India and China: Conflict, Competition, and/or Cooperation in the Age of Globalization - STWR

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India and China: Conflict, Competition, and/or Cooperation in the Age of Globalization

It is time for India and China to move beyond a history of conflicts and start cooperating politically, economically and technologically for mutual benefits, writes Dr Aqueil Ahmad.

13th February 07 - Dr Aqueil Ahmad ~ STWR

India and China are two of the world’s most ancient civilizations. For centuries they shared advanced ideas, inventions, religious and philosophical traditions. But their economies and societies stagnated during the colonial period. In the post-colonial period mutual relations suffered a setback due to political and boundary disputes. In contemporary times they have reemerged as leading techno-economic nations. It is high time for them to move beyond conflicts and start cooperating politically, economically, and technologically for mutual benefits. Recent developments and exchanges indicate that the ball is already rolling in that direction. Globalization for common good requires coming together rather than falling apart, sharing resources and assets rather than wasting them in endless conflicts. In the context of currently shifting global political and economic power, no two nations are better equipped than India and China to show the world how the common concerns of humanity can be addressed through mutual respect, friendship, healthy competition, and sharing of resources. This paper discusses some of these possibilities in the age of globalization.

India and China are two of the world’s most ancient surviving civilizations. The Chinese built the 4000-mile Great Wall some 2000 years ago, about the time of the birth of Jesus Christ. As an awesome marvel of engineering, most of the wall still stands intact, the only man-made object visible from the outer space. They invented bureaucracy even earlier, thousands of years before Max Weber brought it eloquently to the attention of the western world. There is not a single country anywhere that bureaucracies do not govern, manage or mismanage, corrupt and plunder, redeem or reform. The Terracotta Army built by Emperor Qin in the 3^rd century BC is in almost perfect state of preservation to this day. Some of the greatest inventions that we live by even today came from China, including the gun powder – the most infamous of them all, the paper, paper money, printing, viaducts, dams, clocks, the compass, astronomical observatories, and countless other inventions.

As for India, R. K. Narayan, the famous Indian novelist tells the interesting story of his meeting with British philosopher and iconoclast, Sir Bertrand Russell. While extolling the contributions of ancient Chinese thinkers, Russell said to Narayan, “but you Indians created nothing.” Narayan vigorously protested this insulting remark. But Sir Russell kept on repeating, “You Indians created nothing, nothing, nothing.” Exasperated, Narayan got up and was about to walk out when Russell drew him near, looked him in the eye and said, “You Indians gave us the zero, which stands as the greatest contribution to the development of mathematics, and consequently, that of modern science.” Thereupon they embraced each other with delightful twinkle in their eyes. Ancient Medieval Indians contributions to algebra, textile, chemistry, medicine, metallurgy, and astronomy are legion. Sophisticated agricultural practices, architecture, and sewage systems were developed by the engineers in the Indus Valley civilizations of Harrappa and Mohanjadaro. The wisdom of the Buddha flowed from India to China, while Confucius’ precepts of right conduct, wise and merciful ruler, compassion and humility influenced the behavior of Indian rulers, including that of emperor Ashoka who inscribed on his commemorative pillars, Satya amar jayte (Truth alone shall triumph).

India and China, along with the rest of the non-western world lost their edge somewhere during the 16^th and 17^th centuries when the center of scientific and technological activity shifted to Europe, and later to North America. Contacts between these two great civilizations almost ceased during the colonial period because the new rulers of the world did not encourage such contacts. In more recent times, when these contacts revived they turned into conflict and hostility between a democratic India and a totalitarian China over the issues of outstanding territorial claims, the Chinese annexation of Tibet, and the Exile of Dalai Lama in (Dharamsala) India .

Recent Development History

India became a free country through peaceful transition of sovereignty in 1947. China had a proletarian revolution in 1949 led by Mao Zedong. Both democratic India and Communist China embarked upon ambitious science, technology, and economic development programs through centralized planning. Both emphasized self-reliance through local initiatives, restricting the flow of foreign capital and technology for nearly three decades. During this time, the Peoples Republic of China (PRC) controlled its economy and protected it from outside influences far more than India did. For at least 10-15 years since the revolution in 1949, the only source of foreign capital and technology for China was its ideological partner, the Soviet Union. That relationship began to crack in 1962 because of the USSR’s reluctance to transfer nuclear technology to the Peoples Republic. China continued its isolation and suffered serious stagnation for 20 or so more years, until after Mao’s death in 1976.

During this period, India too strictly regulated its economy, allowing only partial and highly restricted entry of foreign capital and technology. The Indian economy began to open its door a bit more widely by the middle of the 1980s, at about the same time as China. By this time, the global economy had already taken hold of the national economies in North America, Europe, and the Pacific Rim. Post-Independence era regulations proved a mixed blessing for India. It missed 20 years of the information technology revolution that was sweeping the world and driving the global economy – remember how the IBM was kicked out of India in the middle of 1970s. The private sector stagnated under those regulations. The protected government sector thrived despite its magnificent mismanagement. India’s industrial development suffered. While these negative trends were the legacy of regulations, government policy of self-reliance helped built a robust infrastructure of techno-economic institutions and personnel that were ready to march forward when the global economy did finally reach India. Through regulations India was also able to protect its local industries and markets from unbridled speculation and exploitation by multinational corporations. Let me return to China for a minute.

Deng Xiaoping took command of China in 1979, three years after Mao’s death. With a massive shift of public policy, Deng gave 190 degree turn to the Chinese economy by opening it to foreign capital, technology, and competition. The scene that I witnessed in China when I went there for the first time in 1980 was a totally different scene than what is going on there today. Despite the open door policy, economic modernization remained laggard through the entire decade of the 1980s. Things began to change rapidly in the next decade. Since then, the Chinese economy has been growing at about 9-10% per year, surpassing any other country for a sustained growth at such a high rate. In terms of GDP per capita, it is the world’s 4th largest economy, and is likely to overtake Japan within the next five years. It is one of the world’s largest exporters of consumer items through retailers like Wal-Mart, Carrefour, Target, and Tesco. Even garlic in the United States is being imported from China. The American Wal-Mart is probably the biggest buyer of consumer goods made in China. “It bought $19 billion worth of Chinese goods in 2004, amounting to some 15% of China’s total exports to America in that year. (The Economist, September 23rd, p. 43)

Since 2000, China’s contribution to global GDP growth (in purchasing-power-parity terms) has been bigger than America’s, and more than half as big again as the combined contribution of India, Brazil and Russia, the three next largest emerging economies. China’s massive build-up of American Treasury bonds affects American interest rates and thus Americans’ willingness to spend. Its low-priced manufactures give western consumers more buying power. Its thirst for energy has helped push oil prices to record highs. Its entry to the World Trade Organization in 2001 has speeded up the opening of the world’s biggest market. (A Survey of China, The Economist, March 25th, 2006, p. 3)

India has finally left behind its “Hindu growth rate” of 3% to hit an annual growth rate of 8+%. Its technological capability is strong. It is the most preferred destination of IT outsourcing, now moving away from being the world’s call center to being a vital feeder to the global knowledge industry. India’s economic base is vast – 4th largest in the world in terms of purchasing power parity and 12th largest in terms of GDP. It is projected to become one of the five largest economies in the world by 2050 along with China and Brazil. But per capita incomes remain low ($3000.00, approx.) in international comparisons. Income disparities are wide. Nonetheless, the markets are huge, with the current consumer class estimated to be around 350 million, about the size of the entire European Community.

The combined economies of India and China are already bigger than that of the EU countries put together. At the present rate of growth, the combined consumer class in the two countries will reach about a billion people within the next 5-10 years. These developments have far-reaching implications for the two countries themselves and the world at large in the 21st century.

Science, Technology, and Economy, in India and China: Conflict, Competition, and/or Cooperation

The West is becoming alarmist about what is happening in the world’s two most populous nations. In the United States, Japan bashing has been replaced by China bashing. It is well-known that China’s military machine is one of the most formidable in the world. But it is the Chinese economy that scares both the Indian and the Americans. Many Americans see both India and China stealing American jobs – China stealing manufacturing jobs (textile, shoes, furniture, hand tools, consumer electronics, Christmas trees and ornaments); while India taking away IT jobs. Some in America have gone to the extent of suggesting that China is about to take over the United States’ economy by next year; as it was used to be said abut Japan in the 1980s and the 1990s. Of course, there is some truth in these morbid fears as Americans look back to the disappearance of their steel and automobile industries through competition with Japan. And now here comes China, closely followed by India. Not to be left behind in IT outsourcing, China is rapidly developing its English and computer skills to compete with India in the American high-tech industry. Listen to what Tony Blair, the British Prime Minister said in a recent major policy speech in Oxford, England:

But the international competition is intense and getting more so. Chinese R&D has been rising by 20% a year over the past five years. South Korean R&D has increased ten-fold since 1971. Indian R&D is even more astonishing - it has trebled in a decade. Indian engineers are flooding into the world's markets - 350,000 a year, forecast to 1.4m a year by 2015…. It is a warning to us that we have to remain world-leaders and that knowledge also needs to be transferred from the academy to the marketplace. (Speech at the Royal Society in Oxford, Nov. 3, 2006)

There is intense competition globally for R&D dollars. Technology and industry leaders understand that research and innovation are absolutely necessary for maintaining competitive advantage in their core competencies. Finding and hiring qualified scientists and engineers in the western countries is difficult and prohibitively expensive. “The truth is, China and India are increasingly attractive places for companies to do research and development.” (“Can Anyone Steer this Economy,” Cover Story, Business Week, Nov. 20, 2006, p. 62) India has an edge over China in attracting R&D investments due to the availability of more well-trained, English speaking scientists and engineers than in China. A high-tech company can hire an engineer in India at one-fourth the cost for a similar hire in North America, for example. Such foreign investments will be growing rapidly in the coming years in both India and China, more so in India than in China.

The American magazine Business Week organized its 10th annual CEO Forum in Beijing in early November (1-3) this year. More than 700 global executives and government officials from many countries participated. Much of the discussion focused on competitiveness in China and India and the competition between them for world resources and markets. Is China with its command economy or India as world’s largest and most boisterous democracy better poised to utilize foreign domestic investment for sustained social and economic development, was one of the hotly debated points. The experience so far suggests that without much public debate or dissension about its national plans and priorities, China has done much better than India in that respect. From the Indian point of view, the issue is that the values of individual freedoms, self reliance, and social development must not be sacrificed at the altar of economic development. These are indeed fine values to uphold in a democratic society, but the Indian policy planners need to look hard and fast how much they have or have not achieved by way of all-round social development.

The fact is, both of these Asian giants have their own strengths and weaknesses, their own unique cultural traditions and political histories. They both are only half way home and a long way to go, as the saying goes, toward becoming advanced industrial societies. They have serious social and environmental problems to encounter – problems of poverty and disparity, the problem of rapidly deteriorating environments due to rapid industrialization, and a host of other problems like rural-urban disparity, education, housing, health-care, and employment for their large populations. These are the areas where they can cooperate and learn from each other while they compete for world markets and resources.

The CEO Forum in Beijing spent considerable time on the issue of global competition and rivalry between the two Asian superstars.

With the likes of China Mobile (with 300 million subscribers and a $177 billion market capitalization), telecom gear maker Huawei Technologies, and India’s Tata Steel on the prowl for acquisitions overseas, China and India are “reshaping the global economy.” Can these giants get along? Their rivalry is bound to intensify as India moves more into low-wage manufacturing, a Chinese specialty. Both must create 15 million new jobs every year just to keep their young people employed. (The Dragon’s Way or the Tiger’s? Business Week, Nov. 20, 2006, p. 55)

Increasing energy use in India and China due to economic development and rise in automobile ownership is also a source of worldwide concern as well as intense competition between them. The issue is how to satisfy their voracious appetite for oil. With 17% of the world population, only 0.8% oil reserves, and an economy growing at breakneck speed, China is naturally frantic about meeting its energy needs through imports. It is actively courting African leaders and investing in African development and oil exploration. During a recent (Nov. 3-5, 06) summit of top African leaders in Beijing, the latter were lavishly treated by the Chinese President, Hue JinTao. The huge Chinese oil conglomerate, CNOOC, is actively out to buy oil companies overseas, including a failed bid to buy American UNOCAL. It has since invested in oil interests in Russia and the Middle East. India is faced with a similar energy crunch having only meager oil resources of its won. It is competing with China for oil in world markets. But that is also one area where the two countries can effectively cooperate. Such discussions have already taken place between CNOOC and India’s Oil and Natural Gas Commission. The Indian energy Minister came up with an interesting idea while discussing cooperative energy exploration and acquisition strategy with China sometime ago. He suggested that there should be a Consortium of Oil Importing Countries to negotiate the supply and price of crude oil for the benefit of heavy developing country oil importers. I don’t know what happened to that idea.

The history of border dispute between India and China going back to the war of 1962 is well-known. That dispute is yet to be resolved and continues to be a source of tension and mistrust between them. The friction is exacerbated by China’s military and nuclear cooperation with archrival Pakistan. In its economic expansionist mode, China wants to increase its investment in India but is resisted by the Indian government. China claims double standards by India in granting her clearance for FDI (four bureaucratic levels of approval instead of only the Reserve Bank of India clearance for others) and issuing visas to Chinese workers. One of the cases in point is visa problems for 1,800 Chinese engineers from the Chinese Petroleum hired by Reliance India to lay a gas pipeline (I wonder why Reliance could not find Indian engineers to do the job; and whether the visas were finally issued).

Despite these problems, economic cooperation in terms of trade is increasing between the two countries, currently running at $20 billion from only $1.8 billion in 1989-90. A substantial share of India’s mobile-phone market is run by Hutchison Telecommunications of China. Huawei Technologies has a software center in Bangalore that employs 1,150 Indian and 50 Chinese engineers. I understand that most of the Diwali lanterns this year came from China. From the Indian side, an estimated 150 companies are currently doing business in China. India claims these business ventures are with other foreign firms operating in China, not with the Chinese companies. China imports iron ore and other minerals from India. (The Economist, October 28th, 2006, pp. 50-51; and Nov. 18^th, 2006, pp.43-44)

Concluding Remarks

This brief discussion of India and China in the context of globalization suggests several things. Nobel Laureate Amartya Sen, reports his teacher Joan Robinson at Cambridge University once telling him, “The frustrating thing about India is that whatever you can rightly say about it, the opposite is also true.” Interestingly enough, you can say exactly the same thing about China. It combines capitalism with communism, poverty and disparity with fast economic growth, impressive industrial development with neglect of its environment, and a massive rural-urban divide. These contradictions exist in India as well, with the exception of the first one. But they are due to long-standing historical and social factors, not due exclusively to globalization, as some tend to suggest.

Generally speaking, all modern economies today are global in character. As Robert Reich said in his well- known book, The Work of Nations, there are no national economies any more. India and China are no exceptions. Economic globalization is driving and shaping national politics, economies, histories, social structures, environments, and international relations, and connecting them through interdependent networks as never before. There is a worldwide power shift occurring still unseen and unrecognized by many around us. There are two major implications of this power shift. Ideology and politics are becoming the handmaidens of global economic forces, rather than the other way round, as the case used to be. The other development is unraveling of erstwhile hegemonies. The United States of America and Europe are no longer in the drivers’ seats. The balance of power is shifting from West to East, from North to South. The recent demographic, economic, and political developments in China, India, Russia, Latin America, and the Middle East (barring some temporary setbacks here and there) all point in that direction.* (see below). This shifting landscape strongly suggests that this century is poised to be an Asian century and India and China, along with Russian will be its biggest winners – unless the trend is spoiled by very bad political and economic leadership in these countries, which is unlikely. The following developments are noteworthy in this context.

Except in the US, population in the western countries, including Russia, is declining. It is already below replacement level in Russia and the Scandinavian countries. The current demographic balance between the West and the rest is: West = 1 billion; rest = 5.5 billion. It will continue to move in this direction.

Historically, the small numbers in the west were largely compensated by their huge scientific and technological superiority for nearly one hundred years. But that equation has undergone significant changes because of globalization of technology systems. The West is still enormously creative but has little control over its own inventions and who might benefit most from them. A new discovery or invention knows no national boundaries. It gets rapidly diffused and used globally. The science and technology human resource balance of power has also shifted significantly. While per capita production of qualified scientists and engineers in the West is still well ahead of the world, in sheer numbers China and India surpass the US in approximately 4 to 1 ratio. Look at the numbers for 2004-05: US = 84,898; India = 103,000; China = 292,569 (India-China combined total = 395,569). A recent report from Control Engineering, a free-lance think-tank is instructive:

"The vast majority of U.S. manufacturers are experiencing a serious shortage of qualified employees, which in turn is causing significant impact on business and the ability of the country as a whole to compete in a global economy. This is the key finding of the "2005 Skills Gap Survey" reported by the National Association of Manufacturers, Manufacturing Institute/Center for Workforce Success (NAM) and Deloitte Consulting LLP. The problem for U.S. manufacturers is that this challenge is not universal. Countries with rich educational heritages, such as India, China, and Russia, are graduating millions more students each year from colleges than the United States. These highly educated individuals are actively participating in the development of innovative new products without regard for historical barriers, such as geography— thanks to technologies such as broadband, inexpensive Internet-ready laptops, and collaborative tools. With such international talent readily available and significant shortages existing at home, it is clear that the future of U.S. manufacturing may now be at stake, the report suggests. Details behind the talent shortage reveal a stark reality. More than 80% of respondents indicated that they are experiencing a shortage of qualified workers overall—with 13% reporting severe shortages."

Latin American leaders like Hugo Chavez (Venezuela), Fidel Castro (Cuba), Lula de Sylva (Brazil), and Evo Morales (Bolivia) clearly indicate declining American hegemony in that part of the world. Their more independent (of America) and socialist leaning economic and foreign policies are redefining the nature of global economy in South and Central America.

The nuclear postures of North Korea and Iran indicate the declining influence of the European Union, NATO, and the United States on world politics. These postures are buffeted by the support of new international power brokers, notably China and Russia, both members of the UN Security Council.

The enormous economic power of the Middle East and Russia with their oil is going to play a significant role in defining world politics. Saudi Arabia, Iran, and the conglomerate of small Gulf States are bursting with economic activity. So is Russian Federation.

American and British policy failures in Iraq and Afghanistan clearly indicate the impotence of these two largest military-industrial complexes. Such failures over a span of six years have turned them into paper tigers by their own counter-intuitive actions in world politics.