After the coronavirus episode ends, will the emerging new world order be favourable or adverse to India? The answer to that depends much on how China will fare in the emerging world order.

The questions are whether China would struggle under the double whammy of ‘shame and backlash’ (whether deemed fair or not) as well as a global economic slowdown; or would become far more powerful than it is today, given that it is probably the only country with money to splurge around.

Many China experts that BusinessLine reached out to for answers feel that it is not going to be easy for China.

Economic Fallout

Andrew Small, the author of the bestseller The China-Pakistan Axis and an authority on China, believes that the coronavirus episode is likely to leave China somewhat emasculated. “China does not have the same fiscal and monetary firepower to deploy as it did after the financial crisis (of 2008),” Small said in an emailed response to BusinessLine’s questions. “My sense is that it is going to be harder for China to turn this around quickly,” he said, reasoning that China would be dependent on recoveries in its major markets, especially the US.

Debt levels in the (Chinese) system are much higher and the Chinese government is going to be wary about ramping up low-return investments, having spent the last few years trying to unwind some of the consequences of the last stimulus, Small said.

Other experts are similarly sceptical of China’s bounce-back. Mandarin-speaking expert John Garver of the Georgia University of Technology, Atlanta, US, tells BusinessLine that “concerns about biological warfare in which China (among other countries) has strong capabilities, will push (the world) towards greater self-reliance.”

Pointing out that economist Peter Navarro, White House Trade Advisor who is to head the (US) National Defence Mobilization effort, “has long been critical of the US outsourcing of various defense items”, Garver observes that as long as Donald Trump is in the White House, the US would strive to “bring home production of critical items, or at least out-source them outside China — maybe India.”

Lieutenant-General SL Narasimhan (Retd), who is today the Director-General of the Centre for Contemporary Chinese Studies, Ministry of External Affairs, feels that China could return more powerful. “China has already restarted production lines and will have a lead in manufacturing. However, faulty items supplied by China for fighting the coronavirus will dampen sentiments,” Narasimhan told BusinessLine.

That China’s economy is in for tough times is not in doubt. Former economic advisor to the Prime Minister of India, S Narayan, tells BusinessLine that unless China manages to ramp up quickly and its domestic consumption picks up, its economic growth could shrink to as low as 2-3 per cent, far lower than the 6 per cent estimated before the pandemic outbreak.

Experts are not too sanguine about China’s ability to throw money around, buying loyalties. As D Sampath Kumar, former Editor of BusinessLine notes, while China has $ 3 trillion of forex reserves, foreign investors have parked $ 900 billion in Chinese equities, which is ‘hot money’ -- the reserves would be needed to pay the investors if they choose to pull out. Alongside, China’s reserves are (mostly, at least) invested in US Treasury bonds—there is a risk of US freezing the reserves, perhaps as damages for what US sees as letting loose the virus. 

Its investments in the grand Belt and Road Initiative (BRI) are not going to turn in anything meaningful either any time soon, because the host countries are not going to be able to service the debt.

“Many economies that were already borrowing from China are going to emerge in much weaker fiscal positions, placing all the BRI debt issues in the shade,” says Small, while also observing that if China is “magnanimous” about writing down the debt, it might salvage some of its reputation.

Managing Reputation

China badly needs reputation management, but that calls for substantial wherewithal. Experts are unanimous on the point that China’s reputation has taken a bad dent. Garver is in no doubt that in the first two months of the virus outbreak China suppressed information and punished truth-saying doctors.

“There is going to be quite a lot of anger and blame directed at the Chinese government,” observes Small. Much of it is fair, he says, given the initial cover-up and mismanagement, “as well as the problematic role Beijing played in influencing WHO’s initial response (to the coronavirus outbreak).” He also notes that China will be at the receiving end of “blame deflection from governments that have done a poor job themselves.”

In the post-coronavirus era, it will be a much different China. “At the very least, there will be higher demands for transparency and wariness about certain forms of dependence on China, going well beyond medical supplies,” says Small. “It is potentially going to get nastier than that, though, as we’re already seeing.”

Garver notes that China’s more effective methods of tackling the virus episode might enhance its soft power. “However, China’s soft power balance sheet would have two items — suppression of Hong Kong’s autonomy and the concentration camp system in Xinjiang.”

India Should Seize The Moment

China’s discomfiture could just be the ‘tide in the affairs of men’ for India. Narayan notes that the situation is an opportunity for India to “rediscover manufacture”. He, however, stresses that this may not happen automatically, but would require proper planning.

The present crisis has shown up certain vulnerabilities of India’s manufacturing, he says, pointing out that India depends upon China for 60 per cent of its bulk drug requirements. This needs correcting.

He calls for duty-free imports of manufacturing equipment as well as for raw materials that are not available in India, such as special alloys and steel.

“These new starts could be given fiscal incentives as well as lower cost finance to set them up and make them viable, and State governments could provide incentives as well. A well thought out intervention could convert current challenges into a great opportunity for India, says Narayan.