Prime Minister Modi is to host Chinese President Xi Jinping for the second India-China Summit during 11-13 October. Remember, President Xi’s historic visit to Ahmedabad in September 2014 when the city gave a rousing reception to the Chinese President? This time Mamallapuram in Chennai, the capital city of the Pallava kings in the 7th century, is the venue for the summit.
IE provides a curtain-raiser to the visit, highlighting the great strides made by China in emerging the second-largest economy.
Till the mid-1980s, the economies of China and India were running on parallel lines. Both were bogged by large populations, low levels of technology, low production volumes across several sectors and poor social indicators. The present size of some of the indices points to the vast differences between the two countries. China is clearly on the speed lane. The giant strides in growth are most significant in infrastructure and high volume production of goods. Manufacturing sector accounts for 41 per cent of China’s GDP. An indication of this is provided by the steel sector: production of over 900 million tonnes that formed over half the global steel production 2018-2019).
MASSIVE SURPLUS IN FOREIGN TRADE
China’s growth has been built by focussing on foreign trade. At the turn of the millennium, Chinese imports and exports were US$ 225 billion and US$ 249 billion respectively. Export grew faster than imports. In 2018, China earned US$ 2500 billion and spent US$ 2100 billion with a trade surplus of US$ 400 billion (around Rs 2.8 lakh crore). The corresponding figures for India for 2018-19 are US $ 331 billion and US $ 507 billion, with a trade deficit of US $ 176 billion. Over the last five years, the surplus generated by China in trade amounted to $ 2541 billion, which is nearly equal to the total GDP of India! What this meant is the enormous capability to invest in large projects, both within and outside China. This cash was utilised to buy large companies, port facilities at vantage locations across the globe…
Succession of Chinese leaders set clear goals for accessing technology, education and management expertise. China spent liberally on sending its students abroad for pursuing higher education. They went to reputed universities in the US, Europe, Japan and Australia. In 2018, 662,000 Chinese studied abroad. In contrast to Indian students pursuing higher studies abroad, seeking employment and stay, most of the Chinese return home and utilise their acquired skills for their nation’s development. Indians should feel concerned over this.
Several of the American faculty are invited to spend their sabbatical in reputed Chinese universities on attractive remuneration. Such an arrangement helps the Chinese universities to keep abreast of advanced research and academic excellence of leading American universities.
CAPACITIES FAR ABOVE DEMAND
It is a standard practice of private corporations to build capacity in line with market demand over the short term to ensure quick profits. In China, the surplus in foreign trade is used to build capacities far in excess of demand.
Look at the focus on power development. China is endowed with long rivers like Yangtze (6300 km) and the Yellow River (5464 km). The country decided to harness hydropower in a big way. The gigantic Three Gorges Dam project was constructed for generating 21,000 MW of power spending US$ 22.5 billion. In addition to the copious supply of power, the project provides water for irrigation and drinking for millions. Plans are underway to add another 43,000 MW of power upstream. Cheap, renewable hydropower accounts for a good share (314,894 MW) of the total capacity created of 1,777,017 MW.
Over the past decade, China has emerged the largest producer of solar power, another renewable source of energy. She has emerged the global leader in the manufacture of solar power panels.
The focus on railway development is equally impressive. I traveled on bullet trains from Xi’an to Chongqing. It passed through dozens of tunnels cutting across mountains and running at speeds of 250 kmph plus. China has constructed over 29,000 km of high-speed rail lines that account for two-thirds the world’s total capacity. At such speeds, Bengaluru can be reached from Chennai in just about an hour and Mumbai in four hours!
Road development has been given equal attention. Multi-lane roads are in position, across the country. The world’s longest sea-crossing bridge connecting Hong Kong with the Mainland was constructed at the cost of around $ 20 billion (Rs 1.4 lakh crore).
The Beijing Capital International Airport handles 45 million passengers a year. Beijing Nanyuan Airport handles an equally large number. A new Daxing International Airport is taking shape as the largest single airport terminal in Beijing, designed to handle 100 million passengers and four million tonnes of cargo annually. This airport will have eight runways. It incorporates the latest advances in information technology. It is scheduled for opening in a few weeks.
The expertise built in conceiving and constructing massive infrastructure projects is utilised in winning large projects in several countries in Africa, Asia, South America, and even Europe.
CONSTRUCTING LARGE PROJECTS IN SEVERAL COUNTRIES
Backed by liberal aid, China has been able to win large infrastructure projects in several African and Asian countries. At an early stage, the country also invested in Latin American countries to facilitate the import of soybean and other agriculture products. eg. In Brazil, China helped link interior villages by constructing roads and ports.
As the largest trading country, China found the cost of conveying goods and services formed a significant portion of the delivered cost at the destination. Thus, she conceived of the mammoth One Belt One Road (OBOR) project to ensure global connect by road, rail and sea. This involves 152 countries across different continents. When completed, it will provide enormous economies on the movement of goods across different countries.
Even while focusing on OBOR, China has been on a spree of construction of port facilities at vantage points – the Hambantota Port in Sri Lanka, the Gwadar Port in Pakistan, Malacca Port in Malaysia and a large number of acquisitions in Europe.
A rough estimate puts Chinese capacity for handling 6 million TEUs of containers in the eastern part of Europe spreading from Spain to Greece. This gives enormous advantage for Chinese ships to reach any part of Europe quickly and cost-effectively.
STATE OF ACQUISITIONS
China adopted a two-pronged strategy to acquire technology. First, through close contacts with academia in developed countries and through outright purchase of technology and the second, acquire technology-rich companies in Europe and the USA. Fairly early, the Chinese company Lenovo acquired IBM’s PC business. Later, Haier bought GE’s Appliances business. The other large companies acquired by China included Ingram Micro, Hilton Worldwide, Syngenta, Volvo, Kuka, Pirelli and also a portion of Daimler. The German company, Schwing Stetter, with rich expertise in pumping and transporting ready-mix concrete, is among the later acquisitions.
LARGE PRIVATE COMPANIES
The Chinese leaders appreciated the value of encouraging private entrepreneurs. Even while the state retained control, it allowed private enterprises to flourish. In quick time, China witnessed the emergence of thousands of millionaires. The size of Chinese corporates grew phenomenally. Look at this exciting evolution: in the Fortune’s list of Top 500 Companies, there were hardly any at the top in 2000. By 2010, China had 3 companies in the top 10, followed by the USA with two.. There are 23 large companies in the top 100 in the 2018 list and these spanned across different sectors.
Of great importance is the focus on technology. Look at the three areas of interest: renewable energy, mobile phones and electric vehicles.
China has 1.17 billion mobile users, most of these smartphones and 829 million internet users. The county has massive plans to switch to 5G technology. Significantly, the recent China-India dialogue issue deals with the way 5G will change the world, powering the Internet of Things: “the importance of 5G is fast speed, more efficient energy consumption and lower latency, but also the facilitation of the Internet of Everything. Unprecedented wide-ranging functionality is the heart of 5G,” says Xiang Ligang, an academic and an expert in telecom and mobile internet. The mega digital ecosystem is led by the three giant IT companies, Baidu, Alibaba and Tencent (BAT). The WeChat system is refined continuously to take care of the vast range of payment needs.
A $164 billion insurance giant and the biggest non-state-owned company by revenue, Ping An, provides an example of the digital dominance of China. Look at the Superfast Onsite Investigation for Ping An’s policyholders:
Using a smartphone with Ping An App downloaded, enables settlement of an insurance claim for a motor vehicle accident in a matter of minutes: in the event of collision, there is no waiting for an assessor, the customer sends photos of the damaged vehicle with the Ping An App, the repair estimate is sent within 180 seconds. If the customer accepts the view, the process is complete, and the funds are transferred immediately!
Fortune magazine describes the process: “to generate accurate estimates Ping An matches photos of vehicle damage against the database of 25 million parts used in the 60,000 different auto makes and models sold in China. The system assesses whether those parts can be repaired or must be replaced; then calculates the cost of parts and labour at more than 140,000 garages. Ping An integrates all that information with face, voice and image recognition and a complex matrix of anti-fraud rules. A team of AI experts, data scientists and influence managers designed, developed and integrated the new service in three years!”
A LEADER IN SOLAR POWER, ELECTRIC VEHICLES
China has emerged the leader in harnessing solar energy. With 176,100 MW of installed capacity, she accounts for nearly a third of the global capacity. In just five years, China has emerged the dominant supplier of solar panels to the world.
There is a rapid switch to electric vehicles. Almost the entire 250 million electric two-wheelers of the world are in China. I found most of the buses in Beijing are electric vehicles. Shenzhen has 100 per cent electric buses and China accounted for more than half the electric cars sold in the world. The country plans to switch entirely to electric vehicles manufacture within the next five years.
This explains why Beijing got transformed from being a highly polluted metro to being one of the cleanest cities.
OLYMPICS 2008: THE TRIGGER
The 2008 Beijing Olympics provided a trigger for China to close thousands of polluting factories and raze to the ground uncouth buildings and reconstruct the metro. There are seven concentric ring roads facilitating traffic over straight multi-lanes that ensure smooth flow of vehicles. The Olympic village constructed with large stadia has been turned into a vibrant tourist spot. Even at midnight, thousands of tourists throng the venue!
I visited three significant metros – Beijing, Xi’an, and Chongqing. In each one of these, I came across thousands of multi-storeyed buildings, multi-lane roads and hundreds of bridges and new railway stations that resembled sophisticated modern airports. The Chinese system allowed razing the crowded, old structures to the ground and re-constructing modern facilities. The several people I interviewed mentioned the local government providing them alternate accommodation and fair compensation for the acquired property. They pointed to the rapid increase in the per capita incomes by offering jobs with decent wages and the pride of the country emerging stronger by the day.
One of them at the mountainous Three Gorges area pointed to the new, swanky railway station getting ready to receive high-speed bullet trains that would reduce travel time from Beijing from 24 hrs to six hours. They seem to be contented, happy and proud and not concerned with the lack of freedom in the western sense.
A reason for the rapid improvement in living standards is attributable to the sharp, ruthless focus on controlling the population. The one-child norm implemented vigorously is estimated to have prevented 400 million births. Even as the one-child rule has been pushed out, the higher standards of living achieved have been resulting in China arriving at a stable population of around 1.4 billion. The estimate shows India continuing to grow to about 1.5 billion before stabilising.
India’s IMPORTS OF ORDINARY PRODUCTS
China-India trade is heavily in favour of China. Indian exports to China are just around a fourth of imports. In 2018 two-way trade is estimated at $ 95.5 billion with Indian exports at only $ 18.8 billion and imports at $ 76.7 billion. Many of the imported items are for non-sophisticated consumer products for which India has the capability. A couple of instances:
• In 2011, the Tamil Nadu government led by J Jayalalithaa announced provision of fans, mixies and grinders free to the weaker sections of the population. This involved a total cost of around Rs 9000 crore. Tamil Nadu can produce these products. Yet the traders who won the contracts ordered these goods from China and imported these.
• Same is also true of a large number of laptops offered free for high school students by Tamil Nadu, Maharashtra, UP and several other states. India can manufacture laptops (Dell Computers in Sriperumbudur has been producing over 3000 laptops a day). Yet most of these freebies are imported from China.
• A recent report showed India importing incense sticks and other aromatic products from China for around $ 17.7 million (around Rs 123 crore) in the April-June quarter of the current financial year. Such imports extend to toys, crackers and Ganesha idols.
There is a need to limit such imports to items that cannot be manufactured within the country and not bought based just on low prices. Simultaneously, policymakers can negotiate for export of a large number of primary products China is importing in large quantities. eg. soybean. Farmers can be encouraged to raise soybean over vast areas on long term supplies to China.
LET CHINA BUILD HIGH-SPEED RAIL PROJECTS
There is the scope and advantage in project imports from China to accelerate infrastructure development like the construction of the large dedicated rail line with Japanese aid for running high-speed trains between Ahmedabad and Mumbai. China has developed rich expertise in this area. The massive expansion of high-speed rail tracks in a short time can trigger faster economic development in quick time.
The more beneficial fall out can be the waning of animosities between the two neighbours. Such a dramatic change that had taken place in Europe post the Second World War. Remember, the intense hostilities between France and Germany, France and the UK and Germany and the UK that existed for centuries? Post 1945 the approach through economic cooperation to mutual interests that started with the concept of the European Common Market of six countries in 1956 and blossomed into a strong European Union eliminated borders and ensured free movement of capital goods, services, and people. Such active economic cooperation between China and India has the potential to bring together the Asian countries and even Russia as a strong economic union with a common market.
Scope for exports of soybean, dairy products and meat
China has been a large importer of soybean, meat, dairy and seafood products. An estimate puts such imports of food products at around $ 80 billion in 2018. Soybean exports during the year were estimated at around 88 million tonnes and have been sourced from the USA, Brazil and Argentina. A large importer of dairy products, China gets these from New Zealand. China is also a large importer of fresh and processed foods, sugar and liquors.
IE has been suggesting special efforts to develop large scale production of soybean, sugar, dairy products, fresh and processed foods and marine products, specifically for exports to China. This would help correct the massive trade imbalance between the two countries. Indian imports from China account for nearly 80 per cent of total trade. With her comfortable surpluses in the production of the major cereals, rice and wheat, India can earmark large landmass in states like Madhya Pradesh for large scale production of soybean for export. India has also been generating large surpluses in sugar and is a large producer of milk. It would be worthwhile to create a separate Ministry of Trade, operating it with experts. Remember the heights reached by STC and MMTC with such leaders as P L Tandon and S V S Raghavan?
High priority for electricity, renewable…
China has focused on electricity generation on high priority. The total installed capacity is estimated around 1800 GW (1800,000 MW). Of this, 38.3 per cent comes from renewable sources estimated to account for 728,000 MW. Of this, nearly half, 352,000 MW is hydro, 184,000 MW is wind energy and 174,000 MW solar. The renewable energy sources are estimated to have accounted for 26.7 per cent of total energy generated in 2018. The ability to harness hydropower with large hydroelectric projects assures production of cheap power and also meets the requirements for irrigation and drinking water.
Like China, there is a case for India also building capacity for electricity far ahead of current demand.