C3S Event Report No: 011/2019
Read and download event concept note and programme at this link: Invite Economy Conference- 03 May 2019
The Chennai Centre for China Studies (C3S) in collaboration with the Indian Council of World Affairs (ICWA), New Delhi and the Southern India Chamber of Commerce and Industry (SICCI) organized a one-day International Conference on “Chinese Economy: Current Status and Prospects”. The event was held at SICCI, Chennai, on May 03 2019.
The Inaugural Session was initiated by Mr. Somi Hazari, MD of Shosova Group of Companies, Senior Advisor (India), Transnational Strategy Group; Member, C3S, who delivered the Welcome Address. As C3S is the only think tank in South India to with specific focus on China, he stated that the MOU to be between C3S and ICWA would lead to a holistic approach of understanding China from a regional perspective. The various issues on Chinese economy which are examined at C3S and SICCI were outlined.
The Inaugural Address was delivered by Dr. T. C. A. Raghavan, Director General, Indian Council of World Affairs (ICWA), New Delhi. Stating the humble beginnings of ICWA which was established before Indian Independence in 1943, Dr. Raghavan pointed out it was Asia’s first think tank. The three tenets of ICWA were outlined. A key aim at the think tank is to provide a forum for public debate outside academic circles, while focusing on policy research. Several other think tanks have been established under the aegis of ICWA, such as the Institute for Defense Studies and Analysis (IDSA) and the Institute of Chinese Studies (ICS), which are a platform for diplomats and strategic thinkers to discuss and research policy. On the theme of China, it was described how the current pace of growth is tremendous but the economy was significantly different from India’s. While earlier it was U.S.A’s foreign policy to encourage the peaceful growth of China, the present scenario sees a shift. Key developments were noted with regard to the year 1979, which was a game changer for China in international politics and economics. It was also noted how China’s social indicators in China were significantly high in the 1960s, before the country’s economic transformation.
The Keynote Address was delivered by Mr. M. R. Sivaraman, IAS (Retd.), Former Revenue Secretary GOI; ED IMF and Adviser UN SC CTC; Vice-President, C3S. He described how Purchasing Power Parity and Gross Domestic Product differed between India and China. Both economies shared an almost similar rate of PPP and GDP in the year 1989 but by 2019, major differences became visible. China spends more at the provincial level than at the central level, unlike in India. On a comparative note it was stated that China’s economy will surpass that of US by 2032. Meanwhile, Russia-China ties are likely to strengthen. It was explained how the USA-China detente was as an opportunity for the Chinese to study the US economy and learn about consumer markets. The development of the Taiwanese electronics market was highlighted. The law and order framework in countries like China was juxtaposed with the scenario that increased productivity will be achieved in India through decentralization and the implementation of a strong law and order system. India will not benefit much from the Maritime Silk Road even if circumstances allowed it to join the Chinese initiative. This is because India is already developing ports under Sagarmala. However India can work with China on issues such as environmental concerns. New Delhi will cooperate with Beijing without compromising on India’s sovereignty and democratic principles.
Signing of MOU
The signing of an MOU between C3S and ICWA was conducted by Cmde. R. S. Vasan IN (Retd.), Director, C3S. He conveyed the significance of this cooperative step between the two think tanks. The signing of the MOU would contribute to expanding awareness among residents of South India, allow ICWA and C3S to play the role of facilitators in public debate and to engage the youth in universities. Dr. T. C. A. Raghavan stated that, notably, the MOUs of ICWA with other think tanks in India and abroad facilitate the discussion of views from a regional perspective. These MOUs would instead allow ICWA to reach out to regional centers that contribute to a wide exposure on issues related to China.
The Vote of Thanks was delivered by Ms. Maya K, Research Officer, C3S.
Plenary Session 1: Portrait of Chinese Economy
The first Plenary Session was on the topic, ‘Portrait of the Chinese Economy’ which was chaired by Mr. Rajaram Muthukrishnan, Investor and Director of Voice Snap; Member of C3S.
The first presentation was made by Dr. Jacob Kurien, Resident Professor of International Economics at John Hopkins University-Nanjing University Centre, China. He spoke on the “Economic Transformation of China Spanning 40 years: Achievements and Challenges”. The speaker gave a comprehensive overview of the various trends and dimensions of the Chinese economy. Through infographics and statistics, a canvas of the evolution of the Chinese economy was provided, from the market-seeking years of 1978-1993 to the market-building years of 1993-2003 and the market-enhancing years from 2003 onwards. The statistics on Chinese economy are phenomenal. The Renminbi is the only currency in SDR basket which is not fully convertible. But China will work to it, as it believes in gradualism, as manifested in Deng Xiaoping’s words “Cross the river by feeling the stones”.The various challenges facing China’s economy were highlighted – growing inequality, role of SOEs and private enterprises, social security and healthcare issues due to demographic changes, rapid urbanization, overcapacity, asymmetric market liberalization, regional divergence, weak corporate governance and declined productivity. Dr. Kurien captured the transformations and challenges of the Chinese economy, while quoting Elizabeth C. Economy, to state that China cannot be a leader in a globalized world while at the same time closing its borders to ideas, capital and influences from the outside world.
The second speaker was Ms. Sudha Meiyappan, Economist at TAC Economics, Chennai, who presented on “China: Economic Risks and Outlook”. The presentation applied quantitative data mining and creating models for the Chinese economy. Through the use of real time data and various mathematical models, the prospects for the Chinese economy were outlined. The structural transition of the Chinese economy is continuing and future growth will be fuelled by larger household demand. Infusing liquidity will not prove to provide the best solution. Debt levels in China are already 275% of the country’s GDP (almost as much as levels in US). China’s corporate debt is 140% (USA’s corporate debt is 70%). In fact the Chinese economic slowdown will affect the country’s corporate sector significantly. In addition, the US-China trade war has affected China’s management while timing the economy. The Chinese economy is projected to slow down to 5.5% in 2020. Due to China’s changing demographics, the internal demands would continue to shape the economy much more than external forces. For China, investing abroad alone will not provide the necessary growth.
The next panelist Mr. Rahul Karan Reddy, Research Officer, C3S. He spoke on “China’s Railway Reforms: A Case Study”. The speaker shed light on how the Chinese Railways played a significant role in early reforms years of China.There was political will among Mao Zedong and Deng Xiaoping to engage in China’s railway reforms. The speaker gave a case study of Xuzhou, a railway bureau in Jiangsu province, which was considered as a strategic railway junction where the North-South and the East-West Corridor intersected. The structured incentive mechanism was described wherein the work done is incentivized with rewards awarded for performance and penalties given for underperformance such a as deduction of salary. Greater room for flexibility in policymaking and decentralization permitted by the Economic Contract Responsibility System (ECRS) and Asset Operation and Responsibility System (AOLS) reforms improved the value of assets and performance of the railways. These measures have led the railways in China to become a profit-oriented enterprise since the 1990s. Today China is be a creator and exporter of high-speed railways technology, while competing with countries like Germany and Japan.
Plenary Session 2: Implications of US – China Trade Negotiations
The second Plenary Session on ‘Implications of US-China Trade Negotiations’ was chaired by Dr. Jacob Kurien.
Mr. K. Subramanian, Former Joint Secretary, Ministry of Finance, Government of India; Member, C3S spoke on ‘China’s Economy: Prospects and Challenges in the backdrop of US-China Deal’. The speaker highlighted the impact of the Trump administration’s trade sanctions on China. Trump’s anti-China rhetoric and views on globalization were examined. There was emphasis on the Santiago Negotiations held in December 2018, which began the trade war. Issues such as technology transfer and cyber theft were highlighted. The speaker stated that the US is trying to flesh out its containment strategy for China to safeguard its position as the global hegemon. According to him, China will not at any cost alter its development model. It was viewed that Donald Trump may concede to China’s demand for reciprocity in a trade deal.
The second paper was presented by Mr. Uday Khanapurkar, Research Assistant, Institute of Chinese Studies, New Delhi, and was titled ‘Technology Factor in Trade Contestations: Implications for China’.The paper outlined the centrality of technology in international trade, and presented the implications of the US-China trade contestations in various sectors. Geopolitical factors can either aid technological superiority or prevent technological acquisitions. The short term and long term implications on the technology sector, caused by the ongoing trade war were underlined. Chinese students not being able to pursue their PhD in the US can be considered as a short-term implication, while long-term implications can include an impetus for China to improve its human capital which would further be a stimulus for its economy. Another short term implication could be employment being cut in Chinese e-commerce platforms. In the long term, China may increase funding for new energy vehicles.In the meantime, there is immense scope to enhance China’s tertiary education sector. Interestingly, not all stakeholders in U.S.A support technology export controls. The speaker viewed that China’s technology sector will improve.
The third paper of the session was titled ‘Promoting India’s Export Competitiveness Post US-China Trade Negotiations’ and was presented by Mr. Somi Hazari, MD of Shosova Group of Companies; Senior Advisor (India), Transnational Strategy Group LLM; Member, C3S. The issues highlighted included competitiveness and the effects of the trade negotiation duties imposed, such as GST and VAT. It was stressed that the media is not giving enough importance to the Trump’s administration contestations with China regarding the subsidies being paid by the Chinese government. The speaker commented on the state of the international economic order after the US-China trade negotiations.It was stated that China does not respect terms of agreements in trade which in turn affects India’s trade competitiveness.
Plenary Session 3: China’s New Initiatives for Regional and Global Engagement
The third plenary session was on the theme “China’s New Initiatives For Regional And Global Engagement” and was chaired by Mr. R Swaminathan IAS (Retd), Former ADB Official. He set the tone for the session by describing China’s development under Deng Xiaoping. Regarding Xi Jinping’s leadership, one aspect which stands out is a sense of entitlement and the other is a sense of retribution. Entitlement because China firmly believes that she is a major country and thereby asserts her dominance to ensure the nation’s demands are fulfilled by other nation-states. Retribution because China has not forgotten the opium wars and other historically significant events that have shaped China’s domestic and foreign policies.
Dr. Priyanka Pandit, Visiting Fellow at the Chongyang Institute for Financial Studies, Renmin University, Beijing and a Junior Fellow at the 2018 EU India Think Tanks Twining Initiative, was the first panelist. She spoke on ‘Mapping the Change and Continuity in China’s External Economic Engagements’. China’s new connectivity initiatives and financial arrangements are often understood as new narratives and are analysed with the backdrop of other states’ visions, mostly those of U.S.A. With the 2008 financial crisis there was a demand by BRICS nations for the establishment of reforms and alternatives to the Bretton Woods institutions. According to the speaker, China’s discussions at the Bretton Woods Conference on voting shares in the new financial institutions were disappointing. As for new financial arrangements, the 2010 reforms and China’s proposal of the New Development Bank led to financial assistance for NDB members including Brazil, India and South Africa. There was also setting up of a $100 billion contingency reserve pool, to provide support to the BRICS members as a precautionary measure. There are challenges related to these new financial arrangements which are reactionary measures and not revisionist per se, because China does not have the domestic capacity or extracting capacity which is necessary.
The final speaker for this session was Mr. V. Srinivas, IAS, Additional Secretary to the Ministry of Personnel, Public Grievances and Pensions, Government of India. The speaker presented a paper titled “Currency Management and Internalization of Yuan” via video conferencing. The speaker described how currency is a main factor of the US-China trade war. With China being the only economy having a currency policy consistent with a reference rate policy, it has led to the Chinese Yuan dropping to a significant low. This weak Yuan raises several concerns. According to China’s monetary policy statement of April 2019, the People’s Bank of China will utilize a combination of monetary policy instruments to keep the RMB exchange rates generally stable at an adaptive and equilibrium level. This will strike a balance in the country’s interest rates, exchange rates and balance of payments. The internationalization of the RMB was done by expanding financial monetary corporation through 20 financial currency swap agreements and developing offshore RMB markets in around 14 countries. The inclusion of the RMB in the IMF’s currency basket in 2016 marked a significant step for China’s integration in the global financial system and reflected her role in global trade expansion. The speaker concluded by emphasizing on some of the benefits of internationalizing the RMB, while also discussing some of the reservations held by certain countries to a possible shift to the RMB from the USD or Euro.
Plenary Session 4: India’s Trade Imbalance with China
The Fourth Plenary Session on ‘India’s Trade Imbalance with China’ was chaired by Mr. M. R. Sivaraman, C3S.
Mr. Aravindhan V, Research Officer at C3S presented on ‘The Nature and Issues of India’s Trade Deficit with China’ and focused on the electronics and pharmaceutical industries. Nearly 35-40% of India’s GDP comes from trade. India’s largest trading partner of goods is China. However the trade is in favour of China. India exports goods worth nearly $13.3 billion, 40% of which is trade deficit. On the other hand, China is known as the market basket and is prospering in the electronics sector. In fact, there has been a technological boom in China since the 1970’s. India’s imports from China include electronic and machinery goods worth $24 billion and the value of the import is diverse. Trade aspects viz. the pharmaceutical sector were explained.
Panel Discussion: “Forecasting China’s Economic Trajectory and India’s Response”
A Panel discussion was held on the theme “Forecasting China’s Economic Trajectory and India’s Response”. The Panel Chair was Cmde R. S. Vasan, Director, C3S. The panelists were Mr. Rajaram Muthukrishnan, Mr. Uday Khanapurkar and Mr. Sunil Rallan, Managing Director- J Matadee Free Trade Zone Pvt. Ltd.; Member, C3S.
Mr. Rajaram Muthukrishnan pointed out that China’s growth trajectory was based on its wants, objectives and aspirations that it has built over the years. It is important for India to recognize those trajectories. It should focus on i) the areas in which it’s going to collaborate with China, ii) areas in which it should compete iii) areas of complexity. With regards to India’s economic growth there are five dimensions that can be focused on.
Potential trajectory of what India wants to achieve: The country’s main objective is to uplift the people who are below the poverty line and bring India into a financially stable growth model, in order to be a middle-income country. The year 2020 is the time frame.
Increase in industrial activity: While there has been a great deal of emphasis on the services sector, emphasis on India’s manufacturing capabilities can bring about positive implications for the country’s strategic capabilities. Meanwhile the service sector can be catalyzed for achieving more. India needs strong national programs, not entirely for racing against China, but for improving India’s own economy. Policy bottlenecks have to be tackled with. India can enhance its capacity to handle technology disruptions.
Enhancing soft power: India has huge potential and can be cultivated by improving the tourism sector. India can create more markets in tourism promotion to harness increased revenue from the Chinese
Improvement of Human Resources: This action is needed in terms of providing training in institutions to bring about skill development. It is imperative to implement initiatives that encourage the people to be innovative. Indians must play on their strengths, for example by taking advantage of the country’s liberal education system.
Mr. Sunil Rallan pointed out that India has a history of export oriented economic policy. He noted that Indians’ liberal thinking will give them an edge over China. Moreover, there is the question wherein the world is ready for India but is India ready for the world.
In 1973, India had developed the Santa Cruz Electronics Export Processing Zone (SCEEPS) even before China opened up to such sectors. This early development demonstrates that India cannot blame the Chinese for not doing well in electronics manufacturing. China pushes other countries hard for promoting its own companies while India gives her own companies a very hard time inside the boundaries itself making it very difficult for them to thrive. As a result most Indian companies are afraid and lack confidence to ever do business outside their own country. On the other hand, China is very target oriented and has the ambition to become the world leader in at least 10 sectors by 2049. However China has very little innovation as most of its ideas are from the West.
Indian bureaucrats need to be more liberal and provide an encouraging environment for Indian businessmen for investments, both local & foreign. While explaining about India-China trade, Mr. Sunil Rallan described how, of Indian imports from China valued at $74 billion, 60% is from third party manufacturing in China, such as Toshiba manufacturing in China. 40% of India’s imports are from Chinese designed and owned companies like Huawei and Xiaomi. This gives rise to the opportunity for India to reach out to other countries who are investing in China and build joint ventures or partnerships while absorbing capital and technology from Taiwan, Hong Kong, Korea, Japan and Singapore.
Before taking such steps, India needs to tackle certain obstacles. For example, India does not reach out to other foreign companies as they do not hold enough confidence in Indian investors simply because India has not paved a way for them to come in. He briefly touch on how there are some cultural issues among the Indian promoters who prefer to keep policy at the GoI level or State Government level.. Although a lot of companies use Taiwanese produced products, Indian companies do not want to join hands with Taiwanese partners. Policy is a major roadblock. For instance, NALCO a Taiwanese exporter of alumina allows foreign companies to bid on the products and not Indian companies to do the same.
Mr. Uday Khanapurkar stated that there is a general consensus on the fact that manufacturing setup in India needs to develop. The reconfiguration of the supply chains as a result of the ongoing trade war could benefit India in the short run. The main concern for India, is the possibility of automation in the long run. In the short term, businesses is where India replicates China’s story. Indians can definitely develop a manufacturing base in the country, provided they can achieve more milestones in the technology sector. Factors of employment like service orientation are in boom, as is the development of automotive manufacturing, he said.
Policymakers need to keep in mind that there should be automation resistant services and manufacturing, but what these would entail is something that needs to be further researched on. China’s trade surplus was described,along with the shape that trade orientation is going to take. It was suggested that India can try to streamline the manufacturing sector for foreign investment promotion. Chinese investments into American and Indian technology and apps were examined, while focusing on acquisition of consumer data- an aspect which poses a security threat.India as a developing nation has the desire for acquisition and absorption of technology from the developed world, one that the speaker hoped has not been disrupted by China.
India’s stakeholders can keep a close watch on where Chinese investments in India are going. This would be similar to the cautious position taken by U.S.A and the West.
Indians can learn from the Chinese on how to assess and prevent market failures. It is imperative to harness the contribution of scholars and think tanks.There is also a need for more data resources on China to help Indian researchers. Learning Mandarin is indispensable.India needs to develop its vocational education system as there are too many STEM graduates and the country’s workforce needs to be skilled enough for absorption in the labour market.
The bottom line is that a change in the country will happen only when the attitude of the country changes.
An audience member added that India can initiate a trade orientation certification programme.
The Summing Up of the Conference was done by Dr Puyam Rakesh Singh, Research Fellow, ICWA. He highlighted key points on each presentation made. It was stated that the conference had provided a fresh perspective on the Chinese economy, while giving unique perspectives that can enhance Indian stakeholders’ understanding of our largest neighbour. The advantage of being away from a Delhi-centric prism was an advantage.
The Valedictory Address was delivered by Mr. R. Ganapathi, President, SICCI. He cited a study by an intern at the Great Lakes Institute, which revealed that many American CEOs who were keen to work in China found it difficult to continue there after a few months of conducting business, while in India the CEOs were reluctant to invest at the start but once they come in, they do not want to leave because of the returns they earn in India. An analytical account of Indian and Chinese economies was given. Both countries’ economies started at the same level around 30-40 years ago. However the level of transformation in the Chinese economy since then and especially in the last 8-9 years has propelled China to surpass India and other countries to become the world’s second largest economy and the world’s largest manufacturing hub.Although China has made impressive economic and social development gains, its market reforms are incomplete and its per capita income remains that of a developing nation. The country is on track to eliminate absolute poverty by 2020. The Chinese economy in 2019, despite sizeable challenges with regard to tradestill grows at a productive rate of 6%. There was light shed on various fiscal policies and plans adopted by the Chinese Government in the past and in recent years to ensure a “moderately prosperous economy” in the future, with focus on development of services and social development such as in healthcare, education and environmental conservation.
Cmde. R. S. Vasan, Director, C3S, gave the Vote of Thanks.
(Compiled by Aishwarya S. Menon, Amrutha P, Harani Saravanan and Shivani Shankar, 2nd year M.A International Studies, Stella Maris College, Chennai, and Interns, C3S.)