December 11th in India and China
On December 11th, New Delhi hosted
a “dialogue” organised by the International Labour Organisation where
politicians, academics and NGOs fulminated against globalisation. December
11th also marked the first anniversary of China’s accession to the WTO,
a process that took sixteen long years and that imposed on it a burden
of obligations far more onerous than on India. The Chinese extolled
how the WTO is benefiting them.. Chinese research institutes invited
experts from all over the world, including India to share their perceptions
on the impact so far of China’s entry into the WTO. For a country whose
volume of foreign trade is over six times ours, for a country whose
economic performance, particularly in manufacturing and urban renewal,
is vastly superior to ours, such an enthusiasm to learn is indeed remarkable.
The one-year report card of compliance is generally positive. China
has kept most of its tariff reduction and legal change commitments.
There are worries no doubt. The Japanese are particularly sore that
vehicle import quotas have fallen way short of promises. European insurance
companies are complaining. The Americans are concerned that intellectual
property rights legislation is not being enforced and that the agricultural
market for commodities like wheat, cotton and soyabean is not opening
up.
There is bound to be acrimony as China makes the transition to a market
economy based on a rule of law and on a rule through law. True, China’s
voracious appetite for imports and foreign investment will give it considerable
leverage in negotiating trade disputes but trade disputes there will
be. Protests within China as commitments to opening up agriculture get
fulfilled are inevitable. How China’s historically powerful provinces
will respond to growing centralisation of economic powers that the WTO
entails remains to be seen.
What is China doing with respect to the WTO that India is not?
First, while the WTO is crucial to China’s international ambitions,
what is noteworthy is the aggressive manner in which it is using the
WTO to push through domestic reforms. Of course, it helps when the economy
is on a sustained 7-8% growth path. Even so, there is a firm belief
that the WTO offers an opportunity for a massive policy clean-up and
institutional redesign.
Second, the Chinese are engaging the world at various levels. Many countries
are indeed wary of growing Chinese economic pre-eminence reflected,
for example, on fears being expressed in many quarters that China’s
exchange rate policy that has pegged the yuan at 8.28 to the US dollar
since 1993 is damaging the competitiveness of Japan and Southeast Asia
as the dollar weakens. There is increasing pressure on China to revalue
the yuan. While this pressure has been resisted, the Chinese have been
actively engaging their trading partners. A China-ASEAN free trade pact
is in the works in more serious fashion than the India-ASEAN one. And
it should not come as a surprise if the Chinese keep talking of the
importance of the WTO and strike a deal with the US as well on a free
trade pact.
Third, the boldness with which Chinese leaders, officials and academics
talk about imperatives of globalisation and go about leveraging the
numerous opportunities it offers is in stark contrast to the debate
in this country where there is an obsession only with avoiding its risks.
Undoubtedly, India’s financial globalisation particularly has to be
sequenced and based on effective regulatory safeguards. But that does
not apply to our policies on foreign direct investment or on trade in
goods and services. And we are doing virtually nothing to upgrade physical
and social infrastructure.
It is easy to demonise China as much as it is tempting to romanticise
it. Neither is in our interest. What we need to do is strategise and
execute Whatever China has done so far are opportunities that were also
available to us that we have lost because of our own failings.
