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China changes rules of the game

If there is anything in diplomacy close to stock build-up or asset creation, Indians never heard about it. To extend the metaphor, South Block had a rare opportunity to move in with hedge funds when China made not less than five demarches that India shouldn’t attend the Nobel ceremony for the Chinese dissident Liu Xiaobo. How often does the next-door rich guy come to borrow some sugar in the morning? In retrospect, what did we gain as a result of what we did? It seems even on stapled visas, we now have to wait for Godot. Put simply, we lack persuasive power and are getting close to losing the plot. 

The absurdity of our decision to hitchhike with the West in Oslo starkly comes out from the recent commentary in Novosti by a prominent German analyst Konstantin von Eggert. Russia, of course, can afford to speak such plain truth with such mirth and hilarity because it took the wise decision to avoid the Nobel ceremony like plague and instead focus on some more building up of stock in Beijing. As a matter of fact, Russia seems to be doing splendidly well with portfolio build-up in both the West and China, if one were to read between the lines of Foreign Minister Sergey Lavrov’s press conference in Moscow earlier this week. (More of that later.)  
Meanwhile, why did Europe scoot – as if it never heard the name Liu Xiaobo? Europe has multiple motives – each more profound than the others – in currying favour with China. Amongst them all, the most engrossing is the “cynical hypocrisy of the two sides”, as the German commentator points out. The deal proposed by the Chinese ambassador in Brussels, Song Zhe, goes like this: “Do not agonise over the moral implications [of lifting EU arms embargo], we shall arm our 3 million officers and men with hi-tech weapons anyway. It will just take us a tad longer to produce ourselves. So help us to speed up the armament process up by lifting the embargo and you’ve got two benefits for the price of one: we’ll bail out your economies and your arms producers (that is, those who haven’t yet been put out of business by your own governments) will also make an extra buck or two.”  
Niall Ferguson said the other day in an interview with Fareed Zakaria that “our friends in Beijing” are watching the “end of the German appetite for writing cheques” for the euro zone countries even as Berlin increasingly  balks at making any more big commitments. On the other hand, China is sizing up a “wonderful opportunity” to diversify its vast international reserves (which topped 2.85 trillion dollars this week) at “a rather good price.” Yes, China as Europe’s rescuer after international bond markets and Europe’s banks priced the debt of Europe’s ‘periphery countries’ out of reach. China has bought 7.5 billion dollars in troubled Spanish bonds and may have stayed off that country’s debt crisis. Another 5-billion dollar bailout of Portugese debts has also been reported. The Wall Street Journal reported last week that China may already be holding 10 percent of the national debt in the euro zone, estimated at a whopping 900 billion dollars.
However, it is a two-way street as well. China’s trade turnover with Europe is in the region of 500 billion dollars and Europe’s 400 million consumers are of incessant interest to China. Besides, China hopes that as quid pro quo for the bailout, Europe will reciprocate with easing of restrictions in trade, technology flow and with the removal of embargo on hi-tech weapons. From Europe’s viewpoint, as China diversifies its currency holdings, a new possibility arises – they may become more euro-heavy. 
The official China Daily hasn’t forgotten to factor in India in all this new phenomenon. In a commentary today, it says, “The strong growth of the likes of China and India has provided a much-needed fillip to the PIIGS – Portugal, Italy, Ireland, Greece and Spain – and this will be crucial in 2011.” But our pundits don’t seem to be aware that such a game has begun. They remain wedded to parochial thinking – to Liu Xiaobo and stapled visas. A long way lies ahead to cosmopolitanism. 

Posted in Diplomacy.

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