehensive)

China’s Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies are Changing the Rules of Business by Edward Tse (Focuses on the changes happening in the Chinese Economy)

The Hundred-Year Marathon by Michael Pillsbury

Alibaba’s World by Porter Erisman

The China-Pakistan Axis: Asia’s New Geopolitics by Andrew Small

The Himalayan Face-Off by Shishir Gupta

 

Other Books that I recommend:

One Child  Policy: China’s Radical Social Experiment by Fong Mei

Taiwan’s China Dilemma by Syaru Shirley Lin

Will Africa feed China? by Deborah Brautingam

Apart from books, I really recommend watching Al Jazeera’s documentary series 101 East. There are quite a few episodes on China. The Wired UK documentary on Shenzhen was also interesting.

In addition, you can follow USC US-China Institute & Hudson Institute YouTube Channels. Discussions cover a variety of topic (although they can a bit boring sometimes). You can a shorter version of the above books in video discussions.

You can also follow Chinese state media like CCTV International (for the latest Panda Videos), China People’s Daily & Xinhua. Or get counter perspectives from NTD TV.

There a few issues which will decide the direction China is going to take. It is good  to get an idea to keep yourself up to date with them:

  • China’s Anti-Corruption movement
  • Chinese economic reforms under President Xi Jinping
  • One Belt One Road Initiative
  • Chinese business expansion in African Continent
  • China Debt Bubble (estimated to be 300% of GDP)
  • Overcapacity in Real Estate & Infrastructure
  • Aging Population (Negative impact of One Child Policy)
  • The South China Sea (Potential conflict with its neighbors Philippines, Vietnam and US)
  • The East China Sea (Potential conflict with Japan & US)
  • Indo-China border issue

 

Hope this helps !!

The Romanticism of War between India and Pakistan

The supreme art of war is to subdue the enemy without fighting” as stated by Sun Tzu ring so true especially when you picture the current scenario where two belligerents India and Pakistan are at loggerheads with each other owing to latter’s penchant for using Terrorism as an instrument of state policy. Since the terrorists inflicted grave wounds on the Indian Army soldiers, it was India’s riposte that everyone was looking forward to, much more the Pakistani hawks who are living in nothing but a fool’s paradise.

Pakistan is long been engrossed in a civil war as a result of their continued rendezvous with the Terrorism & their apparent perversion of using it as a state policy & holding it as a hostage to global peace order. But the cover is blown, World with the increasingly fraught environment has realized that supporting Pakistan is feeding Terrorism & hence major global powers have distanced themselves from it, although China still regards it as its all-weather ally but we can understand the devious intentions of China for doing so.

India, on one hand, can afflict serious injuries to Pakistan if she decides to have an all-out blown attack on its northwest frontier or it can swallow this setback & continue marching towards achieving its developmental goals unswervingly & determinedly. India should shed the romanticism of war, which may be, tempting & cloud the judgment of even the most prudent strategist out there. India should realize the ISI hawks in Pakistan are expecting such a reaction, not yielding to their needs will deflate them, for they are losing grip with their own populace. For about 70 years they have been thugging their people with the cry & hue of war with India that underlines the importance of the military in their country and provides them with an indubitable exercise of authority over its civil government. The power politics in Pakistan hinges on this proposition, India denying one such would make them lose their morale, inspire an intellectual churning in Pakistan & hopefully lead to a better environment for sanity to prevail & sustain which would ensue in the crackdown on Terror camps irrespective of their leanings & attaining a stable state of Pakistan.

Geopolitical Uncertainty and Business- II

In the last article it was discussed how geopolitical uncertainties effect business companies. Let us now look how some business companies exploit geopolitical instabilities and make profits out of crisis. Corporations take advantage of armed conflicts, sanctions, regime changes etc to do deals that are not in accordance with the international norms and rake in profits.

In 2012, Iran was under the sanctions put by the US and the EU over its uranium enrichment program. It faced great difficulties to trade oil and natural gas, of which it is a major exporter. Due to the ban, Iran’s four biggest oil buyers – China, India, Japan and South Korea – had reduced their imports by at least a fifth to secure exemptions from the threat of U.S. financial sanctions on their companies.During that time Iran was helped by a company named Vitol group to trade its oil to Chinese traders. Vitol bought 2 million barrels of fuel oil, used for power generation and supplied them to the Chinese. Now who is this Vitol group? How did they manage to pull of something under the radar. Well Vitol group is the world’s largest independent energy trader. It is the biggest private company in the world by sales. It is the ninth largest corporation in the world by revenue. It controls roughly 6.5% of the world’s oil market. It has more than 200 supertankers to ferry oil across the globe. On a single day, it handles more than 5 million barrels of oil. The tale of the cargo of Iranian fuel oil involves tanker tracking systems being switched off, two ship-to-ship transfers, and blending of the oil with fuel from another source to alter the cargo’s physical specification. Well, it just sounds like a scene out of a Bond-movie, doesn’t it? Not only Iran, Vitol also had dealings with Kurdish Regional Government, which controls the semi-autonomous Kurdish region of Iraq. The Kurdish Regional Government(KRG)was facing a lot of financial crisis due to budge disputes with Baghdad. On top of that it needed money not only to pay its employees but also in its fight against the ISIS. So, in 2012, KRG with the assistance of Vitol bypassed Baghdad and sold oil independently in the global market. Vitol took delivery of a 12,000-tonne shipment of condensate, a light crude oil, worth more than $10m and helped its sale.

Other traders such as Glencore, Gunvor and Trafigura in oil and Louis Dreyfus and Bunge in grains use the chaos arising out of geopolitical uncertainties to their advantages and make profitable deals.

Geopolitical Uncertainty and Business

The end of Cold War saw opening up of a lot of emerging markets, where multi-national corporations found tremendous opportunities to expand their businesses and generate profits. A thought was born out of the view that free markets would see an increase in national growth which in turn would lead to stable governments. Yet, at the turn of century, events such as 9/11 terror attacks and the rise of governments in the nations across the globe with conflicting national and trade agendas led to a muddy geopolitical scenario where every state has both friendly as well as unfavorable views with one another. In today’s scenario, a “global business player” has not only to take into account the economic cycles but also the geopolitical situations that may arise in future which will affect its business. The large corporations having businesses across various nations slowly got incorporated into the foreign policies of different nations. The nations began to look after the interests of these corporations which sometimes led to geopolitical conflicts.

Let us look into the following examples. Today, the worst humanitarian crisis that the world is facing is the Syrian conflict. What started in 2011, as mere public protests slowly turned into a civil war and ultimately led to the rise of one of the most dreaded terror outfit, ISIS. But contrary to popular beliefs, the Syrian conflict has its roots in not only against the poor governance of the Assad family but also to control the energy supply(read oil and natural gas supply) to Europe. As of now, the main supplier of crude oil and natural gas to Europe is Gazprom, a state-controlled Russian company. But Gazprom has turned out to be an unreliable partner for the EU. The most recent case being the dispute between Ukrainian oil and gas company Naftohaz Ukrayiny and Gazprom during the Crimean crisis. As a result, the EU started to look for alternative options for its energy needs. Under the patronage of the US, in 2009, Qatar put forward a plan to supply gas to the EU by building a pipeline from the Persian Gulf via Saudi Arabia, Jordan, Syria and Turkey. At the same time, Iran, which has one of the largest proven gas reserves, formed its own plan to export gas to the EU via Iraq, Syria and then under the Mediterranean Sea to Greece. Russia, which traditionally has closer ties to Iran, pressurized the Assad government to reject the Qatari plan and sign the Iranian plan in 2012. The proposed pipeline was to be completed by 2016, which if completed would have given Gazprom and National Iranian Oil Company, a state-owned corporation under the Ministry of Petroleum of Iran, control of the whole of the European market. To counter this proposal and to safeguard the economic interests of their national companies, the Gulf countries along with the backing of Western powers, stirred trouble in the Syrian society by providing arms and financial assistance to the rival groups of the Syrian government with the main objective of toppling the Assad government and to place a friendlier “democratic” party in power, which would agree to the Qatari plan.

Let us look at another example. The United States had severed diplomatic relations with Taiwan under the “One China” policy of the People’s Republic of China. After winning the US presidential election, Donald J Trump shocked the Chinese government by becoming the first US president or president-elect to speak to a leader of Taiwan when he spoke to Tsai Ying-wen, the president of Taiwan. The call was first in more than 30 years. Naturally, China is rattled by this move. If Washington pursues to increase diplomatic relations with Taiwan, China can take a number of steps to prevent the island nation from declaring independence. One such move could be to restrict Chinese investments in Taiwan. Also, China accounts for 26% of overall Taiwan’s exports, which is the largest. If in future, there arises any geopolitical instability, Taiwanese companies would be badly hurt.

There are many such instances across the globe where geopolitical uncertainty and economic policies are intertwined such as the dispute in the South China Sea, political turmoil in Africa etc. As such, a truly global business corporation has to take into account the geopolitical scenarios which could play out in the near future to promote its business.

CPEC – Real cost of Energy projects

Over the past year, many Pakistani, Indian, Chinese and Western experts have given their perspectives on the China-Pakistan Economic Corridor. It is a game changer for some and a strategic concern for others.

I have tried to analyze CPEC by removing all jingoistic and over the top claims from both sides of the border. I will try to minimize repetition, instead take a slightly different perspective and use an Indian example to put my point through. I have also tried to use Pakistani media and government sources to avoid appearing biased.

Positives:

CPEC is a significant investment into a country which urgently needs foreign investments in Energy (Due to consistent power cuts) & infrastructure development. Already China accounts almost half of the total FDI of $1.2 billion for the year 2015–16 and this is bound to increase. Foreign Investment is a far better way to develop the economy than depending on IMF loans.

All details of projects have already been mentioned below. For the Chinese, this new route through gives them overland access to the Persian Gulf through an allied country. Not only will it reduce costs but also act as a security bulwark for oil supplies to the Red Dragon of future conflicts. For Pakistan, this is a major win as it badly needs to develop its infrastructure. The project plan seems to be ambitious and good for Pakistan’s overall economic development. With increasing security concerns being raised by western nations and its neighbors, this surely comes as a boon.in-case

Negatives :

This is how the CPEC looks like as per the Planning commission of Pakistan

Eastern Route – There is a lot of internal political opposition as most of the projects seem to be concentrated in the Punjab province. I think eventually there will be some consensus on this. But, there will be delays. Most of the expansion work is actually happening on Karachi port rather than Gwadar.

The Western Road Way through Balochistan – The western route goes through the treacherous terrains of Balochistan. Apart from the issue of terrorism, the road connecting it to Gwadar has already been converted into single lane rather than the earlier planned six-lane highway.

Over Dependence on China – As per the Prime minister’s office, FDI in Pakistan has been declining over the last decade. China is expected to replace all other investors single-handedly. This combined with reports of Chinese companies planning to bring their own labor has caused some unease among Pakistani economists and planners.

The Energy Projects:

Most of the power projects under CPEC are going to be coal based power plants(investments worth $5.8 billion) which includes a1320 MW power plant in the Thar-I phase project. There is going to be another 1320 MW power plant under Port Qasim Power Project in Sindh . Also, CPEC includes $2.5 billion of investments in liquid natural gas pipeline from Gwadar to Nawabshah. The Quaid-e-Azam Solar Park is up and running, with expansion plans to 1000MW. This is the only solar power project and it has started generating power. Apart from this 100MW of energy is expected to be generated through wind energy.

This is expected to reduce the 5hrs power shortfall that Pakistani cities are facing today.

However, there is very little detail available on the specifics of these projects. Primarily, these were signed as bilateral agreements between Pakistan & China. The bidding process will be limited to Chinese Companies. This is also the first time that Pakistan is going to intake so much foreign capital in a short duration. The projects are funded through loans from China’s Exim Bank.

I tried to find out if India had any similar experiences with sudden large-scale foreign investments in Energy projects. And I came up with the (in-) famous Dabhol Power plant.

Case – Dabhol Power Plant (India):

It was the year 1992 when India had recently come out of a Balance of Payment crisis and was opening its economy through Structured Adjustment Plan under the guidance of IMF. Pakistan today is in a similar situation…only it has become much worse after multiple bailouts.

Dabhol is a place near Mumbai. The now infamously defunct Enron, GE and Bechtel (All US based companies) wanted to invest in India and decided to construct a power plant. The plant was to be Naptha & LNG based. From the beginning, the project was mired in controversy due to lack of transparency in the power purchase agreement. There were many allegations of corruption too. In 2000, when the plant started, the State electricity board ended up paying a per-unit rate of Rs. 4.67 when it was charging Rs.1.89 per unit to its customer. That’s a loss of Rs. 2.78/unit of electricity sold…for a 2000 MW plant, which was one of the largest power plants in the country at that time.

Over time Enron collapsed and the plant continued to be in shambles, still producing electricity and accumulating debt. The investment was not backed by any sovereign guarantees, but state-owned power companies had to take over. To this day, the plant is operating at a loss and accumulated thousand of crores in debt. The Indian government is still planning to revive the plant.

This case should have been the baseline for Pakistani Economic planners. Most of the power plants are going to coal based. The issue is not just environmental, it’s also economic. Although Pakistan has untapped coal reserves in the Thar desert, it might still have to import coal – Adding to the debt cycle. On the other hand, China is planning to reduce its dependence on coal to control pollution in its cities.

And more importantly, there is a lack of transparency in the power purchase agreement. Pakistan seems to have given sovereign guarantees on Chinese investments. So, even when the plants fail or produce unaffordable electricity, Pakistani Government will be ultimately responsible to pay the expected profits to Chinese companies through a contractual obligation. Until Pakistan is sure that they can make the plants profitable, this is an extremely dicey move.

Somehow, this issue has not received much attention in Pakistan (and even in India or the world) and the discussion has been dominated by issues in Balochistan, Pakistani opposition parties & Indian opposition. For China, this is a crucial part of One Belt One Road (OBOR) initiative. There is no doubt that Chinese companies are more than capable of executing big-ticket infrastructure projects overseas. Already, there has been concerns on the financial viability of some such projects – like the Srilankan Hambantota Port which has led to protests in the island. Hoping that this scenario is given due importance before Pakistan is unable to go back on its commitments.

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