The time for dithering over China is over

The time for dithering over China is over
A worker packs up new smartphone devices at the end of the production line in China. Chinese components go into almost every product made US and European companies and their entire economies critically dependent on supplies from China. Courtesy: ANI

The Endless Frontiers Act being proposed in the US takes the Modi government’s own decisions to stand up to China’s strong arm tactics one step forward. Other democracies like the UK, the EU, Japan and Korea must join forces to outcompete China. If they don’t, we might end up in a very dystopian Sino-ised world a few decades down the line, writes India Inc Founder and CEO Manoj Ladwa.

The West has realised rather belatedly the downsides of dancing with the dragon. If you tango for too long, it will burn you at some point.

Deng Xiaoping, arguably the father of modern China, had repeatedly exhorted his country’s leadership to “observe calmly, secure our position… hide our capacities and bide our time…”

In keeping with this dictum, the country bade its time even as more than $1.77 trillion of foreign direct inflows (FDI) flowed in between 2000 and 2019 alone, according to Statista.com, a leading website on economic data.

It takes just one missing component to hold up an entire assembly line. Fiat Chrysler, Hyundai and Renault had to temporarily shut their factories when supplies from China were disrupted.

A bit of China in everything we consume

The resulting output goes into almost every conceivable product made or consumed in the West. This has made US and European companies and their entire economies critically dependent on supplies from China.

Take the example of the global automobile industry. China is the world’s largest supplier of auto components to all the major car companies around the world, including in the US, Japan, Korea and India, among others. In 2019, it exported components worth $34.8 billion, according to UN’s Comtrade data.

Aerial view of Qingdao Port undergoing expansion in Qingdao city, east China's Shandong province. China accounted for 22 per cent of all global exports.
Aerial view of Qingdao Port undergoing expansion in Qingdao city, east China's Shandong province. China accounted for 22 per cent of all global exports.Courtesy: Reuters

One component can hold things up

Remember, it takes the absence of just one small component to hold up the entire assembly line. This was evident in abundant measure during the pandemic when Fiat Chrysler Automobiles said it would have to temporarily halt production at one of its factories in Serbia , while other major international auto majors such as Hyundai and Renault had to do likewise in South Korea. The source of their supplies: China.

This scenario played out in company after company in sector after sector. India, the world’s pharmacy, for example, imports as much as 67 per cent of its active pharmaceutical ingredients (APIs), a critical raw material for medical drugs, according to an ORF study.

In 2019, China accounted for 22 per cent of all global exports, according to a study by leading US law firm Baker McKenzie and consultancy Silk Road Associates. In consumer goods, its share was a high 42 per cent.

Not only does it produce a large proportion of the finished goods that are consumed around the world, but it also accounts for a large percentage of the inputs that go into products made by companies in the US, Europe, Japan, Korea, India and elsewhere.

Now that it makes no effort to hide its ambitions of becoming the new global hegemon, there is a fear that it will weaponise economic inter-dependencies to gain a strategic upper hand against rivals.

Critical leverage

Modi’s decision to ban Chinese apps cast the first stone and  the Endless Frontiers Act can very well become the proverbial straw that breaks the camel’s back.
Modi’s decision to ban Chinese apps cast the first stone and the Endless Frontiers Act can very well become the proverbial straw that breaks the camel’s back.Courtesy: ANI

This gives it crucial leverage over significant sectors of the global economy and individuals within these countries. Now that it is done with biding its time in line with Deng’s dictum, and has made little effort to hide its ambitions of emerging as the new global hegemon, there is a very real fear that it will weaponise these inter-dependencies in its search for a strategic upper hand against its geo-political rivals.

China has brazenly copied, reverse engineered or stolen Western intellectual property in a bid to catch up with and overtake the West in high technology areas such as robotics, space, artificial intelligence (AI), machine learning (ML) and internet of things (IoT), among others.

As India, US, EU South Korea and Japan continue to check China’s dominance, it is becoming clear that Beijing will have to play by globally accepted rules if it wants to do business with other large economies.
As India, US, EU South Korea and Japan continue to check China’s dominance, it is becoming clear that Beijing will have to play by globally accepted rules if it wants to do business with other large economies.Courtesy: Reuters
If Modi’s decision to ban apps and restrict investments from China cast the first stone, the US law can become proverbial straw that breaks the camel’s back, provided other democracies follow suit.

United we stand, divided we fall

A bipartisan attempt to stop this has begun in the US Senate Majority Leader Chuck Schumer (D-NY) has asked his colleagues in the Democratic Party to draft a bill to “outcompete” China. The new law, which has the bipartisan the Endless Frontiers Act as its centrepiece, has three stated goals: It will invest in US innovation to increase American competitiveness, invest in enhancing the capacities of allies like NATO, India and South East Asia and take steps to end China’s predatory practices.

The Narendra Modi government in India has already taken several steps to push back China’s tentacles around parts of the Indian economy. The EU, the UK, Japan and South Korea also have to join this effort for it to be successful.

The message has to be clear: The Free World doesn’t want another Cold War, this time with China. But the days of free lunches are over. Beijing will have to play by globally accepted rules if it wants to do business with other large economies.

If Modi’s decision to ban Chinese apps and restrict investments from that country cast the first stone, the Endless Frontiers Act can become proverbial straw that breaks the camel’s back, provided the other democracies come on board.

I hope they do. That’s the only way to confront this new challenge. If they don’t, China will simply pick its target one by one and slowly overcome them.

The time to dither is over. The time to act has arrived. That time is now.

ManojManoj Ladwa is the Founder and Chairman of India Inc. Group.

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