Protests and border tension: Coincidences or is there a Chinese hand?

As long as an economy is not a conflict economy, its success depends on stability. Stability itself is based on first and foremost a State monopoly on violence — from which flow all other kinds of stability — jurisprudential, regulatory, policy, etc. Yet despite this anthropological fact, the State that has not woken up to this reality.

The problem seems to be the disturbing regularity with which disruptive ‘mass protests’ paralyse decision-making, and the refusal of the government to understand that not controlling these at an early stage cause more than just electoral or reputational damage.

The damage these create — by thwarting inward investment and damaging business confidence — end up having far more serious electoral and reputational consequences in the long term. Why?

After all a few kirana stores shutting down don’t really affect the economy, right? No — if a sufficient number of grocery stores shut down, its impact on large producers of food and godowns is quite significant. If a sufficient number of taxis don’t ply the roads, the effects are first felt on petrol pump owners, but over a period of time it hits government revenue that should have otherwise come to the state exchequer.

Nobody has seen the effects of domestic instability and external disturbances more than China. The rise of Xi Jinping and his consolidation of power have seen three parallel strands: the biggest rise in internal instability since the Mao Zedong years through a series of purges, a simultaneous rise in external security provocations, and steadily declining GDP growth rate.

While purges are an internal matter, many foreign businessmen have been caught up in the maelstrom, some actually taken hostages for all effects and purposes. This has led to investor nations seeking to diversify their manufacturing base to other countries. COVID-19 and China’s abominable behaviour — from price gouging and supply faulty equipment, to stalling WHO investigations — proved to be the last straw, with several companies deciding to move out for good.

Given China is still a middle income economy and possibly stuck in a perpetual middle income trap, the gameplay has shifted from fostering business confidence in China to reducing business confidence in neighbouring competitors. This has involved a steady rise in provocations along the South China Sea littoral in order to make arch-rival Vietnam seem less attractive.

Thankfully Vietnam also has an extremely stable domestic polity, and external security threats of the kind China poses don’t drive away investment. Indeed, when it comes to diversifying suppliers, Vietnam ends up becoming optimal precisely for the reason that it strives to oppose China’s hegemonic designs.

India though is a completely different problem. On one hand China has ratcheted up tensions along the border significantly, but accompanying this has been a string of mass protests, governmental inaction and a consequent hit to investor confidence. Is it any wonder then that Vietnam and Bangladesh seem more attractive?

Is it a ‘coincidence’ that the attacks on mobile data towers by those opposing the government’s farm reforms started shortly after the government announced that Chinese companies would not be allowed in the 5G space following the deadly clashes in Galwan Valley? The company (Reliance Jio) that supposedly owned these towers had also announced previously that it had developed its own 5G technology domestically and there would be no need for allowing the Chinese tech in. Curiously the attacks on these towers stopped within a day of it being revealed that the towers had been sold by Jio a few months earlier to a Canadian company.

Then there are serious allegations of vested interests, both corporate and international, furthering their agenda and using ‘massive protests’ to show India — and not just its government — in poor light. In the pandemonium thus created facts and reality are lost, sometimes even by sections of the media.

Let’s be clear what’s happening here — border tensions by themselves cause mild investor alarm. But border tensions combined with domestic instability and failing law and order make India a highly-risky investment destination. Ultimately it is for the government to decide what is more important, its short-term electoral fortunes or the economic well-being of its people.

Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.