Checking Capitalism the Chinese Way
In a ruthless approach to check a burgeoning industry with global footprint, the Chinese Government is continuing crackdown on its Tutoring and Technology (tech) giants in order to meet its social and political goals. In the words of the Chinese Communist Party’s Politburo, it was determined to “prevent the disorderly expansion of capital” (Mitchell et al. 2021). The crakdown will completely downsize China’s ultra-competitive education system, plagued by expensive tuitions and luxury.
In the process, there is also the spectre of the billions of dollars of losses to investors which incurred on Wall Street, as the value of Chinese tech shares had soared to $2 trillion over the last two decades. The crackdown has also expanded to property companies with foreign listings, make it evident that the Chinese government wants to restrict foreign listings of its companies. The crackdown is expected to spread to other sectors as well where companies raise their capital abroad. The impact is already being felt in sectors such as food delivery, music, lifestyle apps and on digital currencies (which threaten governmental control over capital flows).
Now as the Chinese government overhauls the domestic legal structure – targeting the Variable Interest Entity (VIE) structure of companies that had allowed them to sell shares to foreign investors – of its tutoring tech companies, the Wall Street is taking a major hit, as investors are concerned that Chinese crackdown on tutoring tech sector could extend to other sectors using the VIE legal structure as well. China has stipulated new rules mandating the after-school tutoring companies to become non-profit entities and stopping weekend classes, thereby making them less appealing for investment.
This comes in the backdrop of growing US-China confrontation in all spheres, including the corporate. The threat of US government to de-list Chinese companies that did not allow scrutiny of their audit processes, as well as the passage of China’s new data security law that forbids companies from sharing data with any foreign officials without government approval, have been the precursors to the new developments. From Jack Ma’s Alibaba group to Chinese tech giant Tencent to TikTok parent company to Didi Chuxing, the crackdown by Chinese government spares no one. Recently, the new data security law was applied to Chinese ride-hailing company, Didi Chuxing, soon after it listed in New York, leading to a 40% fall in its shares.
The simple message from Chinese government to its domestic industry is clear – the industry will not be allowed to easily bypass domestic regulations in the pursuit of profit, and that loopholes of legal structures such as VIE would be plugged. The crackdown is also being perceived as largely ideological and political, with the Chinese government ready to sacrifice economic gains in the immediate run, in order to meet its larger nation-building goals.
After much upheaval in Karnataka, the state saw a change of guard and a smooth transition of power from the former Chief Minister, B.S. Yediyurappa (BSY), to the new Chief Minister, Basavaraj Bommai. The transfer of power marks the end of the BSY era on a positive and reconciliatory note, such that the critical factor of BJP’s Lingayat votebank which commanded BSY’s support, remains largely intact. Additionally, Mr. Bommai is also perceived to be on good terms with BSY, and is a Lingayat leader himself, with an honest reputation.
For a long time, the Karnataka BJP had been witnessing power plays between the camps of BSY, and those staunchly opposed to him. BSY’s name in corruption scandals had also made him a liability for the party, which wanted to open new avenues in the state. At the same time, the party realized that it is simply not possible to easily depose BSY without losing a huge chunk of the Lingayat vote-bank. The last time the BJP had decided to do so, it became a virtual non-entity in the state with BSY’s exit. Therefore, for long, the party had tried to cultivate a new Lingayat leader, without unnecessarily antagonizing BSY.
The selection of Mr. Bommai has settled much of the confusion that the party faced in Karnataka, and proved wrong the naysayers who were certain that BSY’s exit would spell difficulties for the BJP in Karnataka. In one stroke, the party has ensured three things, viz. internal dissent within the state unit is quelled, Lingayat vote-bank is retained and BSY has departed on a positive note.
US-India Relations: Blinken’s Visit
The US Secretary of State, Anthony Blinken, has visited New Delhi, continuing the robust engagement between US and India on key bilateral issues. The frequent high-level engagements and visits between US and India is likely the first time any US administration has given such central attention to India. While Binken was visiting New Delhi, simultaneously, US Deputy Secretary of State, Wendy Sherman, was in China, to meet the Chinese Foreign Minister in a visit that was marked by much angst, and the US Defence Secretary was visiting Vietnam and Phillipines. The Indian Defence Minister was, simultaneously, productively engaging his Russian counterpart at a conference of Shanghai Cooperation Organization (SCO) in Tashkent.
The simultaneous engagements reveal US’s clear intent about its vision for the Indo-Pacific and the world, and India’s intent to strike a balance between all its partners. Prior to his Asia visit, the US Defence Secretary, in UK, sent out a tough message that UK’s military resources would be better served in Europe rather than in Indo-Pacific, where US, Australia, France and other allies are already increasing their presence. This message came immediately after UK’s military naval expedition in the South China Sea, despite China’s stated displeasure. The implicit message to the UK was that it was needed to fulfill the West’s purpose in Atlantic and Pacific, to contain Russia, which is increasingly allying with China.
The key issues in Blinken’s visit were Afghanistan, Indo-Pacific, climate change, and, COVID19, besides rhetorical assertion of shared US-India democratic values. Incidentally, Blinken did not dwell on human rights and related issues, even in his meeting with Indian civil society, where many activists complained about India’s handling of domestic issues like CAA, love jihad, Farmer’s protests etc. Blinken skillfully skirted all these issues and responded that both US and Indian democracies were a work in progress and no one is perfect.
Indeed, what the civil society meeting of Blinken in New Delhi really stood out for was his engagement with Dalai Lama’s representative – US administration’s first such direct engagement, in a clear message to China, and a hardening of US’s position towards Tibet. This came after XI Jingping’s much publicized visit to Tibet.
The much-awaited expansion of the central cabinet has finally taken place. The expansion saw 43 ministers being sworn-in, of which around 36 new faces were being inducted and 12 sitting ministers being dropped (including dropping of 6 out of the 23 cabinet ministers). This is being regarded as a large-scale purge in recent times, with prominent names like Harsh Vardhan, Ravi Shankar Prasad, Prakash Javadekar, R.P. Nishank, Santosh Gangwar and Sadananda Gowda being shown the door. The reasons for their exit are likely premised on the massive controversies that have dogged their ministries and their less-than-ambitious response in handling the mess. Jyotiraditya Scinda was inducted into a cabinet post as aviation minister. Other prominent names include Meenakshi Lekhi, Ashwini Vaishnaw, Sarbananda Sonowal and Mansukh Mandaviya.
The top rung of leadership – Modi, Home Minister Amit Shah, Defence Minister Rajnath Singh, Finance Minister Nirmala Sitharaman (alongwith the entire economic team) and External Affairs Minister S. Jaishankar – remains the same. Amit Shah now handles a newly formed Ministry of Cooperation – which will manage the cooperatives sector in the country. The sector is, interestingly, a key fiefdom of Sharad Pawar in Maharashtra.
Ministers of Departments like Social Justice and Empowerment, Health, Education, Labour, Information and Technology, and Environment and Climate Change have been removed and replaced by technocrats, indicating that the government prioritizes a robust and professional approach in these ministries, especially as some of them (like climate change) have a tough global fight ahead (Hebbar, 2021).
The expansion also sends out a message on geographical spread and caste representations, and accomodates smaller BJP allies like UP’s Apna Dal and Bihar’s LJP. Non-upper caste representation is very high, with 48 out of 77 Council of Ministers being from non-upper caste background – 27 OBC ministers, 12 Ministers belonging to the Scheduled Castes, 8 Ministers belonging to the Scheduled Tribes, 5 Ministers from minority religious communities, and 11 women Ministers (Hebbar, 2021).
From the point of view of UP elections, the government now has 14 ministers from the state, with latest expansion inclusions being 3 OBC Ministers, 3 Scheduled Caste and only 1 Brahmin Minister. Uttarakhand has been accorded importance, in the light of the upcoming state elections. A large number of inductions have been made from eastern states as well, such as Bengal, Assam, Manipur and Tripura. 4 inductions from Maharashtra send out a message that the BJP keeps the state on its political priority list, along with 3 inductions from Gujarat. The South has also been given importance, with 4 inductions from Karnataka and 1 from Tamil Nadu.
Assam-Mizoram Border Dispute
In a sharp escalation of the historic boundary dispute between Assam and Mizoram, at least five Assam Police personnel were killed in violent clashes on July 26th, at a contested border point where tensions had been simmering for quite some time. Fifty policemen from both sides were injured, including the SP of Assam’s Cachar district, who sustained a bullet injury in the leg.
In fact, the Assam Police had come to resolve an issue of an illegal construction of a road and an outpost in the disputed territory by Mizoram, as claimed by the Assam Government, while Mizoram accused Assam police of forcing its overturning a Mizoram police outpost and even setting fire to some vehicles. Local Mizo people were also seen attacking Assamese Police and Villagers.
In the aftermath, while both sides filed murder charges against each other, including one against the Assam Chief Minister, Assam imposed a costly economic blockade on Mizoram, preventing the transit of vehicles.
While the dispute is historic, such violent face-offs and follow-up of the kind that occurred is rare. Mizoram borders Assam’s Barak Valley, and both border Bangladesh. The boundary dispute between the two states, which runs 165 km today, has a history dating back to the time when Mizoram was a district of Assam and known as Lushai Hills. Boundary demarcations in 1875 and 1933, particularly the second one, are at the heart of the dispute.
The 1875 demarcation differentiated Lushai Hills from the plains of Cachar in Assam’s Barak Valley. This was done in consultation with Mizo chiefs, and it became the basis for the Inner Line Reserve Forest demarcation in the Gazette two years later. The 1933 demarcation marks a boundary between Lushai Hills and Manipur, beginning at the tri-junction of Lushai Hills, Cachar district and Manipur. The Mizos do not accept this demarcation on the ground that their chiefs were not consulted this time.
The dispute has been simmering since Mizoram became a Union Territory in 1972 and then a state in the 1980s. The two states signed an agreement that status quo should be maintained at no-man’s land set up in the boundaries. While alleged transgressions have often happened over the decades, skirmishes have happened very frequently in recent months, for reasons that can only be speculated. Mizoram has accused Assam police of various disruptions over time, and there have even been small riot-like mob clashes among people of the two states.
There could be three immediate reasons linked indirectly to the violence:
First, since the Himanta government came to power in Assam, there has been a large-scale crackdown on illegal trafficking and drugs. Mizoram was an important transit route of sending drugs to Assam, as was Manipur. The heavy crackdown on drug mafia has certainly aggravated the situation. Many of these drug mafia had patronage of the terrorist groups of Myanmar and Mizoram and also apparently some politicians from Mizoram.
Other forms of illegal trade such as forest felling, betel-nut trading etc. between Myanmar and Mizoram has also been adversely affected due to aggressive surveillance by the Assam police. Many important Mizo politicians have been alleged to be implicated in these forms of illegal trade with Myanmar (Mishra, 2021).
Second, settlers from Myanmar being pushed into Assam border areas via Mizoram and in reaction, pushing them back by Assam Police may have also contributed to the hostility between the two states.
Finally, Assam government’s recent cattle protection bill might prove to be a costly affair for beef traders in Mizoram.
Now, with the intervention of the Union Home Ministry, the hostility is now being eased out, the vehicle movements have also been resumed and the FIRs against the politicians have been taken back by both sides.
India-China Border Talks
India and China held 12th round of border talks. The talks led to a substantive outcome – disengagement from Gogra Heights, including dismantling of infrastructure and mutual verification of the same by both sides. The disengagement at Hot Springs has not happened, and will likely feature in the next round of talks.
This is the second friction area from which disengagement has been done after Pangong Tso in February (Peri, 2021). India’s position has been that disengagement needs to happen on the ground at critical points like Depsang, Hot Springs and Gogra for bilateral relations to smoothen.
Chinese Dominance in Turkmenistan
Chinese Foreign Minister’s recent visit to Ashgabat underscored the deepening ties between China and Turkmenistan, and the manner in which China’s expansion has checked Russia’s ambitions in Central Asia. The visit’s key highlight was the expansion of China’s relationship with the country from economic to security domain, prefaced by the background of Turkmenistan’s support to China over the Xinjang issue at United Nations recently.
In Central Asia, Russia, China and Turkey are some of the key players, among others. While Turkey’s ambitions under Erdogan are focused on reviving the Neo-Ottoman era Muslim unity, Russia has its own Soviet-era legacy. China has mainly focused on expanding its economic interests in the region. China has also faced hostilities from local populations in Central Asian countries – Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan – other than Turkmenistan, as other four countries resent China for the treatment of Uighur Muslims in Xinjiang, despite their economic ties.
Within the region, Russia and China appear to have an informal division of powers, with Russia being the security provider and China undertaking economic investments. This has enabled smooth Russia-China cooperation, fulfilling each one’s immediate interests. However, developments with regard to Turkmenistan signal a changing balance.
While other four countries are within the Russian sphere of influence, Turkmenistan – often compared with North Korea in its insularity and corruption of elites – is not. Turkmenistan is neither a part of Russia-China security organization, Shanghai Cooperation Organization (SCO) and nor a part of Russia-led Central Security Treat Organization (CSTO), unlike the other four countries. While Russia has continued a deep footprint in the other four countries, Turkmenistan has kept out the Russian influence.
On the other hand, Turkmenistan’s relations with China have been better compared to other regional countries, as China has found it easier to bribe its elites and exploit its insularity from the world. China has heavily invested in the country’s natural gas sector and the country acts as a transit route between China and Europe. Now with the threat of Taliban’s control over Afghanistan looming large, the region is looking for greater security, and Turkmenistan and China appear to be transitioning their relationship from economic to security and military as well. In particular, Chinese private military companies are being hired for security provision in Turkmenistan. If Beijing becomes a security provider in the region, then it would, to an extent, overlap with Russia’s interests and also marginalize Russia and the West, enabling China to compete with Turkey.
Hebbar, N. (2021, July 7). The Hindu. Retrieved from https://www.thehindu.com/news/national/analysis-seeds-of-political-battle-lines-drawn-for-2024-in-cabinet-overhaul/article35200643.ece
Kinder, T., Lockett, H., McMorrow, R., Mackenzie, M., & Agnew, H. (2021). Beijing’s threat to VIEs triggers Wall St panic over China stocks. London: FT Ltd.
Mishra, A. (2021, July 28). India Today. Retrieved from https://www.indiatoday.in/india/story/crackdown-drug-mafia-assam-mizoram-border-clashes-1833709-2021-07-28
Mitchell, T., Yu, S., & McMorrow, R. (2021). Xi cracks down on China’s education sector to assert Communist party supremacy. London: FT Ltd.
Peri, D. (2021, August 6). The Hindu. Retrieved from https://www.thehindu.com/news/national/post-talks-india-china-pull-back-troops-from-gogra/article35767170.ece
 Chinese VIEs are holding companies usually based in tax havens, designed to get around strict domestic rules that forbid foreign investors from any ownership over key sectors, such as tech. In theory, they entitle US shareholders to the economic benefits flowing from a Chinese company while limiting their operating control of the business (Kinder et al. 2021).