MARKET PERSPECTIVE

By J Mulraj

April 7-13, 2023

Identify, friend or foe?

The way Winston Churchill described the Soviet Union, after WW II,  is the way many people consider China, now. A riddle, wrapped in a mystery, inside an enigma.

Consider geopolitics. On the one hand, China is seen to be aggressive towards its neighbors, practicing wolf warrior diplomacy. It creates artificial islands in the South China Sea, and lays claim to the whole of it, in contravention of the order of the International Court of Justice, which ruled in favor of the Philippines. It raises border issues, and has skirmishes with, India, laying claim to Arunachal Pradesh. In fact, it has ongoing territorial disputes with 17 countries including India, Japan, Philippines, and others.

On the other hand, China has been strengthening its relationships with other nations, with the common objective of weakening America. It has cozied up to Saudi Arabia, a close ally of USA for long. Using its economic clout as a big buyer of oil, it has got Saudi to agree to trade it in Renminbi, a big blow to the petrodollar. Using the same clout, it has stitched a deal between Saudi, majority Sunni, and Iran, majority Shia, which can herald peace in several Middle Eastern countries. Last week Brazilian President Lula da Silva visited China, to improve trade and investment ties. Similarly, China is using its economic might, its ability to build infrastructure, and its funding capacity, to win over several African countries. US VP Kamala Harris received a cold reception by African leaders during her recent visit to some countries.

So, China remains an riddle, wrapped in a m., inside an e.

Or consider concern for environment. As per a report tabled at the US Congress China has emerged as the world’s largest exploiter of fisheries on a global, not just a regional, scale. It sends armadas of fishing vessels to the shores of other countries, over exploiting reserves and destroying the marine ecosystem.

See this July 2021 report in the Guardian, titled ‘Amazon rain forest will collapse if Bolsanaro remains President’ . This was before the elections when Lula defeated Bolsanaro. A line in the report states that in China, the Government puts ‘resource procurement above environmental ethics’. China paid high prices for soya, and Bolsanaro cleared vast tracts of the Amazon forest to plant it. Soya is a feedstock for pigs, and pork is a protein source. So China cares little for the marine ecosystem, or for the Amazon, the world’s lung, in its quest for food resources.

Now look at the flip side. China has the world’s largest renewable energy capacity (see at 1:12), a third of global capacity. China is setting up the world’s largest integrated hydro-solar power project called the Kela photovoltaic power station, on the Yaolong river. On completion of all hydro-solar power projects on the river, carbon emissions may reduce by 180 m tonnes, annually!

So, environmentally, China remains a riddle, wrapped in a m., inside an e.

Then consider the technology race. A year long study by the Australian Strategic Policy Institute concluded that China led USA in 37/44 technologies. The US leads in only 7. China has focused on new technologies, drawing up a plan in 2015, called Made in China 2025, in which it invested heavily. At that time USA was wasting resources in wars, like the Afghan war, from which it withdrew in complete disarray. China’s surveillance ability is unsurpassed, and has Orwellian capabilities. Combined with its ability to monitor communications and the amount of data it has accumulated, sounds alarm bells for privacy and individual freedoms. China has also used advanced weapons technology to develop a hypersonic glide missile. It travels at Mach 5, faster than any existing interceptor missile. This poses high danger, if a conflict breaks out over Taiwan.

China displayed is disdain for individuals when, recently, it denied access to their own pension funds, to emigres who left Hong Kong for UK, after the takeover of HK by China. Though fully entitled to their pensions (those who stayed behind got it, right?) the denial smacks of peevishness, unbefitting of a country seeking to be a global power.

As with other things, here too, there’s a flip side, in the use of technology for productivity gains. The 8th largest port in the world is the Beibu Gulf Port Qinzhou Automated Terminal, in China. Watch this video to see that it is a fully automated port processing over 19 million containers every year. It uses 5G technology to enable remote controlled RTG cranes to load containers. Such automation and use of technology has made China’s automated ports among the most efficient in the world.

Compare this with operations at the LA Port, the largest in America. It is not nearly as automated as Qinzhou, and truck drivers have to spend 2-3 hours every day waiting to pick up and load cargo. The port is trying to use Quantum Computing in trying to improve efficiency, but with mixed success. China’s development, and use of, new technologies is better. Incidentally, the LA Port is now shut, for want of labour!

So, besides the prism of geopolitics, and of environmental concern, in the technology race, China is a riddle, wrapped in a m., inside an e.

Last week, French President Macron, after a recent visit to China, along with EU President Ursula Von Der Leyen, has stated that EU leaders should have an independent policy and not blindly follow the US. Especially if there is an escalation of events over Taiwan. Some German automakers, and its chemicals company, BASF, are contemplating investing in China, because high energy prices in Germany (after cessation of cheap Russian gas) has made operations there costly.

China thus becomes a pivot in this geostrategic chess game, and understanding it becomes crucial. At the moment Xi looks like the puppeteer displayed in the illustration. It would be better if Xi turned down his wolf warrior diplomacy, and identified himself as friend, not foe.

Last week the BSE sensex added 598 points to close at 60431.

The Ukraine war seems to be reaching its denouement. The Russians are expected to resume attack in May, after the soil hardens enough to allow tanks to roll over. Ukraine is likely running out of shells for its artillery, as its monthly usage is higher that the annual production rate of its supplier, America. It would be more open to a negotiated settlement. But, in a world governed by jingoism, another conflict may erupt.

So, its time for caution. Don’t be the bull in a china shop.

Picture Source: https://www.afr.com/world/asia/how-the-west-got-xi-jinping-wrong-on-business-20190709-p525n0

Comments.queries may be sent to Jmulraj@gmail.com