A quick economic comparison of the developing and emerging world for 2017 reveals that the total GDP of SAARC (USD 3.5 Trillion); Latin America and Caribbean (USD 5.4 Trillion) and Africa (USD 2.2 Trillion)......put together works out to around USD 11 Trillion.  This total is less than the GDP of China alone (USD 12.2 Trillion). China is a huge market that the global investors can hardly ignore. If they were to disengage from China in haste, where would they find an attractive alternative?

By Amb Anup Mudgal

Some friends and experts have been suggesting that post Covid 19, there will be a major shift away from China to punish them for risking the global community by not being transparent and responsible through timely sharing of true information about the virus in Wuhan.

A very natural and understandable sentiment - none can disagree; however, the China story has been truly fascinating with steep ups and downs.  

They were never admired for their eco-socio-political systems nor for freedoms and transparency.

However, everyone accepted their partnership in developing a new economic system driven by low-cost, efficient manufacturing and trade which has subsequently also expanded to include R&D and knowledge-based industries.

No one seriously opposed the so-called peaceful rise of China, as it was offering an efficient delivery system of production at a scale never seen in post-Industrial history.

This served the western investors in creating value without the excessive regulatory burdens of their lands of origin.

In the process, we seem to have forgotten that the economy does not grow in isolation; it seeks to acquire other supporting features like enabling technologies and systems as well as capacity to defend itself from potential adversaries.

That is what China did. Today, it is not only a manufacturing hub but a huge market, technology power, and global investor, with matching fire and soft power to defend its geopolitical interests.

Over time, in the big power context, the partnership has turned into a sour competition.  It is conventional wisdom that once the rising partner breaches the threshold of capacity to challenge the original bigger partner, there is no way you can roll it back.

The rise could be peaceful but any attempt to force a rollback would run the risk of open conflict, which is a difficult choice for any stakeholder.

Today, there are countries, both rich and poor, which see China as an opportunity and not entirely a threat.

Therefore, any attempt to cut China to size will also have a pretty strong counter view, which would discourage any aggressive action; the international community is more likely to seek stability or at most a gradual rebalancing of geopolitical power balance.

China is a huge market that the global investors can hardly ignore. If they were to disengage from China in haste, where would they find an attractive alternative?

A quick economic comparison of the developing and emerging world for 2017 reveals that the total GDP of SAARC (USD 3.5 Trillion); Latin America and Caribbean (USD 5.4 Trillion) and Africa (USD 2.2 Trillion)......put together works out to around USD 11 Trillion.  This total is less than the GDP of China alone (USD 12.2 Trillion).

If we look at the trade comparison, the figures are mind boggling. In 2018, two-way Chinese trade amounted to about USD 4.5 trillion, which was more than double that of the rest of the BRICS put together- Indian, Basilian, South African and Russian two-way trade was USD 2.2 trillion. 

A similar trend is seen in the FDI data.

A quick glance at total FDI over four years from 2012-2015 shows, while China alone got USD 507 billion, the remaining four members of BRICS together received about USD 537 billion.

Being the global leader in manufacturing and trade, China has heavily invested in developing sophisticated and efficient global supply chains.

They are supported by world class logistics by way of well integrated manufacturing clusters, internal transport infrastructure, some of the largest and most modern ports and management through the integrated IT systems.

Therefore, while some low value single stage manufacturing, like textiles, would surely shift to other locations, it would not be possible to immediately relocate high tech multi stage ventures.

They are dependent on a complex well integrated manufacturing ecosystem, including special skills, and it would take years and massive investments to develop alternative sites.

China is aware of the evolving sentiment and seems willing to make further large investments through cutting edge technologies for inducing greater resilience in the supply chains to address the partners’ sensitivity.

How would the world think of abandoning such a massive and growing market and for what? Is there a credible and trustworthy alternative? Not readily visible. There are a very few countries which could, if pursued carefully, offer both skills and scale as an alternative. India surely is a good candidate.

However, shall we be able to demonstrate a firm resolve this time to create an efficient manufacturing ecosystem, driven by quality infrastructure, appropriate skills and a comprehensive approach to real ease of doing business?

We have missed several opportunities and we are yet to see efforts that could make a difference this time.

None can deny that the world is angry with China and some relocation/on shoring of manufacturing and essential services would be actively encouraged, especially in critical sectors (some would argue that this has in fact been going on for quite some time), but any large scale withdrawal appears a bit wishful.

Given the high stakes, it is likely that China may of its own accord accept some moderation in its style by way of shifting some capacities to other developing countries, opening its own market, offering greater protection of intellectual property, providing better  terms to its BRI partners, and being a little less aggressive.

On the other hand, an aggressive China would continue to attract stronger backlash, which could surely widen cracks for other to fill. All said, for the time being, while global irritation and rivalry with China would continue, it would seem unwise to count them out any time soon. (The author is a former Ambassador with wide ranging experience in global economic relations.)

Representational file image courtesy – QZ.com/ Verdict.co.uk / China Daily

Disclaimer: The opinions expressed in this article are the personal opinion of the author. The facts and opinions appearing in the article do not reflect the views of Indian Observer Post and Indian Observer Post does not assume any responsibility or liability for the same.