In a conversation with some friends here in Switzerland, someone asked me about my views on China. The question was straight: Would the Chinese “make it”? After all, this was the week when China was in the news for both the right and wrong reasons. It had overtaken the US as the world’s largest auto market (absolute number of vehicles sold) and had overtaken Germany as the world’s largest exporter. On the other side, Google has almost walked out of China, unable to bear any longer persistent intrusion into its operations in the country. These developments capture both the potential of China and the risk it faces, on its way to the top.
My answer was that, in economic terms, they would do so. Their growth rates might be lower than in the last quarter-century. In fact, it would be better for them if that happens, but they would achieve the transition from an export-driven economy to a domestic economy. However, that would not necessarily translate into investment returns through investing in Chinese companies.
One could make money investing in Western companies selling to the Chinese domestic consumers. I was told that Bahnhofstrasse (a street full of banks on one side and global brand-name shops on the other side—a short stretch from the railway station to the lake of Zurich) in Zurich, Switzerland was “bailed out” by Chinese tourists in 2009 as Russian tourists had in 2006-07.
Why not Chinese companies? That is where the risk factors that could mar China’s rise come into play. There are very few genuine Chinese private sector companies. That is because of the obsession with control that stems from insecurity that characterizes all authoritarian structures—individual, institutional or sovereign. This insecurity and fear could cause them to overreact to threats—perceived or real and big or small.
Insecurity also leads to an obsession with control. That is why state dominance and control of the financial sector is not just an economic policy choice. It has more dimensions to it. This streak might lead them to underplay or ignore some risks that develop quietly until it is too late to fix them.
The third risk is the risk of imperial overreach. Insecurity in combination with hubris is lethal. There are signs of impatience in wanting to be anointed the supremo, numero uno. Impatience at “delays” could provoke misadventures meant to hasten the arrival.
Right or wrong, I do not attach much importance to the standard arguments dished out by doomsayers—such as uneven social development and social unrest. For one, they are well flagged and, two, the policymakers must be well aware of them, if you and I are. Third, the Han Chinese are largely homogeneous in their almost single-minded pursuit of material wealth and higher standards of living. They know that stability is a prerequisite. So, I doubt if they (the population) would self-destruct.
The US Marshall Plan for Europe and its aid to the reconstruction of Japan were acts not arising out of insecurity. It is worth pondering whether China, as a victor in a World War, would do so. The answer to that question would help determine what kind of a superpower the world would get, if and when China replaces the US.
Ultimately, most risks to the evolution of humans or institutions or sovereigns are in the mind. That is why the risks to China’s rise are internal.
Risks to India’s rise are both internal and external. In any case, right now, based on the configuration of the mindsets of our people and politicians, chances of India becoming a geopolitical superpower must be rated low. There needs to be a mean and ruthless streak for that to be achieved. We still lack it. Other threats exist at the mental level here in India too. That is one of collective inferiority complex and wanting to be patted. But, physical—internal and external—threats are more important and real for India than for China.
One big buffer India has is, of course, creativity in art and culture, bottom-up innovation and grass-roots entrepreneurship. The system has inbuilt safety valves. Investment returns are to be found in such a society.
India continues to operate on the edge. Not that such an approach suits India or is better for India. That is how India and Indians, largely, appear to be “hard-coded”. Sometimes, one wonders if Indians have made it their signature line and are proud of it rather than being embarrassed by it. The day India sheds this approach is the day when the odds in the superpower race would be recalculated.
Until then, the race for global superpower status is for China to lose. It is a different story that if and when it gets there, people might miss the US of America. Interestingly, isn’t it a Chinese proverb that warns people to be sure of what they want, lest they get it?
V. Anantha Nageswaran is chief investment officer for an international wealth manager. These are his personal views. Your comments are welcome at email@example.com