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Mar 23, 2023
LT GEN P R SHANKAR (Retd)

Post-COVID China: Hard Exterior and Brittle Interior

Post Zero-Covid, China is emerging as a new conundrum. While there are clear signs of a Chinese recovery, it is not a back-to-the-future scenario. The Ukraine war, the hangover of Zero Covid and the global uncertainties which confront China are casting their shadow on its future. At present, there is a major international crisis of fuel, food and fertilizer shortages. This is heightened by rising interest rates, high inflation, and subdued growth. Countries are failing in this environment. Manufacturing and exporting economies like China are struggling due to isolation, sanctions or de-globalisation. Against this backdrop, Xi Jinping and his loyalists seem to have made up their minds to set a new course for China. The course is visible in the aftermath of the recently held Two Sessions. It is also clear that Xi Jinping’s goal of establishing a Sino-Centric world order remains aloft along with his personal ambition of emerging as the greatest Chinese statesman who shapes world affairs. However, Xi Jinping is also cognisant of the task ahead when he said “the external environment of China’s development has changed rapidly and uncertainties and unpredictable factors have increased significantly. In particular, the Western countries led by the U.S have implemented a comprehensive containment, siege and suppression of our country bringing unprecedented and severe challenges to our development”. To this, one must factor in internal issues. In the recent past, there have been a series of protests on the streets. These are rarely seen in China. It indicates a certain internal instability. Overall, in the foreseeable future, the China we are likely to see is one with a hard exterior and a brittle interior. To understand this, one must start with the economy. China and the CCP are GDP fixated. China has always set hard growth rates and has striven to achieve them. The fundamental precept of the Chinese political economy has been getting high GDP growth rates and achieving them. This phenomenon has been the primary means to maintain the social contract with its people, who are expected to give up some freedoms in return for prosperity which stems from high growth. It is also the benchmark that all their provinces strive to achieve in a competitive environment. However, the GDP growth target of ‘around’ 5% set in the recent Two Sessions is hardly inspiring. Here lies the conundrum. China is aiming for a Sino-centric world order as its growth remains anaemic. This issue needs reconciliation and analysis to get to a realistic idea of the issues that confronts us. Two factors that will dominate China’s long-term landscape are its demography and the effect of climate change. It is amply clear that China’s demography is on the decline and irreversibly so. It has to contend with a dwindling population, a decreasing workforce, and an ageing society, for which it is quite unprepared. Surprisingly, the new Chinese government is silent on its declining demography. It appears they have no answers for it. China’s vulnerability to climate change, its lack of energy resources, and endemic food insecurity also put it at risk. This is constantly reinforced by Xi Jinping who regularly talks of the ‘extreme importance’ of food security. These two factors are loose ends and put an overall limit on China’s growth story and its comprehensive national power. These cannot be wished away. These should not be lost sight of. It was increasingly clear even during the pre-covid era that the Chinese economy, which grew on the twin pillars of export and infrastructure growth backed by a well-oiled manufacturing base, must change tracks towards boosting consumption. In the current times of geopolitical headwinds, rising inflation and increasing decoupling/friend-shoring/relocation, the necessity to boost its national confidence and economy through consumption is even more important. However, the cultural propensity of Chinese households and their society to save rather than spend consumptive is a real barrier. This barrier is reinforced by job losses, lowering of wages and unemployment which prohibits consumptive spending. The new establishment is trying to revive the once-thriving private sector to increase jobs and income which will trigger consumption. However, it was Xi Jinping who decisively broke the private sector in favour of state ownership of businesses. Revival of private enterprises to make them once again into engines of job creation and income growth will require two things. It will need the creation of a trust that private companies can re-grow in a free and equitable atmosphere. Further empowerment of private enterprise is a reversal of Xi Jinping’s core idea of state control. There are no indications of how this will be overcome. The real estate and infrastructure sector still constitutes about 25-30% of the Chinese economy. Real estate and property continue to remain sick despite several government measures to revive them. Efforts to stimulate property purchases have not borne fruit. Property prices and real estate continue to fall despite a slowing down of pace. A rebound is unlikely as per internal assessments. People do not have the liquidity to indulge in the property. The traditional infrastructure sector such as transport, electric power supplies and water projects, as also the glitzy infrastructure like bullet trains, world-class highways and airports have very little scope to expand. In fact, China has excess capacities which remain underutilised. This sector will not be able to support Chinese manufacturing, job creation or exports at the necessary scale. In such conditions, China’s economy will not revive. On the contrary, it will stagnate. There are a few other issues. China is also in search of new energy sources. It is betting on space-based energy and renewables in a big way. However, that is in the future and is still aspirational for the scale which is required. Till then it has to continue with its coal-based economy. The virus and the pandemic exposed the vulnerability and weakness of the Chinese healthcare system. As society ages, weak healthcare set up will drain the larger economic system. It is to be seen if there is a move in this direction. As stated earlier, China is a food-deficient country. Its leadership is fully cognisant of this. They constantly reiterate the efforts needed to address weak links in agriculture, especially seeds. Xi Jinping has personally repeatedly expressed urgency to attain self-sufficiency in food and seed production technology. This has been heightened as a result of the Ukraine crisis and the worsening US-China relationship. Domestic seed innovation is a priority agricultural task. However, it has not yielded results so far despite huge subsidies and investment in research. Xi Jinping and his band of loyalists understand the Chinese situation better than all of us and maybe more. They have more at stake. However, they are left with very few options. The Chinese interior is likely to remain brittle, nebulous and unhappy. It will not be out of place to see dissent overflowing into the streets as witnessed recently. When seen in this light, things become clear. That is the reason why they have taken recourse to Science and Technology, Diplomacy and the Military in a big way. That is the clear message from the outcomes of the Two Sessions. Xi Jinping and China are betting big on science and technology to make good on all the ills of their economy. They feel that “stability” and “quality of growth” can be achieved through leveraging technology in the face of external headwinds. China has restructured its Ministry of Science and Technology as part of a major government-restructuring plan to “strengthen strategic planning” and “accelerate the implementation of scientific achievements”. They aim to achieve breakthroughs by the consolidation of resources and focus them on the goal of achieving “self-reliance”. Xi Jinping wants to reduce dependency on foreign technology. He is relying on big data, artificial intelligence, aviation and satellite industries to achieve the Chinese dream. He is also looking at improving China’s connectivity with neighbouring countries as also with BRI countries in this process. A National Data Board is being set up to propel the digital economy and boost investment in big data, 5G and the Internet of Things. It also aims to strengthen the overall computing resources capacity. This is a high-risk game whose outcomes are unpredictable. It is also an environment where ethics will be cast to the winds in typical CCP fashion. Hence China will expand its data collection and theft activities from all possible international sources. The weaponization of data, science and technology, is on the cards. From all indications, Xi Jinping is also set to stoke nationalism through science and technology. Increasingly, the image that will be projected internally and externally will be of China as a technology superpower. Xi Jinping’s diplomatic moves are the next part of his plan to revive China and also establish a Sino-centric global order. China has made its first move by mediating a truce between Iran and Saudi Arabia. With Pakistan as its client state and the Central Asian Republics being beholden to it, this move consolidates China’s international influence as well as its energy security besides opening new avenues of trade in this part of the world. His next move towards Russia makes Xi Jinping an international peace maker if he can pull it off. Further, it allows China to form an alternative power block in conjunction with Russia. It also upends the international US position and secures China all the markets it needs for economic revival. Further, an alliance with Russia gives it access to technology, resources, and energy that it sorely needs. In all this, one should not forget that China has already made a diplomatic foray into the Indian Ocean by calling all IOR countries except India to a conference earlier. When viewed holistically, China is very clearly forming an alternative but selective trade block through its diplomatic moves. It will be enmeshed with the BRI to revive its economy. It is also endeavouring to establish the Yuan as the global alternate form of currency. When that happens, China’s financial issues and woes would have been resolved to a large extent. One of the highlights of the Two Sessions was the increased focus on security in line with the theme of the 20th Party Congress. The enhanced allocations to external security were on expected lines. However, the significant jump in allocation to internal security is noteworthy. Xi Jinping is obviously in no mood to allow dissent to grow. The indications from the budget allocations to internal security indicate that state control of everything in China will be enhanced. The military and security apparatus is being boosted and their capacities are being upped. The security apparatus is the guarantee to ensure that internal dissent does not grow. It will ensure that a brittle China does not fracture. It is also apparent that China will continue with its military modernisation plans to meet its laid-down benchmarks and capacities. It is going big on the militarisation of space, enhancing its nuclear capability and introducing new weapons based on cutting-edge technology in a very significant manner besides building a huge ocean-faring navy. The purpose of its military is simple. Where its effort to leverage science and technology or diplomacy fails, it will use the military stick to enforce trade practices in its favour and revive its failing fortunes. When viewed as a whole, it is pretty apparent that China is going to use technology, diplomacy and its military to revive its economy and also use them to offset its long-term demographic and climate-related problems. The military will be significantly used to keep its regional environment in line. It will also be used as a threat against peer / near-peer competitors which are beyond its economic, technological and diplomatic influence but have the capacity to derail its rise. In this connection, it will be fair to say that its main competitor is the USA which it wants to dislodge. Simultaneously, it faces a stiff challenge from India. Hence both these countries must be prepared to deal with China militarily in the foreseeable future. Also, it is pretty evident that China will go to all lengths to evade a direct confrontation with the USA and will prefer to adopt a proxy/hybrid/gray zone approach. However, against India, it will not hesitate to get into a direct military confrontation. This is buttressed by the fact that major multinationals exiting China are heading to India. China and the Chinese now see India as eating their lunch. Hence it is only a matter of time before China will turn toward India with its military stick. Are we prepared? Image source: Reuters

Mar 22, 2023
Soumik Pyne

Opportunity to Leap: The Medium Transport Aircraft project

In May 2012, India and Russia finally signed a deal for the co-development and subsequent production of a completely new transport aircraft that would be operated by both countries. This deal was a result of much deliberation through the late 1900s and early part of the 2000s which saw multiple joint ventures being proposed with Russia including that of the FGFA fifth-generation aircraft and the very successful Brahmos missile venture. This was to be a medium transport aircraft capable of lifting a payload of around 20 tons with a range of 6000 km. The Indian Air Force planned to acquire some 45 aircraft of this type while the Russians would acquire 100 units. The Jet was christened the MTA or Ilyushin IL-214 as per the plan in 2012, they would enter the service by 2019. As with many such good plans, this too went to waste with the partnership almost unsalvageable by 2016. The Indian Air Force wasn’t happy with the selection of the PD-14M turbofan engines and some other design decisions taken by the Russians. Also, India wanted the MTA to operate in higher altitudes than the Russian design would allow. For their part the Russians wanted India to increase the program development budget, something that India vehemently opposed. These differences would see the entire program shelved in 2017. Shortly, after the MTA program was shelved the Indian Air Force started negotiations with Airbus on the purchase of 56 Airbus C-295 transport aircraft. The MTA requirement is often incorrectly understood to be that of an An-32 replacement, this in turn raises questions on why the now signed and implemented C-295 line cannot be utilized to produce more aircraft to replace the An-32. While the C-295 may well go on to replace the An-32 the MTA requirement is rather different. The Indian Air Force operated the An-12 as a 20T airlift aircraft between 1961-1993 with some 65 aircraft serving. Once the An-12 was retired the IAF had a capability gap because while it had hundreds of HS-748, An-32 & Dorniers for lifts below ten tonnes and 17 massive Ilyushin Il-76 aircraft for lifts that weighed around 40 tonnes it had no aircraft to bridge the crucial 15-30T gap in an economical manner. The Medium Transport Aircraft was envisaged to fill this crucial capability gap and provide a fit-to-order capability that would let the Indian Air force use its transport fleet much more economically. In the years, post-2010 would see this capability gap was reduced to an extent as 12 Lockheed Martin C-130J aircraft were acquired primarily to support India’s special operations requirements but given their payload capacities of 20T they also fill the MTA requirement to an extent now. One must also understand that Airlift load requirements are increasing as the Indian military modernises. While the An-32 sufficed to lift unarmored jeeps and Gypsies to the frontline, the freighters of tomorrow will have to have the capability to lift armored 4x4 & 8x8 platforms that will be far heavier. Similarly, a single 105mm Shell weighs around 20 kgs each 155mm shell around 45kgs, the recent conflict in Ukraine shows how artillery shells are used up by the thousands every day. A lift of only 5,000 shells daily would weigh 225 tonnes and need 25 odd flights by C-295 sized aircraft or 10 flights by a KC-390-sized lifter underlining the need for large freighters that are small enough to land and operate from frontline airfields. It was keeping all the above in mind, that the Indian Air force released a new RFI for the MTA requirement in December 2022. This RFI asked manufacturers to quote rough order of magnitude costs for a batch of 40/60 or 80 aircraft with the technical specs calling for an airlift capable of lifting a payload between 18-30T and with the capability to operate from rough airfields. The Indian Air force will be closing bids for the MTA on 31st March 2023 on a date publicly available information indicates that three manufacturers have thrown their hats into the MTA ring. The American firm Lockheed Martin with the tried and tested grizzled warrior C-130J, the Brazilian aviation giant Embraer with its much-feted and spanking new KC-390, and the Russian UAC with the Ilyushin IL-276 which in some form of macabre comedy is the finally developed a variant of the stillborn IL-214 originally conceived by HAL and UAC. The C-130J has a lot going for it, it’s already in service with the Indian Air force and hence already has a maintenance setup ready in the country with trained technicians and trained aircrew. The C-130J is also an aircraft that offers as many as 18 variants from a gunship to a civilian air freight variant and a tanker that can conceivably be produced should any sort of manufacturing facility come to India. The biggest opportunity for India here though is to become an important part of a C-130 ecosystem that has supplied over 2500 aircraft so far, a small slice of this opportunity is already in the works with Lockheed announcing a Heavy MRO in India that can become the sole service center in Asia for hundreds of C-130 aircraft used by operators across Asia, Africa, and the Middle East. The above said and done there is one major problem with the C-130, its age. The base C-130 first flew in the 1960s and while the C-130J is today a modern-day epitome of that base design there’s only so much that the base design could achieve. In 2010, the US air force declared it would be replacing the C-130 and shutting down production in 2029. A completely new aircraft called the “speed agile concept” is being developed in a competition between Boeing and Lockheed that will replace the C-130 beginning in 2030 and will carry 190% of the load at a similar cost. It could be foolhardy to tie the IAF down to a design on its way out. The silver lining here could be the prospect of getting the C-130 manufacturing facilities shifted to India where we could continue to manufacture the aircraft as long as it continues to be in demand. The Brazilian KC-390 which started deliveries in 2019 is a newbie compared to the C-130 with less than a hundred delivered to date. That said it is in many ways a transport aircraft that incorporates the best of technologies available today and has been designed by Embraer to replace the C-130 as the outside option for air forces globally as the venerable old freighter is phased out. The KC-390 consequently is 15% faster, carries 18% greater cargo, and costs some 41% less than a C-130 in terms of the purchase cost. That technological prowess is tempered by the reality that in terms of real geopolitical weight and alliances Brazil has very little to offer compared to the USA, additionally, the lure of hundreds of millions of dollars worth of potential business already exists in the case of the C-130, the KC-390 has a lot of promise but little to show for it in real number terms as on date. The allure of the KC-390 lies in the possibility that HAL could possibly build a joint venture partnership with Embraer over the jet and become the major manufacturing base for a technologically advanced aircraft that may well become an “independent” alternative to the western bloc C-130 or its Russian or Chinese competition early on! Embraer also has one trump card which Lockheed Martin does not have. It can dovetail an offer to manufacture 100-150 passenger regional jet aircraft from its E-175/190 series in India should the IAF select the KC-390, these regional jets have military implications as well and can be modified to serve as ELINT, COMINT, ISTAR, MPA and AEW&C platforms which along with the Tanker + freighter versions of the KC-390 can give India a complete military support aircraft ecosystem within the country. India could also use a partnership with Embraer to build inroads into the Latin American defense markets and work with Embraer to manufacture, and sell the ALH, LCH, IMRH, LCA in Latin America while manufacturing, acquiring and marketing the KC-390, E-190, etc here in Asia. The Ilyushin IL-276 will in all likelihood come with a similar manufacturing plan as Embraer with HAL becoming the Indian partner in any manufacturing venture. That said this option is likely to run into significant headwinds vis a vis sanctions on Russia in the wake of the Ukraine conflict. Also, the IAF has had a less than satisfactory experience with Russian Engines and will likely insist on modification of the jet with western engines which will again be a very problematic affair as long as the sanctions continue. It is highly unlikely we will see the IL-276 selected as long as current geopolitical troubles with Russia continue. The MTA project is one that holds great promise for India and will likely see a third large aircraft manufacturing facility built here should New Delhi play its cards correctly. Building a Turbofan-powered large aircraft will again be a significant technological upgrade from the Turboprop Dornier Do-228 or even the C-295. The Indian Air Force requirement is only the beginning. New Delhi needs to approach this requirement with a long-term perspective plan in mind that sees India using the MTA requirement to build itself a Public and private Large jet manufacturing ecosystem along with the capabilities for leveraging the same to leapfrog into the select list of countries that manufacture and sell large transport jets globally to both the military and civil market. Image source: TimesNow