Dragon’s Dare Calls for Reset of Dollar Dynamics

China has bluntly challenged the global powers and their ideological moorings. What emboldens China is economic power. The dare calls for a reset and rethink on the means and ends of globalisation.

By Shankkar Aiyar | Published: 31st May 2020 04:00 AM |

It is what economists and political meteorologists call a perfect storm.

May 5, 2020. Indian troops encounter incursions by brigades of the People’s Liberation Army into Indian territory in regions across the 4,000 km border — the face offs between forces ranged from fisticuffs to fast and furious chases. May 21, 2020. Chinese Premier Li Keqiang drops the pretence and the de-rigueur phrase ‘peaceful’ as he chants China’s desire of many decades for reunification with Taiwan. May 28, 2020.The National People’s Congress of China adopts a new security law for Hong Kong, essentially a legislative version of the tanks that rolled into Tiananmen Square in 1989, allowing for prosecution of ‘any acts or activities’ deemed endangering China’s national security.

May 29, 2020. US President Donald Trump ​declares “China has replaced the promised one country, two systems with one country, one system”. Invoking the powers under United States-Hong Kong Policy Act, scripted in 1991 by Republican Senator Mitch McConnell, Trump announced the withdrawal of special privileges since Hong Kong was no longer “sufficiently autonomous” as required.

To paraphrase Vladimir Ilyich Lenin, for decades nothing happened. Hong Kong symbolised the idea of what could be for Taiwan, even for many in China. And in four weeks, decades of hope, even if apparently naïve, were dashed.

​​The dragon is effectively daring global powers and their ideological moorings. What emboldens China is its economic power. For three decades and more, China systematically aligned economic growth deploying policy to lure technology and capital — it attracted over $2 trillion in FDI between 1990 and 2018.

In a cold and calculated move, China has sought to muscle in its hegemony under the cover of the chaos wrought by the COVID-19 pandemic.While it is early days, geopolitics is poised at the cusp of a tectonic shift. What holds for geology is true for geopolitics. The shifting of planes affords an opportunity to the world at large to redesign economic engagement and India, in particular, to up its game.

In the emerging geopolitical landscape, countries and companies will have to shed subscription to Tinder-type engagement focussed solely on individual balance sheets and log into to arranged marriages where countries parent investment agreements between entities to achieve stated demand-supply objectives and resilience for the national balance sheets.

The pandemic has illuminated a myth — what was presumed to be a global supply chain was a Chinese supply chain. The centrality of China in the global supply chain and, therefore, global growth story is not easy to rearrange.

China leveraged scale to acquire global market share. India could challenge this domination, if it sheds incrementalism and gets its policy ducks in a row, capitalise on the potential of its demography, democracy and domestic market — as it has successfully in sectors such as pharma, automobiles and software services.

The opportunity to dismantle dependencies is manifest and beckons through the fog of the consequences of the COVID-19 pandemic. The world is hunting for and will hunt for capacity to manufacture vaccines and drugs as they are discovered. India has over 30 PSEs on its auction block.

India could offer companies from Canada, Britain or the US, plug and play investment opportunities — to acquire PSUs such as Hindustan Antibiotics, IDPL, Bengal Chemicals, Karnataka Antibiotics or IMPCL to furnish, upgrade or rebuild as per needs. The idea is not just about the immediate needs but decoupling from dependence on China.

Pension funds in Australia, Canada, the UK and the US and elsewhere are hunting for long- term investments. India’s proposed spend in infrastructure is one avenue. Roads Minister Nitin Gadkari is gung-ho about green highways — set up/allow projects on land adjacent to highways which require funding.

One of the largest land owners in India, Indian Railways is keen to offer surplus land for renewable/solar energy projects. A public-private collaboration, joint ventures funded by funds could create enterprises and earnings for the future.

Consider the opportunities in education. India is the second largest source of students for foreign universities. Education is among Australia’s top five exports and is a big part of the economies of the UK and Canada. This was sustainable Before Corona or BC but will not be in AD or After Distancing.

Top universities in the developed world are expanding online capacities — for courses in liberal arts, management and skills. Tie-ups between universities could deliver quality for Indian varsities and quantity for foreign online courses.

To manage agri output, India imports energy and raw inputs to produce fertilisers. This is cost ineffective. India could collaborate to set up a plant say in energy and phosphate rich Saskatchewan and access fertilisers without importing costs and a larger carbon footprint. These are only some of the possibilities. The potential for collaborative growth is limited only by imagination.

China, however, has not left much to imagination. Its quest is transparent. The dragon’s dare calls for a reset in dollar dynamics, reconfiguration of investment and trade flows, and a rethink on definitions of the means and ends of globalisation.

Shankkar Aiyar, political economy analyst, is author of ‘The Gated Republic –India’s Public Policy Failures and Private Solutions’ which is releasing in May, ‘Aadhaar: A Biometric History of India’s 12-Digit Revolution’; and ‘Accidental India’. You can email him at shankkar.aiyar@gmail.com and follow him on Twitter @ShankkarAiyar. His previous columns can be found here. This column was first published here.

Journalist-Analyst. Author of ‘Accidental India’ and Áadhar: A Biometric History. Studying how the market for politics rules the economics of people!