Covid showed dependence on China poses all kinds of risks. For India, it’s even greater

File photo of Narendra Modi and Xi Jinping | Graham Crouch | Bloomberg

More than ever, countries are waking to the dangers of interdependence, especially with China. Myriad vulnerabilities stand out.

International trade has helped turn economic laggards into dynamos, from Taiwan to Chile to Ireland. Yet, no country has benefited more from globalisation, or has come to symbolise it better, than China.

More than 850 million Chinese escaped subsistence poverty over the past 40 years. In 1981, about 88 per cent of the population earned $1.90 (adjusted for inflation) or less per day; in 2015, fewer than 1 per cent did.

Policymakers across nations, if not always the general public, have long noted these benefits, while downplaying the risks of globalisation. The coronavirus pandemic has abruptly ended such blissful ignorance.

This dependence on China poses economic, political, strategic and ethical risks for the world. The coronavirus pandemic threatens what Harvard historian Niall Ferguson in 2007 called “Chimerica” to describe the increasingly interdependent fates of the US and China. But the post-pandemic global counter to ‘Chimerica’ isn’t right either, and needs to be smartly calibrated.

Unhealthy supply chain

The first is health risk. China accounts for more than 40 per cent of the world’s exports of medical garb, including face masks, gloves, and eye visors, according to the Peterson Institute, a think tank. Have too many strategic industries been outsourced?

Efforts to secure scarce health care supplies are triggering fierce disputes, even among allies. Last month, Serbian President Aleksandar Vučić complained that the European solidarity “does not exist”. On 3 April, the interior minister of Berlin’s regional government accused the US of “wild West methods”. China’s decision to restrict the export of vital medical supplies, reported by The Wall Street Journal on 16 April, further underlined the risk of relying on the Middle Kingdom to be a supplier of first resort. In India, too, we have been at the receiving end of defective and substandard testing kits from China at hugely inflated mark ups.

The debt trap

Second is the economic risk. As stock markets plunge, governments are rightly worried that China’s state-controlled firms will snap up their nations’ strategic assets on the cheap. In recent weeks, Australia, Canada, Germany, and India have tightened restrictions on foreign takeovers.

However, even those companies that have seen the wisdom of not putting all their eggs in the Chinese basket and have decided to relocate their facilities, unfortunately, do not see India as a favoured alternative. Of the 56 companies that relocated manufacturing out of China between April 2018 and August 2019, only three came to India while 26 relocated to Vietnam, 11 went to Taiwan and eight to Thailand.

For India, the risk of economic dependence is even greater than most other nations as these numbers demonstrate. China’s share of global manufacturing output increased from 20 per cent in 2014 to 28.4 per cent in 2019. India’s share remained where it was — at 3 per cent. India’s imports from China (mostly manufactured goods) were $74.72 billion in 2019 ($54.2 billion in 2014). India’s exports to China are primary and intermediate products at $18 billion in 2019. In 2018, China exported $ 2.49 trillion worth goods. India’s exports are $330 billion against $314.4 billion in 2014.

Under the ubiquitous ‘Make in India’, we targeted a manufacturing growth of 14 per cent over five years. However, the 2020 growth is a paltry 2 per cent and the five-year growth stagnated at 7 per cent, barely half the target. The share of manufacturing in India’s GDP stagnated over six years at  about 17 per cent.

The Covid-19 crisis has escalated long-running battles too, not least America’s clash with Huawei over the Chinese telecom giant’s 5G networks. On 4 April, the White House announced the creation of a Committee for the Assessment of Foreign Participation in the US telecommunications services sector, to formally vet the national security implications of proposed deals. India should also seriously reevaluate the 7 January decision allowing Huawei to participate in 5G trials in India.

China may be the biggest source of anxiety about globalisation, but it’s not the only one. The coronavirus pandemic has pushed major food producers to curb exports. Russia, Ukraine, Kazakhstan, Vietnam, Cambodia, India, and Egypt have all imposed new limits on the export of wheat and rice, straining food supply chains.

Protectionism isn’t the answer

The third vulnerability is political risk. Neglecting the downsides of globalisation has empowered populists bent on overthrowing the international trading system. The bill for their destructive sledgehammer approach is adding up fast.

President Donald Trump’s tariffs destroyed nearly half a million jobs in the US in 2019, including many in manufacturing, according to an analysis by Moody’s. Back in January, before the collapse of global trade, the Congressional Budget Office projected that America’s trade wars would reduce average US household incomes by $1,277 in 2020 alone.

Indiscriminate protectionism not only imposes huge costs, it diverts attention from serious Chinese belligerence. Beijing’s ongoing military buildup in the South China Sea, for instance, flouts the territorial and maritime rights of five neighbouring countries. Its long-standing threats to invade democratic Taiwan are now backed by a formidable navy and army. And its Belt and Road Initiative (BRI) — an infrastructure development scheme linking Asia, Europe, and Africa — draws poor countries into China’s orbit.

The ethical turmoil

The fourth area of vulnerability is ethical risk. China has few qualms about flexing its economic and political muscle to intimidate those who question the regime’s frequent human rights abuses.

When, for example, Daryl Morey, general manager of the NBA’s Houston Rockets, tweeted his support for Hong Kong’s pro-democracy protests last October, Beijing immediately cancelled TV and endorsement contracts with the league. The NBA kowtowed quickly, saying it was “extremely disappointed” by Morey’s “inappropriate” comments; LeBron James, basketball’s biggest star and an outspoken voice against injustices in his own country, opted instead to describe Morey as “misinformed and not educated”.

The Chinese people are the main victims of the world grovelling to President Xi Jinping, who inherited a repressive state and made it more so. Since 2017, at least two million Muslim Uyghurs have been imprisoned in the country’s “re-education” gulags. Frequent crackdowns against political opponents paved the way, in 2018, for Xi to retain power indefinitely. Legions of internet censors continue to stamp out even the mildest public dissent, including banning the great counter-revolutionary, Winnie the Pooh (depicting Xi as a cuddly bear, Chinese bloggers discovered, can’t be tolerated).

Chimerica, no longer

The label ‘Chimerica’ isn’t just for America’s dependence but could easily have described China’s relationship with much of the world. That relationship is now unraveling: Covid-19 has made the risks of the world’s dependence on China impossible to ignore.

Sweeping protectionism isn’t the answer — we don’t need to repeat the failures of, say, India’s Licence Raj or Peronist Argentina. But governments around the world need to do much more to support strategically vital industries, to stand up to Chinese militarism, and to denounce Beijing’s trampling of its peoples’ freedoms.

Taoism, an ancient Chinese philosophy, stresses the virtues of balancing yin and yang. Pursuing a more balanced approach to globalisation would be no less enlightened when nationalistic, chauvinistic and even xenophobic responses have characterised the approach adopted by various countries to the coronavirus pandemic.

The author is a lawyer, MP and former Union information and broadcasting minister. Views are personal.