BackA rocky road to China’s grand ambitions
Xi Jinping's vision for the country must overcome economic stumbling blocks
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Chinese President Xi Jinping, last week, charted out an ambitious roadmap for his country that is pegged to two centenaries due in the coming decades. He said China should abolish poverty by becoming a moderately prosperous country when the communist party celebrates its centenary in 2021. And it should become a country at the centre stage of global affairs when it will celebrate the centenary of the communist capture of power in 1949.
The rambling speech that went on for more than 200 minutes at the 19th National Congress of the Chinese Communist Party dealt with a host of issues, from economic development to environmental protection to reducing income disparities to institutional reforms. However, what Indian policymakers need to focus on is the close link in the Chinese strategy between growing economic clout and its use to promote its national interests in the region. The two cannot be separated. In other words, Indian national interest needs to respond to what happens in China, especially since Xi made no bones of the fact that the core mission of the communist party is national rejuvenation, despite the usual paeans to socialism.
The scale of Chinese ambition has always been astonishing. For example, the Chinese National Development and Reform Commission has already begun to work a project to develop an urban cluster to match New York, San Francisco and Tokyo. It will include nine cities that are spread over 56,000 sq. km. The 68 million people living here already produce output that is comparable to the size of the entire Indian economy. These nine cities include Hong Kong, Macau, Shenzhen, Guangzhou, Dongguan and Zhuhai.
However, there is no reason to believe that the grand goals will be met—or at least that the road will be a smooth one. China is, right now, facing serious economic policy challenges. Here are two examples. First, one way it has managed to keep its export-oriented economy in the fast track over several decades—the most spectacular economic success story in human history—by ensuring that its monetary policy tracks what the US Fed does. The US is now tightening its monetary policy, while China cannot raise interest rates if it wants to keep its currency down, as well as ensure that its over leveraged economy does not topple over into a debt crisis. The divergence in the policies of the two largest economies in the world could lead to instability, perhaps through capital outflows.
Second, China is now perhaps at the same crossroads that many of the original tiger economies of Asia were in 1997. It needs to shift its economic strategy from more extensive use of inputs to higher productivity led by innovation on the one hand, and shift from exports to domestic demand on the other. The Asian experience shows that the transition is not an easy one, and China may not only have to deal with financial instability but also try to avoid getting trapped in the middle-income trap.
China offers both an opportunity as well as threat for India. The opportunity comes from the chance to get into those areas of manufacturing that China has already started exiting. The threat comes from the fact that China will likely use its growing economic power to dominate a region where India has core strategic interests. As always, dealing with China will involve a very nuanced balancing of these two factors.
Most importantly, India needs to realize that China has since 1979 moved ahead because of its commitment to economic growth, technological progress, urban focus and sustained economic reforms to match every stage of its development.
The Narendra Modi government has said that India should have a $10 trillion economy by 2032. It is an achievable target, considering that India has already more than quadrupled the size of its economy over the past 16 years—from $494 billion in 2001 to $2.5 trillion dollars in 2017 (going by the latest estimates by the International Monetary Fund). The $10 trillion target is thus realistic given the recent performance, but there are two important issues to keep in mind. First, there needs to be a clear policy agenda to ensure that India continues to grow rapidly in the coming years, and such a long-term policy agenda is nowhere to be seen right now. Second, the Chinese economy is $12.3 trillion, so India is already some 15 years behind its Asian rival.
How should India manage the fallout of China’s ambitions? Tell us at views@livemint.com
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