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November 10, 2011

Asia’s waking giants: Why the region welcomes India’s emergence and fears China’s rise

Dr John Lee

By kind invitation of Kwasi Kwarteng MP, the Henry Jackson Society was pleased to host a discussion with Dr John Lee, Michael Hintze Fellow for Energy Security and Adjunct Associate Professor at the Centre for International Security Studies, Sydney University. Dr Lee has briefed a range of Ministers in countries as diverse as the United States, Singapore, Malaysia, Indonesia, Taiwan, India and Australia. He discussed why we should be concerned about China’s increasing global influence and power, particularly when considering the internal cracks which are starting to show. He offered an analysis of why we should instead look to India and welcome the developments they are making in the region.

Today, the major engines of global economic growth are to be found not in the West but in Asia, in particular China and India. As UK economic growth struggles to reach 1 per cent, China has just posted third-quarter growth figures of 9.1 per cent, whilst India’s most recent quarterly figures showed GDP growth of 7.7 per cent. Both countries have populations of over one billion people and are increasingly influential players on the global stage. Yet, while India remains the world’s largest democracy, China’s political record is far from favourable. Furthermore, these countries’ behaviour in the international arena differs drastically. While India has proved to be a key ally in the war on terror and in ensuring global security, China’s behaviour on the UN Security Council has been consistently disappointing, with a historically poor record on Sudan and now on Syria.

In addition to the security concern, there are many other key anxieties surrounding China. China’s success is fragile and its neighbours grow frustrated by the lack of progress towards democratic reform. Rather than moving towards a modern, successful civil society as occurred in other Asian countries such as India, Japan, Taiwan and South Korea, the Chinese Communist Party is unwilling to initiate further economic reform or loosen its grip on domestic, political hegemony. Constrained by a decentralized model of authority and administration which is highly corrupt and inefficient, Beijing has thus far only been able to plaster over the institutional cracks.

Dr. John Lee
is the Michael Hintze Fellow for Energy Security and an Adjunct Associate Professor at the Centre for International Security Studies at Sydney University. He is also a non-resident Senior Scholar at the Hudson Institute in Washington DC. He was previously the Director of Foreign Policy at the Centre for Independent Studies in Sydney.
His articles are frequently published in the world’s leading policy and academic journals, and he has contributed hundreds of opinion pieces to over forty leading newspapers and magazines in America, Europe and Asia such as the Washington Post, New York Times, Times of London, Wall Street Journal, Global Times, Time, Forbes, Der Speigel, International Herald Tribune, Business Week, Newsweek in addition to all major newspapers in Australia.

A frequent media commentator on all major international television and radio networks in America, Europe, Asia and Australia, he is one of only a handful of Australians ever invited to formally testify to US Congressional committees such as the Senate Foreign Affairs Committee and US-China Security and Economic Review Commission. Dr. Lee is regularly invited to brief Ministerial and Secretarial level officials in the United States, Singapore, Malaysia, Indonesia, Taiwan, India and Australia. He gained his first class honours degrees in Arts (Philosophy) and Laws from the University of New South Wales, and his Masters and Doctorate degrees from the University of Oxford whilst on a Chevening Scholarship.

Transcript of the Event

Dr. John Lee:

Thank you all for coming. I want to thank Dr. Kwarteng for inviting me to this beautiful room. I know Alan Mendoza isn’t here but I want to thank him for initially inviting me to speak to the Henry Jackson Society. I’d never met Alan, and I still haven’t met him but we were in e-mail contact about 2008 when he first formed the Henry Jackson Society. I had the honour back then of contributing one of the first articles, I believe, to the HJS when it was just really a one man show. And I’ve spent quite a bit of my time in Washington these days briefing various secretaries and so on, and I can confirm that the HJS has a very prominent role and name in Washington circles. So I know that Alan isn’t here, but I do want to congratulate Alan and his team for building up what is a very vibrant important organization in a short about of time.

Now let me get to the substance of what I’d like to speak about today. Now I’m not old enough to this know for sure, but it seems to me that for every age tends to have the vain believe that they are living in unique times. Now, having said this I think that we can say something sort of very different, if not unique for these current times when it comes to geopolitics. Now, we have not seen the coexistence of a powerful China and India for about 150 years. We have not seen the coexistence of a powerful China, Japan, and India for about 405 years. And we have never seen the coexistence of a powerful China, Japan India, and America, ever.
Now all of this is occurring at a time, as you know, when economic growth is far more dynamic in my region—which I suppose is called the Indo-Pacific region—than anywhere else in the world. Now, understandably the focus is on China and India since these are the two enormous rising powers in my region. They are the two largest countries in the world and they are the two dominant civilizations through Asia. Now what about this proposition that was put forward in the introduction—or that the description of the talkthat the region and much of the world that seems to walk on India’s re-emergence, but is wary of, if not fears, China’s rise? Now, before I try to answer that question, let me first describe what I see as the evolving strategic environment in Asia.

Now, a few months ago I wrote an article in an American journal called Foreign Policy, to which I referred to China as ‘the loneliest rising power in world history’. Now, to my surprise, the editor at the Global Times, which is a Chinese state backed nationalist newspaper, latched on to this phrase and very explicitly endorsed it as an accurate phrase of China’s re-emergence. Now I used the phrase ‘the loneliest rising power in world history’ without exaggeration or hyperbole. As you know, China is now the 2nd largest economy in the world, and the largest in Asia. It has become the most important trading partner of Japan, South Korea, of my countryAustralia, of India, and of quite a few states in South East Asia. It is America’s 2nd most important trading partner in the world, after Canada, and of course it’s most important trading partner in Asia.
Now if you look at history such large economic powers tend to exert a gravitational pull on other countries.  Yet, if you look around the region at China’s only true allies—and you may not even be able to call them allies—yet China’s only true allies are North Korea, Burma, and possibly Pakistan. Not a kind of a grouping you normally may want to be associated with. Now, short of allies and despite China’s indispensible economic role, it has not managed to change the strategic orientation of even one major country throughout Asia. In fact, even if economic and trade relations with China deepen, all major regional countries are hedging against China’s rise and moving closer to America and each other. They are all modernizing their militaries in order to explicitly counter Chinese capabilities. Now the strategic situation for India is very different; on one hand, India is not even in the top 10 trading partners for key Asian counties such as Japan, South Korea, Indonesia and Taiwan.

It is Australia’s 7th largest trading partner. And unlike China, India is not emerging as a great trading nation in the most dynamic region in the world. Yet, even as political and strategic relations between India and China worsen, every major country in Asia—Japan, South Korea, Vietnam, Indonesia, Singapore, Malaysia, Thailand, Australia—in addition to Americais rapidly and dramatically improving military and strategic ties with New Delhi. In fact, the military-to-military relationship with India and all these countries that I mentioned is five-deeper and more meaningful than the relationship that they have with Chinese People’s Liberation Army because of the fresh economy. Now, this is despite the fact that China spends more on diplomacy in the region than every other country in the region combined. China has more diplomats throughout the region than every other country in the region combined. In contrast, India is not even in the top 10 Asian countries when it comes to the number of diplomats in the region –or spending on diplomacy in the region. Though China is the ‘the loneliest rising power in world history’,  India is probably the most popular-or short of that-one of the least feared rising powers in recent Asian history.

Now, how do we account for this? Remember that both countries are rising within a regional, strategic, political, and normative moral order that they had little role in actually creating. Both are proud and dominant civilizations of the region, but while India fits in extremely well, China does not. Let’s begin with the simple issue of geography; India is generally happy with post-WWII land and maritime borders, while China is not. India obviously has an ongoing history with Pakistan, but that is largely a quarantine issue in the region. In contrast, China is seeking to redraw large parts of the map in east—south East Asia. For example, Taiwan is obviously an ongoing issue. China has significant maritime agreements with Japan, in the East China Sea. China claims that 80% of the South China Sea, putting it in direct confrontation or disagreement with Vietnam and the Philippines, Indonesia and Malaysia while creating apprehension amongst other countries in the region because of these claims. Tens of millions of Chinese are creeping into Russian territories in the Siberian land mass in the Far East, and there is an ongoing dispute with India over the Indian hill territory of Arunachal Pradesh. Now, second is the issue of strategic leadership. East and south East Asia has become the most dynamic economic region—we all know that.

But it has become that because of seaborne commission trade, and for 40 years the region has relied on the American civil fleet to guarantee safe, equal and impartial access for all commercial vessels. Now, there are reasons why America is trusted and relied upon to play this role in Asia. For one, it is not geographically a resident power. Now this is crucially important, if somewhat counterintuitive, because it means that Washington relies on the acquiescence of regional powers to maintain its forward military positions. And in that sense, America is in some sense—in some respect structurally bound by public goods in the region. In contrast, a resident Asian power such as China will not need the same level of acquiescence in the region if it were to dominate the seas throughout Asia. Yet, although China has become probably the greatest beneficiary of free and open trade in the last 20 years, it is also impatiently looking forward to the day when China, and not America, becomes the preeminent maiden power in east and south East Asia. In many respects, the very legitimacy of the Chinese Communist Party depends on it. Chinese naval modernization, if you analyze it, is all about denying America effective sea control, even if China is far from controlling the seas itself.

Now of course, as a rising power under the laws of history, China has every right to hold these ambitions. The Chinese suspect that hard-wired into American and regional thinking, but in particularly American thinking, is the absolute reluctance to allow any non-democratic country to emerge as a preeminent power in the most dynamic and important region in the world. But the problem for China is that no one in the region trusts China to provide public security goods in the way that a dominant America has been doing for several decades. In contrast, India is quite happy for America to remain as the preeminent power in Asia. More broadly, India is not seeking to challenge the regional strategic order, which is characterized by American ((diplomacy)), hence China’s rise in geographic terms is seen as disruptive, while India’s is much lesser. Now, geo-strategy is just one thing. But in my view, there is something about modern China itself which is unsettling for the region.
I’ve been very careful to use the term ‘liberal democracy’, because it’s not just about one person, one vote that matters. It’s about having institutions of accountability, transparency and so on. So yes, if China somehow became a liberal democracy tomorrow problems with India and Japan and so on would not go away. The difference is that the capacity and willingness of the way they may want to sign off those problems or at least stabilize those problems could be quite different. So, for example, Japan and South Korea have a lot of problems, but the way those countries deal with each other is qualitatively different to the way China deals with its country’s own disputes. I hope I haven’t given the impression that one person one vote will fix everything, because it won’t.

I don’t think people equate China to the Soviet Union. So I don’t think people think if China got its way it would suddenly have a base in Singapore, for example. I think it’s more that China, like America, will say ‘these are the set of rules’, but on times where it’s important to China, they’ll say ‘well we aren’t going to follow them’. An example would be—and this has actually happened—if a Chinese state owned company is negotiating for an oil contract with say, against a Malaysian company—Petronas for example you’ve actually had Beijing threatening the third party to give the contract to the state owned company. To the Chinese state owned company—not Petronas in Malaysia. But the point I’m making is that yes, corporate solidarity happens, but it is very rare for a government to actually get involved in state-owned stuff like that. And the idea being that China kind of sees—for one of the better terms, China takes a sort of Leninist view to winning; like everything ultimately is about enhancing the security and power of the Chinese Communist Party, whether it’s through SOEs or something else. I mean that’s a rather extreme way of putting it and it won’t happen every time, but there’s a suspicion that there’s less (inaud.) on China doing that than America. The second issue, which I think I mentioned, was geography—that china wants its territories. It wants the South China Sea. It wants Taiwan. It wants the Senkaku islands from Japan. It wants Arunachal Pradesh from India. So there are actual themes, actual territories that China actually wants. But the broader point is more that there is a belief, or there is a fear that China, or Beijing doesn’t generally buy into a rules-based order, which is a generally a characterization.

I mentioned that few countries trust a powerful China to provide public security goods in an impartial manner.  As a former secretary-general of ASEAN, which is a grouping of the ten south east Asian nations, said to me once over lunch a couple months ago, ‘the Americans’—this is a paraphrase of just a conversation—‘the Americans see themselves as leaders, but they will sit on the table with you. The Chinese do no such thing; they don’t believe in negotiating tables, just podiums where they are on top and others stand at different levels beneath’. Now this is actually kind of an extraordinary comment by Secretary General of ASEAN, because of, if you know anything about ASEAN, it’s that it has a reputation of nothing else of not offending.
In a lot of respects, if you look at South Asia, India is a big boy in south Asia, and it can be perceived as a bully. Sri Lanka, Pakistan and Bangladesh tend to have somewhat tense relationships with India. I suppose, when you look at the construction of Asia itself, because of the importance of American trade and so on, East and South East Asia remain the most important area of the city as a whole In one sense India has the advantage because it’s not right in the middle, whereas China is, therefore there tends to be that tension with China while there isn’t with India. But I think that the point to a whole is that the internal character of China is still a factor. Now, countries like Sri Lanka—and Pakistan is different because they have a border dispute with India—when you look at countries like Sri Lanka, Bangledesh, etc, they are not fundamentally re-orientating and designing their militaries to counter India, whereas every other country in South East Asia is doing that with China.

They’re not doing it to focus on each other—they are doing it to focus on China. Why is that? If china was still weak or didn’t exist, then yes, tensions between Japan and South Korea would worsen, but I suppose the reality is that you have two rising giants. India’s rise is still seen as far more benign than China’s.
Now, this is just one anecdote, obviously, but it represents a widely held sentiment throughout the region. America is yes, occasionally boorish, and overbearing, but it generally binds itself to the same roles as everyone else. When it comes to Beijing, there is a suspicion that the modern Chinese world view is fundamentally hierarchical. There is one set of rules for itself, and a different set of rules for smaller countries. And this comes down to a negative view in the region of authoritarian China, which doesn’t apply to democratic India. Now, one of the post-WWII killers of the racial order is democratic community within a liberal order. Now it is true that almost all countries within the region, such as Japan, South Korea, Malaysia, etc, began life as authoritarian countries. And some of these countries—Malaysia, Singapore, to name two, are still some distance away from genuine democratization. But large countries like Japan had solid liberal institutions and were well on their way to democratization by the time they became great powers. Besides, countries like Japan and South Korea—which was also once an authoritarian country were part of the post-WWII western alliance. Other authoritarian countries like Vietnam and Singapore are simply not large enough to alter the regional rules of the game. In contrast, China is already the largest economy in Asia and probably the most powerful country in Asia—Asian based country. It is a free rider under the American security umbrella, but it is actively trying to dilute and dismantle the western alliance. This is quite explicit in Chinese strategic policy. Moreover, the building of liberal institutions has gone backwards in many respects within the country and the Chinese Communist Party appears to have actually tightened their grip on not just political, but economic powers since the country-wide protests in 1989.

The consolidation of power by the Chinese Communist Party matches to the region for several reasons. First, governments in liberal democratic systems—and I don’t think this is just a theoretical thesis—I think it’s brought out empirically. Governments in liberal democratic systems are much more likely to learn to value transparency, negotiation and compromise. They are much more likely to commit to a process of dispute resolution and they are much more likely to abide by an outcome of such a process. Now when it comes to Beijing there is no or little transparency, and therefore little predictability. No one really knows how decisions are made in Beijing, or who makes them.  Second, although the Chinese Communist Party is far from a monolithic entity, the point is that the rule of law doesn’t really apply to the CCP. Compromise and negotiation is a learned behaviour and Beijing struggles when it comes to talking through disagreements in a region, especially with smaller countries. Third, China’s PLA has far more autonomy from a civilian government than do professional armies in countries throughout the region. The PLA basically gets what it wants from the CCP in terms of funding, and therefore influence.

This, in many respects is a price an authoritarian government tends to pay when legitimacy is not derived primarily or at all from the ballot box. What Mao Zedong said in 1954 still applies to China today; although much more subtlety, and that is, ‘political power grows out of the barrel of a gun’. Now fourth, China’s state-led model of economic development where state-owned enterprises, or SOEs, are far more dominant in the economy than ever occurred in countries such as Japan and South Korea is causing concern. China’s centrally managed SOEs receive over three quarters of all the country’s formal finance. The revenues of the country’s 20 biggest SOEs alone amount to a figure equivalent to 50% of Chinese GDP. Because SOEs are the entity through which the Chinese Communist Party acquires economic power, exercises influences and retains economic and social relevance, Beijing is under enormous pressure to ensure the creation of ever-expanding market opportunities and guaranteed market’s SOEs  life within China and outside of China.

Domestically, this means the suppression of the private sector, of the domestic private sector. Internationally, this means seeking market opportunities in winning tenders through legitimate, but also sometimes illegitimate means. For example, illegal funding of managements and attempted intimidation from rival companies, and even foreign governments. Now all this simply adds to the widespread perception that a dominant China is not structurally bound to play by the same rules as everyone else, and that its internal character—its modern internal political character means that the temptation of doing sothat is, not playing by the rules—is irresistible.
China is much more worried than India in terms of the global recession. India is not largely a country that depends a lot on exports, the same way China does, so China is a lot lesser dependent on exports in terms of GDP growth than it used to be. Exports, if you go back ten years, used to drive 30-40% of GDP growth now, it drives maybe 10-20%. The problem for China is that the export manufacturing sector creates and sustains around 150-200 million jobs in their country, and these tend to be the best jobs that are created in the country. So, even though exports as a component of China’s GDP growth isn’t as important when it comes to job generation aspect, China is far more worried. Obviously, higher unemployment means greater chance of unrest in all urban areas of China, which is far more threatening than unrest in urban areas. The stagnating growth in the western industrialized economies will affect India to some extent but not to the same extent as China because they are not as export dependent of an economy. India is much more of a domestic consumption driven economy in comparison to China, and that’s because most of the growth in India is private sector driven. The reason why that is relevant is because when it’s a private sector driven growth wealth tends to spread much more equally across the country than if it is growth dominated by a few state-owned enterprises, which is the case in China. So, China is now the most unequal society in Asia in terms of distribution of income; and as China grows, the inequality gets worse and worse. As India grows economically the inequality tends to remain the same, which suggests that household incomes are rising around the same level of GDP growth, whereas in China, they are not.

So, India is not as worried because it is much more of a domestic consumption economy, a much more self contained economy. The final thing is that, when you have massive economic or unemployment problems both of in those two countries because of western problems. In India, the government will lose power; in China, the regime falls. It’s a qualitatively different political calculation being made in China compared to India.
One clear way that it manifests itself (in foreign policy) is that in India you do have some very inefficient state-owned enterprises as well, mixed in with some very vibrant private sector economies. The difference is that some SOEs in India do not formulate or have much influence on foreign policy. In contrast, SOEs are becoming the interest group within china, in my group that has become or acquired more influence in formation in any group within the country. If you look at China’s policies towards Iran or Sudan for example, or in the south china sea in the last three of four years; if you trade the actual on the ground stuff that is happening, China is actually driven by SOEs seeking markets. That’s also where the relationship between the Chinese communist party and SOEs comes in. The CCP since the mid 1990s had a deliberate strategy of supporting SOEs to ensure that the CCP remains the dominant dispenser of economic and business opportunities within the country. The idea very explicitly is to prevent the rise of the independently wealthy middle class within the country; that was a lesson I learned from Tiananmen in 1989—the protests. Now, because of that, the Chinese Communist Party has no choice but to continue to feed the ambitions and the markets for SOEs and as I mentioned, that translates very clearly into foreign policy. So the PLA and SOEs are two groups that have acquired more influence in foreign policy over the last 5 years than any other interest group in the country.

I hear very often that China has been a defensive country for centuries; that just simply is not true. If you take the last 100 years, I think you can speak to the regions and provinces of Mongolia, Tibet, and Xizang, and they won’t really call China a ‘defensive’ country. The second thing is that there is often this notion that China as it exists today has always existed like that. The Chinese have 5,000 years of recorded history, and they very proudly talk about the 2,000 wares they fought to shape what it China today; now that’s not a defensive country….I think that it is undoubtedly true that America is—I don’t think containment is the right term, because ‘containment’ was a specific Cold War term that implied not just strategic, but economic and diplomatic (inaud.) but clearly America and its allies are trying to strategically contain or inhibit China, there’s no doubt about that. I know the Americans deny that that’s the whole point of really those alliances. Will it work? It really depends on the credibility of America as the prime reactor. If there is a perception in the region in 10-15 years time that when it comes down to it, America is not prepared or able to, for example—risk an aircraft carrier—in a battle with China, or able to do anything militarily should, for example, China invade Taiwan, then obviously that system won’t work.  If you take America out of the equation, you don’t really have a balance; you don’t really have an effective constraint on China . When it comes down to it, it really depends on the credibility of the American privacy.

When you travel through China, you don’t get this impression of a harsh place, but what I’m describing is a harsh political culture in China. I’m not describing the country of China, and I think that issue goes to the point of China not being a democratic country. If China were a democratic country, then its character—its political culture—would be more closely aligned to what you would see if you were to travel through the country. But if you meet the political and economic elites –young and old in China—in my view, they tend to represent the China that I’ve put forward. So when I’m talking about China, I’m really talking ultimately about China as a political entity and strategic entity behaves, not what China as a country actually is. And that goes back to the point of China not being a democratic country. That yes, there is a trickle-down or trickle-up effect of the grassroots attitudes and so on, but it’s clearly not as effective as all relative as in a democratic system.
India rises in spite of its government, and if you look at the industries in India that have really taken off—pharmaceuticals, information technology, bio-technology; significantly these are industries that don’t need substantial infrastructure. The problem that India has is that because of inadequate governance, infrastructure development in the country is extremely difficult. For industries that don’t need infrastructure, you’ll be fine, but there are industries that do need world-class infrastructure, and that is where India is really struggling. But nevertheless, it’s still a private sector driven economy, it won’t thrive in infrastructure with dependant industries, but nevertheless, it’s still a pretty vibrant economy with genuinely world class companies emerging. Now in China I think I mentioned that in the Chinese economy there are about 150 centrally managed state-owned enterprises, and they tend to be huge organizations. There are about 150-200,000 SOEs managed by local and provincial governments, not government in Beijing. So, these roughly 150,000 SOEs   receive about three-quarters of the country’s bank loans, which is the main way you actually get capitol in the country. In contrast there are about 4-5 million domestic firms in the country and maybe another 20-25 million informal businesses in the country. They receive about 10-15% of the country’s capital. You’ve got a very small sector of the economy left to fight amongst themselves to get the spoils of economic growth that is SOEs, and then you’ve got the domestic private sector really struggling to actually thrive. The domestic private sector in China has actually shrunk in absolute size in the last 3 years or so despite China’s growth, so it really has been SOE lead dominated growth.
Losing faith is a relative thing—losing faith to what? The first thing is if you look at why China has all these foreign currency reserves they’re basically a direct, almost mechanical result of trade surplus. So when you have a trade surplus, say, now you’ve got this bunch of US Dollars. The question now is what can you do? You can either transfer it back into Chinese Yuan, but if you do that the whole Chinese currency policy of keeping the Yuan relatively low to the dollar is decimate. So you can’t effectively bring it back into the country, so you’ve got to keep it outside of the country.  So if you’ve got those billions of dollars each year, each month in reserves, you’ve got to buy something- right? You’ve got to park it somewhere. They put it in treasury bonds mainly because that’s the only type of thing big enough to absorb that amount of money. The question is—okay, they’ve lost some faith in the US Dollar, but relative to what they have lost faith. What else can you buy is more of the question.  Well, they’re not going to buy Euros. They’re not going to buy a lot of Yen. There’s really nothing else they can do with their currency, so in a sense, they have no options. They can’t dump it. The other thing is if they dump it, they obviously deteriorate their own assets they currently already have in USD.  The third thing about dumping is that—and this is a highly technical thing, but I’ll be quite quick about it—the Chinese central bank effectively holds USD for its state-owned banks who effectively hold that money for Chinese citizens, as normal banking things would. Now if they dump the USD, and therefore the US assets in the Chinese central bank plummet, that means that it’s much more expensive to reimburse the state-owned banks, and therefore reimburse its own people within the country. Effectively, its (inaud.) will cost the People’s Bank of China too much in resources to conduct an operation of dumping dollars. It’s not going to happen.

Regarding the currency issue, there’s always this fear that China will dump dollars over Euros whenever the case may be, but it depends on whether western countries know and understand that china can’t actually do that. I mean, it can technically, but they won’t do that because it will harm China disproportionately. So it comes back to the negotiating position, it depends on whether the EU and America know what the negotiating position is. You know, in the last week or so you’ve had the spectacle of various EU officials effectively going to China begging for money. And besides the moral issue of why should the hard-earned money of the Chinese effectively bail out greedy Europeans—forgetting that issue, I think the better way tax elites would have done it would have been to go to Beijing and say ‘if you don’t help bail us out, your major export market will decline by 12%’, rather than saying ‘please come and help us’. So it really depends on whether—if you look at mechanics or leverage, I don’t think that China actually has it, but the perception of leverage China actually has.  So it depends on how it’s actually done.
Now, I want to make a final word about the emerging young elites which are, after all, the future I suppose of any country—in China and India. They are two countries I spend a lot of time in, both for business, research and holidays. Now when you go to China and you—and of course these are generalizations, but I think they do tend to hold—when you go to China and you speak to and meet the young elites—the rising young middle classes of the country—they tend to be more impatient and nationalistic than their parents. They have an enhanced, very acute sense of reversing perceived historical roles and humiliations, and this is in many regards the product—the very deliberate product of a chauvinistic nationalism which the Chinese Communist Party has harnessed for its own ends. You only really have to read a Chinese history textbook from school to know what I’m talking about.

Now, if you go to India and you speak to the rising elites in India, and incidentally, the middle class in India is actually larger than the middle class in China; if you speak to the rising elites in India, they don’t tend to put that much emphasis on injustices of colonization compared to appearance and they do not carry a deep sense of victimization, and they are much more likely to focus on their own country’s failings than blame the injustices inflicted upon them in past historical times.

The capacity to adapt, to learn, to question, doesn’t occur at the same qualitative level in China as it does in India. You can take studies of either corporate strategy or studies of how elite Indian and Chinese students actually adapt to different universities, or you take studies of policy work that goes on in government and so on. The Chinese are very good technically—in a sense that if there is—for lack of a better term, they have a very engineering mindset. If there is a technical problem to be solved, the Chinese are very good at doing that; but if the problem is not a technical problem, whether it is a Chinese company, political official, a Chinese student… I think they struggle relative to India’s kids, or Indian entities. I think that goes back to the nature of society.  The kind of conversations you have in China—whether it’s about politics or whatever the case may be, and I agree that China’s not in straight-jackets anymore—it’s not Mao’s China. But nevertheless, the kinds of conversations are not as vibrant as the conversationsand this is my personal experience—as the kind of conversations you can have in India. And I think that goes back to the nature of society.  Yes, people mock the CCP, but the fact that you can’t actually do it openly, or that you can’t actually do anything about it, I think has an impact. And you don’t get contestability the same way that you do in India.
Now, I’ll wrap up by saying this about both countries:  most countries know, or think that they know, what India will look like and be like in ten or twenty years time. Both countries feel comfortable about India’s rise and what it is rising up into. India itself feels relatively contented with itself as a country; it’s relatively contented and satisfied with its relationships with industrialized great powers of the world, which are all democracies. For India’s continued rise, India doesn’t have to fundamentally change its institutions to support that rise. The situation in China is very different. China is not only uncomfortable with industrialized democracies, it is also inherently uncomfortable with itself and where it is heading. The relationship between the Chinese state and the CCP –the Chinese Communist Party—on the one hand, and Chinese society and the Chinese people on the other is inherently unstable, unpredictable, and contested. The richer China gets, the more China spends on internal repression both in terms of resources and manpower, and this is rising exponentially.  Instances for example of mass unrest in China according to the figures at least by the Chinese government rise exponentially, even if economic growth proceeds in the country. What this tells you is that as China gets wealthier as a country, unrest and dissatisfaction within the country is increasing, not decreasing. Now, this is just another way of saying that if China continues to rise, it is doubtful whether its political institutions as they are currently constructed can hold.

Now, in summary, the government in New Delhi, and India as a whole, but the government in New Delhi in particular, doesn’t fear the future of a rising India in contrast, I think it’s safe to say, in China is therefore of what the future holds for itself. I’ll conclude there, and I believe I’ll take some questions.