India gets into the currency swap game

India and Bhutan recently announced a currency swap agreement amounting to $0.1 billion to "further economic cooperation." 

This swap agreement allows the Royal Monetary Authority of Bhutan to withdraw tranches in dollars and euros as well as rupees. 

The same piece goes on to say that in May 2012, the Royal Bank of India had announced intention to enter currency swap agreements to the aggregate total of $2 billion with SAARC member countries -- Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka. 

The piece did not say whether Bhutan is the first or only member country to have accepted the invitation. The Bhutan central bank gave a clear and comprehensive explanation of the advantage of the swap agreement from Bhutan's point of view.

China has been entering into bilateral swap agreements with a large number of countries involving significantly larger amounts. These agreements involve their respective local currency and is a way of avoiding exposure to and cost of having to convert to dollars before settling their trade accounts.

Singapore just doubled their swap agreement with Bank of China to a total of 400 billion yuan or $48.2 billion. Singapore will be the third offshore centers (along with Hong Kong and Taiwan) to include the Renminbi in their foreign currency exchange market. London is expected soon to become the fourth offshore center to include the Chinese currency.

I have been tracking China's swap agreements as shown on my blog.

Looming tension between India and China

Recent developments on the borders between China and India hint at rising tension between the two giants. Most reports and commentaries portray China as the aggressor and India as the aggrieved state defending its national interest. These developments will bear close monitoring in the months to come.

Most frequently, the cause of the border disputes is traced back to the border conflict fought between China and India in 1962, invariably portraying China as the aggressor. Foster Stockwell has kindly reminded us that a contrary assessment was provided by John Fairbank in 1971. Fairbank was an OSS operative during WWII and a highly respected professor of East Asian studies at Harvard University after the war. Excerpt of Professor Fairbank's commentary as provided by Stockwell is quoted below for the record.

How Aggressive is China?/ by John K. Fairbank, /The New York Review/, April 22, 1971 (pg. 6)

The border war was triggered when the Indians sent 2,500 troops, in summer uniforms and with only the equipment they could carry, across high passes north of the McMahon Line, with orders to assault Chinese bunkers that were heavily reinforced on the mountain ridges farther north. This truly suicidal project was denounced by some of the professional officers, who resigned on the spot, but was ordered by the political generals now in command. Supplying a post at 15,500 feet, for example, required a five-day climb by porters from the air strip, and on a ten-day round trip the porters could carry almost no payloads beyond what they needed for their own survival. Among 2,500 troops beyond the McMahon Line only two or three hundred had winter clothing and tents, and none had axes or digging tools, to say nothing of heavy guns and adequate ammunition. As ordered, they mounted a small attack, and the Chinese reacted and drove it back on October 10.

The Chinese reaction against the announced Indian buildup for an attack north of the McMahon Line initially produced in New Delhi not only the excitement of warfare but even euphoria. Chou En-lai’s proposal that everybody stop where they were and negotiate was again denounced as aggressive. Nehru said that China’s proposal “would mean mere existence at the mercy of an aggressive, arrogant and expansionist neighbor.” He began to accept American and British military aid as well as Russian. As Maxwell remarks, “It was almost forgotten that the Indian army had been about to take offensive action; ignored, that the government had refused to meet the Chinese for talks.” Meanwhile, after their initial reaction, the Chinese paused and built roads to supply their advanced positions, while the Indian forces were kept widely distributed in defenseless, small contingents, still in the belief that the Chinese would never dare to attack.

All this was resolved on November 17 when the Chinese did attack again and in three days overran or routed all the ill-supplied Indian forces in the field, east and west. Many brave Indian troops died at their posts and were found frozen there months later. India’s political generals behaved like headless chickens. The Indian defeat was complete. On November 21, l962, China announced a unilateral cease-fire and a withdrawal in the west by stages to positions twenty kilometers behind their lines of control and in the east to the north of the McMahon Line, so that they would hold essentially what they had been proposing for three years past.

But the Indian government, while accepting the cease-fire in fact, objected to the proposal publicly. Its forward policy was finished and two or three thousand Indian troops had been lost; but “no negotiations” was still the Indian policy “The border war, almost universally reported as an unprovoked Chinese invasion of India, had only confirmed the general impression that Peking pursued a reckless, chauvinistic and belligerent foreign policy.” China had won the match but India the verdict.

Inevitably Tibet will figure prominently in any conflict between China and India. Go to here for a comprehensive review of the issues on Tibet.

Let's Talk About Tibet (II)

In recent issues of World Journal (世界日报), there was an interesting comparison of “two Lhasa’s,” written by three co-authors, Messrs Yin, Fei and Yu from the Bay Area. The two Lhasa’s in question were the Lhasa in Tibet and the “little Lhasa” established by the Dalai Lama in upper Dharamsala upon his exile from Tibet in 1959. In the interest of introducing the results of their research to a broader English reading public, I have loosely translated some of their major findings and observations in this blog.

When Dalai Lama fled Tibet in 1959, the Lhasa he left behind had a population of 29,000. Of this total, 14,000 were monks and nuns that did not contribute to the economy and 4,000 were homeless beggars, all were supported by a working population of 11,000. By way of comparison, in America for every 10,000 population, the average is 24 in the clergy and 2 homeless. Obviously the economic burden of the working class in the Lhasa Dalai Lama left behind was unimaginably onerous to say the least.

On the other hand, the little Lhasa in Dharmsala had all the advantages of a roaring new beginning. The followers of Dalai Lama were the elites of Tibet. They were educated, skilled and wealthy. They knew what it would take to set up an exile government. Furthermore, Dalai Lama and his cohort had the explicit support of the CIA and the State Department, to the tune of $2-3 million in annual subsidy. Lastly, Dalai Lama took his personal wealth with him to India. Just the antiquities he took with him were judged to be worth $200 million in today’s dollars. He also owned approximately 8 tons of gold and 4,750 tons of silver, worth $8.7 billion in today’s dollars. In other words, Dalai Lama had plenty of assets to establish a new Lhasa in style.

So, after 50 years, how do the old Lhasa in Tibet compare to the little Lhasa in India?

The population of Lhasa has increased from the original 29,000 to 300,000 Tibetans, while the population of little Lhasa remained static at 30,000 of which about 5000 are Tibetans.

In Tibet’s Lhasa, there used to be a total of 4 automobiles, bought by the 13th Dalai Lama, the predecessor to the current Dalai Lama. Today, there are 16,000 vehicles in Lhasa. In little Lhasa, only the Dalai Lama and senior government officials have cars, none of the regular Tibetans own cars.

In 2007, Lhasa replaced all plastics shopping bags with textile bags, and the practice has now spread to all of Tibet. Little Lhasa continues to be littered with plastics bags fluttering in the wind. There are 110 public toilets in Lhasa, none in little Lhasa.

There are two public reading facilities (书楼) in Lhasa and 17 book stores, of which 16 sell books in Tibetan language and 4 sell sutras and Buddhist scriptures. In little Lhasa, there is not one bookstore that specialize in Tibetan books.

In Lhasa, by 2007 Tibetan language was taught for the first nine years of school but has now expanded to 12 years of school. In little Lhasa, Tibetan language is taught up through first 5 years of school and everything is then taught in English from the sixth grade on.

In the 50 years of existence, Dalai Lama received $150 million of financial support from the U.S. government—generous by American standards of foreign aid but pale by the amount Beijing has invested in Tibet, a total closer to $15.4 billion.

During the Cultural Revolution, many of the temples and historic structures were damaged or destroyed by the “Red Guards,” many of whom were ethnic Tibetans. Beijing has since allocated the necessary funds to restore and repair these structures and publicly apologized to the people of Tibet. The Dalai Lama has never apologized for the crimes against humanity committed by the religious government under his rule before his exile.

Democracy is not doing India any favors

I have just returned from a short business trip to India. The visit took me to New Delhi and Chennai and my overall impressions of India admittedly based on a short stay are summarized below.

My first conclusion is that India’s public sector is as dismal as ever. Multi-laned highways were littered with pinch points due to ongoing construction, incomplete exchanges necessitating u-turns instead of direct turns. Industrial parks consisted of buildings that sat in midst of dirt fields strewn with piles of rubble, networked by unpaved, pot-holed roads. While visiting factories in these zones, we experienced periodic brown outs at a frequency of several per hour. Whether in the city or outside, the roads in India were lined with tin shacks and mud brick hovels. There was no conceivable way the streets could be kept clean and dust under control.

Because of the ineffectual government, India is a land of bottlenecks. On the first morning in Delhi, our host picked us up to take to his plant located in the industrial park west of New Delhi. As we approach the toll station, his driver took the extreme inside lane because his car was equipped with “fast pass,” the electronic way of paying toll. We quickly came to a crawl in the “fast” lane for more than 30 minutes while the slow, cash only lanes, moved passed us in steady streams. We were stuck in the fast lane because we were trapped by three lanes next to us; all using the moving “slow” lanes to cut in front of us in order to get through the electronic gates.

It was hard to know the original cause of the jam at the toll gates but having fast lanes moving much slower than the slow lanes sort of epitomized the way things work in India. At airport security, for instance, there was either more carry-on inspection capacity than there were passenger inspection or vice versa so that the lines never moved smoothly the way it should.

In contrast, the private sector is impressive. We met two companies vastly different in size but share certain common traits. They were resourceful, competent from top to bottom and knew how to get things done promptly. They understood the importance of making a consistently high quality produce, necessary to be preferred supplier to Japanese and Korean car makers. They found ways to be successful despite the hindrance of a bumbling government system.

Both companies were founded by leaders that were visionary and knew how to treat their employees and thus earn their loyalty. They enjoyed low turnover and can boast of core group of executives that have been with them for decades or more. Their core teams consisted of home grown talent that were very content to grow with their owners. These folks were not going to be easily lured by MNCs and others that set up in their neighborhood.

Despite the imagery of the rule of a caste system in India, I was impressed with the people in India. While driving in Delhi, I saw someone trying to jump on to a moving bus, missed and fell to the payment. The inert form was immediately surrounded by passers-by trying to figure out how to help him. In the brief moment that our car was passing the scene, I could see a genuine and spontaneous reaction of care and concern from total strangers on the street.

While in India, the front page of the newspapers reported on the imminent demise of the current ruling coalition and speculated on the make-up of the next coalition. The news was rife with rumors of how each small party was maneuvering for concessions as price of their potential swing votes. There were so much of these articles about so many of these minority political parties, it was too dizzying for a foreign visitor to follow. A week later, I found out that the current ruling coalition squeaked by with a slender majority, but not before getting temporary releases for jailed parliament members so that they can cast their votes. These were members currently serving terms in prison for murder or extortion.

When and if India’s public sector can get their act together and become the other essential leg of India’s economic machine, India will then truly become a power to reckon with. Until then, all the effusive praise of India as a model of democracy is simply a reflection of ignorance, a projection of blissful optimism not supported by reality.