Tuesday, November 4, 2008



The Presidential campaign is over. The transition drill has begun. Senator Barrack Obama will take over as the President only on January 20 next, but his immense work as the President-elect would have already begun from the moment he left the dais after making the victory speech to his followers and supporters.

2.The Americans call it the period of transition. It is during this period that the President-elect chooses his team of Cabinet members and senior officials, decides on his policy priorities and works out his goals during the first 100 days of his administration and thereafter. Those, who would constitute the hard core of his transition team, would start co-ordinating with the outgoing Bush administration.

3. Senior officials of the US Secret Service, which protects the President and the Vice-President, would have already called on him and set in place the arrangements for his security. Other officials of the Bush Administration would be calling on him and his close advisers to keep them briefed on the actions of the outgoing administration.

4. He will be the President of the US only from January 20, but he will be already entitled from November 5 to a regular briefing by the Director of the Central Intelligence Agency (CIA) and the Director, National Intelligence (DNI) on important developments in the world. The outgoing administration would not take any major decision or initiative or action without keeping him in the picture.

5. Speculation as to who could be his Cabinet members and other senior advisers had already started days before the elections in anticipation of a certain victory by him. In an article on October 26,2008, the “Independent” of the UK put its bet on the following as his possible Cabinet members:

Secretary of State: John Kerry (Senator from Massachusetts), Richard Holbrooke (former UN Ambassador), Bill Richardson (Governor of New Mexico, former UN Ambassador)

Secretary of Defence: Robert Gates (current Pentagon chief), Retd. General Wesley Clark (2004 Democratic Presidential candidate), Chuck Hagel (outgoing Republican Senator from Nebraska)

Treasury Secretary: Laura Tyson (former economic adviser to President Clinton), Timothy Geithner (President, New York Fed), Paul Volcker (former Federal Reserve Chairman)

National Security Adviser: Susan Rice (Obama's top foreign policy adviser), Retd. General Anthony Zinni (former C-in-C, Central Command), Samantha Power (former Obama foreign policy adviser)

Others: Colin Powell, possible foreign policy special envoy/troubleshooter; Hillary Clinton, health care czarina.

6.There could be surprises because he will have a political debt to pay to those who supported him and they may want some of their nominees to be accommodated.

7.India will have no special reasons to be concerned over the possibility of any of the persons mentioned by “Independent” joining the Cabinet, except possibly Holbrooke, whose taking-over as the Secretary of State could lead to a re-hyphenation of Indo-Pakistan relations, bringing back the hyphen, which had been removed by President George Bush and his Secretary of State Condolleeza Rice.

8.Another person of concern to India would be Madeleine Albright, who was Secretary of State under Bill Clinton. Though “Independent” did not mention her, she was reportedly a member of the inner circle which was advising Obama on foreign policy matters during the campaign.

9.India will also put a question mark on Colin Powell, who was particularly not well disposed towards India during the first term of Bush when Powell was the Secretary of State. It was only after he was replaced by Rice as the Secretary of State that Indo-US relations really started moving forward with many initiatives to acknowledge the importance of India as a major power on par with China. Concerns over Pakistani sensitivities ceased to be an inhibiting factor in US policy-making with regard to India. Zinni is an unknown quantity in India. He has many friends in Pakistan’s Armed Forces.

10.It is still 10 weeks before Obama takes over as the President. One does not know how the economies of the US and the rest of the world would move during this period. Till now, the US and the rest of the world have been seeing only the impact of the melt-down on the moneyed class---- banks, stock markets, business companies, people who have the money to dabble in the stock markets and to keep deposits in banks. The world is yet to see the impact on the common man, who is worried only about his day-to-day living and not about stock markets, mutual funds and banks. The impact on the common man would become evident by the time Obama takes over as the President.

11. The common people in the US and the rest of the world will be watching how he deals with the impact on their lives. Understandably, apart from rhetorical statements, Obama was sparse in his policy pronouncements on the economic crisis. His evasion was understandable because he had to take care that any unwise remarks by him did not add to the prevailing nervousness in the market. The economy would occupy a major part of his attention during his first few weeks in office.

12. His pronouncements on India and Pakistan, which were music to the ears of people in India in the initial months of the campaign, became jarring during the closing days of the campaign. In the initial months of his campaign, he praised India and supported the initiatives taken by the Bush administration in relation to India. He was very critical of Pakistan’s inadequate co-operation with the US in the war against Al Qaeda. He also criticized the Bush Administration for giving to Pakistan weapons, which it could use only against India and not against Al Qaeda, under the pretext of strengthening its counter-terrorism capability. He hardly spoke of Indo-Pakistan issues.

13.But as the campaign reached its culmination, he started speaking of the Kashmir issue in a language, which reminded one of the language of the past from the officials of the Clinton Administration. Obama’s entourage and Gen. David H.Petraeus, former Commander of the Multi-National Force in Iraq, who took over as the Commander of the US Central Command on October 31 and is presently on a visit to Pakistan and Afghanistan, have one thing in common---- they listen a lot to the assessments and recommendations of Ahmed Rashid, the Pakistani analyst, who has written extensively on the Taliban and the war against terrorism. In fact, Petraeus has reportedly nominated Ahmed Rashid and Shuja Nawaz, the author of the recently published book on the Pakistan Army called “Crossed Swords”, as members of a brains trust to advise him on a new strategy towards Afghanistan and Pakistan.

14.Ahmed Rashid has been arguing for some months now that the Pakistan Army cannot be expected to co-operate wholeheartedly with the US Armed Forces in the war against Al Qaeda and the Taliban unless there is a forward movement in settling the Kashmir issue and India is pressured to cut down its presence in Afghanistan. There were not many takers for his arguments in the Bush Administration. But they have already started influencing the thinking of many who are close to Obama.

15.Will he exercise pressure on India on the Kashmir issue and its role in Afghanistan after he takes over or will he let his pre-election remarks remain without follow up action? This is a question which should worry Indian policy-makers.

16.Obama’s policy towards China is also likely to be different from that of the Bush Administration. He will continue to strengthen the US’ strategic relations with India, the foundations for which were laid by Bush and Rice, but the sensitivities of China and Pakistan could once again become inhibiting factors in determining the pace and extent of the relationship. He is unlikely to subscribe to the wisdom of building up India as a counter to China. That was the unstated wisdom behind the policies of the Bush Administration towards India.

17.Obama was supportive of the Indo-US Civilian nuclear co-operation Agreement. Many of the non-governmental experts, who were critical of the agreement, have a greater audience for their views in the Democratic Party than in the Republican Party. They would try to see that the Hyde Act is observed in letter and spirit in the implementation of the agreement. If their views prevail, one could see a slow-down in Indo-US co-operation in nuclear matters.

18.Under Bush, Indo-US relations developed like never before because he was a great admirer of India and was convinced of the need to encourage the emergence of India as a major Asian power on par with China. Obama has so far not given any indication of a similar admiration and conviction.

19.Barring John F.Kennedy, other Democratic Presidents were not very positive towards India. They always thought of India tactically and not strategically. Many major initiatives towards India came from Republican Presidents, who held office after Richard Nixon, whose dislike of India---- and particularly Indira Gandhi--- was well-known. There was a new page in Indo-US relations under Bush. This was facilitated by the decline in the influence of some Washington-based think tanks and their academics on policy-making. With the return of a Democrat to the White House, these old academic warriors are already coming out of their eight-year-long hibernation and will try to influence the new President in his thinking and policies. Their views are no different from those of the like of Ahmed Rashid.

20.We should not hesitate to make it clear to the new administration that while we are as keen as before to strengthen our strategic relations with the US, this cannot be at the expense of our vital national interests in matters like Kashmir and Afghanistan. (5-11-08)

(The writer is Additional Secretary (retd), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For Topical Studies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail: seventyone2@gmail.com )



( What will be the impact of the global financial and economic melt-down on the Chinese economy? This question should be of interest to theother countries of the South and the South-East Asian region. If the Chinese economy is badly affected, they too are likely to feel thenegative consequences of the down-turn in the Chinese economy. Keeping this in view, we have been bringing out a periodic "ChineseEconomy Monitor" based on open information. This is the third in the series---B. Raman)


Summing up the discussions at the Asia-Europe Meeting Summit held in Beijing, Prime Minister Wen Jiabao told the media on October 24,2008, as follows: "We will discuss with world leaders on measures to cope with the financial crisis in a pragmatic and cooperative manner.Ithink what we should do to cope with the crisis can be summarized as confidence, cooperation and responsibility.We are very glad to seethat many countries have taken measures that have initially proved effective. But this is not enough given the current situation, and moreneeds to be done.The stability of financial market is key to stabilizing the whole economy. The first important message that the two-daysummit has conveyed is firm confidence, and I think confidence is the source of power to overcome difficulties."
---- Source Xinhua

2.Liu He, Deputy Director of the Office of the Central Leading Group on Finance and Economy Work, told the "China Daily" on October24,2008, as follows: "The worsening global economic situation makes it difficult for China to predict its growth for next year.How fastChina's economy will grow next year is uncertain. To a large extent, the rate will be decided by the external situation.This year, GDP isestimated to grow at 9.4 or 9.5 per cent, down from 10.6 per cent last year.However, the impact of the current financial turbulence on oureconomy is much less than in the rest of the world. China can use the downturn as an opportunity to restructure its economy, which hasrelied heavily on government investment, foreign trade and low-cost technology over the past years. When the economy is experiencing fastgrowth, companies are unwilling to upgrade their technologies.The slowdown gives such firms the opportunity to enhance their competitiveedge through better technologies."
----Source "China Daily"


3.China's trade in electronic and information products increased during the first eight months of 2008, but the growth rate of both exportsand imports decreased.Electronic and information products constitute the largest single item in terms of value in China's exportbasket.About two-thirds of the exports come from wholly foreign -owned manufacturing units in China----mainly from Japan, South Korea,Hong Kong and Taiwan--- 16 per cent from joint ventures and the remaining 18 per cent from wholly Chinese-owned companies. Theseproducts include mobile phones, fax machines, TV sets, computers, digital cameras and the like.During the first eight months of this year,the total value of the exports of these items was about US $ 338.62 billion , an increase of 22.53 per cent as compared to thecorresponding period of 2007. The growth rate during the same period in 2007 as compared to 2006 was 24.53 per cent. Thus, the exportgrowth rate decreased by two per centage points, but it is still high. China imported $ 246.81 billion worth of electronic and informationproducts from January to August, up 15.45 per cent as compared to the corresponding period of 2007. However, the growth rate was five per cent lower than last year. The imports include whole products imported for sale to the Chinese consumers as well as parts imported forassembly and re-export.Trade surplus of electronic and information products increased by 46.7 per cent to US $91.81 billion , accountingfor 60.4 percent of China's total trade surplus. China exported $4.12 billion worth of software in the first five months of 2008, up 45 percent over the corresponding period of 2007.Software exports surged from $720 million in 2001 to $10.24 billion in 2007. (My comments: Thetotal value of India's software exports is around US $ 40 billion per annum.)
-------Source: Xinhua


4.The People's Bank of China, which is China's central bank, reported on October 13,2008, that the country's foreign exchange reservessurged to 1.9056 trillion U.S. dollars through September. The figure was up by 32.92 per cent as compared to the first nine months of 2007.Foreign exchange reserves grew by 47.7 per cent during the first nine months of 2007 as compared to the corresponding period of 2006.Thus, the growth rate has dropped by 14.8 per cent.China overtook Japan to become the world's largest holder of forex reserves inFebruary 2006. Till June,2008, the foreign exchange reserves were growing by 35.73 per cent. This came down to 32.92 per cent bySeptember-end,2008. During the first three quarters of 2008, China's trade surplus decreased by 2.6 per cent year-on-year to 180.9 billionU.S. dollars. There was a flow of 377.3 billion U.S. dollars to the forex reserves in the first three quarters. In September, the reserve build-upexpanded by 21.4 billion U.S. dollars, compared with rises of 36 billion U.S. dollars and 39 billion U.S. dollars in July and August, respectively.The monthly increase was averaged at 41.9 billion U.S. dollars in the first nine months, still higher than an average 38.5 billion U.S. dollarsrecorded last year. The average monthly increase for the third quarter alone was 32 billion U.S. dollars, and higher than marketexpectations. The country's trade surplus had been expanding by more than 27 billion U.S. dollars each month in the third quarter, whichalso overran market expectations. Tan Yaling, a China International Economic Relations Society economist, said the growth in forexreserves also indicated a growing interest in yuan assets as a haven for investment amid the global turmoil. "Under the current financialcrisis that originated in the United States and with the euro also softening, China's yuan-denominated assets appear relatively safer andcreated an influx of foreign investment, which also contributed to the growth in the third quarter." Zhang Bin, a Chinese Academy of SocialSciences researcher, said the U.S. financial crisis had a limited impact on the country's huge forex reserves, as the forex supervisor haddiversified the holdings so as to avert some risks. Through September, the M2 -- a broad measure of money supply, which covers cash incirculation plus all deposits -- grew by 15.29 per cent from a year ago to 45.29 trillion yuan (6.7 trillion U.S. dollars). The M2 growth was 0.71percentage points lower than the previous month. The figure had fallen for the fourth consecutive month as the government's tighteningmeasures started to take hold. Tightening policies, including several interest rate hikes, since the end of last year, adopted to fight soaringinflation and overheating risks, however, had recently been replaced by two rate cuts in less than a month. Such moves were taken to boostthe domestic economy amid worries over the deepening global financial crisis. Through September, the narrow measure of money supply,M1, was up 9.43 percent to 15.57 trillion yuan, again lower than the 11.48 percent rise in August.The central bank report also claimed thatthe country's financial system remained stable. Outstanding local currency loans expanded 14.48 percent to 29.65 trillion yuan. The growthwas 0.19 percentage points higher than the previous month. Outstanding loans in foreign currencies, however, rose 30.86 percent to 269.2billion U.S. dollars, compared with a gain of 37.84 percent in August. The report said local-currency deposits were up 18.79 percent to 45.49trillion yuan, while foreign-currency deposits grew 9.37 percent to 174.2 billion U.S. dollars. Local-currency transactions on the inter-bankmarket reached 9.49 trillion yuan last month. Average daily transactions were 451.9 billion yuan, up 17 percent year on year.
---- Source Xinhua


5.My comments: While the toy industry is in a state of serious crisis due to a steep fall in demands from the US, the electronic and information products industries, which contribute nearly 60 per cent of China's trade surplus, continue to do well. There has been a declinein orders as compared to 2007, but not very high. However, if this decline expands in the coming months, that could add to the difficultiesfaced. The foreign exchange reserves continue to bulge despite a slight drop in trade surplus.The fall in the flow of reserves due to a slightdrop in trade surplus has been compensated by a flow of money from foreign investors, who prefer yuan-denominated assets to US dollar and Euro denominated ones.One does not know how much of China's foreign exchange reserves has been invested in the US Treasury bonds. If these bonds lose in value as a result of the melt-down in the US, that could aggravate the difficulties. The Chinese leaders and officials are projecting a picture of confidence that they will be able to keep their economy stable. Whether their confidence is justified or not would beevident only by January. Presently, the electronic and information products and textiles industries are doing well on the basis of the exportorders received before the melt-down started in the West. What inpact the melt-down has on post-September orders would be evident onlyby January. The present Chinese worry is over the spectre of unemployment as the export orders come down. How healthy is their banking system? An answer to this question is not yet available.

(The writer is Additional Secretary(retired), Cabinet Secretariat, Govt. of India, New Delhi, and, presently, Director, Institute For TopicalStudies, Chennai. He is also associated with the Chennai Centre For China Studies. E-mail:seventyone2@gmail.com )