India-China-USA

MOHAN GURUSWAMY
VISITING PROFESSOR, ADMINISTRATIVE STAFF
COLLEGE OF INDIA.
DISTINGUISHED FELLOW, UNITED SERVICES
INSTITUTION OF INDIA
Sino-Indian Relations and the
Elephant in the Room.
1
Mohan Guruswamy

6/20/17Mohan Guruswamy 2
The Big Economic Transition Happening.
(GDP PPP)

Top GDPs by PPP

World Bank Growth Forecasts.
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Mohan Guruswamy

IMF Projections for China & India PPP GDP’s.
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Year China India
2020 $29 trillion $13 trillion

“Great revival of the Chinese nation.”
6
On November 15, 2012, the day he became general
secretary of the Chinese Communist Party, Xi
Jinping stood onstage at the Great Hall of the
People, in Beijing, to reflect back on his country’s
5,000 years of history. After citing China’s “indelible
contribution” to world civilization, Xi called for “the
great revival of the Chinese nation.” And he
acknowledged that others had “failed one time after
another” to realize that goal. Implicit in Xi’s remarks
was a promise: unlike his predecessors, he would not
fall short.

China will still be thrice as rich as India .

Two different orbits.
India and China exist in different orbits of the world
economy. A slowed down China now growing at 7% still
adds $490 billion to global growth, while a speeded up
India, now growing at 7%, adds a mere $160 billion.
Even when the rate of Indian growth exceeds China’s by a
big margin, it will be a long time before it adds more to
global growth than China.
Although the Chinese economy does not compete directly
with India’s, the effect the former imposes on the global
economy will influence the Indian economy.
Hence, whether a slowing Chinese economy will really
create more opportunities for the Indian economy needs
rethinking.

The spread of the middle class.

"The faster growth rates of China and India imply that
their combined GDP (gross domestic product) will
exceed that of the major seven (G7) OECD economies
by around 2025.”
China, currently the world's second biggest economy, is forecast
to grow at an average pace of 6.6% from now till 2030, and
2.3% from 2030 to 2060.
The projections for India, the 10th
largest, are 6.7% and 4%,
respectively, the OECD said.
In comparison, the 34 OECD nations are projected to grow an
average of 2.3% per year from now till 2030 and 1.7% from
2030 to 2060.

Why China needs India.
14

It is estimated that by 2030 Asia will account for
about 60% of the world GDP.
Much of the fast growing territories in Asia are in its
south, thus any transport link with southern China,
Vietnam, ASEAN and South Asia will integrate a
region that now accounts for the bulk of the world’s
population and in due course the bulk of its GDP.
There can be few questions about the desirability of
STAR.
Why STAR?
15

Proposed Southern Trans- Asian Railway Corridor.

Now to the Elephant in the room.

US Balance of Trade averaged -$13749 million
from 1950-2017. It was $762 billion in 2006. In
2016 it was $502 billion (Imports $2.172
trillion; Exports $2.209 trillion). It was $47
billion in April 2017.

USA Exports to China.
China was the United States' 3rd largest goods export market in 2016.
U.S. goods exports to China in 2016 were $115.8 billion, down 0.3% ($297
million) from 2015. U.S. exports to China account for 8.0% of overall U.S.
exports in 2016.
The top export categories in 2016 were: miscellaneous grain, seeds, fruit
(soybeans) ($15 billion), aircraft ($15 billion), electrical machinery ($12 billion),
machinery ($11 billion), and vehicles ($11 billion).
U.S. exports of agricultural products to China totaled $21 billion in 2016, its 2nd
largest agricultural export market. Leading export categories include: soybeans
($14 billion), coarse grains ($1.0 billion), hides & skins ($949 million), pork &
pork products ($715 million), and cotton ($553 million).
U.S. exports of services to China were an estimated $53.5 billion in 2016, 10.5%
($5.1 billion) more than 2015, and 406% greater than 2006 levels. It was up
roughly 896% from 2001 (pre-WTO accession). Leading services exports from
the U.S. to China, in 2015, were in the travel, intellectual property (trademark,
computer software), and transport sectors.

China’s Exports to the USA.
China was the United States' largest supplier of goods imports in 2016.
U.S. goods imports from China totaled $462.8 billion in 2016, down
4.2% ($20.4 billion) from 2015.
The top import categories in 2016 were: electrical machinery ($129
billion), machinery ($97 billion), furniture and bedding ($29 billion),
toys and sports equipment ($24 billion), and footwear ($15 billion).
U.S. imports of agricultural products from China totaled $4.3 billion in
2016, its 3rd largest supplier of agricultural imports.
U.S. imports of services from China were an estimated $16.1 billion in
2016, 6.6% ($993 million) more than 2015, and 58.8% greater than
2006 levels. Leading services imports from China to the U.S., in 2015,
were in the transport, travel, and research and development sectors.

Trade Balance.
The U.S. goods trade deficit with China was
$347.0 billion in 2016, a 5.5% decrease
($20.1 billion) over 2015.
The United States has a services trade
surplus of an estimated $37 billion with
China in 2016, up 12.3% from 2015.

Bi-lateral Investment.
U.S. foreign direct investment (FDI) in China (stock) was
$74.6 billion in 2015, a 10.5% increase from 2014. U.S. direct
investment in China is led by manufacturing, wholesale trade,
and depository institutions.
China's FDI in the United States (stock) was $14.8 billion in
2015, up 50.6% from 2014. China's direct investment in the
U.S. is led by manufacturing, depository institutions, and real
estate.
Sales of services in China by majority U.S.-owned affiliates
were $54.9 billion in 2014 (latest data available), while sales of
services in the United States by majority China-owned firms
were $4.8 billion.

USA’s Exports to the India.
India was the United States' 18th largest goods export market in 2016.
U.S. goods exports to India in 2016 were $21.7 billion, up 1.1% ($237 million)
from 2015 and up 124.2% from 2006. U.S. exports to India account for 1.5% of
overall U.S. exports in 2015.
The top export categories in 2016 were: precious metal and diamonds ($7.0
billion), machinery ($2.0 billion), optical and medical instruments ($1.3 billion),
mineral fuels ($1.2 billion), and electrical machinery ($1.2 billion).
U.S. total exports of agricultural products to India totaled $1.3 billion in 2016.
U.S. exports of services to India were an estimated $20.3 billion in 2016, 12.3%
($2.2 billion) more than 2015, and 211% greater than 2006 levels. Leading
services exports from the U.S. to India, in 2015, were in the travel, transport, and
intellectual property (computer software, audio and visual related products)
sectors.

India’s Exports to USA.
India was the United States' 9th largest supplier of goods imports in 2016.
U.S. goods imports from India totaled $46.0 billion in 2016, up 2.7% ($1.2
billion) from 2015, and up 110.7% from 2006. U.S. imports from India account
for 2.1% of overall U.S. imports in 2015.
The top import categories in 2016 were: precious metal and diamonds ($11
billion), pharmaceuticals ($7.4 billion), mineral fuels ($2.4 billion),
miscellaneous textile articles ($2.3 billion), and machinery ($2.1 billion).
U.S. total imports of agricultural products from India totaled $2.1 billion in
2016.
U.S. imports of services from India were an estimated $26.8 billion in 2016,
8.6% ($2.1 billion) more than 2015, and 280% greater than 2006 levels.
Leading services imports from India to the U.S., in 2015, were in the
telecommunications, computer, and information services, travel, and research
and development sectors.

Trade Balance
The U.S. goods trade deficit with
India was $24.3 billion in 2016,
a 4.2% increase ($970 million)
over 2015.
The United States has a services
trade deficit of an estimated
$6.5 billion with India in 2016,
up 1.5% from 2015.

Bi-lateral Investment.
U.S. foreign direct investment (FDI) in India (stock) was $28.3
billion in 2015 (latest data available), a 4.4% increase from
2014. U.S. direct investment in India is led by prof., scientific,
and tech. services, manufacturing, and wholesale trade.
India's FDI in the United States (stock) was $9.3 billion in 2015
(latest data available), up 3.7% from 2014. India's direct
investment in the U.S. is led by prof., scientific, and tech.
services, depository institutions, and manufacturing.
Sales of services in India by majority U.S.-owned affiliates were
$22.7 billion in 2014 (latest data available), while sales of
services in the United States by majority India-owned firms
were $13.4 billion.

There is no bilateral trade relationship of greater economic and
political significance for the U.S. than with China. And it is the
size of the trade deficit that feeds all manner of concerns in the
U.S. about declining competitiveness, job losses, and unfair
trade practices by Chinese companies.
China is also the world’s largest exporter and a global center for
the manufacturing and assembling of goods for export.
In addition, manufactured exports tend to have higher levels of
foreign value-added due to the role of imported intermediate
goods and services in their production. Factoring in Value
Addition reduces the US-Chin trade deficit by 25%.
Shutting the doors on China by the USA.
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Mohan Guruswamy

One of the important trade policy insights from the value-
added data is that barriers to Chinese imports will often
harm U.S. consumers through higher prices for final goods.
In addition, U.S. manufacturers would end up paying more
for intermediate goods, which would reduce the
competitiveness of their final goods in the U.S. and in
export markets overseas.
Furthermore, to the extent that U.S. trade barriers reduce
demand for Chinese imports, they also reduce demand for
the U.S. goods and services incorporated into China’s
exports.
The realities of the inter-dependent world.
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Mohan Guruswamy

India’s IT sector and the US dependency.
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Mohan Guruswamy

The IT industry continues to be the largest private sector employer
in India, adding 230,000 employees in 2014-15, taking the total
number of jobs in the industry to 3.5 million, while accounting for
9.5% of the gross domestic product. The IT industry also holds the
largest share of total services exports at 38%.
The software lobby body on Tuesday forecast that software exports
for 2015-16 would grow between 12-14% to about $110-112 billion,
compared with the 13-15% growth estimate for the current fiscal
year. The IT sector is expected to grow at 13% to $146 billion in the
year.
On the domestic front, IT will grow at 15-17% growth to reach $55-
57 billion in the next fiscal year. Domestic growth is expected to be
led by e-commerce, government initiatives and technology
adoption by industries.
The importance of IT to India.
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Mohan Guruswamy

Mr.Modi goes to Washington.
37
Modi will meet Trump in Washington on June 26. The first meeting
between them will try to lay the ground for a further expansion in ties,
which grew rapidly under Barack Obama.
Trump's focus on building ties with China, coupled with his protectionist
trade policies and his characterization of India as an unscrupulous
negotiator in the Paris climate change agreement have raised concern in
New Delhi about a drift in relations.
Aside from the visa review, the Trump administration has launched an
investigation of countries including China & India with which the US runs
bilateral trade deficits.
The Indian government would try to convince Washington that higher
exports from India were a win-win for both countries as they helped
American companies cut costs and create jobs.

ARE WE READY?
38
China’s US trade surplus in 2016 was $350 billion.
 After adjusting 30% value addition from third
country imports, it is still about $280-300 billion.
India’s US trade surplus was $25 billion in 2016.
India’s IT exports to the US was $110 billion in 2016.
India’s surplus after adjusting for value addition
from third country imports is around $130 billion.
Both, India and China cannot afford to do without
USA now. But need to examine ways of reducing
dependency on it.

H1B visa is an employment-based, non-immigrant visa
category for temporary workers. An employer must offer a
job and apply for your H1B visa petition with the US
Immigration Department.
The biggest beneficiaries of H-1B visas are Indians, followed
by the Chinese. In 2014, 70% of total H-1B petitions
approved were from Indians
Nearly 86% of the H-1B visas issued for workers in computer
occupations go to Indian workers, according to a
Computerworld analysis of government data obtained
through a Freedom of Information Act request.
The H-1B visa stick.
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Mohan Guruswamy

What are the concerns in the Indian IT sector over
the proposed US visa laws?
The pressing issue is that it could restrict the number of Indian IT
workers who can be deployed under the H-1B and L-1 visa categories
in the US.
Indian firms, which earn 60 per cent of their IT services revenues in
the US, are heavily reliant on American visa policies to deliver cost-
competitive IT solutions. Indian IT companies are also consistently
among the top 10 firms seeking H-1B visas.
Of the nearly 1.2 million high-skilled jobs certified for H-1B visas in
2015, Indian IT firms accounted for as many as 254,000 positions.
Drastic changes in the H-1B and L-1 visa policies are expected to
dent revenues of Indian firms by as much as 10 per cent.

The bar of expectations is being set very low, and that is not necessarily a bad thing.
Trump is forcing nearly everyone — allies, strategic partners and even foes — to hit
the reset button in the bilateral relationship and in some cases, swap sides, as Qatar
found out to its surprise.
The Indian effort might be restricted to controlling the controllable and reducing the
unknowable.
On the international front, a combination of his own immaturity, North Korea's
belligerence and China's hard-boiled realism has resulted in a previously
antagonistic Trump eating off Xi Jinping's hands, significantly increasing India's
unease.
The recent headlines around Trump's assertion that India tried to sponge "billions
and billions of dollars" off the US to join the Paris Climate Agreement and India's
forceful rejection of the charge do not make for a happy ambience.
There is also the deepening uncertainty over H1B visa programme where the Trump
administration and Modi government are on opposite poles. It would seem that
decades of careful investment in a mutually beneficial bilateral, strategic tie is going
to be undone under Trump.
PM Modi’s visit to USA this week.

Political: The Indo-US strategic partnership is here
to stay. There is much at stake with the upcoming
visit of PM Modi to the US.
Security and Defence Relations: The Trump
administration recognizes India's importance as a
counterweight to China. India is also a major market
for US military exports.
Trump's evangelical zeal against radical Islam may
benefit India as the spotlight is turned on Pakistan.
Trade and commerce: There are troubling issues
here which can erupt into crisis situations.

The realities of India-USA-China triangular relationship.
1. The USA’s engagement in Afghanistan will increase. Its dependency
on Pakistan will consequently increase.
2. The USA’s primary interest is to sell more arms to India and
diminish the Indo-Russian arms partnership. It seeks to hurt the
Russian arms industry, particularly military aviation, so that
Western companies can enjoy unchallenged dominance. Higher
prices being assured in the absence of credible competition.
3. The USA is much too engaged economically with China to risk a
break with it. It is not interested in another Cold War.
4. Tensions with China sustain its military-industrial complex.
5. India is not interested in any “alliance” directed against China in
which it will become the frontline state.
6. India remains very concerned with the Sino-Pak military alliance,
particularly in the nuclear weapons technology transfers.
7. India sees no economic gains for it from OBOR.
8. Western thinktanks and opinion makers shape the perceptions
about China in India. And presumably in China about India.

The Challenge for Sino-Indian Leadership.
Given the dynamics of the world’s top three economies, it is
important we move carefully and with a full understanding
of all the issues involved.
Both India and China need the USA for growth. To reduce
that dependency India and China should integrate their
economies into a Great Asian Powerhouse.
India and China are logical partners in creating an
economic counterweight to the West and restore the world
order as it was in the 1700’s.
Any India-China conflict will throw the world economy into
a turmoil which neither country can afford. Our window of
opportunity to restore the historical order is only here for
the next few decades.
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Mohan Guruswamy

Survey on India in the Indo-Pacific:
Along with six other partner think tanks, Brookings India
participated in a six-country public opinion survey (covering
Australia, China, India, Indonesia, Japan, and South Korea)*
that covered attitudes to the United States, China, regional
security, trade, investment, immigration, and democracy.
Overall, the survey showed extraordinarily high Indian public
opinion of the U.S., wariness about China, strong support for
free trade agreements and FDI, consistent views on
democracy, and concern about regional competition.
*(Simon Jackman, Gordon Flake et al., “The Asian Research Network:
Survey on America’s Role in the Indo-Pacific,” United States Study Centre
at the University of Sydney and Perth U.S.-Asia Centre, May 2017)

THANK YOU
Think about it.
6/20/17
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Mohan Guruswamy

India-China-USA

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