In June 2023, as 11.6 million young people in China graduated from university, the traditional pictures of joyful students throwing their hats and gowns into the air were replaced by photos of them throwing their degree certificates into the bin. The students had plenty of reasons to be pessimistic. With the Chinese economy hit hard by Covid lockdowns and economic growth plummeting to record low levels, jobs are scarce and an atmosphere of gloom hangs over the country. Unemployment is at a record high with the jobless rate for 16-24-year-olds at 20.8 percent.
China’s population growth is declining at an alarming rate and the country is ageing rapidly. By 2035, an estimated 400 million people will be 60 and over, representing 30 per cent of the population, according to the Chinese government’s own projections. And the ratio of old to young is expected to rapidly grow more unbalanced with deaths now outnumbering births for the first time since 1961. This means in another generation, China will find it hard to find technicians to run its vast factories, engineers to maintain its communication networks, labourers to harvest crops and soldiers to defend its borders. The sex ratio is so badly skewed that 34 million men of marrying age are unable to find wives.
The real estate industry, which accounts for a third of GDP, is faltering, with millions of mega projects unfinished, and buyers are refusing to pay mortgages until they get possession. With the industry in deep trouble, between 20 per cent and 40 per cent of property developers may face default.
China’s mega-corporations, once known as the world’s shop floors, are losing their air of invincibility, with hundreds of Western and Japanese multinationals deciding to move their outsourcing elsewhere. Tencent’s profits are down 50 per cent and Alibaba’s net income fell by half. Foxconn, which manufactures iPhones, has laid off thousands of employees and is moving out of the country. And as if things weren’t bad enough, the US is cracking down on Chinese companies listed on the American stock market, depriving them of much-needed funds. Foreign investors are pulling out their funds, leading to a domino effect on company collapses.
To be sure, China’s economy is not about to implode – like the Soviet Union in 1991 – but the golden decade of the 2010s when it grew at double-digit levels is over. The world’s No. 2 economy grew just 3 per cent in 2022, after hitting a peak of 14.2 per cent in 2007. It was the second-lowest annual rate since the 1970s.
India on the growth curve
During the decades-long rivalry between India and China, the dragon outperformed India in nearly all indices – whether it was human resources, living quality, economic growth, GDP or defence production. New Delhi and Beijing had near parity in 1980, with India’s GDP registering $186 billion and China only slightly ahead at $191 billion. Today, India’s GDP is $3.5 trillion and China’s is five times greater at $18 trillion (officially). The Chinese economic miracle has been the defining story of our times, but today while all signs are pointing to massive troubles for China, India’s economy is on fire.
As companies are fleeing China, everyone wants a piece of the action in India. Barring the most loyal of China backers like Tesla, the world’s leading corporations are making a beeline for the world’s largest populated country. Foxconn is building a new 300-acre facility in Bengaluru, making it one of the largest investments by Foxconn in India. Samsung moved out of China and is producing its phones in Uttar Pradesh.
Freed from the warped Ahimsa philosophy – that sunk several Indian defence programmes including the export of Jaguar fighter planes to Thailand in the 1980s – India’s defence industry is finally exporting big-ticket weapons to countries as diverse as Armenia, Indonesia and Vietnam. The $375 million Brahmos missile deal with the Philippines this year is the most spectacular weapons export in India’s history. Across the country, private defence companies are manufacturing everything from assault rifles to naval vessels and artillery guns.
The Tatas are making missile systems, radars, aerospace structures and UAVs among others; Mahindra has already delivered armoured vehicles to the army; the Kalyani Group is a major player in artillery systems, armoured fighting vehicles, precision ammunition, military vehicles and defence electronics; the engineering giant L&T is into underwater platforms, naval engineering systems, avionics and naval weapon systems. Many other small to medium players want a piece of the action.
Demographics are also in India’s favour. It has roughly 800 million working-age people and will add about 200 million more over the next three decades. Manufacturing employs 50 million to 60 million people. Even with a conservative projection of $3.5 trillion output by 2047, manufacturing has the potential to create 85 million more jobs. The IMF expects India to be the fastest-growing major economy in 2023, and to account for 15 per cent of global growth.
S&P says India may become the third largest economy by 2030, overtaking Japan and Germany. Its forecast is based on the projection that the country’s annual GDP growth will average 6.3 per cent through 2030. Similarly, Morgan Stanley estimates that India’s GDP is likely to more than double from current levels by 2031; that is, a GDP of over $7 trillion.
The trend is clear – while China is on the downslide, India’s economy is on the upswing. In the clash of the titans, the communist giant is losing ground.
Big opportunity
China’s decline offers a huge opportunity for India to not just achieve parity with the dragon but also overtake its communist neighbour. What is incredible about India’s growth is that its economy achieved traction just 20 years after the economic reforms kicked in (in 1991) whereas China opened up its economy as far back as 1978.
Also, China’s growth was propelled by Western countries using it as a manufacturing base in a bid to turn the dragon into a counterweight against the Soviet Union. However, India’s growth is primarily homegrown and is led mainly by indigenous enterprises and talent. While this may be the slower path to industrialisation, it is better in the long run because having a self-reliant industrial base means India is less vulnerable to foreigners pulling out.
The vast pool of business talent in India is arguably our biggest advantage. Communities that have been trading and conducting business for millennia have business in their DNA and can grow and thrive in any climate. Plus, the ease of doing business that the government has ushered in ensures that Indians who have never entered the field of business are now able to do so. There is no other country in the world that has this unique entrepreneurial advantage.
China’s (arguably hasty) decision to exit the low end of manufacturing means several countries, including India, are rushing into the void. But India is also entering high-end manufacturing in partnership with foreign players. And this is happening at a rapid pace. For instance, aerospace is seeing a number of Indian companies jostling for attention. Plus, India is entering aircraft engines and microchips – two areas where China has failed consistently – in a meticulous way with strategic government support.
China’s Achilles Heel
By their very nature, communist regimes are prone to overreach. The Soviet Union collapsed because its economy was only half the size of the US yet it spent more than the West on defence. This hollowed out the Russian economy. Secondly, hubris (or tragic pride) is the defining characteristic of the Chinese Han elites who believe their civilisation is superior to that of the base foreigners, especially Westerners and Indians. However, hubris can only be a catalyst for catastrophe; the real causes of the impending catastrophe lie elsewhere.
First up, China is alone, it has no allies or friends. It’s a country nobody likes but many fear because of its aggressive, predatory behaviour. Beijing only has a couple of vassals or clients – Pakistan and North Korea. In fact, these two countries are more like parasites and are completely dependent on Beijing for investments and military supplies. Against China are arrayed the world’s most powerful countries and military blocs – the US, Japan, India, NATO, AUKUS and the QUAD. No matter how you slice it, China cannot win a shooting war against all of them.
The Soviet Union was a far stronger country with many admirers and allies and yet it collapsed because it could not take on the combined economic and scientific might of the West + Japan. And that’s exactly China’s biggest problem. The country’s economic might is based on exporting goods built with manufacturing technology originating in the West and Japan.
For instance, Japanese electronic giants outsourced their television manufacturing to China which stole the technology and is currently selling cheap midrange television sets worldwide. Similarly, Chinese websites are full of iPhone clones that sell for a tenth of the price of the original Apple product. The likes of Huawei, Vivo and Oppo are all based on technology leaked by their local manufacturers.
The trouble starts happening when Western, Korean and Japanese companies start pulling out of China. That’s when the technology stops coming and Chinese companies have to reinvent everything – from mobile phones to televisions and electric cars to microwave ovens. With a weapons technology embargo already in place, it’s only a matter of time before a civilian (or dual-use) technology embargo also comes into effect. Beijing will face the same existential crisis that hit the Soviet Union in the 1980s.
For the time being, China is safe as the West is dependent on it. In June 2023, Raytheon CEO Greg Hayes admitted that Beijing effectively controls the US military’s supply chain due to America’s reliance on China for rare earth and other materials. “We can de-risk but not decouple,” he told the media, adding that he thinks this is the case “for everybody.”
“More than 95 per cent of rare earth materials or metals come from or are processed in China. There is no alternative,” Hayes continued, adding “If we had to pull out of China, it would take us many many years to re-establish that capability either domestically or in other friendly countries.”
But surely as day follows night, the era of global dependency on China is coming to a close. The really bad news for China is that the trade tensions that started with the US under nationalist President Donald Trump have persisted through the current Joe Biden administration. China’s rising hopes that Biden would go easy on it have come crashing down to earth. The US has slapped sanctions on several Chinese companies and officials, and has also restricted China’s access to its semiconductor and artificial intelligence (AI) technology on national security grounds.
Hubris is a huge problem with the communist dictatorship. Its big mistake was the threat to invade Taiwan, which Beijing claims as its own island. “In terms of Taiwan, rising tensions or war would lead to a seismic shift,” Pushan Dutt, professor of economics at INSEAD business school in Singapore, told DW. “Multinational companies would exit China, its export markets will get closed off and sanctions will be put in place.”
Another said: “The assertive foreign policy that Chinese President Xi Jinping has imposed caused the US and other Western countries to start to decouple or de-risk in their economic links with China, meaning that a key factor that had previously supported rapid growth in China is weakening.”
The India factor
China already faces the combined military might of the US Indo-Pacific Command and the increasingly powerful Japanese defence forces on its eastern seaboard. Indo-Pacific Command possesses a frightening armada with a strength of 375,000 military personnel and hundreds of warships, bombers and fighter aircraft. Having provoked India in the west by recklessly trying to invade Galwan, the dragon is now faced with the nightmarish scenario of being caught in a pincer strike.
The June 2020 Galwan clash between Indian and Chinese troops resulted in a bloody brawl in which 20 Indian and an estimated 45 PLA soldiers died. Then a quick counteroffensive by the Indian Army captured land that had been under Chinese control for nearly 60 years. This was unprecedented because it was the first time in modern history that the expansionist Chinese had ceded land to a rival. India’s aggressive military manoeuvres showed the world that China was a cowardly stuffed paper dragon that backed down when confronted by a powerful and determined adversary.
India was able to defeat the PLA because the Indian Army poured nearly 50,000 well-armed troops into the area along with vast quantities of artillery, tanks and BrahMos supersonic cruise missiles. Simultaneously, a large component of air dominance fighters including the Sukhoi Su-30MKI flew round-the-clock missions over Ladakh. Short of buzzing the PLA field commander’s headquarters, the IAF jets scoured the airspace, taunting the PLA Air Force to pick up the gauntlet.
Finally, it was China that blinked and offered de-escalation. Clearly, it was India’s massive force projection and refusal to back down at Galwan that got the world’s attention. This is no small matter as it was China’s first public humiliation since the 1979 invasion of Vietnam in which the battle-hardened Vietnamese Army killed as many as 60,000 Chinese soldiers.
Across the world, and especially in South East Asia, where the Dragon is a scary word, there was open admiration for India’s achievement.
China’s military industry in a Cul-de-SAC
For a country to be a multi-dimensional superpower – like the US – it must have a variety of powers including economic, cultural and military. China is still a uni-dimensional power with its export-fuelled economy being its primary strength. The bad news for Beijing is that it is unlikely to ever be a true military superpower – like the Soviet Union. This is due to the fact that for a country’s military industry to be sustainable it needs export orders of large weapons platforms such as warships, aircraft, tanks and artillery. However, barring isolated sales to client states like Pakistan and North Korea (which are anyway deadbeat and require financing from Chinese banks), Chinese companies are not in a position to win export orders from major countries.
The global weapons market is dominated by the West, especially the US which wields considerable geopolitical clout and has a strong network of allies locked into long-term military treaties. The likes of Japan, Israel, Italy, Germany and the UK are never going to look beyond the US for their primary weapons. Second-tier power France has its own Francophone base in Africa plus it has a significant presence in the Middle East. The UK has bribed enough sheikhs in the Gulf emirates to keep its military enterprises humming for the next decade. This leaves only Pakistan and North Korea as China’s regular ‘customers’, and here too Pakistan can be easily pressured by the US (via the IMF) to back out of a major deal with Beijing.
Being a large market for most countries, the US has a virtual veto when it comes to global weapons sales involving its adversaries. Due to this, the Chinese will always have trouble selling military hardware globally. Another downside for China is that most of its newest weapons are knockoffs – the Shenyang J-11 is derived from the Russian Sukhoi Su-27 and the J-20 stealth fighter is a (poor) copy of the troubled American F-35. This means it cannot sell these planes overseas because the Russians and Americans will use copyright laws to crack down hard on the Chinese. Therefore, other than the generic Kalashnikov knockoffs, there aren’t many weapons China can sell in the export market.
The paralysis faced by Chinese weapons makers in overseas markets means their weapons will remain largely restricted to the home market and rarely see action. Therefore, these companies will rarely get feedback about the performance of their products in diverse conditions and situations. Chinese soldiers will never have the situational awareness that, for instance, an American F-35 fighter pilot will have. The F-35 may be a flawed aircraft but it is flown by over a dozen nations so the US Air Force gets constant feedback from around the world. This feedback helps remove at least some of the aircraft’s many kinks. The PLA Air Force does not have this feedback system with the J-20 and this issue will impact the Chinese stealth fighter’s incremental development.
In comparison, Indian weapons programmes may be painstakingly slow to deliver results but because they are indigenous efforts and their imported components are built through transfer of technology, Indian companies are free to market them worldwide. This is why there is a new trend of private Indian companies pitching their products in overseas markets. They face no obstructions – at least not overtly.
China is now a cornered country
It is often said India faces a collusive two-front war against China and Pakistan. But the truth is India no longer faces a threat from its Islamic neighbour. The 2019 Balakot bombing and the 2016 Uri surgical strike both exposed Pakistan’s inability to hit back at its much larger adversary. Plus, the rapid collapse of the Pakistani economy has pretty much ended its fantasy of achieving parity with India.
As a result of the weakened threat from Pakistan, India is now able to apply greater and sustained pressure on China across the Himalayas. The upshot: in a future conflict with the US (supported by Japan, the ASEAN and Australia) Beijing won’t have the luxury of withdrawing its forces from the Indian border. On the contrary, it will have to maintain a sizeable military force in Tibet as insurance against an Indian attack, which can no longer be ruled after the Indian Army’s mauling of the PLA troops in Galwan.
The harsh reality for China in the Indo-Pacific is that now it has to reckon with the combined military forces of the US, Japan, India and Australia. Plus, there will always be the smaller militaries of the UK, France and the ASEAN to deal with. Communist leaders being paranoid and irrational, they will try to match their opponents’ warship for warship, aircraft for aircraft, dollar for dollar, and soldier for soldier. This would be a strategic blunder similar to the one that the geriatric Soviet leadership committed with catastrophic consequences.
Endgame
The writing is on the wall – the good times are over for the communist nation and troubles are in store. Lots and lots of troubles. China’s inevitable decline opens up the opportunity for India to step into a leadership role both economically and geopolitically. India’s rise is inevitable whether the communist dragon collapses or thrives, but a weaker China gives New Delhi more space for manoeuvring.
India’s resurgent economy and its growing military power backed by its unique cultural diversity plus its tradition of yoga, ayurveda and spirituality (which the entire world is enamoured of and cannot be replicated outside its borders) are the ingredients that have the potential to make India one of the most dynamic superpowers of the 21st century. It would also be a fitting reset to the 1st century CE when India had a commanding 30 per cent of global GDP; its manufactured products were sought after in Rome; its knowledge was valued in Greece; and its ancient religions offered solace to people far beyond its natural borders.
– The writer is a globally cited defence analyst. His work has been published by leading think tanks, and quoted extensively in books on diplomacy, counter terrorism, warfare and economic development. The views expressed are of the writer and do not necessarily reflect the views of Raksha Anirveda
