Tuesday, March 27, 2012

Russia-China, Change of Course, China-India, a contest of Models...?

Russia-China, Change of Course, China-India, a contest of Models...?

The final text of Russia’s Strategy-2020, published last week, contains a small but surprising sentence that has not been given the attention it deserves. From the foreign trade and foreign policy section: “The main risks for Russia, linked with the emergence of new centers of power, are rooted in the growth of China’s economic potential and international status.”

The authors believe that the impending conversion of the yuan into a “world currency for settlements, and later into an investment and reserve currency…may undermine the stability of the international currency system, and limit opportunities for the use of the Russian ruble in international transactions.”

“The highly competitive Chinese processing industry… will continue to squeeze out Russian counterparts from the Russian market and prevent the trade and investment expansion of Russian companies abroad,” the authors conclude. They believe that “the consolidation of China’s positions in Central Asia may undermine the prospects of the latter’s further involvement in Russia’s integration projects.” Finally, the authors warn that China’s more active negotiating and interventionist conduct typical of a “newly rich member of the world leaders’ club, the consolidation of the G2 format (the United States and China) in running global economic processes and China’s growing influence in the IMF and the WTO” will come at the expense of other countries, Russia included.

It should be noted, however, that the authors later acknowledge that the task of modernizing Russia, especially Siberia and the Far East, is not possible “without using the Asia-Pacific Region as a resource of national economic development. China is Russia’s number one partner in this region.”

Strategy-2020 is the result of the work of various experts over a long period of time. During the final stage, which took a year and a half, a large team consisting of two dozen working groups was set up on instructions from Prime Minister Vladimir Putin. It was led by two prominent liberal economists – Rector of the Higher School of Economics Yaroslav Kuzminov and Rector of the National Economy Academy Vladimir Mau. While this document is not exactly a program for the future president and the government, it describes in detail the current situation and what needs to be done.

The authority of the customer who ordered this strategy makes this product even more important. In such cases, the balance between the actual ideas of the authors and the wishes of the customer is always unclear.

In any event, no high-profile policy document in Russia has plainly stated that China’s rise is a threat. In his recent foreign policy article published a week prior to the election, Putin mentioned in passing the existing problems with China, like immigration, but was very positive about China otherwise. The president-elect wrote that Russia should “catch the Chinese wind” in the sails of its economy. Does the tone of Strategy-2020 suggest a change in Russia’s approach?

It would be wise not to make any far-reaching conclusions on the basis of this document alone. Its status is quasi-official, and Russian officials can always distance themselves from it, which is bound to happen when our Chinese comrades begin asking for explanations. Beijing never lets such statements go without comment. You can write anything about NATO and the United States without eliciting a response, but China is a different story.

At the same time, Russia is clearly apprehensive about the rise of China. For the first time in recent history, Russia is weaker than its neighbor, and the gap will continue growing. This should compel Russian policymakers to take a fresh look at the country’s approach to China. How should Russia co-exist with China today and in the next five to 10 years if the current dynamics persist? The search for an answer to this question will be a major item on the agenda of Putin’s presidency. Judging by everything, Putin is more interested in Europe and the West, which he understands, than in China, which is still largely an enigma for the future president.

For all that, it is unclear why it was necessary to voice such concerns in a high-profile document, especially as the authors were discussing the side effects of China’s development rather than a hostile policy towards Moscow adopted by Beijing. Some of these apprehensions have not yet been confirmed – the issue of a G2 was dropped a couple of years ago when it became clear that nothing of the sort was in the offing.

Russia is unable to do anything about this, and counteractions would be simply inappropriate, whereas such an obvious display of lack of confidence will more likely aggravate than alleviate the asymmetrical nature of bilateral relations.

To be fair, the document contains a number of specific proposals on how to achieve balance in Russia’s opportunities in Asia. Its authors write about the need to diversify economic partners to prevent China from remaining Russia’s main and only partner in the Far East, but the general alarmist tone remains.

These apprehensions are understandable, but making them public will not help Russia. Rather, Russia needs an active and positive program of action towards China with numerous proposals for joint development. This program should originate in Moscow and be preventative in nature. If Russia stands on the sideline, the agenda in Russia’s Asian part will be determined by China just for lack of alternatives. Then Russia’s apprehensions will be confirmed, and China will become a real economic threat. But in that case, Russia will have only itself to blame.....

China's political model is superior to the western liberal democratic one, Chinese intellectuals have begun to argue openly. Eric X Li of Shanghai, for instance, wrote in The New York Times (February 16) that America's competition with China is between two giants that have fundamentally different political outlooks. America sees democratic governance as "an end in itself", while China sees its current model "as a means to achieving larger national ends".

To us Indians living next door to China, that difference has relevance.

Indians see yet another fundamental contest between giants - between two billion-strong nations, each striving for prosperity and the eradication of poverty - using two very different models of governance. China's model today, visibly the more impressive, resembles not socialism with Chinese characteristics, as the late Deng Xiaoping used to say, but an immense pyramid of state-corporate capitalism. The communist party is a holding corporation at the top, while the politburo acts as a board of directors managing the system through a vast network of subsidiaries.

Today's China is not yesterday's Soviet Union. Its economy is intricately meshed in the world's economy. Its exports flood world markets like the Soviet Union's never did. Its three trillion dollars-plus stockpile of foreign exchange reserves makes it way more influential in real terms than the Soviet Union's huge but effectively idle pile of nuclear weapons ever could. China's management model not only helps it acquire influence, it attracts a growing fan club in other developing countries.

India's democratic model of governance, on the other hand, is far less impressive at first sight. It is messy, it is corrupt, its coalitional politics (think Mamata) impels its political managers to be indecisive and its poverty is out there for the world to see.

Many from India's rapidly expanding and impatient middle class, frustrated with bureaucratic inefficiencies in the delivery of public goods and services, have begun to look admiringly over the fence at the Joneses in China. Yet, a close look at the Indian model reveals economic growth over the past decade at an average annual rate of around 7%. Could be better, but second only to China's among major economies. Democratic governance, however deficient, hasn't crippled that performance. Poverty remains agonisingly visible but the number of millions lifted above 'absolute poverty' in the past two decades is, again, second only to China's record. Democracy is a bit slow, but it works.

Citizens of India, irritated as they are with the pace of change, still have powers that the Chinese don't. They, and not any cabal of party bosses, form the national board of directors. They can, and do, throw out any ruling management through regular elections while freely airing frustrations through the media.

They did it once again in recent state elections. They might fret that all they can do is replace a bunch of thieves with a gang of thugs. But the very fact of their electoral power is extraordinary. It generates, on the whole, a decent degree of accountability in the system. And that's the case for democracy being made in a few recent books.

In Democracy Despite Itself, Danny Oppenheimer and Mike Edwards assert that free, fair and regular elections form the fundament of democracy, no matter what the quality of governance might be in a particular country from time to time. Nations that choose their rulers freely have more overall freedom and a higher quality of life than those that don't. In Why Nations Fail, Daron Acemoglu and James Robinson caution that weak, dysfunctional institutions provide incentives to a parasitical elite in an "extractive state" to loot national wealth, which has been the dominant pattern in history. But where a truly inclusive government emerges, through electoral democracy, it can protect individual rights, encourage investment and reward effort to allow prosperity to follow.

So, while a contest continues between China's state-corporate model and the western liberal democratic one, the world should keep an eye on the quieter rivalry over governance models between the world's two largest nations. Ultimately, it is a contest over values and human rights: Must an individual have inalienable rights or should such rights be conditional upon social advancement as decreed by the few?

"They did it once again in recent elections... They might fret that all they can do is replace a bunch of thieves with a gang of thugs"....