Can India rival China?

In the midst of a global recession that many Asian countries were able to avoid, India has consistently proven itself to be an extremely dynamic economy. This year the growth rate is expected to fall short of 7%; only two percentage points under the record achieved in the years preceding the current financial crisis, and double the highest rate experienced in the 1980s.

The country is at the forefront of innovation in ICT, pharmaceuticals and in other sectors involving high technological components. It also has an excellent university system, with several schools capable of rivalling their more prestigious counterparts in America and Europe. In demographic terms, the current population of 1.2 billion is expected to overtake that of China in forthcoming years and will continue to provide the economy with a limitless supply of young people. The economy can also depend on the input of India's vast overseas diaspora, especially in the US, where 64% of the three million Indian-Americans hold degrees, some of which enjoy positions of considerable influence in that country's political and economic establishment. The most reliable sources estimate that India's diaspora consists of 20-30 million people, of which roughly a third is in possession of Indian passports. In recent years Delhi has learnt to consider these Indians as an essential resource, partly in recognition of the high value of remittances, which in 2009 were estimated at $40 billion, the majority of which came from the Persian Gulf.

India however finds itself in 134th place in the UN's Human Development Index. Illiterates constitute over one third of the population and 95% of the work force is employed in the underground economy. According to the World Bank 42% of Indians were surviving on less than $1 a day in 2004. Today, more than 80% of the country lives in extreme poverty and earns less than $2 a day.

Another considerable limitation to India's development is its infrastructure. Even though the government is investing heavily in the modernisation of its roads, ports, railways and airports in order to close the developmental gap with China, Indian infrastructure nevertheless remains far from reaching the standards seen in the West or the Far East. The shortage of electrical supplies to people's homes presents a serious limitation on the spread and use of mobile telephones and electrical goods, including the technologies that Indian industries currently excel at producing. Furthermore, hundreds of millions of Indians lack private toilets; a problem which itself accentuates other sanitary, environmental, social and economic issues caused by the scarcity of water.

Such social and economic hardships reflect the poor distribution of wealth and the even clearer ethno linguistic and cultural complexities throughout the country. Even so, the intensity of hostilities between Hindu nationalists and the Muslim minorities seem to have subsided contemporaneously to the decline of the Bharatiya Janata Party, the strongest proponent of the Hindutva ideology that defines India as a Hindu state.

Despite these difficulties, this heterogeneous state has not only avoided implosion, unlike Pakistan in 1971, but has also preserved its sui generis democracy. Whilst living standards are far from western, they are noticeably more evolved than at the country's inception in 1947. However, rampant corruption in public administration and the country's family-dominated political class, currently led by the Gandhi family, whose head, Sonia, enjoys greater authority as leader of the Congress Party than the Prime Minister, Manmohan Singh, prevents the Indian state from reaching its full potential.

India's relationship with America has also dramatically changed since the beginning of Obama's presidency. Previously the Bush government had identified India as a privileged strategic ally, who, along with Japan and Australia, would form a belt to contain the growing Chinese power. Such a stance culminated in the signing of nuclear agreements in 2008, thereby constituting an outward signal of mutual trust between the two powers. These events however are in marked contrast to the current situation, where the Indian elites have many reasons to distrust Obama. The United States' alliance with Pakistan in the war against Islamic terrorism appears to Indians as a contradiction in terms. Further discontent is caused by Obama's seeming fascination for China, the country regarded by Indians as the historic sponsor of Pakistan. Moreover, a perceived downgrade of the bilateral relationship by the US, whereby India is no longer regarded a strategic partner but one of several strategic regional actors capable of advancing American interests.

As such, is it feasible to assume that the G2 paradigm, composed solely of China and America, will need re-evaluating to take India's presence on the international scene into consideration? The Indian-American political analyst, Parag Khanna, suggests that India is a regional rather than a great, world power, as the country "is still not greater than the sum of its parts;" and neither will it be for the foreseeable future.

Xinjiang: The Muslim Tibet

Although China was taken by surprise this week by the sudden outbreak of civil unrest in the vast region of Xinjiang, which is inhabited by the Turkic Uyghurs, the government reacted more quickly than it did following the March 2008 protests in Tibet. Images of the violence in Urumqi, Xinjiang's capital, transmitted by the state's broadcaster are careful to show only the Han Chinese that have been injured during the ethnic clashes. Evidently therefore, Beijing hopes to accelerate the nationalist movement of the Han against the Uyghurs. Xinjiang, like Tibet, has been subject to massive waves of Han immigration that have drastically altered the ethnic composition of the territory.

The Uyghur issue has never enjoyed the same visibility in the West as Tibet. The inhabitants of Xinjiang have failed to gain the same sympathies in Europe and the US as the Tibetan Buddhists because of their Islamic faith. Yet this Turkic population suffers from the Han domination as a form of colonial occupation. Pro-independence organisations refer to the region as 'East Turkestan', and are strongly supported by neighbouring populations in the former Soviet republics of central Asia. For Hu Jintao, the Uyghur issue will present obstacles to forming relations with the Islamic world, where China is hoping to expand its economic and strategic influence. Such ethnic issues also highlight China's imbalance between its economic development and the rigidity of its authoritarian system.

An Uyghur girl in Turpan, Xinjiang

Chinese Growing Pains - Problems for the US and the World

As attempts to elevate the US-Chinese bilateral relationship get underway through the creation of a G-2 to address global problems such as the international financial crisis, the proliferation of weapons of mass destruction and climate change, it is important to remember that such a strong relationship between the two countries does not already exist because their values, capabilities and interests have always been mismatched. Instead, the US should seek the assistance of the international community to deal with the problems created by China's rise.

Much of China's incompatibility with the West stems from its need for export markets and resources and its determination to not use its economic leverage for political gains. These values often bring China into opposition with the West's efforts to prevent human rights abuses in the developing world in the following ways:

• China's ongoing arms trade in Sudan and Zimbabwe has contributed to instability there, despite being urged by the rest of the world to restrain weapons sales.

• The Chinese concept of sovereignty has prevented it from supporting humanitarian intervention into countries where its state-owned businesses have vast resource holdings and development interests, such as Angola, the Democratic Republic of the Congo and Myanmar. In September 2007, China and Russia blocked a UN Security Council resolution that condemned Myanmar for using force against Buddhist monks that were leading antigovernment protests. Instead, China insisted that these actions were merely an internal affair.

• China opposes sanctions against Iran due to its growing dependence on imported oil and gas.

• A lack of transparency and accountability in China's authoritarian system inevitably makes cooperation on issues such as product safety difficult. The economic incentives felt by local actors to maintain the status quo undermine efforts to comply with international obligations.

• A lack of transparency with regards to military capabilities may allow China, as the weaker power, to use uncertainty as a deterrent. The US believes that transparency would allow China's neighbours to gauge its intentions and avoid mishaps.

• The US wants China to reform its currency and to enact effective intellectual property rights, whereas China aims to conduct business in the way it sees fit.

• The Chinese government's strategy of aggressively promoting growth through investments by state-owned entities, and accompanying this with regulatory measures to ensure the state's continued dominance of the economy, not only reverses previous market-based reforms and privatisation but also stifles foreign and domestic competitors within China. However, this largely reflects the current global trend of state capitalism, whereby states have rejected the free-market doctrine through excessive intervention to secure the survival of key industries. In China it is doubtful that these interventions will be temporary, and the fear is that politicians will over-regulate the economy, making it inefficient, corrupt and stripping it of its ability to innovate.

The primary goal for the US must therefore remain true market-oriented reform in China through greater liberalisation and a commitment that Beijing will open state-owned companies to foreign investors. Resolutions of other issues must be pursued with the help of the countries over which China believes it wields considerable influence; the developing world. The US must therefore engage with these new allies to fulfil its objectives.

Chinese Investment in Africa

China has decided to increase its China-Africa Development Fund by $2 billion. This state-controlled equity fund has so far invested in 20 projects across Africa since it was established in June 2007. The current global recession, which has caused many Western investors to withdraw their investments from Africa, will provide further encouragement for Chinese businesses to operate on the continent. The official purpose of the fund, according to a speech made by Chinese president Hu Jintao in 2006, was to deepen Chinese aid to Africa through an extensive package of assistance, trade, investment and construction projects. However, it has become increasingly evident that the true reasons behind this extensive investment commitment are, firstly, to secure China’s access to the natural resources it requires to keep its economic expansion progressing, and secondly, to gain support from African states at the United Nations.

The Chinese National Offshore Oil Corporation intended to boost output from 40.3 million tonnes in 2006 to 78 million tonnes in 2007. In order to achieve such a growth rate China has had to continually assist its oil companies to invest in regions where Western firms are extremely reluctant to do so, due to their uncertain political and legal environments and precarious stability. As such, China will fund infrastructure projects in countries subject to Western sanctions, such as Sudan, or where security issues deter Western firms from increasing levels of investment, such as Nigeria. An example of such a strategy can be seen in China’s willingness to enter Somalia's oil industry. Evidently therefore, China would rather secure control of natural resources at their source rather than purchase them on the global markets. This readiness to deal with regions that are considered out of bounds by Western competitors may be explained by the lack of political influence and technical expertise of Chinese oil firms.

Whilst initial Chinese activity in Africa was well received, particularly due to the absence of any colonial history between China and the recipients of its investments, China’s practices have caused growing concern across the continent, as its actions are often seen as supporting and prolonging the lives of corrupt or dictatorial regimes. Beijing has attempted to dispel this perception by investing in infrastructure projects in areas where resentment is strongest and by granting local businesses greater access to China's markets in selected industries. Beijing has provided the Angolan government with a total of $2 billion in loans in exchange for continuous oil supplies. This investment has undoubtedly allowed Angola to avoid implementing reforms demanded by Western governments and investors, yet the country has seen its prosperity greatly increase from its large-scale oil production. Angola’s ruling party has also signed an agreement with China which contains a proviso that 70% of all construction projects will be awarded to Chinese companies. Moreover, Angola has since become China’s primary source of oil. Whilst some of this money has been able to fund improvements in infrastructure and healthcare, the endemic corruption has prevented the optimal amount of funds from reaching these projects. Furthermore, China has been criticised for its relationship with Sudan, whose government has been condemned by the international community for the humanitarian crisis in Darfur. Sudan has gradually become the number one recipient of Chinese investments due to its vast oil reserves. However, it cannot be denied that Sudanese workers are acquiring new skills through the availability of Chinese funded work, and that throughout the continent the Chinese are building factories which will allow many other countries to benefit in much the same way.

Zhang Junsai, Chinese ambassador to Australia, has said that Chinese companies investing in Australia and elsewhere are merely seeking long-term, sound and reliable supplies of energy, rather than absolute control of a foreign country’s natural resources. The Chinese government is unlikely to demand compliance with internationally recognised human rights standards, as it often disregards these norms internally. Perhaps with increased prosperity, work opportunities and improved infrastructure, African countries can be stabilised and encouraged to effectuate the necessary institutional reforms by their own people, without the ineffective and often-ignored calls of the international community.