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Showing posts with label China. Show all posts
Showing posts with label China. Show all posts

Thursday 17 August 2023

What India’s foreign-news coverage says about its world-view

The Economist

When Narendra Modi visited Washington in June, Indian cable news channels spent days discussing their country’s foreign-policy priorities and influence. This represents a significant change. The most popular shows, which consist of a studio host and supporters of the Hindu-nationalist prime minister jointly browbeating his critics, used to be devoted to domestic issues. Yet in recent years they have made room for foreign-policy discussion, too.

Much of the credit for expanding Indian media’s horizons goes to Mr Modi and his foreign minister, Subrahmanyam Jaishankar, who have skilfully linked foreign and domestic interests. What happens in the world outside, they explain, affects India’s future as a rising power. Mr Modi has also given the channels a lot to discuss; a visit to France and the United Arab Emirates in July was his 72nd foreign outing. India’s presidency of the G20 has brought the world even closer. Meetings have been scheduled in over 30 cities, all of which are now festooned with G20 paraphernalia.

Yet it is hard to detect much deep interest in, or knowledge of, the world in these developments. There are probably fewer Indian foreign correspondents today than two decades ago, notes Sanjaya Baru, a former editor of the Business Standard, a broadsheet. The new media focus on India’s role in the world tends to be hyperpartisan, nationalistic and often stunningly ill-informed.

This represents a business opportunity that Subhash Chandra, a media magnate, has seized on. In 2016 he launched wion, or “World Is One News”, to cover the world from an Indian perspective. It was such a hit that its prime-time host, Palki Sharma, was poached by a rival network to start a similar show.

What is the Indian perspective? Watch Ms Sharma and a message emerges: everywhere else is terrible. Both on wion and at her new home, Network18, Ms Sharma relentlessly bashes China and Pakistan. Given India’s history of conflict with the two countries, that is hardly surprising. Yet she also castigates the West, with which India has cordial relations. Europe is taunted as weak, irrelevant, dependent on America and suffering from a “colonial mindset”. America is a violent, racist, dysfunctional place, an ageing and irresponsible imperial power.

This is not an expression of the confident new India Mr Modi claims to represent. Mindful of the criticism India often draws, especially for Mr Modi’s Muslim-bashing and creeping authoritarianism, Ms Sharma and other pro-Modi pundits insist that India’s behaviour and its problems are no worse than any other country’s. A report on the recent riots in France on Ms Sharma’s show included a claim that the French interior ministry was intending to suspend the internet in an attempt to curb violence. “And thank God it’s in Europe! If it was elsewhere it would have been a human-rights violation,” she sneered. In fact, India leads the world in shutting down the internet for security and other reasons. The French interior ministry had anyway denied the claim a day before the show aired.

Bridling at lectures by hypocritical foreign powers is a longstanding feature of Indian diplomacy. Yet the new foreign news coverage’s hyper-defensive championing of Mr Modi, and its contrast with the self-confident new India the prime minister describes, are new and striking. Such coverage has two aims, says Manisha Pande of Newslaundry, a media-watching website: to position Mr Modi as a global leader who has put India on the map, and to promote the theory that there is a global conspiracy to keep India down. “Coverage is driven by the fact that most tv news anchors are propagandists for the current government.”

This may be fuelling suspicion of the outside world, especially the West. In a recent survey by Morning Consult, Indians identified China as their country’s biggest military threat. America was next on the list. A survey by the Pew Research Centre found confidence in the American president at its highest level since the Obama years. But negative views were also at their highest since Pew started asking the question.

That is at odds with Mr Modi’s aim to deepen ties with the West. And nationalists are seldom able to control the forces they unleash. China has recently sought to tamp down its aggressive “wolf-warrior diplomacy” rhetoric. But its social media remain mired in nationalism. Mr Modi, a vigorous champion for India abroad, should take note. By letting his propagandists drum up hostility to the world, he is laying a trap for himself. 

A level Economics: Can India Inc extricate itself from China?

The Economist

China and India are not on the friendliest of terms. In 2020 their soldiers clashed along their disputed border in the deadliest confrontation between the two since 1967—then clashed again in 2021 and 2022. That has made trade between the Asian giants a tense affair. Tense but, especially for India, still indispensable. Indian consumers rely on cheap Chinese goods, and Indian companies rely on cheap Chinese inputs, particularly in industries of the future. Whereas India sells China the products of the old economy—crustaceans, cotton, granite, diamonds, petrol—China sends India memory chips, integrated circuits and pharmaceutical ingredients. As a result, trade is becoming ever more lopsided. Of the $117bn in goods that flowed between the two countries in 2022, 87% came from China (see chart).

India’s prime minister, Narendra Modi, wants to reduce this Sino-dependence. One reason is strategic—relying on a mercurial adversary for critical imports carries risks. Another is commercial—Mr Modi is trying to replicate China’s nationalistic, export-oriented growth model, which means seizing some business from China. In recent months his government’s efforts to decouple parts of the Indian economy from its larger neighbour’s have intensified. On August 3rd India announced new licensing restrictions for imported laptops and personal computers—devices that come primarily from China. A week later it was reported that similar measures were being considered for cameras and printers.

Officially, India is open to Chinese business, as long as this conforms with Indian laws. In practice, India’s government uses a number of tools to make Chinese firms’ life in India difficult or impossible. The bluntest of these is outright prohibitions on Chinese products, often on grounds related to national security. In the aftermath of the border hostilities in 2020, for example, the government banned 118 Chinese apps, including TikTok (a short-video sensation), WeChat (a super-app), Shein (a fast-fashion retailer) and just about any other service that captured data about Indian users. Hundreds more apps were banned for similar reasons throughout 2022 and this year. Makers of telecoms gear, such as Huawei and zte, have received the same treatment, out of fear that their hardware could let Chinese spooks eavesdrop on Indian citizens.

Tariffs are another popular tactic. In 2018, in an effort to reverse the demise of Indian mobile-phone assembly at the hands of Chinese rivals, the government imposed a 20% levy on imported devices. In 2020 it tripled tariffs on toy imports, most of which come from China, to 60% then, at the start of this year, raised them to 70%. India’s toy imports have since declined by three-quarters.

Sometimes the Indian government eschews official actions such as bans and tariffs in favour of more subtle ones. A common tactic is to introduce bureaucratic friction. India’s red tape makes it easy for officials to find fault with disfavoured businesses. Non-compliance with tax rules, so impenetrable that it is almost impossible to abide by them all, are a favourite accusation. Two smartphone makers, Xiaomi and bbk Electronics (which owns three popular brands, Oppo/OnePlus, Realme and Vivo), are under investigation for allegedly shortchanging the Indian taxman a combined $1.1bn. On August 2nd news outlets cited anonymous government officials saying that the Indian arm of byd, a Chinese carmaker, was under investigation over allegations that it paid $9m less than it owed in tariffs for parts imported from abroad. mg Motor, a subsidiary of saic, another Chinese car firm, faces investment restrictions and a tax probe.

A convoluted licensing regime gives Indian authorities more ways to stymie Chinese business. In April 2020 India declared that investments from countries sharing a border with it must receive special approvals. No specific neighbour was named but the target was clearly China. Since then India has approved less than a quarter of the 435 applications for foreign direct investment from the country. According to Business Today, a local outlet, only three received the thumbs-up in India’s last fiscal year, which ended in March. Last month reports surfaced that a proposed joint venture between byd and Megha Engineering, an Indian industrial firm, to build electric vehicles and batteries failed to win approval over security reasons.

Luxshare, a big Chinese manufacturer of devices for, among others, Apple, has yet to open a factory in Tamil Nadu, despite signing an agreement with the state in 2021. The reason for the delay is believed to be an unspoken blanket ban from the central government in Delhi on new facilities owned by Chinese companies. In early August the often slow-moving Indian parliament whisked through a new law easing the approval process for new lithium mines after a potentially large deposit of the metal, used in batteries, was unearthed earlier this year. Miners are welcome to submit applications, but Chinese bidders are expected to be viewed unfavourably.

In parallel to its blocking efforts, India is using policy to dislodge China as a leader in various markets. India’s $33bn programme of “production-linked incentives” (cash payments tied to sales, investment and output) has identified 14 areas of interest, many of which are currently dominated by Chinese companies.

One example is pharmaceutical ingredients, which Indian drugmakers have for years mostly procured from China. In February the Indian government started doling out handouts worth $2bn over six years to companies that agree to manufacture 41 of these substances domestically. Big pharmaceutical firms such as Aurobindo, Biocon, Dr Reddy’s and Strides are participating. Another is electronics. Contract manufacturers of Apple’s iPhones, such as Foxconn and Pegatron of Taiwan and Tata, an Indian conglomerate, are allowed to purchase Chinese-made components for assembly in India provided they make efforts to nurture local suppliers, too. A similar arrangement has apparently been offered to Tesla, which is looking for new locations to make its electric cars.

Some Chinese firms, tired of jumping through all these hoops, are calling it quits. In July 2022, after two years of efforts that included a promise to invest $1bn in India, Great Wall Motors closed its Indian carmaking operation, unable to secure local approvals. Others are trying to adapt. Xiaomi has said it will localise all its production and expand exports from India which, so far, go only to neighbouring countries, to Western markets. Shein will re-enter the Indian market through a joint venture with Reliance, India’s most valuable listed company, renowned for its ability to navigate Indian bureaucracy and politics. zte is reportedly attempting to arrange a licensing deal with a domestic manufacturer to make its networking equipment. So far it has found no takers. Given India’s growing suspicions of China, it may be a while before it does.

Monday 14 August 2023

'Every few days, stones are thrown at my house'


 

A level Economics: Are Universal Values a form of Imperialism?

They argue that universal values are the new imperialism, imposed on people who want security and stability instead. Here is why they are wrong argues The Economist

 


The fall of the Berlin Wall in 1989 held out the promise that growing prosperity would foster freedom and tolerance, which in turn would create more prosperity. Unfortunately, that hope disappointed. Our analysis this week, based on the definitive global survey of social attitudes, shows just how naive it turned out to be.

Prosperity certainly rose. In the three decades to 2019, global output increased more than fourfold. Roughly 70% of the 2bn people living in extreme poverty escaped it. But individual freedom and tolerance evolved differently. Many people around the world continue to swear fealty to traditional beliefs, sometimes intolerant ones. And although they are much wealthier these days, they often have an us-and-them contempt for others.

The World Values Survey takes place every five years. The latest results, which go up to 2022, canvassed almost 130,000 people in 90 countries. Some places, such as Russia and Georgia, are not becoming more tolerant as they grow, but more tightly bound to traditional religious values instead. At the same time, young people in Islamic and Orthodox countries are barely more individualistic or secular than their elders. By contrast, the young in northern Europe and America are racing ahead. Countries where burning the Koran is tolerated and those where it is a crime look on each other with growing incomprehension.

On the face of it, all this supports the campaign by China’s Communist Party to dismiss universal values as racist neo-imperialism. It argues that white Western elites are imposing their own version of freedom and democracy on people who want security and stability instead.

In fact, the survey suggests something more subtle. Contrary to the Chinese argument, universal values are more valuable than ever. Start with the subtlety. China is right that people want security. The survey shows that a sense of threat drives people to seek refuge in family and racial or national groups, while tradition and organised religion offer solace.

This is one way to see America’s doomed attempts to establish democracy in Iraq and Afghanistan, as well as the failure of the Arab spring. Amid lawlessness and upheaval, some people sought safety in their tribe or their sect. Hoping that order would be restored, some welcomed the return of dictators.

The subtlety the Chinese argument misses is the fact that cynical politicians sometimes set out to engineer insecurity because they know that frightened people yearn for strongman rule. That is what Bashar al-Assad did in Syria when he released murderous jihadists from his country’s jails at the start of the Arab spring. He bet that the threat of Sunni violence would cause Syrians from other sects to rally round him.

Something similar happened in Russia. After economic collapse and jarring reforms in the 1990s, Russians thrived in the 2000s. Between 1999 and 2013, gdp per head increased 12-fold in dollar terms. Yet that did not dispel their accumulated dread. President Vladimir Putin consistently played on their ethno-nationalist insecurities, especially when growth later faltered. That has culminated in his disastrous invasion of Ukraine.

Even in established democracies, polarising politicians like Donald Trump and Jair Bolsonaro, former presidents of America and Brazil, saw that they could exploit left-behind voters’ anxieties to mobilise support. So they set about warning that their political opponents wanted to destroy their supporters’ way of life and threatened the very survival of their countries. That has, in turn, spread alarm and hostility on the other side.

Even allowing for this, the Chinese claim that universal values are an imposition is upside down. From Chile to Japan, the World Values Survey provides examples where growing security really does seem to lead to tolerance and greater individual expression. Nothing suggests that Western countries are unique in that. The real question is how to help people feel more secure.

China’s answer is based on creating order for a loyal, deferential majority that stays out of politics and avoids defying their rulers. However, within that model lurks deep insecurity. It is a majoritarian system in which lines move, sometimes arbitrarily or without warning—especially when power passes unpredictably from one party chief to another.

A better answer comes from prosperity built on the rule of law. Wealthy countries have more resources to spend on dealing with disasters, such as pandemic disease. Likewise, confident in their savings and the social safety-net, the citizens of rich countries know that they are less vulnerable to the chance events that wreck lives elsewhere.

Universal and valuable

However, the deepest solution to insecurity lies in how countries cope with change, whether from global warming, artificial intelligence or the growing tensions between China and America. The countries that manage change well will be better at making society feel confident in the future. And that is where universal values come into their own. Tolerance, free expression and individual inquiry help harness change through consensus forged by reasoned debate and reform. There is no better way to bring about progress.

Universal values are much more than a Western piety. They are a mechanism that fortifies societies against insecurity. What the World Values Survey shows is that they are also hard-won.

Saturday 12 August 2023

China’s recent economic woes suggest there is something seriously amiss

George Magnus in The Guardian

At a Politburo meeting last month, China’s leaders referred to the economic recovery this year as “torturous”. You won’t often hear such candour coming from a Chinese Communist party institution, let alone such an elevated body. They were referring to current conditions, of course, but China’s problems reveal much that is systemically out of kilter in its economic and political system.

During the past few days, some of the statistics China has published have caused a stir. Consumer prices in July were lower than a year ago, suggesting it might be on the cusp of deflation, which reflects a chronic shortage of demand in the economy. And China’s foreign trade in the same month showed a sharp fall in exports due to weak global demand, with a sharper decline in imports signifying weakness in demand at home. There were murky factors affecting both but the message is that something more serious is amiss in China.


Indeed, China was widely expected to bounce back from the pandemic and there was a bit of a flurry early in 2023. Yet, consumption has generally been very subdued especially for big-ticket items such as cars and houses, and private investment, the backbone of China’s economy, fell in the first half of this year, for the first time since such data was published many years ago.

Private firms and entrepreneurs are not spending much on investment or on hiring people. Youth unemployment has topped 21%, or double what it is in the UK and almost three times the rate in the US. The annual graduation of 11-12 million students in the the summer is aggravating an already difficult situation because of the problems of finding suitable work, and also because the Chinese labour market has become one in which most jobs are in the lower-pay, low-skill, gig or informal economy compared with higher quality jobs in manufacturing and construction.

It would be wrong though to pin this all on the pandemic. Most things weighing on China’s economy have been building for several years, even while much of the world was wowed by China’s global brands such as Huawei, Alibaba, Tencent and TikTok, property was booming, and China was leaving its footprint all over the world through the “belt and road” initiative and its rising governance engagement with global entities such as the International Monetary Fund and the World Health Organization.

In spite of its unequivocal accomplishments and successes, China has, during the past decade or more, spawned a mountain of bad debt, unprofitable and uncommercial infrastructure and real estate, empty apartment blocks and little-used apartments and transport facilities, and excess capacity in, for example, coal, steel, solar panels and electric vehicles. Productivity growth has stalled, and China can unfortunately boast one of the world’s highest levels of inequality.

It is ageing faster than any other country on the planet but with a skinny social security system in which most of its 290 million migrant workers are not eligible for most social benefits. Under Xi Jinping, moreover, it has also developed an increasingly repressive, state-centric and controlling governance system, both for political reasons and to deal with the effects of its failing development model.

These are testing times for Chinese citizens, especially the fabled rising middle class whose savings have mostly found a home in an outsized real estate sector which has now entered a period of structural decline. Most of the housing stock, overbuilding, collapse in transactions and weakness in prices are not in big agglomerations such as Beijing, Shenzhen and Shanghai, but in hundreds of smaller cities and towns that rarely make news.

China’s leaders have been vocal this year about strengthening consumption and about improving the business environment for private firms and entrepreneurs, who have been pressured or punished to align their commercial interest with the party’s political goals. We still await evidence that such rhetoric has substance.

In the coming weeks and months, we should probably expect the authorities to ease financial and budgetary policies, housing regulations, and borrowing caps to finance infrastructure. There might even be measures that look consumer-friendly but also fail to boost the income that alone can sustain higher consumption.

These things may give the economy a temporary lift over the winter but the underlying weakness of the economy and the greater authoritarianism that China features are now two sides of the same coin that seem irreversible, certainly for the time being.

It is a moot point whether this sort of China in the 2020s is a bigger threat to geopolitical stability than one in which it confidently strides the world stage and is able to brush aside liberal leaning democracies and reframe global governance in its interests. But a crucial one to get right.

Thursday 13 April 2023

How China changed the game for countries in default

Robin Wigglesworth and Sun Yu  in The FT

Zambia, struggling from an economic and financial crisis compounded by the Covid-19 pandemic, first missed an interest payment on its international bonds. Two and a half years later it remains in limbo, unable to resolve the default on most of its $31.6bn debts. 

That an impoverished and vulnerable country has for so long unsuccessfully laboured to reach a deal with creditors and move on from the crisis is an illustration of the messy process to deal with government bankruptcies, which some experts fear has now broken down completely. 

The consequences could be severe for the spate of countries that have recently defaulted on their debts, and the topic has been high on the agenda of this week’s spring meetings of the IMF and World Bank in Washington. 

In her opening remarks at those meetings, the IMF’s managing director Kristalina Georgieva noted that about 15 per cent of low-income countries were already in “debt distress” and almost half were in danger of falling into it. 

“This has raised concerns over a potential wave of debt restructuring requests—and how to handle them at a time when current restructuring cases are facing costly delays, Zambia being the most recent example,” she told attendees.  

While domestic laws and judges govern the bankruptcies of companies and individuals, there is no international law for insolvent countries — only a chaotic, ad hoc process that involves working through a hodgepodge of contractual clauses and tacit conventions, enduring tortuous negotiations and navigating geopolitical expediency. 

A decade ago, US-based hedge fund Elliott Management exploited that landscape to notch up several lucrative victories by suing defaulters for full repayment of their debts. But this fragile patchwork is now under threat of unravelling completely due to the emergence of a new, disruptive, opaque and powerful force in sovereign debt: China. 

Some experts say Beijing’s lending spree to developing countries and refusal to play by western-established rules represents the single greatest impediment to government debt workouts and threatens to leave some countries in debt limbo for years. 

But Yu Jie, a senior research fellow on China at think-tank Chatham House, believes Beijing’s stance “is less about economic rationalities and more about geopolitical competition”. 

“The multilateral financial institutions are run largely by Americans and Europeans. China had hoped to be able to shape the agenda of debt relief, not to have it dictated by the west,” she says. 

Jay Newman, the former Elliott fund manager who successfully sued Argentina for $2.4bn after its 2001 debt restructuring, says the emergence of China as a significant player has left the entire system in uncharted waters. “You now have one big state creditor with the power to dictate terms and the patience not to make a deal if it doesn’t suit them. It has completely changed the game.” 

The new landscape 

In a grim sign of the times, Alvarez & Marsal — one of the world’s biggest corporate bankruptcy advisers — this year set up a sovereign practice for the first time. Underscoring its expectations for the business, it hired Reza Baqir, a former senior IMF official and governor of Pakistan’s central bank, to lead the new unit. 

The potential is clear. The latest IMF data from the end of February indicates that nine poorer countries — such as Mozambique, Zambia and Grenada — are already in what it terms “debt distress”, while another 27 countries are at “high risk” of falling into it. A further 26 more are on the watchlist. Baqir points out that there are also a lot of struggling state-controlled companies in these countries that will need help as a result. 

“The timing was right” for A&M to set up a sovereign advisory unit, he says. “Given that there are more than 50 countries in various stages of debt distress there is an opportunity for a more holistic approach.” 

Baqir is among those that say the debt restructuring process is broken, largely because it was primarily designed for a bygone era, when creditors were overwhelmingly western countries and western banks. 

Decades ago, the Paris Club was formed to co-ordinate between government creditors, while bankers formed the London Club to restructure their debts. Broadly speaking, western governments drove the process, and occasionally leaned on banks to accept painful settlements. It was largely improvised and often slow, but it mostly worked. 

But the decline of bank lending and the growth of the bond market shook things up in the spate of sovereign defaults that started in the early 1990s. Creditor co-ordination became trickier with myriad bondholders trading claims around the world, rather than just a handful of banks. 

Argentina’s default on $80bn of bonds in 2001 led to years of fights between Buenos Aires and investors such as Elliott, which refused to accept the terms agreed by other creditors. At one point the hedge fund famously seized an Argentine naval vessel when it docked in Ghana. Its reputation became such that bondholders would sometimes invoke the mere spectre of Elliott to scare countries contemplating a default, while policymakers used it as prima facie evidence of the sovereign debt restructuring system’s weaknesses. 

In the wake of the Argentine debacle the IMF responded by attempting to set up a kind of bankruptcy court for countries with itself as judge. But the sovereign debt restructuring mechanism foundered after attracting little support from the IMF’s biggest shareholders. Instead, the US championed the insertion of “collective action clauses” into bonds, which compel recalcitrant creditors to accept a restructuring agreement made by a majority. After Greece’s debt restructuring in 2012 these CACs were beefed up further. 

However, many bonds still lack these clauses. Moreover, they can only help ease a restructuring agreement once it is struck. Many experts point out that they do nothing to solve the biggest fundamental problem: countries are far too slow to seek a debt restructuring as they are wary of a messy process with the potential of worsening an economic crisis and the inevitable political humiliation of defaulting. 

“If I was a finance minister, I’d find it hard to tell my prime minister that we have a clean framework to work with,” says Baqir. 

When they are finally forced into a debt restructuring, the financial relief that countries secure is often too little to ensure a durable upswing. In the few cases where it does clean up their balance sheet, it sometimes only leads to another debt binge. 

This flawed process has now been further complicated — some say wrecked — by China’s vast lending programme across the developing world over the past decade. Many of these loans are opaque in size, terms, nature and sometimes even existence. 

The overall size of the lending programmes is hard to judge, given that China does not report most of it to the likes of the IMF, OECD or Bank for International Settlements. But AidData, a development think-tank based at William & Mary’s Global Research Institute, estimates that the loans amount to about $843bn. China is not a member of the Paris Club, and in most cases the loans are made by its myriad state-owned or merely state-controlled banks, muddling things further. 

It’s like the international financial policy community spent the past decade trying to clean up around the street light, oblivious to the mounds of rubbish piling up unseen around the rest of the darkened street, says Anna Gelpern, a professor of law and international finance at Georgetown University. 

“We spent 20 years focusing on contractual tweaks, assuming that bonds were the problem,” she says. “The problem is the state of global politics, and the fate of low-income countries just isn’t a big priority anywhere.” 

Life in default 

Zambia is a prime example. Of the roughly $20bn of external debt that the IMF tallied when forming its programme in 2022, $2.7bn was lent by international development banks, $1.3bn comes from various western governments, bank loans come to $1.6bn, local kwacha-denominated bonds held by non-residents are $3.3bn and international dollar-denominated bonds account for $3.3bn. But the biggest chunk is nearly $6bn owed to China. 

The IMF has reached a support agreement with Zambia that is conditional on its debt burden becoming sustainable. But other bondholders do not want any relief they offer to simply go towards paying off China. Beijing has in principle agreed to accept a “haircut” on its debts, but experts say it appears to not want anything it offers to go towards improving the recovery of private creditors, leading to the impasse. 

In the meantime, Zambia says it has accumulated about $1.2bn in arrears since its default. Including missed payments to various government contractors, the IMF has estimated that the arrears are actually nearly $3bn. 

Highlighting how China also appears to be leveraging these situations to undermine the western-designed global financial architecture, in January it called for international organisations such as the IMF and World Bank to participate in the debt restructuring. This would overturn half a century of convention that these organisations are “super-senior” creditors exempt from debt restructurings, as participating would imperil their ability to lend to other countries. 

One senior adviser to the Chinese government says that “there is no law that requires World Bank loans to be prioritised” and that the country was “not happy” with a practice that originated in an era when western countries were generally the only creditors. “If we allow the World Bank to take precedence over us, we need to have bigger voting rights and take larger stakes at the bank. China’s duty doesn’t match its rights in development finance.” 

Another increasingly common wrinkle in debt restructuring is what to do with domestic bonds, which local banks and financial companies have often gorged upon. Here too, Zambia is a good example. 

The $3.3bn of local currency bonds held by non-residents have also been cordoned off from the debt restructuring. Lusaka fears that reducing the value of kwacha bonds could wreck its banking industry and do more damage than they are worth. But some holders of other international bonds argue that they should also be included in the restructuring. 

“In the sovereign debt restructuring business we didn’t really think much about local debts,” says Lee Buchheit, a leading lawyer in the field. “There often wasn’t much of it, and we always assumed that the sovereign has a much broader palate of mechanisms it can use to deal with domestic debt.” 

But what to do about Zambia’s Chinese loans remains the thorniest issue and has risen to the highest levels in Washington and Beijing. US Treasury secretary Janet Yellen this year raised the stand-off with Chinese president Xi Jinping’s economic adviser Liu He, and said that it had “taken far too long already to resolve this matter” when she visited Lusaka in January. 

China’s exceptionalism? 

For the most part, experts say China seems mostly content with rolling its debts rather than restructuring them, handing out new loans to ensure that its domestic banks can be repaid in full. But it prefers to act alone, at its own pace, and feels no need for transparency. 

A recent paper by several economists, including Harvard University’s Carmen Reinhart, estimated that China has made 128 bailout loans worth $240bn to 20 distressed countries between 2000 and 2021. About $185bn was extended over the last five years of the study, and more than $100bn in 2019-21. 

Reinhart says that China’s lending stands out for its “extreme” opacity but stresses that its overall behaviour is not as unusual as some people say. “China is really playing hardball because it is a major creditor. US commercial banks also played hardball back in the 1980s,” she says. Baqir agrees, saying: “Whatever the colour or creed of a creditor, creditors think like creditors.” 

The Chinese government adviser also points to factors such as the country’s relative inexperience with debt workouts. “China is still at an early stage in coming up with its debt relief programme,” he says. 

Incomplete domestic financial reforms have also made it harder to offer debt relief to overseas creditors, while some Chinese banks are also struggling with big hits from the country’s wilting real estate sector. 

“We need co-ordination from the top level, which now has other priorities,” the adviser says. He also points out that the pressure on developing countries has intensified following a series of US interest rate rises, and that as a result Washington “should be responsible for the debt trap”. 

But whatever the root cause, most agree on the end result. “All of this [creditor] fragmentation is leading to paralysis,” says Sean Hagan, a former general counsel at the IMF who now teaches international law at Georgetown. 

 There are few solutions being floated around. The IMF in February announced a new Global Sovereign Debt Roundtable to bring together the full gamut of creditors and debtors, and hopefully thrash out ways to “facilitate the debt resolution process”. It is an initiative that few experts harbour much hope for. 

Buchheit likens the impact of an assertive new player on an already fault-riddled debt restructuring system to someone having a bad cold that a doctor struggles to treat, who is then impaled by a spear. “The cold hasn’t gone away, but the doctor is likely to focus more on the spear,” he says. 

Ironically, both Buchheit and Newman — who clashed many times over the years as the leading lawyer for and suer of bankrupt countries — advocate for the same basic approach: countries should restructure the debts they can, remain in default to China, and the IMF should drop its “kumbaya” approach and accept semi-permanent arrears to its biggest shareholders. 

But most expect Zambia-like debt limbo to be the likeliest outcome for a lot of countries. “I suspect this is going to be a recurring problem,” says Reinhart. “And the longer these countries are in the [debt] netherworld . . . the [more the] fabric of the country is affected.”  

Monday 20 February 2023

Is India Copying Xi Jin Ping's Wolf Warrior Tactics?

Aakash Joshi in The Indian Express

For those familiar with American action films, there was nothing that remarkable — artistically and even as a propaganda device — about Wolf Warrior (2015) and its sequel, Wolf Warrior 2 (2017). But the impact of the films on foreign policy — or at least how it is discussed — has moved from China to the West and now, in a somewhat disturbing reflection of the former, to India.

In the Chinese blockbusters, Wu Jing, a sniper — kicked out of the PLA for being a moral renegade, a sort of John McClane and John Rambo combination — takes on smugglers, kidnappers and mercenaries with a Chinese special forces unit.

The films are not seminal for their slick action or predictable and plodding plot. In the contemporary foreign policy lexicon, “Wolf Warrior diplomacy” is the belligerent language used by Chinese diplomats since Xi Jinping’s authoritarian consolidation and centralisation of power. Any attack or criticism of China is met with strong words, often pointing out the history of western hypocrisy and imperialism. While extolling China’s foreign policy and political economy, the howl of the wolf warrior also tries to paint any questioning of China as interference in its internal affairs, an attack on its civilisational history and a plot by foreign powers unable to stomach the rise of a rival in Asia. Most often (and easily accessible to a lay reader), this insecurity is on display in the editorials and articles in state and party-controlled media such as Global Times and China Daily, which target not only foreign governments but also media houses and individuals for adverse comments and coverage.

Sample the following headlines from Global Times: “Facing Omicron, CNN shows sour grapes mentality as China’s Covid-19 control measures justified” (November 30, 2021); “BBC should show evidence [on Xinjiang human rights abuses] or admit to being a rumourmonger”; “’Defeating China’ is wishful thinking from Soros” (October 6, 2019).

Change the dates and a few words in the headlines for context, and they could be mistaken for recent statements by some of the most prominent members of the Indian government and spokespersons of the ruling party.

Take, for example, the Income Tax department’s “survey” of the BBC offices in Delhi and Mumbai. There are likely people who believe that the searches of journalists’ computers and phones were about irregularities in taxes and not a recent documentary. Even though India: The Modi Question wasn’t released in India, takedown orders were issued to social media companies.

As the offices were searched, the BBC was accused – with the BJP’s symbol proudly displayed in the back – by a party spokesperson of being “corrupt” and supporting “anti-national” forces. It is rare, even in an age of ED summons, IT surveys and NIA investigations, for the ruling party or government to comment on an ongoing investigation beyond the usual “let the law take its course” or “no one is above the Constitution and penal code” sort of statements. The BBC, remember, is the British state broadcaster, funded directly by the people and not the government per se. It is certainly not above bias. Equally, though, it is not a threat to the world’s largest and arguably most diverse democracy. The last time it was seen as such was during the Emergency: Ironically, the fact that Indira Gandhi’s government banned the BBC was used as a justification by the ruling party this time.

On the heels of the BBC controversy came the comments by George Soros, the hedge-fund billionaire-turned-liberal philanthropist. Speaking at the Munich Security Conference last week, the 92-year-old Soros brought up the Adani-Hindenburg controversy and stated that the report and its aftermath would “significantly weaken Modi’s stranglehold on India’s federal government and open the door to push for much-needed institutional reforms. I may be naïve, but I expect a democratic revival in India.”

The reaction from the government was swift and strong. Union Minister of Women and Child Development, Smriti Irani, said, “A foreign power at the centre of which is a man named George Soros has announced that he will hurt India’s democratic structure. He has announced that Prime Minister Narendra Modi will be his main target.”

External Affairs Minister S Jaishankar stated, “I could take the view that the individual in question, Mr Soros, is an old, rich, opinionated person, sitting in New York, who still thinks that his views should determine how the entire world works. Now if I could stop at old, rich and opinionated, I would put it away. But he is old, rich, opinionated and dangerous.”

Soros and his Open Society Foundations, across countries, do arguably engage in political work. Yet, the public and personal attack — from some of the most prominent and articulate faces of the government — against the perceived “foreign hand” indicates a prickliness about criticism that is reminiscent of Wolf Warriors rather than the secure, understated confidence of seasoned diplomats and leaders. It was seen earlier when Jaishankar refused to meet with a US Congressional Committee in 2019 because Congresswoman Pramila Jayapal had introduced a resolution about Kashmir in the US legislature.

Unfortunately, this mode of engagement with foreign actors — or journalists and media houses — is of a piece with the image of New India, just as it is a hallmark of Xi’s China. The latter, under its current leader, has abandoned Deng Xiaoping’s dictum of “hide your strength, bide your time”. Xi’s China is confident about its military prowess and economic might and believes that it is now its turn to lead the world. The insecurity about criticism and the strident diplomatic language is about saying to the international community that China now sits at the head of the table and that a “rules-based order” that doesn’t account for Beijing’s exceptionalism — as it does for the US — will not stand.

India is far behind China in economic terms. Yet, the size of its market and a growing economy does give it bargaining power: There was little to no official criticism of the actions of the BJP from Western capitals. Strategically, the West and Japan see India as an important bulwark against an aggressive and expansionist China. All of this, perhaps, makes it easy to deploy our very own Wolf Warriors without consequences.

Just two factors to consider: First, at least part of the reason the West and others are enamoured with India is its democratic credentials and openness. The Chinese model of engaging in a constant battle of narratives about every little documentary or stray comment may do more harm than good in this regard.

Second, and perhaps more importantly, the decency and openness to criticism of a confident society and polity should not be a matter of weakness or compulsion. That a ruling party acts as though criticism is an attack on the country is disturbing. After all, the difference between authoritarianism and democracy is about more than just GDP numbers and what each can get away with as a result. Or at least it should be.

Thursday 22 December 2022

Other democracies should beware taking pleasure in the UK’s travails

Voters in most developed countries feel that their contract with the state is fraying writes Bronwen Maddox in the FT 

I can barely think of a meeting I’ve had since September that didn’t begin with jokes about Britain’s newfound instability. I started a job a few days before Liz Truss became prime minister, and the “lasted longer than the lettuce” one has been inescapable. “Three prime ministers in a year!” (Ambassadors from European countries still incredulous at Brexit particularly like this one.) Now, there are the strikes — although the meltdown of the NHS’s emergency services is no joke at all. 

But these are rash quips if coming from other democracies. The joke may be on them, too. Older democratic countries share many of the same problems and are struggling to show that they have a system that can solve them. “If you don’t have a political system that can make short-term sacrifices for the long-term good of the country, how can you expect your system of government to survive?” asked one senior Chinese official of a distinguished British former minister. 

It’s a good question. In Britain, the NHS is a symbol of these problems above all others. The stand-off with the government by nurses and ambulance workers is of course about worker pay, but is also about how much the government wants to pay for the health service at all. 

Much of the problem stems from the demands of an ageing population, and that is something that many older democracies share. Even if other countries may no longer envy the NHS, they share some of the same troubles. On many fronts, the contract that voters thought they had with their governments — over them paying for healthcare, education, pensions — is being rewritten, and not in their favour. Perhaps the best-known saying of Jean Claude Juncker, when prime minister of Luxembourg, was: “We know what to do, we just don’t know how to get re-elected once we have done it.” 

Those sceptical of democracy have prophesied that this is how it consumes itself. It is easier to make promises than to keep them, so the temptation is for politicians to make extravagant commitments to get into office, and then try somehow to stay there. Following this recipe, democracy decays into populism and then autocracy. 

To some degree, yes. Boris Johnson and the unfulfillable Brexit promises were a symptom of the need to assemble an expansive coalition, built on impossibilities. The antidote — the “grown-up conversation with the nation” that politicians sometimes desperately invoke — seems pitifully weak. 

All the same, that is what is needed. The pandemic does offer some encouragement, showing that people are prepared to give up an extraordinary amount if persuaded it is necessary. But there are also more practical things that governments could do to help. 

First, they need to make the case for growth and the steps required to bring it about. Truss was not wrong in her ambition, just in recklessly ignoring the constraints on any country seeking to borrow money. For Britain, that means closer relations with Europe. A US trade deal is not coming any time soon; the only alternative of a large market is China, and Rishi Sunak’s government has chosen not to lean that way. It also means telling people that more legal immigration is needed. It means championing the creativity in science and culture that are themselves the product of the intellectual freedom at the heart of democracies. 

The second thing to do is change voting systems and improve legislatures. In the UK, the House of Lords is indefensible, as former prime minister Gordon Brown has pointed out. He is right that regions need more representation, too. And first past the post is increasingly hard to defend in a country of many different kinds of people and views. 

Third, is to stand up for the values that underpin liberal democracy but not try to couple them with all the other deals on the world stage. Insisting on a human rights agenda in every diplomatic relationship can jeopardise the pursuit of environmental and security accords that are desperately needed on their own account. It can lead to accusations of double standards — as shown by the controversy over Qatar’s hosting of the World Cup despite its treatment of LGBTQ people. 

It is right, though, to pursue those liberal principles, while acknowledging that not all countries share them. They are, along with economic prospects, one of the reasons people risk their lives in small boats trying to come to the UK — one of the best arguments that liberal democracy has a future.