Tag Archives: The China Model

India: a perfect storm

Pollyannas had looked to“the emerging economies” – China, India, Brazil, etc. — for growth to help ward off worldwide economic recession, as the Western economies and Japan stumbled.

It’s clear that isn’t going to happen. China is trimming its sails to dampen inflation, braking unlimited infrastructure expansion at any cost to produce jobs while trying to meet increasing constraints on its subsidized exports. Brazil, with a new administration enmeshed in traditional corruption, faces a commodities export crash while fighting off devastating import competition for its domestic manufacturing from its major customer, China.

But largely ignored — what with the dramatic Euro crisis and a threat of double-dip American recession –   is the more important emerging economy, India, now slipping back into its traditional morass. At stake was the hope 1.5 billion people, almost a quarter of the human race, could move with democratic values into a modern society. That possibility was long seen as counter to “the Chinese model” which economically successful, possibly temporarily, is essentially oldstyle Oriental despotism.

Heading the list of New Delhi’s woes is a leadership deficit. Italy-born, 64-year-old Mme. Sonia Gandhi, widow of a former prime minister and backseat driver to the ruling Congress Party, has been secreted away to New York for cancer surgery [if by a noted Indian émigré physician]. She leaves behind a power vacuum, not only in her ruling Party but in government. Prime Minister Manmohan Singh, a technocrat, increasingly is drowning in massive corruption, growing inflation and a flight of capital escaping crippling bureaucracy.

Rahul Gandhi, Mme. Sonia’s 41-year-old son, has yet to prove he has the charisma of three generations of independence leader Pandit Jawaharlal Nehru’s family who imperiously have dominated politics – if, arguably, preserving national unity. Caught in India’s worship of priestly figures, a traditional hunger strike by an anti-corruption hero, Anna Hazare, was mishandled. [Mr. Singh has had to backtrack from Mr. Hazare’s arrest.] The government, correctly, is terrified Mr. Hazare’s high-minded tactics could be appropriated by mushrooming anti-government, anti-business campaigns, further paralyzing governance and the economy.

India’s international role, too, is in jeopardy. Naïve Washington hopes for a U.S.-India alliance against Beijing’s growing aggressiveness have been dashed. American forgive and forget efforts have dawdled in extending nuclear and other advanced technologies after New Delhi defied the world to build atomic weapons — matched by Pakistan with Chinese and North Korean assistance. American vendors recently were shockingly left off the short list for a $10 billion fighter plane bid. There’s suspicion stricter American anti-bribery laws than notorious European “incentives” played a role. A 25-year-old case against Mme. Sonia’s deceased husband, Prime Minister Rajiv Gandhi, for a Swedish purchase was recently shelved, more or less indecisively.

Meanwhile, decades of addiction to a Moscow alliance continues among India’s diplomats, illogical as it might be what with growing Russian arms delivery failures and Moscow’s massive military sales to China. Furthermore, India’s proposed huge overseas defense purchases may not meet its security requirements. Mr. Singh has called India’s greatest threat “Maoist” insurgencies in a dozen Indian states. New Delhi and state governments have passed responsibility for their suppression back and forth with little success. These social conflicts grew out of pro-Chinese proclivities of Bengal’s Communists whose 30-year hold on Calcutta, India’s second city, was recently broken, probably only temporarily.

After three and a half wars, negotiations continue fitfully to reach a compromise with Pakistan, the twin regime bloodily carved out of British India over half a century ago. With its own Muslim population as large as Pakistan’s, Indian leaders increasingly appreciate an implosion there would threaten its own breakup. But terrorists with tentacles leading from Pakistani military through the perennial dispute over Indian occupation of Kashmir are torturous, made even more dangerous by occasional clashes of regular forces such as took place in early September. Washington, after fitful attempts, has failed to mediate the feud, caught between aiding a bankrupt Islamabad and attempting to warm post-Soviet Cold War relations with India.

This picture is clouded further by New Delhi’s fishing in troubled ethnic waters in Afghanistan, and Pakistan itself. The Pushtoon terrorist hotbed on the Afghan border is where Pakistani, Indian and Chinese interests conflict. China, meanwhile, continues a campaign of seduction of Pakistan, a massive Tibet buildup, including missiles and probably nuclear weapons, as well as infiltration in the Himalayan border states of Nepal and Bhutan and at both eastern and western ends of the 1500-mile frontier.



Korea: the bomb ticks louder

Despite world attention focused on Iran’s emergence as a nuclear clad power, an equally if not more serious crisis swells on the Korean peninsular. There are hints North Korean, sheltered behind its Communist monarchy’s unprecedented secrecy, might implode.

For the moment, its neighbors and the U.S., have a vested interest in the status quo, however obnoxious the regime. South Korea and Japan both worry about a refugee tsunami if Kim Jong Il and his generals lose control. China fears the collapse of its principle ally, the eventual emergence of a powerful united Korea allied with the West. Even Russia, with its faltering grasp on its resource-rich but depopulating Asian expanses, would be weakened by a North Korean collapse.

But a confluence of trends inside North Korea is producing a crisis that may not be staved off. Granted such predictions have been made before – and proved wrong. And there is the history of Pyongyang’s survival in the mid-90s, when after calamitous drought, Kim’s father drove a population into famine killing at least two million people. Most of its 24 million still live below what the rest of the world considers subsistence.

The geopolitical skills of Pyongyang’s small ruling elite are not to be underestimated. Soviet, Nazi and Maoist tools of repression have been honed to brutalities unknown in the civilized world. Whole families, for example, are condemned to permanent imprisonment to snuff out dissidence. Pyongyang has largely defied the digital revolution, isolating its population from outside information.

One could argue the regime has had, albeit for humanitarian reasons, aid if not comfort from its opponents. For a decade, two South Korean presidents not only pursued accommodation with the North but discouraged criticism. The U.S. and Japan — and often corrupt UN agencies — in the service of charity and hope for change supplied a modicum of food and energy to keep the regime alive. China turned a blind eye to contraband with its own 2 million ethnic Koreans as well as extending massive food and energy aid.

The North Korea regime, in riposte, has devoted its manageable resources – including widespread overseas organized crime operations – to a two-pronged, at least partially successful, development of nuclear weapons and missiles.

The basic conundrum which U.S. negotiators face [the Bush Administration before now Secretary of State Hillary Clinton] is that the regime’s very existence depends on its weapons sales to pariah regimes such as Iran. Israel’s demolition of a clandestine North Korean nuclear facility in the eastern Syrian desert in 2007 was a recent example of  how North Korean threatens worldwide peace and stability.

Washington’s proffered “bargain” – that Pyongyang halt this traffic in return for massive development aid — faces the unstated Pyongyang”logic” that such a “liberalization” would unseat the tyranny. Even earlier efforts by Beijing to try to persuade Pyongyang to turn to “the China model” were quickly cast aside.

North Korea’s unique problem is the South Korean model sitting on its doorstep. There modernization, first under a military dictatorship, and then a democratic regime, has produced the world’s 20th largest economy with the world’s 14th highest purchasing power. Adoption by Pyongyang of a copy-cat development would inevitably destroy the the current regime.

But a stagnant society cannot endure indefinitely. A crux of issues has formed: Kim Jong Il suffered a heart attack last year. His dysfunctional family may not have produced an adequate heir. An attempt to snuff out a growing black market with a “currency reform” has ended, reportedly, with the execution of its vaunted bureaucratic author.

Now Seoul is gingerly handling an as yet unexplained disaster: the sinking with great loss of life of a South Korean warship in disputed waters. Preliminary evidence suggests a possible attack from rogue North Korean elements. The tragedy came during one of Pyongyang’s unique threats of all manner of destruction to the South Koreans and their American allies.

South Korea’s conservative Pres. Lee Myung Bak, while reiterating offers of food and energy, has turned his back on former efforts to stifle criticism. [Seoul was reluctant even to permit American intelligence access to VIP defectors.] A few North Koreans are tapping foreign media through South Korean non-government organizations.

As Kim dithers on a trip to see his Chinese friends [the first in15 years], Beijing announced a $10 billion aid program and offers to set up export promotion enclaves. That was seen as part of the price to get Kim’s representatives back to six-party talks. But it vitiates American and Japanese efforts to use economic pressure to bring the regime to real negotiations.

The truth is that neither the talks nor Chinese aid is likely to go far in solving the  fundamental problem for the regime – and its interlocutors. Pyongyang sits on its starving people without recourse for its survival except to continue to blackmail the rest of the world with its weapons of mass destruction potential – if, and until, the cracks widen and it collapses.


“The China model” 2010

An outbreak of strikes in China’s hi-tech industries may not constitute the Marxist “ revolutionary situation”. But they must alarm Beijing leadership, gripped in an unresolved transfer to so-called fourth generation leadership.

Strikes are technically illegal in China. But the most publicized, a series of “walk abouts” at Honda, continues despite repeated settlement announcements.  The strikes have been spreading — so far largely to foreign owned companies. They come after government actions – including the conviction for bribery of four top executives of the mining giant, Anglo-Australian Rio Tinto– have alarmed foreign investors fearing a wave of xenophobia.

That they are taking place in China’s critical high technology sector is another blow. For while economists debate how much Beijing’s economic miracle is export-led, there can be no doubt it depends heavily on markets in the U.S., the EU, Japan and Australasia. Those markets are already jeopardized by the attenuated worldwide recovery, now threatening to go into double-dip recession.

The combined effects could test the very essence of “the China model” – recently highly touted by Beijing and some Third Worlders, and even some admirers in the West. Until the real estate bubble and all that hung on it burst in the U.S., there was a growing worldwide acceptance of “the Washington consensus” — “neo-liberal” policies including market economics, private ownership and representative government. Beijing has tried to shortchange it with partial economic liberalization but effectively limiting civil liberties beyond repeated feeble efforts to “democratize” the local workings of the Communist Party monopoly. The absolute sine qua non of the strategy was encouragement of massive foreign investment with its transfer of technology and boosting exports through an undervalued exchange and subsidies.

Furthermore, the strikes seemingly have been carried out by leaderless workers using tools of the digital revolution which Beijing welcomed for economic development but which threaten its political control. Not even a reputed quarter of a million government agents monitoring the internet blocked the strikers.

The implications are enormous for a leadership still trying to hang on to tattered Soviet planning. Most high value Chinese exports – the generally accepted estimate in Beijing’s artful rendering of statistics is 65 percent – originate in the Mainland branches of foreign multinationals. That a very large proportion of these is Taiwanese-owned – there may be as many as a half a million Republic of China [Taipei] managers working on the Mainland – is again political dynamite. [Beijing and the current Taiwan Administration – against bitter opposition – is trying to work out a free trade pact to further economic integration to preserve Taiwan’s own exports.]

A major strike has occurred at Foxconn International, a subsidiary of Hon Hai Precision Industry Co Ltd., now Taiwan’s largest company presided over by the Island’s richest man, Terry Gou. The company which makes electronic components was never noted for its largesse. [Among it products is Apple Inc’s  iPhone.] Management also has been struggling with a spate of suicides which focused attention on poor working conditions. It has now announced a 20 percent raise and an eventual doubling of wages on the assembly line, a part of which it is negotiating to pass on to its customers.

The People’s Daily, the Communist Party spokesman, in unusual self-criticism, called on the All-China Federation of Trade Unions to act as mediator — in fact, a different role for what has been a government control bureaucracy. As a response to the unrest [and to a spurt in consumer prices], from July 1, the minimum wage in Beijing will rise by 20 percent from 800 yuan [$117] a month, while the minimum wage in Shanghai has recently risen to 1,120 yuan per month [$164.20]. Guangdong province, including the center of China’s exports, the Pearl River Delta, currently has the highest hourly minimum wage, 9.9 yuan [$1.44), according to official media. Of course, in the welter of corruption surrounding all Chinese economic activity, it’s doubtful this writ extends to thousands of subcontractors, especially in low-priced garment and other labor-intensive manufacturing.

It has been argued that “the China price” is unassailable given the vast differences between labor costs in China and Western, Japanese and South Korean manufacturing. But that claim could now be jeopardized with some Japanese companies already looking to Vietnam and other South Asian alternative assembly sites.

Above and beyond the immediate issues, however, this new phenomenon questions whether Beijing can continue its half-pregnant love affair with capitalism. It is probably true, as some Chinese sources maintain that working conditions in Taiwanese and Japanese-owned industry were merciless. That would be a function of their more efficient management and worker discipline imported from their home-based manufacturing combined with abysmally low Chinese wages. But a social revolution has been taking place wherein migrant workers from the countryside are striving to become legal, permanent urban dwellers with equal rights and access to the limited benefits of the coastal economic boom.

Even some Chinese economists quietly have argued against the export-led strategy as discouraging the growth of domestic markets and indigenous research and development. They now may get more of a hearing. But any reorganization of the economy faces enormous difficulties and would threaten the regime’s political control.