C3S Report No: 007/2017
The Chennai Centre for China Studies and the Loyola Institute of Business Administration jointly organized an International Conference on March 03 2017 at LIBA, Chennai. The theme was “Chinese Economy: Trends & Prospects”. The following is an event report of the conference.
Rev. Fr. Christie P. Maria Joseph S.J., Director, Loyola Institute of Business Administration, welcomed the gathering.
Mr Kandaswami Subramanian, former joint secretary to Ministry of Finance, Government of India and associate of C3S, delivered the inaugural address. He briefed upon China’s economic trends and its policies. He indicated how China’s entry to WTO, U.S markets and its export-oriented model helped its economic growth. However, he also pointed out that China’s growing domestic debt seems to be a threat to its future. He said that in order to balance China’s acts there is a need for new financial institutions, suggestions and recommendations, required for policy making at national level.
The theme address was delivered by Dr S. Narayanan former Public service officer and economic advisor to Prime Minister Sri Atal Bahari Vajpayee during 2003-2004. His analysis on China covered upon various contemporary issues such as China’s current economy and China as an emerging leader in digital and internet based payments, trends in Yuan, Chinese space technology, defence and the Chinese hands in innovation. He indicated that China’s economic policy seems to be flexible in terms of macroeconomic thinking. In his comparison of Chinese and Indian markets, he pointed out the Indian English supported regional markets were often broken down because of language differences. On the other hand, Chinese markets biggest strength was due to its absence of linguistic barriers, the usage of online wallets by Chinese entrepreneurs and easy availability of loans. He indicated that India is far behind in comparison to China. However, he also believes that in the near future, India is also capable of catching up with the China’s economic sphere.
The vote of thanks was delivered by Cmde. R. S. Vasan, Director C3S.
Session I – Transformation (Chair~ Dr S. Narayan)
The first paper was on ‘Chinese Economic Rebalance’ by Dr Aravind Yelery, Assistant Director and an Associate Fellow at the Institute for Chinese Studies (ICS), New Delhi. The word “rebalancing” is often used to describe China’s economic transition. He stated that rebalance was not a new act for China. He described that the rebalancing acts in China were performed through economic and political responses. Thus, he pointed out that the reforms in China were pushed politically, to achieve its economic dominance. Undoubtedly, the major chunk of China’s economic dominance comes from its economic reforms carried out by its government. He mentioned that in the past, the acts of rebalancing were well handled by Xi Jinping’s predecessors. However, the lessons from China’s present rebalancing can only be observed in the future.
‘Global Implications of Chinese Economic Rebalance: Managing Gradual Slowing’ by Dr Joe Thomas Karackattu, Assistant professor, the Humanities and Social Sciences Department, Indian Institute of Technology (IIT) Madras. He analysed China’s investments and its export-driven economy. He also pointed out how low wages among Chinese workers did not encourage consumption, which in turn contributed to its economic imbalances. He noted that the changing patterns of consumption may bring down China’s high national savings. He said that China has been trying to balance its deficits by establishing a strong service sector. Even though China has been experiencing a fall in growth rates, it has been successful in avoiding a sharp slowdown and has maintained a medium growth rate.
Session II – Currency (Chair~Dr Aravind Yelery)
‘Management of Reserves: SDR Conditions’ by Mr Kandaswami Subramanian, former joint secretary to Ministry of Finance, Government of India and associate of C3S. The major trends in China’s currency were the main theme of the paper. He highlighted about the internalisation of Yuan, currency exchanges and maintenance of exchange rates which helped China establish its economy. As China’s aggressive stance has helped its currency gain status in the SDR basket, it is often assumed that China is manipulating and not managing its currency. However, he pointed out that, despite all the criticisms, the Chinese currency was never manipulated and faces tough competition from the U.S dollar. He concluded that China has been devaluating its currency only to maintain their economy.
‘Internalisation of Yuan and Maintenance of Exchange Rate’ was the paper jointly authored by Dr A. Indira, Associate Professor, Economics and Management, LIBA and Dr D. Madhava Priya, Research Associate, LIBA. The author stated that in today’s de-globalised world, China has served as the single largest contributor to world’s GDP growth. She highlighted how China is set to transform from a manufacturing exporter to a new consumption driven economy. She also pointed out China’s major advantage in the global economic arena was especially due to its latecomer status. She also discussed how Chinese currency had gained reserve currency status, often held by financial institutions for foreign exchange in international trade. However, the real challenge lies in how China’s unstable economy is going to maintain the value of its reserve currency in future international trade.
Session III – Financial Institutions (Chair~Mr Somi Hazari)
‘Shifting Paradigms in International Financial System: AIIB vs. Bretton Woods Institutions’ was presented by Mr Sundeep Kumar.S, Research Officer, C3S. According to the author, the establishment of the Asian Infrastructure Investment Bank (AIIB) by China seems to have a geopolitical motive. Thus, AIIB is often interpreted as China’s bid to challenge American hegemony in the international financial system. He mentioned that the AIIB is considered to be a brainchild of Communist Party of China (CPC). He also described the Washington consensus, which highlighted the dominant position held by the US within international financial systems. He said that China established the AIIB with its own national and political ambitions to counter the Washington consensus. He concluded by saying that it is too early to observe patterns of operations of the AIIB and there is a need for having an evaluation mechanism to observe AIIB’s impact in Asia.
‘Chinese Banks & Credit Policy: Consequences of Growing Public Debt’ by Dr Raj Verma, Assistant Professor, School of International and Public Affairs, Jilin University, China. Dr Raj Verma described that the phenomenon of the financial crisis was not new for both India and china. He analysed China’s shadow banking systems, different levels of debt contributed by its provinces and state-owned enterprises. He also predicted that if China does not maintain its credit balances well, the economy could crash soon and give way to high inflation rates. He also compared China with Japan, as the Japanese had experienced high growth rates which created an economic bubble in the 1990’s. He concluded saying that as China’s economy is associated with its GDP growth, a sudden fall in growth rate is expected to give rise to a new financial crisis in 2020’s.
Session IV – International Political Economy I (Chair~ Mr M. R. Sivaraman)
‘One Belt One Road: A Chinese Political Economy Perspective’ by Dr Jabin T. Jacob, Fellow, Institute of Chinese Studies (ICS) gave the political economy highlights of China’s One Belt One Road (OBOR). He brought about how China’s OBOR is different in other countries since OBOR investments varied depending upon investors from China’s state and local governments. He pointed out how private Chinese investments in India were far less when compared to private investments in Nepal. He also spoke about China’s economic activities that are part of OBOR in Tibet and Xinjiang provinces. It was observed that OBOR was more of a transit process mainly through Central Asia than a development process. The paper reflected both political and economic aspects of China’s dominance in the form of OBOR.
‘Enforcing Food Safety Norms and their Implications on Business Environment & Economic Relations: A Case Study of the Sanlu Milk Scandal in China & the Nestle Maggi Noodles Scandal in India’ by Dr Alagu Perumal Ramasamy, Assistant Professor, International Business, LIBA and Dr A. Indira, Associate Professor, Economics and Management, LIBA. The speaker put the spotlight on the similarity between incidents regarding food adultery in both India and China. He pointed out how such incidents affected business scenarios in both the countries. In China, the Sanlu milk powder scandal was not extensively publicised by the government controlled media. Hence, the common man’s anger and resent vested went unnoticed. Such incidents have brought down Chinese public’s reliance on home manufactured goods. However, in India, it turns out that food adulteration incidents like the Maggi noodles scandal have boosted reliance on locally manufactured goods such as Patanjali. He described how the business environment in India was far better in comparison to China’s. As China is expected to face more food adultery incidents, the author believes, the governing system in China needs to be de-centralized and bring in civil societies to voice their opinions and improve the quality of Chinese products.
Session V – International Political Economy II (Chair~ Cmde. R. S. Vasan)
‘China-Pakistan Economic Corridor (CPEC): Socio-Economic Implications’ by Colonel R. Hariharan, Intelligence Corps (retd.), India, member, C3S. Col. Hariharan stated that the OBOR had more than one objective to fulfil. He explained about China’s roadway projects that are part of CPEC. He also pointed out the major threat faced by the project in the form of identity conflicts in Baluchistan. He mentioned that apart from domestic security issues, the OBOR also faces other challenges such as natural disasters, land acquisition problems, and displacement of people. Hence the speaker questioned the economic viability of the project, the emergence of terrorism in the region and the possibility of an increase in U.S troops to Afghanistan. However, he concluded that the future scope of this project largely depends upon stable relations between Pakistan and China.
‘China’s MSR: Comparison with Japan-ASEAN Economic Ties’ by Asma Masood, Research Officer, C3S. This paper examined the convergence and divergence of Japan and China’s economic initiatives in ASEAN region. This was in specific reference to China’s proposed Maritime Silk Road (MSR). She said that much attention has been given to the MSR’s economic strategy and its significance for ASEAN. However, this economic strategy could prove to be a buffer between China and ASEAN states in the South China Sea (SCS) dispute. She said that on the other hand, Japan’s economic ties with ASEAN have minimal political interruptions. She mentioned that China has been engaging in certain other MSR projects in the region, such as railway links and industrial infrastructure. However, these are likely to cause socio-economic imbalances, such as environmental damage and human displacement. In contrast, Japan has long been involved in developing these countries’ economic and maritime interests. Tokyo is also concentrating on essential areas such as cooperation in environment, human resource development, inclusive development and disaster-proof infrastructure. She presented Myanmar as a case study in this perspective.
Session VI – Panel Discussion (Chair~ Cmde. R. S. Vasan)
Cmde. Vasan moderated the panel discussion while indicating the direction for deliberations. This was on how India can engage China in different dimensions, in a proactive not reactive manner. Ideas were welcomed on short-term (5 years) plans and long-term (10 years) plans.
Dr Raj Verma:
An important aspect of American foreign policy is its military, whereby it will remain the most powerful state in the 21st century. How can a country attain superpower status? This can be achieved in absolute power terms vis-a-vis comprehensive national power. On the other hand, there are relative power gains, by not letting other countries surpass the first.
In the short term, no major change will occur. However, one suggestion is to improve India’s public diplomacy in order to change the state of Chinese people who know very little about India. India’s soft power options like Bollywood can be used. Cultural exchanges must be increased. One template for this is Fudan University inviting students every July-August. The language must be learnt on either side so that we become culturally diverse. In addition, we need cooperation in the energy sector. India can learn from the Chinese in this arena. We require long-term thinking and short-term action, or else we will be myopic.
Dr Arvind Yellary:
China sees India as the Detroit of Asia. Gurgaon and Chennai are automobile hubs here. China is also imitating India’s IT model. In the field of medicine, there are world class medical labs in Chennai. The Chinese are exporting medicines to Tamil Nadu. Since 2015, there is a change in policies. The Chinese want smaller pharma companies or even individuals from India who can go to China and set up enterprises. These small companies and individuals are being offered incentives, land, etc. Hence there is a need to exploit opportunities, which can be carried forward by organisations and institutes such as C3S and LIBA. We must not see China as if it’s a story but on close terms. For instance, its techniques of global supply networks and global supply chains can be applied. India is also seen as an important part of the supply chain network.
Mr Sunil Rallan:
An assessment can be made of the economic opportunities and India’s responses, both domestic and overseas. On the domestic front, ‘Make in India’ is a good initiative. However, we need to improve our ranking of ease of doing business. China’s wages used to be quite less. Now they are increasing due to the renminbi fluctuation, SMEs and middle segment industries shifting to countries with low-cost manufacturing (Cambodia, Myanmar, etc.). In this sense, India too can attract manufacturers.
Outside India, we see that China is a big marketplace. Online and offline consumption markets there are growing at a fast pace. There is a disconnect between international suppliers and Chinese consumers. For instance, the cases of international companies like Nike and Zara’s can be taken. These have outlets in China through which they sell their merchandise to the locals. However, China’s retail stores do not have the experience to get products from overseas and sell them locally. They are unfamiliar with customs and other procedures. This is the opportunity for MSMEs in India, which can fill up the gap.
India must capitalise on the fact that Bollywood, Indian television shows like those on Zee TV and Indian music are very popular in China.
Besides, people to people contact is very important. Indians are welcomed and accepted in China unlike some incidents of racism in Europe. China is very friendly and social. Indians are hence welcome to do business with them.
I would like to give two warnings and two learnings. The first warning is to not get confused by the ‘grass is always greener’ idea. As Indians, we must realise our values are very important. Secondly, do not think we are behind China. Every country makes mistakes. We should not be reactive and must implement our ideas.
The first learning is that China and India both have huge populations, and face similar problems with regard to administration, etc. Curiously, in India, we get our information from culturally different sources namely the West. It is questionable on how we can derive knowledge from such sources when they have different political systems and cultures. As Indians, we can better understand the mistakes made and not repeat them. We can also learn from China’s achievements and contribute to our country. The second learning is that India must keep an eye on new areas of development, such as A.I, big data, etc. and thereby prepare to deal with China in the coming decades.
Deng Xiaoping said that we must cross the river by feeling the stones underneath. China is following this adage, by going forward cautiously and incrementally. China has progressed to a level where it has entered WTO via phenomenal negotiations. Unfortunately, India is not on par with China in manufacturing due to various circumstances, while China is expertly creating cheap products. In fact, today we see China as the foremost trader in even high technology areas. IBM is to collaborate with China’s top IT companies.
There is not much evidence of Make in India or encouragement to enter the private sector. We can learn from China’s reliability and their native innovativeness. China addresses its problems with great diligence. India too approaches challenges but there is something lacking.
Hands on knowledge is the need of the hour. We must cultivate the interest in China. After all, there are no enemies or friends, rather only national interests that thrive. A knowledge economy must be our goal. A recent Global Times article mentioned that China can learn from India. India too must realise that there is nothing erroneous in learning from anyone.
- Improve India’s public diplomacy
- India’s soft power options like Bollywood can be used
- Cultural exchanges must be increased
- The language must be learnt on either side
- Cooperation in the energy sector
- Long-term thinking and short-term action
- Exploit investment opportunities in China
- Learn from China’s global supply networks and global supply chains
- Overseas and domestic assessment on India’s economic opportunities and responses
- Attract SMEs and middle segment industries coming out of China towards India
- India’s MSMEs must create domestic supply chains in China for import of retail products such as Nike, Zara, etc.
- India must focus on emerging fields such as Artificial Intelligence, big data, etc.
(Compiled by Shruthi Venkatesh, Intern, C3S and Asma Masood, Research Officer, C3S)