Tag: China

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No such thing as a free chow mein – Conclusion

Introduction
Today’s column concludes my review of the strengthening of economic relations between Guyana and China. Or more accurately between China and Guyana since for China the relationship seems all part of their global strategy aimed at accessing raw materials for its unlimited needs and appetite to sustain its rapidly growing domestic and export markets. China clearly understands the link between a country’s domestic economic policy imperatives and its foreign policy. It recently played host in Beijing to several political leaders and officials from countries across Africa at a China-Africa Co-operation Forum, pampering them with attention and banquets and dangling before them preferential loans.

Just briefly, Guyana’s failure to connect the dots contrasts sharply with China’s, and explains why Minister Robeson Benn can justify a US$138 million expansion at the Cheddi Jagan International Airport built financed by the Chinese, who according to Benn came by with the money which Guyana duly grabbed. Apparently no one bothered to consider whether the project fitted in with our debt profile, our investment strategies, our economic priorities and our foreign policies. A couple of years ago we were excited with Libya and Kuwait. Yet the PPP/C’s 2011 Elections Manifesto had not a single reference to Libya, Kuwait or China, or indeed to foreign policy.

Regardless of whether or not there is a Guyana policy, as a country China is rapidly becoming the dominant player in Guyana. The Indians, no saints themselves, who have long had a stronghold in Regent Street, are now complaining about the practices of the Chinese traders. If Guyana has a China policy it seems to run along these lines: whosoever will, may come, no questions asked, no visas required and no tax or NIS registration compliance.

Trade trends
A recent study shows China as one of the leading exporters to Guyana of car parts, tyres, fertilizer, pesticide, weedicide and fungicide. Its domestic appliances now dominate in the hire-purchase outlets. And of course the Chinese restaurant is found at almost every street corner in Guyana. But Chinese durables are also reality, notwithstanding the many jokes about the standards of their products.

But apart from these, China has also been a major supplier of capital projects. They supplied the Moco-Moco Hydroelectricity plant which has been defunct for several years and the rehabilitation for which the country was forced to consider seeking assistance from the Brazillians, and the Skeldon Sugar Plant which cost the country billions and like Moco-Moco, the rehabilitation for which GuySuCo had to turn to the South Africans and the Indians. The most recent fiasco import from China are the two roll-on, roll-off ferries for which more than rehabilitation will be required with questions being asked as to whether the vessels will ever be able to meet the needs for which they were acquired. We seem to have such infinite faith in the Chinese that we not only buy a pig in a poke from them, but one that says if the pig turns out to be a dud, tough luck, let the buyer beware.

Softly, softly
Less visibly until now, the Chinese are making significant moves into gold mining, and the local media recently revealed their anti-environmental practices at Imbaimadai and raised complaints that the Chinese enjoy more privileges than local miners. One particular cause of concern is that many of the Chinese found on these concessions may have entered Guyana illegally and in many cases only the lowest level job is given to Guyanese, if at all. Interestingly, the Guyana Geology and Mines Commission came quickly to the defence of the Chinese who it said were employed as skilled equipment operators. The statement did not offer any explanation for several of the foreigners working without the relevant documentation. But then there is more to the explanation than the GGMC was prepared to admit to.

The Imbamadai issue simply highlighted Guyana’s confused policy on Chinese immigration which first surfaced in in December 2010 when President Jagdeo pledged Guyana citizenship to Chinese nationals who were living here legally for seven years, and three-year work permits. The Guyana Citizenship Act sets five years as the benchmark for citizenship applications once persons are of good character and intend to continue living here, while work permits are usually available for one year only.

BOSAI and China Harbour
A Chinese controlled company – BOSAI – was caught in the Linden electricity storm when it was revealed that the subsidy in the national budget now proposed to be cut was paid by the government to the company to enable it to sell electricity to the community at a reduced price. When this was revealed in the media one of the companies in the BOSAI group then published a one page document that inclusive of the subsidy, the company was actually making a profit. The statement was completely inadequate for any analysis of the appropriate accounting in the company and how it accounts for cost. In other words, BOSAI could in fact be making much, much more out of the subsidy. Persons close to the company tell me that almost all the positions of any importance in the company are held by Chinese who are always either reluctant to provide information or would often and suddenly not be able to understand questions posed to them.

When BOSAI was granted permission to take over the Linden operations, it announced that it would be investing in an alumina plant here. Later we were told a subsequent feasibility study done by the company had shown this to be unprofitable. The original agreement, which has not been made widely available, was signed by Prime Minister Samuel Hinds who is supposed to be knowledgeable about the sector. But if the Government-BOSAI deal is a case of an agreement with an investor over the use of the resources not being made public, it cannot be as bad as the contract with the discredited Chinese company for the expansion of our major international airport that will cost us some US$140 million.

What is baffling about that contract with China Harbour Engineering Company (CHEC) Limited is that the man who engineered it in secrecy, former President Bharrat Jagdeo, is now calling for its review. That call was made after the disclosure by Jamaica’s Office of the Contractor General (OCG) that CHEC’s parent company, China Communications Construction Company (CCCC) and, by extension, CHEC have been blacklisted, since January 2009 by the World Bank, under the Bank’s ‘Fraud and Corruption Sanctioning Policy.’ Inexplicably, President Ramotar seems to have ignored Mr Jagdeo’s advice.

In Guyana’s interest
Any investment that allows for the profitable use of Guyana’s natural resources should of course be welcome, but only if it benefits both the investor and Guyana. Bauxite production in 2011 of 1,818,399 tonnes was almost double that of 2010 but Guyana gets very little out of it. On Friday I passed by a mined-out pond at the back of Amelia’s Ward and was astonished at the environmental legacy of the bauxite companies. On the other hand, the revenue that accrues to the country for all of this is next to nothing. This crazy policy has to be reviewed and it cannot be that whoever passes through waving bundles of US dollars should drive our investment profile.

On Friday I was in Linden. Yesterday I took someone to the airport. Surely any rational person would consider priorities in how to borrow and spend. Like so many communities around the country Linden needs development funds more than the country needs a state-of-the-art airport. By all means we should do something about improving safety and passenger convenience at CJIA, but can we afford to spend US$140 million just a few years after what we were told was a modernization of the same airport when whole communities need development and jobs?

We must not forget that the External Loans Act only allows external borrowings up to approximately two billion United States dollars. We are getting very close to that ceiling, some of which has been used to finance questionable projects, including those financed and involving the Chinese. In fact I would argue that we have already exceeded the ceiling if we include the Chinese loans appearing on the books of GuySuCo which the government will have to repay, since GuySuCo cannot. Indirectly too, the government will be committing to the payment on behalf of GPL to hundreds of millions in connection with power purchase by GPL from the Amaila hydroelectricity project.

Favouring Guyana
The first thing is that we need to understand the link between foreign investors, foreign policy and the domestic economy. Rather than go for a career diplomat to represent us in China, Guyana chose writer and academic Dr David Dabydeen as its ambassador, under the direction of Ms Carolyn Rodrigues, herself a newcomer to diplomacy. We need to have persons in these positions who would question why China has chosen Guyana for treatment that is even more special than that country extends to Africa.

At the China-Africa Co-operation Forum referred to earlier, President Hu Jintao of China pledged US$20B in credit for Africa over the next three years. There are roughly fifty countries on the African continent. Over a three-year period the US$20B amounts to approximately $133 million per year – in credit. China is not paying an awful lot of money for the economic opportunities and benefits it receives from Africa in the “form of crude oil, minerals, steel and agricultural products which have played an active role in lifting the Chinese people’s livelihood. Meanwhile, the continent also serves as an indispensable market with great potential for Chinese products…” according to the People’s Daily, the Communist Party’s main mouthpiece.

The new coloniser
China resents any suggestion that it is the 21st century new coloniser, preferring to use the label ‘strategic partnership.’ China’s economic offensive is matched by a media barrage that has so far not been able to dispel concerns that like the CHEC airport contract, investment deals involving China are opaque and open to corruption; that like BOSAI and the Imbamadai gold operations Chinese projects often import Chinese labour rather than develop local skills; and that as the workers in the Chinese stores in Georgetown can attest, Chinese firms exploit local workers.

There is no question that China has moved away from being just a manufacturer of cheap products. Other countries in South East Asia pay even lower wages. But China, supported by a huge military and internal police and with good infrastructure, is able to offer a stable location for business that has no equal at this time. Some may chafe at China’s human rights practices; its attitude to religion and its treatment of the Buddhists; its one child per family policy; how it puts down dissent or cleared communities to showcase itself for the 2008 Olympics. But none can deny its success as an economic powerhouse. It can and should be a partner, but not on its terms alone.

Conclusion
What we in Guyana must recognise when the Chinese come bearing gifts is that China’s foreign policy is driven by economic considerations which put Chinese interests at the centre. As its veto of UN sanctions against Syria has shown, China has little interest other than its own, regardless of how many lives are involved. It could not care too whether it riles the rest of the world with its strategy of building its own economy at the expense of other countries through an undervalued currency, trade barriers and state subsidies to its exporters. Even China’s friends like Kenya’s Prime Minister Raila Odinga grumble that his country imports a lot of manufactured equipment like tractors, ploughs and harvesters, and that it is time that Kenya should have its own tractor manufacturing plant.

In Guyana we need to learn two things – that there is no such thing as a free chow mein and to say ‘不’ or ‘bu’, the Chinese for ‘no.’

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No such thing as a free chow mein

Introduction
No free chow mein. That was my first thought as I tried to interpret the words of Minister of Public Works and Communications Robeson Benn in relation to the airport expansion project that “we [meaning the government] had to enter into an agreement because we had a very narrow window in September where a Chinese Vice Premier came to the Caribbean with several billion dollars to fund projects and it was the only opportunity we had then to fund this undertaking.” Call it boldness, recklessness or madness, Mr Benn was honest in telling Guyanese how the country arrived at the decision to bind the people of the country with a debt of more than thirty billion dollars, in secrecy and without any feasibility study. While the government’s methodology might frighten some and shock others, many would not be even mildly surprised at the clear insight into the government’s thinking.

Hitch the wagon to the Yuan
It should be no irony that Guyana – with no foreign policy compass, philosophy or ideology – should have chosen to hitch its wagon to the Chinese star, or rather their bulging treasury. After more than fifteen years under the thumb of the IMF, Guyana had exhausted and benefited from all the opportunities associated with being a low income country. With an extended downturn in the West which was, as far as Guyana was concerned, too picky about transparency and accountability, China fitted well with the mendicancy economics admitted to by Robeson Benn. Even so, Mr Benn, better known for heavy action, sledgehammers and bulldozers than for thoughtfulness, could have cited hundreds of reasons for electing to go down the Chinese road.

The Economist, one of the most influential publications in the world, this year launched a weekly section devoted to China, the first time in seventy years that it singled out a country for detailed coverage. The accolade has nothing to do with the virtues of the country. It is still a Communist state regulated by internal police, does not take criticisms lightly, is largely anti-religion and its one child per family policy is sometimes executed in the most cruel and callous way. In one recent case, local state officials forced a young mother to abort her child seven months into the pregnancy due to China’s one-child limit law. The birth of the child would have violated the one child per family policy. While child stealing is not official policy, with a country as vast as China, state officials are reported to confiscate “illegal children” and ship them off to orphanages from where they are sold.

In the face of the rise of China to its status of might, Hillary Clinton and the USA suddenly decided that the wall of human rights could not withstand the might of the Chinese economic juggernaut. In so doing, the US left serious questions about China to be raised by other groups and individuals.

Miracle
Whatever anyone might think of China, its economic story is a miracle. The miracle, the story goes, began in 1985 with a steamship conference of ten foreign economists, including one Nobel prize-winner and about two dozen Chinese, swapping ideas on how to lead and manage a vast country with a population approaching a billion. In 2010 China displaced Japan as the second largest economy in the world. And some time in this current decade, it is expected to overtake America. That is a feat without a historical parallel.

What makes the rise and rise of China so fascinating is that it has happened in less than a generation. Only 20 years ago, China was a long way from being a global superpower. After the student protests in Tiananmen Square in 1989, China faced isolation abroad and doubts and threats at home from the old stalwarts. In what turned out to be a masterstroke, in 1992 Deng Xiaoping set out on a “southern tour” to sell his reforms and its benefits, arguing that that was the only way to save the Communist Party. Seemingly oblivious to what has happened around it and across the world, the Chinese dragon has moved relentlessly to establish itself as a superpower in its own right.

China then applied all the Western theories about export led growth, promoting itself as a low cost location with hundreds of millions of its hardworking people willing to provide their labour at rates well below those in the West, with modern infrastructure and a stable economic system. It certainly helped too that as China was heading in this new direction, the US and the rest were pushing globalisation and the removal of all barriers to trade. That could not have come at a better time for the Chinese. China became manufacturers to the world with shelves upon shelves of America’s stores stacked with Chinese goods. Indeed I just read that the US Olympic Team uniforms are made in China! What an honour! And what indignity!

The good
China has now overtaken the US in steel consumption, mobile phones, exports, fixed investment, energy consumption and car sales. Its education system and research and development capability have made huge strides. And using the overarching measure of them all, China’s economy is projected to overtake that of the USA by 2018, if not earlier. It is hard to imagine that in 2000, its economy was only one-eighth that of the USA.

To do that China needs all the raw materials it can puts its hands on – steel, bauxite, timber, zinc, copper, gold, silver, etc – and has targeted the third world and particularly Africa. As counterpoints to the colonial powers and the gunboat diplomacy of the US, and with an eye for corrupt politicians, the Chinese were received with a mix of hope and fear, fascination and suspicion, and gratitude and disappointment by most of Africa’s fifty or more countries.

The records show that China has boosted employment in Africa and made all kinds of basic goods, clothing, footwear, toys, shoes, watches and radios more affordable. Trade has expanded while China’s loans to poor countries have surpassed the World Bank’s. Much of those have gone to Africa.

The bad
But the fears and suspicions were not without sound basis. The story is all too familiar of conmen operating in mainland China and ripping off their own people. The opening up of China to both foreign and local media, access to the internet and a few high profile human rights advocates have exposed some of the worst excesses of shoddy construction, fake milk, counterfeit products bearing brand names and expired, useless and dangerous drugs. The practitioners however did not disappear and soon formed part of the exports from China to Africa. They break immigration, customs and tax laws routinely and have no qualms about bribing local officials.

An article appearing in The Economist last year would find resonance with Guyana. It spoke about slapdash Chinese construction work and of serious defects to buildings and roads constructed by them. Local employees of Chinese businesses are almost invariably stuck in low level positions while even the middle level positions and all the senior positions are held by Chinese. These are not anecdotal and are easily cross-checked by what happens wherever the Chinese go.

The Chinese have a long and proud history and seldom do anything without the most serious study. Their strategy is to exploit other countries’ resources while conserving their own, a policy they may have copied from the West and most particularly America. But they are also selective. While Africa has only 10% of the world’s oil reserves, China now receives an estimated one-third of its oil imports from Africa. A closer look at the countries with which it does most of its business indicates that China likes to deal with very poor countries and to invest in assets for their own benefit and financed by their loans. If the road leads to a copper mine or a seaport, the Chinese are excited to build it – with Chinese management, labour, equipment and capital.

The ugly
There is a fear that China has become too successful. With millionaires galore, there is huge expectation among the masses and the workers, many of whom are becoming restive. Social unrest has been common and while the internal police have been condign in clamping down on them, the lid could just pop. One thing China has is a pathological fear of religion. It has been particularly intolerant of the Moslems and Buddhists whose spiritual leader the Dalai Lama they see as a mortal enemy and for which they make the Tibetans collectively pay.

The power has spawned arrogance and their disdain of other world leaders including President Obama has been evident. They suffered for a long time over British domination of Hong Kong. They bristle over Taiwan. Their annual spending growth on defence and security is always in double digits. They can afford it with reserves in excess of three trillion dollars, that is, three and twelve noughts.

In addition to a party that believes it has to control everything, Guyana also shares with China the conspicuous princelings, the offspring of the party dynasty who receive the best education the state can afford and are then offered assets and opportunities to share in the largesse of the country. The PPP/C government believes in private capitalism while in China it is state capitalism. In China they shut down internet sites. In Guyana, the government starts up its own to attack others.

It believes in prestige projects on a gigantic scale and sells the idea to third world politicians who will grab at any passing dollar. Corruption is taken quite seriously in China and can lead to public ridicule and in extreme cases to execution. It ranks 75th. on the Transparency International Corruption list but could not care about Guyana’s 134th place. For the Chinese that matters not. What matters to them is that there is a government willing to enter into agreements which allow them to lend some of their nation’s huge reserves while gaining access to Guyana’s resources. Hopefully, the Chinese must think, they will charm the rest with all forms of blandishments.

Conclusion
That Robeson Benn could get away with what he said is an indictment to all Guyanese. But not surprising. After all, look no further than the Chinese supply and construction of the clearly defective Skeldon Plant without any meaningful guarantee and then being awarded further contracts. Next week I will look at some of their investments including the ferries, the Mocha-Mocha mini-hydro plant, BOSAI and the airport deal which dealmaker Mr Bharrat Jagdeo has indicated should be revisited.

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China and India – Reshaping the world economy (conclusion)

Introduction

Not a day goes by without something being written about the miracle of China and India and the inevitability of these great countries graduating to superpower status. Their praises are sung in hyperbolic rhythms by a body of writers who have created a whole new cottage industry dedicated to them. The only question in the minds of many of these writers is not whether but how soon the two Asian giants – or as they are sometimes called the dragon and the elephant – will return to the glory days of four centuries ago when they were the dominant forces in world trade. One estimate is that by mid-century, India and China’s share of global output is expected to grow from 6% now to around 45%, spurred both by exports and burgeoning domestic purchasing power as more and more of their more than 2 billion people copy and can afford to live western lifestyles. All the measures suggest that China and India will overtake Germany and Japan and dwarf every other economy except America.

China is spending like a runaway train with expenditure on transportation infrastructure in the five years from 2001 to 2005 exceeding all the expenditure in the preceding fifty years. Spurred by the need to impress the world at the Summer Olympics later this year, it has built its new airport terminal which is 17% larger than Heathrow, faster than it would take London to complete an enquiry to consider whether it would add another terminal. Nothing seems impossible anymore so that when China announces that it will complete an expressway from Beijing to Taiwan’s capital Taipei by 2030, no one considers the challenges of crossing the 150 km Taipei Straits. What China does in one year, other countries seem unable to achieve in as many as ten.

More statues of Jesus

Some questions have however been creeping into the writings suggesting that the world needs to consider more than the marvel of these two giants which, even before their resurgence, had given the world so much. Among China’s many gifts going back more than one millennium are the clock, technology in hydraulics, shipbuilding, weaving and spinning machines, paper and ink, and more leisurely comforts like the toothbrush and playing card. Then like now India’s gifts were in know-how including mathematics from the decimal point to the Pi (the numerical ratio of the circumference to the diameter). Complacency overtook them both as power and politics placed a brake on their development.

Once again, in the blink of an eye, both countries have become so big that economies around the world – from its neighbours in Asia, Europe and North America – are now dependent on them for a full range of goods and services. In their separate ways, China’s workforce and work ethic and India’s information technology and back-office services have brought down prices for the family, the office and the factory. It is ironic that more statues of Jesus are made in atheistic China than are made in the entire Christian world! There are few products in the world that do not include some component or know-how from these giants and it would not be surprising if the harshest critics of out-sourcing among television commentators were wearing shoes or garments made from China. Indeed even those thousands in San Francisco protesting China’s Tibet policy during the passage of the Olympics Torch in their city last week might have been similarly attired. There simply is no getting away from the growing dominance of China and India.

Economic and military power

Yet, nothing should be taken for granted and admiration can easily turn to hatred if these countries behave like superpowers usually do, flexing their muscles and showing no regard for domestic and international concerns. China, for example, is accused by its critics as being willing to work with the most extreme regimes, as in Darfur, if only to source raw materials for its huge factories. Its size and economic power are fast translating into military ambitions and it has its sights set firmly on Taiwan which is now treated as a pariah by so many of its former friends, afraid to offend China. China’s patience is legendary but will it lose it and “reclaim” Taiwan and will the world stand idly by?

As world demand for Chinese goods and Indian technology increases, it brings with it increasingly affluent domestic populations aspiring to higher standards of comfort, if not luxury. To meet those growing demands, China and India are displaying an increased appetite for natural resources, contributing to the driving up of prices of commodities including food around the world. But as their factories produce the goods to meet both international and domestic demand, they add to the pollution problem of their people and the rest of the world. It is troubling that neither country, along with the USA and Australia seems willing to enter into binding commitments on pollution controls. They will need to learn a lesson from America when it comes to the use of economic and military might.

The mighty challenges

With the Communist Party still calling the shots in China and national and provincial politicians wielding considerable influence in India, corruption remains high in both nations. China is still to safeguard the intellectual property of manufacturers, the music industry and the arts. The state of the laws generally has not kept pace with development and cases of broken contracts and theft of intellectual-property are often not worth pursuing. India has a Western-style legal system that produces decisions that rank with the best the House of Lords can offer. But as they say, one cow does not make a herd and the country’s court system generally moves at a snail’s pace.

India’s growth can also suffer at the fiscal level. Budget deficits are high and with the considerable infrastructure deficit and the army of poor and hungry Indians wanting a piece of the Puri, it will require sustained growth to generate the taxes to meet the necessary demands on the federal and state budgets. Disease thrives on poverty and even as India promotes health tourism, the potential for a pandemic is ever present as AIDS and TB threaten hundreds of millions.

India has been relatively fortunate that it has been able to graduate from a low growth rate despite failing infrastructure, a bureaucracy controlled by a 10-million babu raj exercising impenetrable red tape, and an inhuman caste system that seems as unmovable as Mount Everest. The politicians in India are finding it difficult to erase the Gandhi/Nehru philosophy of self-reliance and restrictions on bank lending and foreign investment which impose limits to growth and development.

Unemployment

Despite all the economic achievements of China and India, each year tens of millions of youth join the job queue, some in front and others behind the estimated 200 million yet to reap the benefits of the Asian Miracle. The heavy hand of China was inadequate to prevent more than 57,000 labour strikes while social rights activists in India lament the failure of economic achievements or social programmes to reach the poor. In a federal democracy that could be a recipe for political instability which can derail any economic train.

China’s critics complain about the country’s labour practices which permit low wages paid to workers forced to perform under dehumanizing conditions, about large state subsidies, violations of WTO Rules including dumping at below market prices and an undervalued currency, the Chinese yuan. As the benefits of industrialisation stretch into the countryside and bring urban/rural wages in a more tolerable relationship, farms are being destroyed and farmers deprived of their lands creating serious tensions between the party and the people.

For all its greatness and growth, China is considered hugely wasteful. Even as the world marvels at its 9.5% growth rate in 2004, it should not ignore the fact that $850 billion – half of GDP – was mainly plowed into already-glutted sectors like crude steel, vehicles, and office buildings. Its factories burn fuel five times less efficiently than in the West, and more than 20% of bank loans are bad.

China is also confronting its biggest problem and one that can cause it to lose its competitive edge, its one-child policy introduced as a population control measure. By 2015, its working-age population will begin to decline and in 20 years, an estimated 300 million Chinese will be over sixty years old with no guarantee of any state assistance. With a growing middle class and persons less reliant on the State, can China continue its communist ways and treat any future Tiananmen Square-type uprising with the same heavy hand that it used in 1989 and will the world remain spineless as it tramples the rights of the Tibetans as it is doing now?

Conclusion

For all the dazzling performance of China and India, their continued success will take more than cheerleaders. They currently only account for 6% of global gross domestic product, half that of Japan, and while the signs are good, their success is not guaranteed. The expectations of the hundreds of millions of their people will only be satisfied if the economies of these countries continue to grow at rates that guarantee jobs for the tens of millions entering the workforce annually. That is a huge responsibility and for a world that depends on the goods and services from those countries, any setback in the two countries would have a huge and possibly disastrous effect.

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China and India – Reshaping the world economy

Introduction

To be honest, this article was prompted by China’s harsh treatment of the people of Tibet who would just like to live in peace, free from the heavy hand of Beijing and to practice their Buddhist lifestyle. It is taking place in a glory year for China as the Olympics are held in that country whose government will simply not have anyone spoil their party, not even crusaders for human rights or nationalist respect. Even though such consideration and debate do not rightfully belong to this column – the first in a two-part article on the two fastest-growing economies of the world – such consideration is not entirely irrelevant since economics have social and other consequences as economic power sparks other ambitions and attracts fear if not respect. Indeed this perhaps explains why no country is planning to boycott the Beijing Olympics and why human rights abuses in China are discussed in only the most veiled terms.

In Guyana we must never ignore human rights issues anywhere, but an equally important consideration in any discussion on China and India is the importance of the right mix of policies to spur economic growth and development. Indeed the experiences in China and India are not entirely dissimilar to us here where we attempted to practice an extreme form of socialism beginning with the Sophia Declaration in 1973 and ending with Hoyte’s version of Glasnost, his embrace of the IMF and Cheddi Jagan’s continuation of the programme despite his personal and his party’s antagonistic position to the IMF. We too experienced good growth for some years but this fell off amid other conflicts and the economy has survived in great measure because of debt write-offs.

Reclaiming their rightful place

When in 2006 the Prime Minister of India proclaimed that India and China are on the way to reclaiming their rightful places in the world economy, the world did not see that as some idle boast or threat but rather a simple factual statement. America and the West called for globalisation and China and India opened their doors, not completely, but enough to cause huge consternation and fear among segments of the American population at the way these two countries are shifting the tectonic plates of the world economy. What makes the story of China and India is not only their similarities but their differences – ideologically, historically, culturally and economically. One is dictatorial while the other is democratic; the court system of one would be considered too free by the other; China is Communist but pro-business while India is free-market but at times highly suspicious of business; one emphasizes its human infrastructure while the other promotes the low wages of its people; one still operates with a Five-Year Development Plan while the other seems to worship not any omnipotent, all powerful, many handed deity but the invisible hand made famous by Adam Smith.

But it is not the differences that cause leading journalists like Lou Dobbs to worry – rather it is their similarities – up to recently they were considered part of the Third World, too large and too poor to succeed, over-populated and almost unmanageable. Yet before the world could appreciate the release of the latent powers of numbers, India and China have become the fastest-growing economies giving them the claim to superpower status in less, far less than twenty years. It is true that they will never be able to reclaim the position they held in 1600 when their combined economies accounted for more than half of the world’s economic output or even their position in the late nineteenth century as two of the largest economies in the world.

The decline

Several things intervened between then and now, including the meteoric rise of the United States of America, which with a workforce driven by a lust for things material and powered by enterprising migrants escaping from the famine in Ireland and war in Europe grabbed the lead in agriculture, apparel, and the high technologies of the era, such as steam engines, the telegraph, and electric lights. There were too the Marshall Plan in Europe and the rise of Japan and South Korea in Asia.

Yet, the decline in both absolute and relative terms of China and India had little to do with such external forces but was directly the result of inward-looking yet adventurous policies by these countries often on the brink of war, with daggers drawn and guns pointing at each other. For several decades political considerations dominated and shaped domestic policy as the countries were held spell-bound by their history of invasion and colonialism and the philosophies of great founding leaders – Mao Tse-tung in the case of China and Mahatma Gandhi for India, one a revolutionary who believed that power lay in the barrel of a gun the other a believer in the principle of non-violence. What would these great leaders think about the country they either killed or died for?

Ten years after announcing the formation of the People’s Republic of China in 1949, Chairman Mao’s disastrous Great Leap Forward caused the death of 30 million in four years of famine while his Cultural Revolution in 1966 saw the decimation of the intellectual and bourgeois class, the closure of universities and destruction of books. His policies according to the author Robyn Meredith in the book The Elephant and the Dragon, may have succeeded in the creation of a society in which private property was practically non-existent but also in a generally downward spiral in the well-being of the country and the people.

Signal left and turn right

The transformation began with the rise to power of Deng Xiaoping who beginning the reform in the countryside, broke up the collectives and introduced the rudiments of a market economy. Over 125 million jobs were created by 20 million entrepreneurs who rediscovered the capitalist instinct of the Chinese. While significant the changes were not nearly enough and it was time to look outward. Instead of heading to Europe and North America, however, Deng went into his own backyard, Malaysia and Singapore, whose Prime Minister Lee Kuan Yew he admired deeply and with whom several learning visits were exchanged. His “special economic zones” were characterized by employer-friendly labour laws and low taxes all the while formally remaining loyal to socialism. There is the joke of Deng being asked by his chauffeur which way to turn as they reached a junction. Deng, the quintessential pragmatist instructed the driver: “Signal left and turn right.”

Now fifty years on, the transformation is like the world has never seen. What makes the situation even more mind-boggling is what has taken place within the past decade. In 2000, 30% of the world’s toys came from China. In 2005 that grew to 75%. One out of every three pairs of shoes made today is the product of Chinese labour and between 1996 to 2004 exports of electronic equipment had increased 800%, from $20 billion to $160 billion. When last did we hear that Small Is Beautiful, the title of a series of books by E. F. Schumacher.

India

Pained by the experiences of colonialism and exploitation in which the masses of India lived in abject poverty while as a colony the country was the gem on the Royal Crown, Gandhi was a great believer and practitioner of economic independence while opposing mass industrialisation, preferring traditional means of production, symbolised by the spinning wheel on the Indian Flag. Even after his assassination in 1948, the Congress Party of India, first under Jawaharlal Nehru and later other members of the dynasty continued the policy of self-sufficiency, shutting India from the outside world, equally difficult for Indian producers to export as for foreigners to invest in the vast country. One of India’s best known companies, the Tata Group, formed in 1868 became a key part of the country’s freedom movement and out of its nationalist commitment built its mills to supply the steel for the country’s successive five-year development plans.

The productive capacity of the country was, however, kept in check by a rigid policy of licensing so that even a manufacturer of motor bikes could only produce as many as his licence permitted. With socialist instincts running through its veins, the government found its finances in perpetual deficit as it made efforts to create jobs which were in turn protected by costly guarantees that were a severe strain on companies. Ironically, it took the cataclysmic second oil shock sparked by the 1991 Gulf War to cause India to awake to the reality that having 330 million people, or 40% of the population, in total poverty was neither moral nor compatible with sustaining its position as the world’s largest democracy. Narasimha Rao who became Prime Minister after the assassination of Rajiv Gandhi, appointed the economist Manmohan Singh, current Prime Minister, as Finance Minister. Unlike China, India took the route of the IMF, devaluing the currency, removing import and export restrictions and expensive bureaucracy.

It is the result of the vision of these leaders and the number and energy of their people that is causing such consternation among Westerners and Americans in particular who see their solo superpower role under threat from the rapid growth of these two economies. For China the growth rate has been averaging 10% per annum while India’s at 6% may seem modest except when it is compared with the 3% in the US and other western countries. Indeed the admired has become the admirer and Lee Kuan Yew told a Forbes Conference in 2006 that he has been visiting China “every year and each time he is surprised at the rapid changes”.

These two countries both have young populations, high Asian saving rates and have put in place measures which barring some catastrophe can keep growth in the high single-digit range for decades. Admittedly they have come from a low economic base but with the substantial catching up they still have to do, there is no reason for them to slow down.

To be concluded next week.