Washington Post: Jim Hoagland on India vs. China

June 10th

sorry for the radio silence, folks: i was on the us east coast on a mixture of business and vacation and had too little time to post stuff.

this article by jim hoagland was forwarded to me by someone, and i am posting it as is. i am not sure about the currency basket argument, but i think the chinese currency is deliberately under-valued and there's no way in hell they'll re-value it unless forced to. the links to other asian currencies is probably a red herring intended to get other countries to help in resisting american pressure to revalue.

some of hoagland's arguments are things that i have saying -- nay, shouting from the rooftops -- for some time. but short-term focused americans are not paying attention to the long-term trends.

also, note, en passant, the statement by the national review commentator below the hoagland column that the 'adoption of christianity' by china is a good thing for america :-) now where have we heard this business of the missionaries  being the storm troopers preceding colonization?


http://www.washingtonpost.com/wp-dyn/content/article/2005/06/08/AR2005060802173.html

THE WASHINGTON POST

Whose Asian Century?

By Jim Hoagland

Thursday, June 9, 2005; Page A21

China prepares to head a great manufacturing empire. But empires unravel, usually from within. The forces that will determine which nations will dominate the 21st century may yet favor India's emerging reach for global power status more than China's determined grasp for that prize.

Kamal Nath, India's energetic minister of commerce and industry, states the case with economy: "China may win the sprint, but India will win the marathon." In Nath's view, this will be the Asian Century -- but not in the ways many in the United States and Europe assume or fear.

To which you are entitled to respond in unison: Well, he would say that, wouldn't he? It's his job. And right you would be. But right he may be as well: Current straight-line projections of China's rise to power neglect developments and adjustments in other Asian countries, particularly in the region's two great democracies, India and Japan.

The "smart money" literally favors China. Foreign companies pour billions upon billions into direct investment there. But what if they are pouring 21st-century dollars or yen into a great 20th-century power? Politically, China is ruled by Leninists who must maintain the status quo. Militarily it relies on a large, underequipped land army. Economically it has adapted and mastered Henry Ford's assembly line on a continental scale. Financially it hordes its cash, regulates its markets with zeal and defensively uses fiscal policy to prevent mass upheaval.

Even the Bush administration's trade arguments with China come from the past. While the United States and India argue about problems of the future, such as intercontinental outsourcing, the U.S.-China quarrel smacks of the Bretton Woods conference of 1944. Washington wants Beijing to revalue its currency as a way of cutting the staggering trade imbalances spinning out of low-wage manufacturing.

Think Asia, not only China. Only a revaluing of the Chinese currency of 25 percent or more -- a huge, unlikely step -- would raise prices enough to deter consumers abroad, a Chinese businessman suggested in a not-for-attribution talk on Asia's "dispersed manufacturing" system delivered at the Trilateral Commission meeting here in April.

"The yarn for a shirt you think comes from China was perhaps shipped from Thailand to South Korea for processing while buttons came from the Philippines. The final product was stitched together in China and shipped from there," the businessman said. "Revaluing, at any politically acceptable level, will not seriously change the final price."

This description "underlined that we need an Asia-wide exchange rate agreement, not just one with China," economist Fred Bergstrom said later. He's right: The Middle Kingdom serves as a platform to bring together capital, cheap labor and industrial technology from throughout the region and ultimately the world. China relies on this empire, but does not totally control it.

India, on the other hand, has set out to become "a global knowledge hub, with a central place in the transnational movement of knowledge and services," Nath said in a conversation here last week. He argued that India's comparative advantage lies in its large and relatively young educated population. Seventy percent of India's 1.1 billion people are literate -- many of them are fluent in English -- and about half are under 30.

Nath's argument intrigues because it incorporates global demographic trends often ignored or glossed over because of the social and political dilemmas they create. Prime among these is the galloping aging of the population of advanced industrial societies that will not accept greater immigration flows to renew their labor forces. Where do these countries turn when they have too few workers to meet demand for goods and services -- and to support retirees?

"The answer is to move information and services, rather than people, across borders," according to Nath. Shifting low-wage or knowledge-intensive jobs through new communications or other technology to areas where there are surpluses of educated and willing workers has been controversial, he acknowledges, but if outsourcing decisions make economic sense, the savings they create will provide new jobs at home.

You're right again: He would say that, wouldn't he? But what about these remarks by an influential American, Undersecretary of State Nicholas Burns? Speaking to a U.S.-European group in Brussels on May 26, Burns observed:

"The greatest change you will see in the next three or four years is a new American focus on South Asia, particularly in establishing a closer strategic partnership with India . . . If you look at all the trends -- population, economic growth, foreign policy trends -- there's no question that India is the rising power in the East. . . . I think you'll see this as a major focus of our president and our secretary of state, and it will be the area of greatest dynamic positive change in American foreign policy."

It was fashionable a few decades ago to bemoan the weakness of democracies in the bipolar conflict of the Cold War. Despite that pessimism, totalitarianism did not prevail in that long race -- just as the communists in China will not win the right to shape the Asian Century alone.

jimhoagland@washpost.com

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http://www.nationalreview.com/thecorner/05_06_05_corner-archive.asp#065686

NATIONAL REVIEW ONLINE, JUNE 9, 2005

INDIA V CHINA [Rich Lowry ] 

Hoagland is pretty late in the insight that India is likely to outperform China in the long run. He does make a great point on the currency basket for Asia.

Even before 9/11 the Bush administration was working hard to improve relations with India. It's a natural US ally as a democratic, largely English speaking democracy concerned with militant Islam and a rising, nationalistic/fascistic China. We now have a services trade deal, military cooperation and a large Boeing deal to show for these efforts. It just took us a while to seek this logical partnership because post colonial India was a de facto Soviet ally in the Cold War. Bush moved crisply after Clinton barely got the ball rolling.

It has long been noted that the return on invested capital for India is much higher than for China thanks to its emphasis on developing a knowledge economy instead of being a low cost manufacturing center (not that this is a bad thing).

The scariest short term scenario with China is that the confluence of the government's need to stoke nationalism to keep the country together, Taiwan's negligent underinvestment in defense, China successfully upgrading its Naval and Air Forces without our knowledge and the impending European arms sales might lead them to make a grab for Taiwan sparking a crisis around the time of the 2008 Olympics. In the long term, they could make geopolitical trouble for us in a de facto alliance with a passive aggressive Europe, but we have many cards to play and China itself has some internal contradictions, unfavorable demographic trends and emerging factors -- like the adoption of Christianity -- that probably work in our favor.

There are really no bad scenarios with India. They can destroy anybody that may mess with them and are almost too diverse to degenerate into a civil war or hyper nationalistic state.