Xi who must be obeyed (with apologies to The Economist)

The title of this post is directly stolen from The Economist which ran a cover story by this name a year or so ago. They themselves were punning the quote from here.

The much awaited China's People Congress ended today with the expected climax - the unveiling of the new Politburo Standing Committee ; the men who will run China for the next five years. More of this in just a little while. This ended a week of speechifying and staged events.

First, the two things that stood out during the days preceding the event today.  Xi Jinping opened the Congress with a speech lasting an incredible three and a half hours, reaching new heights of torture and boredom. It was a hugely self confident China strutting about as a world power, with Xi vigorously patting his own back. He outlined some of the directions for the next five years which were typically broad motherhoods, but gave some clues on where they are heading.

The most important outcome was the enshrining of "Xi Jinping Thought" in the Communist Party's Constitution. This is a peculiarly Chinese obsession. Their infatuation with obscure theories and doctrines knows no boundaries. "Mao Zedong Thought" was supposed to be the guiding doctrine of the Party - never mind that it is rubbish, the Party has long ditched many of that nonsense, etc etc. Then Deng Xiaoping "Practice" was enshrined into the Constitution after his death. At the end of their terms Jiang Zemin and Hu Jintao's "theories" were also included, but their names were not mentioned (such semantics are very important in China with those two acknowledging that they are a step behind the two taller and earlier leaders). Xi hasn't bothered with any such finesse. Halfway into his term he has enshrined his name and "Thought" - the implication being he is Mao's equivalent and even above Deng. A dangerous move almost Trumpesque is self aggrandisation. His "Thought" is mostly bland with lots of garbage , but who cares. These are political moves cloaked in ideology.

And then today, came the line of seven men who walked in, and that was how the world got to know about the new Standing Committee. Readers of this blog may recall that this blogger made a prediction in this post a month or so ago. I got one thing wrong - that Li Keqiang the Premier would be dropped and that Wang Qishan, Xi's right hand man would stay on beyond retirement age and would become the Premier. That didn't happen. The powerful Wang retired and Li has stayed on as the Premier. I predicted a 5 man Standing Committee reduced from 7 (that didn't happen) but also named the potential seven man Committee if it stayed at that number. I got that dead right, including the order of seniority - after Xi and Li came Li Zhanshu, Wang Yang, Wang Huning, Zhao Leji & Hang Zheng. I got real lucky !

Here is my take on the implications of what happened over the last week

- Xi is all powerful. That we knew of course.
- Xi has decided to not break all traditions and to preserve some of the norms and continuity. Hence the  retirement of Wang Qishan and the continuance of Li Keqiang.
- No successor to Xi has been named, as expected. This leaves Xi's options open. He can stay on as a power centre either formally or informally after his term ends in 5 years.
- The two possible successors Hu Chunhua and Chen Min'er are on trial. They have to earn the right to succeed over the next 5 years. But even after, they will probably have to be subservient to Xi.
- The Party is going to tighten the hold on China even more. Forget any liberalism, tolerance and such other "esoteric" concepts.
- China will be aggressive in world politics. The world simply has to learnt to adjust to that. America will be the county most affected. It will be on the losing end more often than not.
- Zhao Leji will be the new Wang Qishan. He will continue the anti corruption drive and Xi's political opponents will continue to be targeted.
- China is entering into dangerous territory of authoritarianism.  Chinese history shows  how much the entire country loses when such autocratic tyrants take charge - recent examples of Ci Xi and Mao are enough to illustrate this danger. There is every risk of Xi going the same way - generating sycophants, staying on too long, getting drunk on power and doing stupid things.
- The Deng Xiaoping era is finally over (that it lasted 25 years after his death is amazing by itself). Most of the safeguards he tried to institutionalize are slipping. The wisdom of Deng is being frittered away. In many ways, he is the loser from what has happened. China will learn to its cost, the implications of ignoring its wisest man in recent history.

Life returns back to normal in China. This blogger will not blog about Chinese politics for the foreseeable future. A parting thought however - watch out for Hu Chunhua, Chen Min'er, Zhao Leji, and of course, above all, Xi.

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China's new lineup

Anybody who predicts what the next Standing Committee and the Politburo will be is almost certain to be wrong ! This is why most newspaper columnists are content with naming possible candidates and leaving it at that. This blogger does not care if he is proved wrong or even as a fool. There are no consequences to getting it dead wrong. So here's my prediction what's going to happen !

There are only two near certainties in this political game. One is that Xi Jinping will continue as Secretary of the Communist Party, Chairman of the Central Military Commission and as the President. The second is that Zhang Dejiang, Yu Zengsheng, Liu Yunshan and Zhang Gaoli will retire from the Standing Committee . Everything else is up for grabs.

Two of the key moves that is the subject of much speculation is what will happen to Li Keqiang the current Premier (most views are that he will stay on as Premier) and that of Wang Qishan (Xi's ally in the anti corruption drive, but who is crossing the informal retirement age of 68).

My guess is that Li Keqiang will be pushed out and Wang Qishan will replace him as the Premier. This is not considered likely today and if it happens, will be radical and  unexpected. If it indeed does happen, it will indicate that Xi has taken total control of the Party. My reasoning is that Li has been a disappointment as  Premier  with his management of the economy, his key job. He will also carry the can for the stock market troubles of 2015. Li belongs to the Youth League faction which has been systematically defanged. There is precedence in China of the Premier being replaced - Li Peng giving way to Zhu Rongji in 1998. Wang Qishan , as we have seen in earlier posts, is the de facto No 2 in China today.  He is an expert on the economy and if he were to be appointed Premier, he will be Xi's trusted lieutenant in the soft landing of the economy that is a big imperative for China. This will mean Xi is bending the retirement rule - something I am guessing he will do as a strawman for his own options 5 years from now when he will face this retirement rule himself.

I think Li Zhanshu is a shoo in for the Standing Committee. He is currently the Director of the General Office of the Party and is a right hand man of Xi.  Stacking the Standing Committee with his people will be a primary objective of Xi.

There is a good chance that Wang Yang, currently Vice Premier will be elevated to the Standing Committee. He is not a Xi loyalist  and was potentially a candidate for the Standing Committee  even the last time around. He is however efficient and strong and has quelled his reformer (read political) instincts. He has kept his head low over the last five years and for sheer ability is likely to rise.

Another likely name is Wang Huning. He is currently the head of the central policy research office. A  non controversial choice who doesn't belong to any faction. A theoretician whom Xi seems to rely on and is often seen on Xi's overseas trips as an important adviser.

If Xi is in total control of the Party and has not needed to cut any deals, then this is the likely Standing Committee - cut down to five members . Xi Jinping, Wang Qishan, Li Zhanshu, Wang Yang and Wang Huning.

If Xi however decides to stay with a seven member standing committee, then the two additional names, would be as my guess, Zhao Leji and Han Zheng. Both are "senior" but not powerful and therefore likely to simply make up the numbers and duly nod their heads to anything Xi says.

If my prediction is even 75% right, then it is clear that Xi is all powerful. None of these members can be a potential successor to Xi and it will also indicate that Xi is preparing to stay on after 2022 as he hasn't groomed a successor unlike what his predecessors Jiang Zemin and Hu Jintao did.

 Just as important as who gets in, is who doesn't get in. The disappointed persons would be

- Li Keqiang, the current Premier. He would be the biggest casualty if he were to fall. If he doesn't get dropped, Xi is just being cautious not to make too many changes. Li's power will continue to wane and he will, at best be a bureaucrat continuing to run the economy. Real decisions will  made by Xi.

- Hu Chunhua, the current party chief of Guangdong. He is of the next generation and had been touted as a potential successor to Xi even five years ago. He has recently been making noises pledging loyalty to Xi.  His elevation to the Standing Committee will mean he is the clear front runner next time around. His non inclusion will be a strong signal that Xi intends to stay on even after 2022.

- Chen Min'er, current party chief of Chongqing. He was just brought in there to replace the disgraced Sun Zhengcai, a potential successor to Xi who fell in a power struggle. Chen is a staunch Xi loyalist. Its unlikely that he would be nominated, but if he were, it would be a clear signal that he would take over from Xi at least nominally in 2022, while Xi holds real power from the backroom.

A team like the one I have predicted will mean the following for China

- Xi Jinping is all powerful. He will start to acquire Mao like cult status. It is only hoped that he wouldn't unleash horrors on the country as Mao did.

- The Party will become even more ruthless in suppressing dissent. Personal freedoms will be even more curtailed and censorship will worsen.

- The economy will be managed efficiently. Economic troubles will come but they will be managed as best as could be.

- On foreign policy China will become increasingly belligerent and muscular.  They will be difficult to deal with diplomatically and might pick up fights with other countries. The current US administration will constantly lose on anything they pick up with China.

- The anti corruption drive and the defanging of political opponents will intensify. Xi might however face a challenge when Jiang Zemin dies. Major political activity tends to happen when somebody important dies.  The two major upheavals in China happened in 1976 after Zhou Enlai died and more famously in 1989 when Hu Yaobang died which led to the Tiananmen incidents. Jiang is nowhere near as liked as Zhou or Hu were, but it may be a trigger for old timers and those who had lost out in the Xi era to maybe flex their muscles.

- Xi will stay on post 2022 and will be the main power for at least another decade. He will install one of his men as the General Secretary, but will stay on as the Chairman of the CMC and wield real power. He may even be appointed Chairman of the Party, a post that was abolished after Mao.

How wrong I am would be revealed in the days after October 18th when the line of 5 or 7, which I alluded to in the first sentence of this series of posts will walk in and be introduced.  Even if I am 50% right, I will lay claim to being a "Zhōng guó tōng" (China expert) !

Enough of politics. This blog will go back to plodding on business and economic matters. It will return briefly to China and politics when the actual line up is announced in end October.

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China's Issues

Every country faces challenges and China is no exception. But by global yardsticks, China's issues are less critical than what most other countries face.  It is after all the one country in the world which does not face a serious growth challenge (at least as of now).  China is however such a large country that even a seemingly minor issue is of gigantic scale and one that will affect the whole world. This is why everybody in the world ought to take a much greater interest in this country.

This post is a compendium of social, political, economic and moral issues that China faces at this point of time, in no particular order

Maintaining GDP Growth : The "contract" between the Communist Party and the people is a simple one - Economic growth for political control. When economic growth falters, this contract will be put under strain. There are a number of challenges to maintaining economic growth and some of them are articulated below. You can't grow endlessly at 8%+. The inflexion point has come.

Quantum of Debt  : China's debt to GDP ratio is galloping and is now above 300%. Much of the growth over the last decade has been debt fuelled. Growth will seriously falter if debt is cut. That's why the elusive "soft landing" is proving so difficult for China. Just for comparison, India's debt to GDP %, which I often cry about is "only" 130%. The United States, of course is a leader at 350% !

Income inequality : Every country faces this problem, but China faces it as bad as the US. The Gini coefficient, a measure of income inequality is 0.42 (higher the number, greater the inequality). The US is 0.46. India is 0.35. China is starting to have first world problems

Ageing population : Because of the one child policy that was rigidly enforced until recently, China is rapidly ageing. It will be the first country in history to have an ageing problem before it got rich (remember, on a per capita basis, China is still middling). With a poor social security network, who is going to pay for the aged and take care of them in a decade or two. China has the peculiar problem of one grandchild for four grandparents.

Corruption : We have spoken of it in previous posts. It is a serious problem.

Environment : China faces an acute environmental problem. The government is actively tackling it, but the problem is a huge one and one that was allowed to build up to crisis levels over decades. China also faces an acute water problem (worse than India's). There aren't easy solutions. Much of the north is virtually a desert, but with teeming populations.

Restive provinces : The one thing China is absolutely terrible at is integrating people who are culturally different. 93% of China is a homogeneous Han (those who talk about diversity in China have no clue what diversity really means - come to India).  The two largest provinces Tibet and Xinjiang are restive and brutally suppressed

Rising nationalism : Very few Chinese would recognise this as an issue, but it really is. Anti foreigner sentiment is high - its easy for a large number of Chinese to be fanatically against a nation if whipped into a frenzy of perceived slights. The Chinese government is increasingly bullying in its approach - Japan (Senkaku), entire East Asia (Nine dash line), India (Doklam and Arunachal). The average citizen who only has access to government propaganda gets whipped into dangerous nationalism. The Chinese would do well to ponder over this - why do they have so few friends ?

A moral vacuum : To an outsider, this might seem to be a strange issue, but many Chinese would immediately relate to it. Firstly during the Cultural Revolution and then in the breakneck speed of economic growth, its ancient culture, beliefs and traditions have gone. Today money is the predominant (only) religion.  In other countries, religious and  social organisations provide a balance to the materialism. In China they do not exist, or if they rise, are brutally exterminated by the government (see what happened to Falun Gong). So many Chinese wonder - after money what? And they may then turn their attention to demanding a level of freedom not in consonance with what the party is comfortable with.

And so this is the real major issue that China has faced since the mid 1980s and continues to face now. What is the balance between economic freedom and growth and political and other freedoms. The first flare up came when Zhou Enlai died in 1976. The second major flare up came during the Tiananmen incident in 1989. Since then there has been an uneasy truce, but one which has never gone away. Some day it will rear its head again. How China confronts it, and who is in power in China to confront it, will have tremendous consequences for the world. 

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Politics and the average Chinese

The man in the street simply does not care ! At least politically !!

In a country of 1.2 billion, such a sweeping  statement is an outrageous generalisation. But it is broadly true. The average Chinese does not care because (a) what is the real choice (b) she has very little access to information that is even remotely political in nature and (c) she doesn't seem to be hugely interested anyway

And this is despite a startling fact; the country with the maximum number of protests from citizens is actually China ! On any given day, there are probably 800 odd protests happening throughout China. If there is such vigorous activity, how come the assertion that the average Joe (Mrs Li) doesn't care ?

Two sweeping statements can be made about the average Chinese's views (a) she believes (and it does not matter where or who she is) that the local government is utterly corrupt and inefficient

and (b) she believes that the central leaders in Beijing are extremely efficient, working hard for the country, are the best humans on earth and if only they knew of their specific problem, it would be instantly fixed.

All the protests are predominantly on local issues, and mostly against land grabs by local officials. It is therefore mainly economic in nature, not political. There are simply no political protests of any sort.

A major issue in China is that public opinion is greatly hampered because of virtually no access to true political information. The following is the information environment in which the average Chinese lives

- There are no independent newspapers at all. Foreign newspapers are mostly not available.

- There is only government TV . No foreign channels, except in top end hotels. Even those are censored - can you believe that CNN's broadcast to China is routed through a Chinese government controlled satellite !

- All films are subject to censorship. Foreign films are severely limited in number and if you have anything remotely political in your film, fat chance of being cleared. Ditto books. Ditto music. Pirated DVDs are freely available but then the market is mostly for sexually explicit stuff rather than political content.

- The Great Firewall of China, behind which the internet sits in a parallel universe, is one of the most remarkable operations of all. The Hall of Fame of sites that are completely banned and inaccessible from China includes Facebook, Twitter, YouTube, Google plus, Maps, Docs, Picasa, Dropbox, Flickr, ..... I can keep going. Every one of these have local equivalents which are of course severely censored by the authorities

- The Chinese are avid users of social media, but only on domestic providers. These are hugely monitored by armies of machines, men and software. Every offending post is deleted . If you realise that there are half a billion internet users in China and they are as active as anybody in online activities, you can imagine the scale at which censorship takes place.

Consequently, the average Chinese is poorly informed on political matters and therefore has limited and not fully informed views. In any social gathering in the West (even more so in India), the conversation will turn political. Not so in China.  Mao has been glorified as "70% right" - very few of the younger generation know anything about the horrors of the Great Leap Forward and the Cultural Revolution. The Tiananmen incidents of 1989 have been airbrushed from history - when I lived in China I was amazed that my colleagues knew virtually nothing about what happened.

The sum total of all this is that public opinion in China is less intense and formed than in virtually any other country. Therefore the Party and the government are under less pressure than anywhere else. You see, the true check on any government in any country is not judiciary , or the constitutional checks and balances - it is really public opinion  represented by the media. In China, that check does not exist. The Chinese have made a pact with the Party - give us continuous economic advancement and we won't care about the politics. Thus far, that pact has held good.

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Who's who in Chinese politics

Xi Jinping, the current Chinese leader is easily the most powerful leader that China has had ever since Deng Xiaoping faded away in the early 90s. But in order to understand his power, we have to go back a bit in time in modern Chinese history.

Mao was a tyrant and supremely powerful in China and until his death, he was simply the sole power centre. But that degree of concentration of power resulted in chaos in China - the Great Leap Forward and the Cultural Revolution being two big disasters. When he died, the elders decided that no single person should ever be allowed to accumulate such power. Deng Xiaoping became the preeminent leader, but there was a rival power centre in Chen Yun and to a lesser extent in Li Xiannian. Multiple purges later,  Jiang Zemin was appointed the Secretary of the Communist Party immediately after the infamous Tiananmen incident in 1989.

Jiang accumulated a fair degree of power, but was never all powerful. He led the party out of the post Tiananmen crisis and then earned his own notoriety by the brutal suppression, and virtual extermination, of  Falun Gong - a cult loosely based on mysticism, but which was feared by the Party as a political movement. By the norms set by Deng, which he followed and reinforced,  he stepped down after some 12 years as the Secretary of the Party and handed over to Hu Jintao, who was handpicked by Deng himself before his death. However, Jiang continued to remain the Chairman of the Central Military Commission and therefore in his first term Hu really did not have much power and had to constantly "handle" Jiang. Jiang continues to remain a power centre and is the leader of the Shanghai faction. However he is getting old (he's past 90) and his power is fading, helped along by Xi's efforts to undermine this faction.

Hu Jintao is a colourless and plodding leader, who even while he was the Secretary of the Party, was never a charismatic leader. His hold on power was weaker. When he handed over the reins to Xi Jinping, he quit all his formal roles. He leads the Youth League, another faction, but is not a powerful leader.

Xi Jinping comes from a group called the "princelings" - their fathers were revolutionary leaders in the Mao era and their positions, at least to some measure, is owed to their parentage. When Xi took over, he swiftly started to consolidate his power with a massive anti corruption drive, the likes of which China has never seen.

Ostensibly Xi was tackling one of the greatest scourges of China - corruption. The scale of corruption in China is simply unbelievable. Nowhere has mankind seen anything like this. It is all pervasive . I won't say anything more - I still wish to travel to China !! Let me just say that whatever you think is the level of corruption in China, the reality is probably tenfold worse. It is an existential threat to the Party.  Therefore tackling corruption was a popular thing to do.

But the anti corruption drive was also a big consolidation of power by Xi. It was positioned as catching "tigers and flies" - both the small fry as well as the really powerful.  Unsurprisingly, the people targeted the most were political opponents. More than 100,000 flies have been indicted, but more importantly so have nearly 200 tigers. This includes some 100 senior people in the military including two former Vice Chairmen of the Central Military Commission (the equivalent would be Defence Secretary and the Joint Chiefs of Staff in the US military being purged). The biggest tiger of all who was jailed is clearly Zhou Yongkang, a past member of the Standing Committee. Such a thing is simply not done in Chinese politics - the upper echelon of the Communist Party was thought untouchable.

Xi's main ally who has carried out the anti corruption drive is Wang Qishan, a current member of the Standing Committee and 6th in the formal order of seniority. But clearly the real no 2 in China is Wang Qishan. He is a star economic leader in China - having held a number of economic portfolios in the past. But for the last 5 years he has been Xi's enforcer in the anti corruption drive. Crucially he is 69 and by the tenets of the unofficial retirement policy, he should retire in October. All the rumours swirling around China are that Xi will keep him. 

The formal No 2 is the Premier Li Keqiang. His job is to run the economy and the general consensus is that he has not been successful. His power base is small and he belongs to the Youth League faction of Hu Jintao. In fact at the time of Xi's succession it was rumoured that Hu actually wanted Li to succeed him and not Xi. Li is only 62 and can continue as Premier for one more term.  This blogger has a view (wild guess) as to what might happen to both Wang Qishan and Li Keqiang and he will boldly articulate a prediction in a subsequent post !

Two other names need mention. When Xi and Li were appointed, there was also speculation as to who would succeed them in 10 years time (the next generation of leaders). Two names were mentioned - Hu Chunhua and Sun Zhengcai. Both were included in the politburo last time around and given important positions. Just two months ago, Sun Zhengcai was summarily replaced and an anti corruption investigation started against him. Clearly he lost out in a power struggle.

How do the Chinese themselves view all this ? You may be surprised ! Watch out for the next post.

PS - Chinese names are not easy to pronounce to Western tongues. Here is an approximation

Mao Zedong - Mao Tze Dhong

Deng Xiaoping - Dhung Hsiao Ping

Jiang Zemin - Jiang Tze Min

Hu Jintao - As written

Xi Jinping - Hsi Jin Ping

Li Keqiang - Li Khe Chiang

Wang Qishan - Waang Chi Shaan

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This blog turns to politics

On October 18th, or immediately thereafter, a small line of people will walk in  into the Great Hall of the People in Tiananmen Square. That will be the new Standing Committee headed by Xi Jinping. And at that time the world shall know what has happened to the "elections" in China. The stunning fact is that very few people in the world seem to even know about one of the most momentous events in world politics. Very little has been written about it in the world press and almost nothing has made it to TV. Not even the significant Beidaihe retreat that happened in August.

All this at a time when many people in the world seem addicted to the nonsense that a certain person spews sitting on his toilet seat.  The lack of interest in what is happening in China is, to this blogger, unbelievable. Perhaps unfamiliarity is the reason. And hence this blogger is breaking his vow to keep this blog completely apolitical and is launching into a series of posts on what is happening in China.

I begin with a small primer on the current Chinese political system. The Communist Party of China (CPC) is the apex body in China. The government is subservient to the Party. Even the People's Liberation Army is not the army of China; its the army of the Party. Therefore what happens in the Party is of prime (only) importance in the politics of China.

The apex decision making body in the CPC is the Politburo, currently consisting of 25 members. Consider it as the Cabinet. From amongst these, an elite group forms the Standing Committee of the Politburo. Currently it has 7 members. This is the all powerful body.

When Mao Zedong established the Party, and for as long as he ruled China, all these institutions were irrelevant. Mao was the sole power centre. But when he died and the dangers of concentrating so much power in one man became apparent, the party elders led by Deng Xiaoping, established some rules and norms  for the politics of the future. Thus far they have been adhered to. They are

The principle of retirement . The unofficial term is "qishang baxia" or "Seven up; Eight down". The unwritten rule is that if you reach 68 at the CPC Congress meeting  which is held once every five years (think of it as election year), you step down and retire. 5 of the 7 members of the Standing Committee  and 11 of the 25 members of the Politburo have crossed 68.

• The General Secretary and the Premier usually serve for two terms - 10 years - and then stand down. The current incumbents are finishing their first term and can therefore continue for one more term.

• An all powerful single power centre , a la Mao, was never allowed to happen post his death. Even Deng was not all powerful - he had an equivalent power centre in Chen Yun. Factions  abound ; the Shanghai faction, the Youth League, etc. These factions and their powerful overlords jockey for power behind closed doors. Retired leaders don't keep quiet - they exercise power by placing their underlings on these bodies.
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• The norm in China is for leadership changes to happen with great turmoil, purges and the like. Only two peaceful transitions have ever happened - the handover from Jiang Zemin to Hu Jintao and from Hu Jintao to Xi Jinping. Even the transition from Hu Jintao saw the dramatic fall and subsequent imprisonment of Bo Xilai.
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• There are three powerful positions in China - The President of China (a mere titular position), the Secretary of the Communist Party (the real powerful position) and the chairmanship of the Central Military Commission that governs the armed forces. Currently all these three positions are held by  Xi Jinping. That was the case with Jiang Zemin and Hu Jintao as well, but in the Deng era, he was simply the Chairman of the CMC and the other positions were held by his chosen people. A fourth, and less powerful position is that of the Premier - currently held by Li Keqiang and is the No 2 position in China.
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• Every year in the summer, the power brokers in China retire to a coastal town called Beidaihe , where all the skullduggery, bargaining and negotiations happen. Each faction tries to get its people on to the Politburo and the Standing Committee. Usually most of the big decisions are made here on the beach behind thick closed doors. This is the real "election" in China. The Beidaihe meeting happened last month and this blogger is mystified that not only have there been very little leaks, there has been scant reporting in the press as well. Next to the US elections, this is the most important political activity in the world. And we don't hear even a squeak.
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• In the last two peaceful transitions, at the end of the first of the two terms of the incumbent leaders, the top of the subsequent generation is usually nominated to the Standing Committee. This gives the clue as to who would subsequently take over as leaders. If the past 20 years is a guide, then this should happen in the current change and the successor to Xi Jinping who would take over 5 years from now, would at least be indicated. But as we would see in subsequent posts, there is a good chance that this won't happen.
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In the next post, we will assess the current political landscape and who are the power brokers in China.

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The tortoise may overtake the hare

Sometime in 2015, or more likely 2016, or maybe 2017, India will overtake China as the fastest growing large economy in the world.  It could potentially be a historic moment, for India and the world. The opportunity is India's to grasp, or equally likely, drop.

China's economy is slowing. Its GDP growth for 2014 (announced in an incredible 19 days after the year end) was 7.4 %. For the first time in 30 years, its GDP growth is below its own target of 7.5%. China's statistics are to be taken with a pinch of salt. Apart from the gargantuan task of measuring GDP for such a large country and number of people, its numbers are also, let us say, "approved" by the Communist Party. It was very likely that in the heady days, for a long period, China actually under reported its GDP. Growth was at such a frenetic pace that the Party was doing all it can to dampen the numbers. Now, its quite likely that the announced 7.4% is probably a tad overreported.  China's is a huge economy. Growing at that breakneck speed is no longer possible. The economy is slowing. Make no mistake; the growth rate , for its size, is still stunning, but the inevitable slowdown is starting. China is starting to slowly transform into a more mature economy.

Enter India. Its financial year ends in March and for 2014-15 and for the first three quarters it grew by 5.3%. That is still a full 2% below China's. But the trajectory is upwards. The World Bank last week estimated that India's growth rate would overtake China's in 2017. Goldamn Sachs estimates that it will happen in 2016. The IMF has just announced that it expects that to happen in 2015 itself. It is estimating India will grow by 6.5% and China by 6.3 %. We shall see.

Maybe, just maybe,  India's time in the sun is about to come. It has a strong government which is betting on development as the plank for reelection. It has a young and large work force. It is a slow elephant prone to many stumbles and disappointments in the past and could flatter to deceive again. But something tells me that this time India may actually do well. If there is a sustained period for say 10 years, when India is the fastest growing large economy, it will have profound consequences both for the country and for the world. 

For Indians, it may be the chance, finally, to start winning on "Garibi Hatao" (eliminate poverty).  For the world, somebody must take China's place in leading global growth. India is the natural, and preferred choice. Geopolitically, a rising India will also contribute to a multipolar world and manage the "risks" of the China ascendancy. Just as China's rise from the 1990s transformed the world, the same could happen all over again with India.

Wishful thinking ?? Maybe. But for reasons this blogger cannot explain, this time, it looks different. Its India's turn to "win the World Cup". It's cricketing fortunes may be on the wane but its economic fortunes couldn't be better.  The first step will be on February 28th when the first real budget of the BJP government is presented. If its a cracker, then that might be the start of India's ascent.

It may be the best time to be an Indian.

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Oh No, you too China ?

The United States believes, sometimes, that it is so unique that it exists in Planet HIP 116454b (discovered yesterday). Some of its laws and practices are completely unintelligible to other members of the species Homo Sapiens. Chief amongst them is its laws relating to guns. A lesser dramatic field is the one on taxing global incomes of Americans (and now even green card holders). This blogger railed about it in the past here.

Now it appears that the Americans are no longer alone in Planet HIP 116454b, at least in regard to the taxation law. The Chinese are also joining them there.

World over, the principle of taxing income is that you pay income tax in the country where you live and not in the country you are a citizen of. So, if you are an expatriate living in another country, you pay taxes in that country of residence. This seems reasonable. You utilise the services of the state where you live - infrastructure, police, defence, healthcare, etc etc. It is therefore only right that you pay taxes to enjoy those facilities.

America believes differently. It believes that you pay taxes where you live (it can do precious little about that) AND pay taxes in America. To control and monitor this, America has enacted the draconian FATCA, which can be considered reasonable only in Planet 116454b.

Now China is proposing to engage in the same stupidity. Actually , it appears the law was always like that in China, except that it just wasn't enforced. Considering that the "law" in China is not what is enforced by the judiciary, but what is the prevailing interpretation of the Communist Party, this in reality is a change in the law. They are going down the same path as the Americans - demanding that other countries hand over information relating to their citizens, and starting to hound them with Ramamrithamesque legislation.

It actually is quite stupid of China to be trying this. The wealthy Chinese who are emigrating abroad all want to give up their Chinese passport as fast as possible and become citizens of America or Australia or wherever. The majority of their overseas citizens who will be affected are the poor migrant workers working in Lesotho or Burkina Faso building roads or constructing buildings. If the attempt is to get at local Chinese stashing their wealth abroad (of which there are plenty), they can already do that and in any case this move is not targeted at those who are Chinese residents anyway.

A real danger is that our own home grown Ramamritham is eyeing all these moves with undisguised glee. Its probably a matter of time (next budget ?) that he will make a similar move. This blogger is least affected - he lives in India and pays his taxes here anyway. It is his overseas friends , who are readers of this blog and have retained their Indian citizenship, who must start to quake in their boots.

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Oink Oink; I am taking over the world

What do you think the purpose of agriculture is ? To feed people, right ? Wrong ! The purpose of agriculture is to feed pigs. Very shortly more than half the crops grown in the world will be used to feed pigs. This was the astounding revelation I read in The Economist here.

The problem is  China.  The staple diet of the Chinese is not rice or wheat – it is pork.  Pork is eaten in astounding quantities, every day, every meal.  In India, governments fall over the price of onions, in China they will fall over the price of pork. So much so that the Consumer Price Index is jokingly referred to as the Consumer Pork Index !

The Economist article throws out mind boggling implications of this Chinese fixation with eating a pig. The Amazon rainforest  is being cleared in Brazil to grow soya to feed Chinese pigs. The Chinese are buying up land all over Africa and Latin America, not to feed their people , but to feed their pigs. One of the biggest source of water and soil pollution in China is pig waste. One fifth of the emissions produced in the world is from livestock and the biggest contributors to this are American cows and Chinese pigs, through their flatulence of all things. Pig farming has become so intense in China that they are like factories – pigs are born and live all their life in metal pens, they never see sunlight, they are all artificially bred, they are given antibiotics with every feed , they are fattened beyond their natural size and they are killed as soon as they become big. Because of the routine dosing of antibiotics, they are also one of the sources for the emergence of antibiotic resistant bacteria.

The Chinese government is so obsessed with pork prices that it appears to be having a “pig bank” to stabilize pork prices. This comprises both of pork and live animals. Presumably the live  animals form the porcine wing  of the Communist Party.  They also have to subsidise pork production – by an astounding $22bn in 2012 , it appears.

There is little chance of turning the Chinese into vegetarians. They don’t even have a word for vegetarianism in Mandarin – this blogger knows to his cost !!  Their gobbling up of pigs is only bound to increase. Hollywood should forget about movies such as The Zombie Apocalypse. Instead, they should try The Porcine Apocalypse !!

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China , Taiwan - Not same same

If you are a Taiwanese company boss or worker , currently working in Vietnam, you deserve much sympathy and can be excused if you are bawling loudly. How unfair can the word get.

The background is this. China (Mainland China , that is) has been sabre rattling in the South China Sea and picking up a fight with every other country for the last two years now. In typical bully fashion, it is claiming almost the entire South China Sea as its own and pissing off Japan, South Korea, Taiwan, the Philippines, Vietnam and God knows who else. Every so often it does a provocative act - the latest was that it started drilling in waters claimed by Vietnam.

The reaction from Vietnam was unexpectedly massive. Vietnam is also a Communist Party driven totalitarian state and nothing happens without government sanction. In a country that allows no dissent,  it allowed protests, including street protests against China. That triggered a mob response. Chinese factories in Vietnam were attacked, Chinese workers were assaulted and an orgy of looting has happened.

Wait a minute. Now where does Taiwan fit into this. The problem is that many "Chinese" factories in Vietnam are actually Taiwanese. The average Joe (or Nguyen) on the street can't differentiate between a mainland Chinese and a Taiwanese. So Taiwanese factories have been torched. Poor guys - they are pissed off at China's action too, but are instead getting targeted.

This is a world over problem of the average Joe being geographically and culturally challenged. Sikhs being mistaken for Muslims and attacked is an occasional occurrence in the US of A. Closer home, for a number of people , every South Indian is a Madrasi. And 99.9% of Indians can't differentiate a Naga from a Manipuri or a Khasi from a Bodo - so everybody is a "chinkie" - the worst insult to our brothers and sisters from the North East is the ignorant bumpkin asking them if they are Chinese or Indian.

In this globalised world, this sort of lack of awareness is just unacceptable. In the old days, when you pretty much lived in one place and met the same set of people, it just didn't matter. Now in a globalised world blissful ignorance is a recipe for disasters of the Vietnamese kind.

The responsibility is two fold. The locals need to make a special effort to understand and appreciate the cultures of the "foreigners" living amongst them. Equally the new comer should make an extra attempt to learn and appreciate the land he has come to and not live in the metaphorical ghetto. We are privileged to live in an era where  both travel and communication is possible on an unprecedented scale. Sitting on our bums, we can appreciate and gain from the fantastic diversity in cultures in the world. Diversity is a great boon to the human race - if we were all exactly the same, the race would have been wiped out long ago.

So, here's my plea to Nguyen. Invite Hsi from Taiwan and Xi from the mainland to your home. And go to the factory and stay with them to tell them that you would protect them when there is trouble, By all means, march to the Chinese embassy and protest for all you want if you don't like China's action. But go to China's embassy. Not Taiwan's.

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Huānyíng guānglín

China exports far more than it imports. Everybody knows that.  Oversimplified , the difference between goods and services exports and goods and services imports is called the Current Account balance. It can be a surplus or a deficit. China has seen a surplus for a long time. India has seen a deficit for a long time.

China's current account surplus reached a high of 10% of GDP in 2007. Under normal circumstances if such a chronic situation existed, the currency would rise making imports cheaper and exports costlier leading to an equilibrium. But China was controlling exchange rates, which led to massive imbalances in the world economy.  The US led the chorus terming China a currency manipulator. In any case, such huge imbalances affected the global economy in all sorts of ways.

What to do about the problem ?

Well, the problem has started to be solved by itself, in a way few would have anticipated . China's current account surplus has fallen to 2% of GDP.  What on earth has happened ?

China's surplus in goods continues to be vast. It continues to export merrily way above what it imports. What has depressed the surplus, however is that it now runs a huge deficit in services. Put together, the net surplus is now low enough not to be a burning issue.

How has a huge deficit in services been built up - at $122 bn, it is the largest deficit in the world (after all everything in China comes in gigantic proportions). Just one component contributed to  $ 80 bn of this $ 122 bn. Tourism with a capital T.

In 2007, China faced a surplus in tourism as well - more people visited China than Chinese visiting the world. In 2013, that has completely turned topsy turvy. Millions of Wangs and Lis are packing their bags and touring overseas. They exchange their yuan for dollars to spend. They are, in effect "importing a tourist experience". Hence this massive deficit !

The "solution" to trade imbalances that threatened the world is simple. Here's a neat solution for the US, which could be copied by virtually every country. Abolish the need for visas for Chinese to visit your country. Welcome them with open arms. Put up Chinese name boards, direction signs, everywhere. Train everybody in the tourism industry to speak Chinese. Open a million Chinese restaurants. Serve chicken feet for breakfast. Set up gambling resorts purely for foreigners if you don't want to corrupt the locals (the Chinese love to gamble; that's why Macau is many times bigger than Las Vegas now). Open  MSNBC Chinese and FOX Chinese (Yuk) ! Get P. Diddy to rap in Chinese. Get Ryanair and Southwest Airlines to fly to mainland China. Etc Etc Etc. Actually, the US government needs to do nothing - all this will happen anyway.

It will solve many problems. The trade imbalances will disappear. A huge spending boost will come to the US. Every teen star from Justin Bieber to Selena Gomez will add 100 million more fans. If American style democracy is indeed good for the world (a highly debatable hypothesis, but we shall let that pass), then exposing millions of Chinese to "freedom" (NSA notwithstanding), can only be to the good. Preet Bharara can turn to suing Chinese for violating sacred American laws by spitting.  A win win, if there ever was one. Or Wang Wang, if you prefer !

By the way, if you are wondering what the title of this post is, it is simply "Welcome" .

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China's debt problem

If you have seen, or heard about, China's wonderful infrastructure, have you wondered where the money is coming to finance all this ?  The laws of economics apply equally to China, as to the rest of the world. There is no free lunch. So where is the money really coming from ? This is a complicated question ; China's economic model is not easy to grasp for any outsider, but perhaps we can take a peek at it.

Infrastructure spending is not necessarily a profitable business - returns to investors are meagre from roads, railways, etc etc. In China, as in most countries, the government is the one that invests in, and builds infrastructure.  Since 1980, China has been growing at double digit rates. That growth resulted in big increases in tax revenues to the government. Chinese are also a nation of big savers. With growing incomes, came growing savings which were all vacuumed into the state banking system. The government spent a lot of it on infrastructure - banks are all under government control anyway and they were told to lend to industry and infrastructure. Since all land is owned by the government and since land prices rocketed, governments made huge money leasing land to the private sector. All in all a massive party, if you'll pardon the pun.

Came 2008 and the global financial crisis. China being an economy that relied heavily on exports, the effect was instantaneous. However, China could not afford to slow down; the political legitimacy of the Communist Party is predicated on continuing high growth and economic prosperity. So it turned the tap on investment - banks were told to lend, no matter what and growth rates continued to be high. Cities built shiny buildings, huge metros, big highways, added manufacturing capacity etc etc much of which is underutilised and certainly not providing decent economic returns. If you invest with little or no return, some day or the other you have to pay the bill.

Now the chickens are coming home to roost. China suffers from the same problem as India - the central government is largely fiscally prudent, but state and local governments indulge in the worst form of profligacy. Out came the data a few days ago that China's local public debt has exploded from very little to US$ 3 trillion - 58% of China's GDP. Since 2008, 80% of bank lending has been to local governments. And much of this money has gone into spending that will generate no return. While 58% of GDP is itself not a very high figure and much lower than say US or Japan, the rate of growth in debt is staggering (70% in 3 years) and if it continues like this, it will reach unsustainable levels.

China has a debt problem. The Chinese government knows this very well and a year or so ago forced banks to contract lending.  The impact on growth was immediate - it alarmed the government and they turned the tap on again.  A few weeks ago, China faced a short term liquidity crisis and the central bank was forced to pump cash into the economy.

The world will watch China's actions carefully. They will fiddle with the tap turning it on and off and adjusting the flow to check the growth in public debt and at the same time not let economic growth go down too much. This is an inexact science and to manage this at a national level, and that too for the second largest economy in the world, is extremely tough to do. If they get it wrong, the consequences will not be just economic - given China's system,  it will be political as well.

Longer term, the cliche of an investment led economy turning to a consumption led economy is the medicine economists prescribe for China. Easy to prescribe, not easy to administer. Unlike in say India, where political legitimacy is not dependant on macroeconomics, in China it is. If the economy wobbles, so will China's Communist Party. Any political turbulence in China will be painful, not just for China, but for the whole world.

I know economics is a dull and boring subject, but watching what China does and what the outcome is, will be fascinating if you are interested in such things. China is not a gold mine anymore. There are significant risks to the global economy from China. The party may not be coming to an end, but the music is sounding a bit off key and not so loud at the moment. Funny, you could also say that about the Communist Party.

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When two arrogant heavyweights meet

In the blue corner - the gigantic gorllia, sometimes the most valuable company in the world. The inventor of the smartphone and the giant who believes that you can have any colour you want as long as it is black or white. Yes it makes a great product, but then behaves like a monopolist - sets prices , forces you and carriers, charges an absolute bomb and snubs India, launching its product whenever it likes, a few million years after launching in the US.  Meet Apple Inc.

In the red corner, the largest telecom carrier in the world. Has a mere 750 million subscribers. Cares two hoots about anybody anywhere, so much so that it has a proprietary system for 3G which nobody else in the world uses. Tells every body in the telecom ecosystem to grovel on bended knees before even coming to visit. Has the almighty Chinese government at its back; so it can basically do whatever it wants. Meet China Mobile.

In the middle is the Chinese consumer who is absolutely nuts. He and she own a zillion mobile phones. They are constantly at it; so much so that Homo Sapiens Chinesensis has evolved a neck at a 15% angle to the rest of the body so that the being can see the phone better. Loves the iPhone, loves every other company phone, has a million ripoffs as choice and spends  89.4% of waking hours fiddling with the phone - the rest 10.6% spent in the Karoake bar, popularly called KTV ! It also helps that the aforesaid species has tons of cash in the pocket.

Until now the two beasts circled each other warily, but never really wanted to get into the wrestling ring together. Apple was basically selling whatever it was producing and didn't care about China Mobile. China Mobile was busy recruiting the entire Chinese population and didn't care about any phone manufacturer. End result was that iPhones couldn't be used on the China Mobile network, atleast on 3G and no self respecting Chinese would be seen dead on 2G.

Things have however changed for both the giants. Apple has seen Samsung overtake it as the largest smartphone maker. Apple increasingly can't sit back after launching an iPhone model and simply count the cash . So much so that  it had to descend from its lofty heights and condescend to launch the iPhone 5S in India, a mere two months after launching it elsewhere (fly a kite Apple; I am not buying your product anymore). The hope for salvation  is the largest market in the world, China - where Apple has a miserable 6% market share.

China Mobile has two "tiny" competitors - China Telecom and China Unicom who adopt the global standard for 3G and have been offering iPhones for years. These pygmy upstarts have "only" 450m subscribers.  China Mobile's profits are falling and it is absolutely pissed off that Chinese kiddos, besotted with iPhones are ditching it despite getting Mao Zedong to order them not to from his grave !

Now the two giants have shed a bit of their arrogance and have  done a deal. Tim Cook actually flew to Beijing instead of the usual practice of asking every telecom company chief to stand outside his door and recite Gayatri Mantra 1008 times before coming in. China Mobile have actually welcomed him into their sanctum sanctorum, thus far reserved for only Xi Jinping and Li Keqiang. Terms of the deal have not been disclosed but it appears that China Mobile's 4G standards will be something that iPhones will be compatible with and hence China Mobile will now offer iPhones to its customers.

We'll have to wait for full details of the deal to judge which of the two heavyweights had to shed their arrogance more.  But is nice to see two beasts eating a little bit of humble pie. Especially since I can sit on the sidelines and hoot derisively having no truck with either. It's three and a half years since I escaped from the clutches of China Mobile. And yes, I know I said this in a  long ago post in Preeti's blog, but I am hoping that readers have short memories and will not hold this against me !

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Blimey ; what a spectacular trade deal

The sight of David Cameron, prostrating himself flat at the feet of the Chinese "emperors" is a beautiful reminder of the state of affairs of the British Empire. To understand the context, about a year or so ago, David Cameron had the temerity to meet with the Dalai Lama. Now anybody who even smiles at the Dalai Lama is a pariah  as far as the Chinese government is concerned. David Cameron committed the unpardonable sin of actually shaking His Holiness's hand. China promptly condemned UK to the doghouse - no meetings, no trade deals, no investments, etc etc. For one year, the naughty schoolboy was made to stand outside the class.  After a year of punishment, he has been allowed inside again.

Promptly the Rt Hon'ble Prime Minister has taken a big delegation and gone straight to Beijing, to do Shashtang Namaskar (Indian way of prostrating at one's feet). It is as yet unclear as to whether he did "Abhivadiye" as well :) No less than 130 other luminaries accompanied the Prime Minister , no doubt to clinch innumerable trade deals (rumours to the effect that they have gone there to sample Peking Duck are strictly untrue).

I have been scouring the newspapers as to what sort of trade deals these worthy leaders of the British Empire have struck. Only one real deal has been reported so far. Britain will now be able to export pig semen to China.

Until now, Britain was unable to export pig semen to China, because apparently Chinese sows had concluded that their would be British  suitors, er, rather smelled. China did not want its dainty damsel sows, "polluted" by laowais.. The British Prime Minister and his 130 strong entourage succeeded, after marathon negotiations, to convince the Chinese that British pigs did not smell. The clincher was achieved when it was pointed out that suitors would not travel to China, but instead, er, only the manifestation of their manhood, would .

Animal Rights activists perhaps protested that it was unfair that Romeos and Juliets were not allowed to coo sweet nothings personally, before being asked to maximise "production". Such protests were firmly quelched - on the Chinese side, by rounding up the entire lot and sending them to the 114th People's Prison in Hohhot, Inner Mongolia, and on the British side by Sir Humphrey Appleby proclaiming that for services to country and Her Majesty, the aforesaid love deprived pigs would be awarded the Order of the Thistle and Garter (2nd grade).

It is  well known in knowledgeable circles the the male species amongst China's various living organisms are rather less well endowed than their counterparts from the West. Now it has been expertly opined that British pigs were capable of producing 30 piglets a year, whereas the Chinese cousin could only manage 16. Pork is the staple food of the Chinese, and the fact that the Chinese were prepared to overlook the insult to their manhood to satisfy their bellies, is proof that the stomach is mightier than the organs further south.

The British are crowing about this trade deal saying that it will generate some £45m. It is unclear as to whether the great and mighty British empire has fallen to such levels where the aforementioned sum is considered "big". I suspect it is the affirmation of the superiority of British manhood , albeit of the porcine variety, that has made the British crow about the deal. Well, it wouldn't be cricket to boast about the size of the matter in question (deal I mean), but in the pubs across Westminster, after a few pints, that is precisely the boast being made !

What a spectacular, almighty, game changing deal that the Prime Minister of the United Kingdom of Great Britain and Northern Ireland has achieved along with 130 illustrious subjects of Her Majesty, the Queen, traveling halfway around the world.

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Hooray Hooray; It was not a holiday !

I never thought that my Nobel Prize winning poetry ( !!) , featured in the previous post,  would so fox my readers. No my dear ladies and gentlemen , No, I was not on a holiday. I did not go trekking in the hills. I was not marooned on Robinson Crusoe island. I was not a trillion miles away from civilization.

I was in the People's Republic of China. And all of the facts mentioned in my "poem" are true.

The country hides behind the jīndùn gōngchéng. The Chinese have their own equivalents of everything - Weibo is actually bigger than Twitter;  TMall and Taobao are bigger than Amazon and E Bay.  Youku may not be as big as YouTube, but its all there and Renren is as big as Facebook. But then only the Chinese use these . CCTV is all in Chinese, except for one appalling English channel and the less said about China Daily, the better.

What a shame, that such a proud, fine, great and strong culture like China wants to retreat into isolationism. Three years after I left China, I go back and the thing that strikes me most is how much more inward looking China has become.

China has every qualification to "conquer" the world - not on horseback, but into the minds and hearts of the people everywhere. But my dear Chinese friends, you can hardly do that if you are gazing intently at your navel !

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With apologies to Rabindranath Tagore

Where the mind is maybe with a little fear but the head is held high

Where there is no Blogger to corrupt the thoughts

Where there is no Facebook to waste time

Where there is no Twitter to inform the world that you are brushing your teeth

Where there is no YouTube so that you don’t watch Justin Bieber

Where there is no Google for you to check what sesquipedalian means

Where you can’t get to Dropbox  for the trillions of useless stuff you have stored

Where there is no Picasa , you narcissist, for admiring your selfies

Where there is no TV, to watch mindless soaps (or football if you prefer)

Where there is no bourgeois newspapers to corrupt the mind

Into that pure , unpolluted, NSA free heaven, my father, I shall awake tomorrow, and be there for a week !

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