China: the Real Vishwaguru

Posters plastered across billboards proclaim that India is the Vishwaguru (teacher of the world), and Voice of the (Global) South. Yet, China makes the same claim, with far more to show. Once on par with India, its per-capita income has shot up to $12,150 against India’s $2,600. It has attained superpower status, second only to the US.

Once accused of stealing Western technology, it has become global tech leader in several fields, including solar and wind energy, batteries and electric cars. The Australian Strategic Policy Institute has just reported that China is ahead of the US in 37 of 44 technologies that it examined, across defence, space, AI, advanced materials and quantum technology. That is stunning.

China’s Belt and Road Initiative (BRI) has created the biggest-ever combination of roads, railways and pipelines across continents. India has nothing remotely similar. China has overtaken the West as chief financier of developing countries. Many African countries that once toed the US line now toe the Chinese line because of economic links.

China’s model combines political autocracy with competitive markets plus industrial policy to promote specific sectors. It has subsidised various sectors aiming to create scale economies that lower prices to the cheapest in the world. Every province subsidises its companies, creating fierce domestic competition that lowers prices and induces fast technology upgradation, aided by a strong university producing lakhs of engineers per year.

The economic part of China’s model has proved so successful that the West is aping it. US started by abandoning the preceding US ideology of ever-freer trade by imposing high tariffs to bring back industries lost to globalisation. He then selectively targeted strategic Chinese goods.

This is fragmenting a world economy once characterised by ever-freer trade and investment flows. IMF warns that this fragmentation will slow world growth. The West thought integrating China into world trade would make it more like the West. Instead, China has used it to push its own model, which it proclaims is evidently superior. It has achieved trade and industrial supremacy in sector after sector. This is now seen as a strategic threat. So, the West is clamping down on technology transfers.

The US does not want to decline from China – the two are so closely linked that decoupling would be disastrous for both.

Instead, it seeks to derisk economic relations, curbing strategic flows, but allowing commercial ones.

What lessons is the rest of the world learning? Within Asia, Vietnam, has most closely copied the Chinese model with stunning success. It has attracted the most companies leaving China, and become the fastest-growing Asian country in GDP and exports. China’s BRI has hugely boosted infrastructure in other Asian countries. Pakistan is in trouble, but will survive.

India, too is copying the Chinese economic model. The government says free trade has reached its limits, and so has been raising tariffs for five years. It has offered subsidies as high as 50% for some sectors like chip fabrication. Its PLI is a variation of Chinese industrial policy with the same aim – using initial subsidies to Kick-start important sectors with the hope of achieving scale economies that within five years make further subsidies unnecessary.

The jury is still out on this. Earlier attempts at subsidising domestic industries in the Nehruvian era failed. Possibly some, though not all, of the newly subsidised industries will become global competitive, like Chinese industries. But, if so, it will be because India has become more of a chela than a guru.