The Pendulum is Swinging

It has been more than four months since the start of the corona pandemic and there are no signs that it will go away any time soon. The world economy is expected to shrink 3% – 4% percent by next year.  Loss of production and massive supply chain disruptions have become the norm. This crisis is unprecedented. To top it all, the horizon for economic recovery cannot be seen as yet. The WHO has said the pandemic will continue for the rest of this year and may get worse within that time. But the corona crisis however bad it may seem to be at the outset, comes with a silver lining.

Experts say that once the pandemic so much as shows signs of receding even partially, the global economy is going to pick up steam. The next boom in business is going to be unprecedented.   It is now obvious that business norms will have to change which will entail use of new technology. The way we live, work and play will change fundamentally. The new norms will be business as usual. The pandemic may have accelerated the pace of human evolution.

With China taking an aggressive and dictatorial stance, the nations in the immediate strategic area around her are feeling the heat. Also other countries further afield like the US, UK and those of the European Union are apprehensive as well. India has already borne the brunt of unprovoked Chinese aggression. It has retaliated on the trade frontier by banning some popular Chinese smartphone applications from its market citing data security concerns.

In the last three decades or so, China had developed itself into an export driven economy and become an important part of the global supply chains. That may now change. The world is becoming wary of the way China does business. Amid this situation the Iran - China deal which is now in the offing will turn out to be a big disruptor in the region with global implications. It directly challenges US dominance in the gulf region post the World War II. Two distinct camps now seem to be emerging and a cold war may start all over again. China still can wield a lot of influence on middle income countries, in Africa, South America and the Indo Pacific.  India too seems to be getting its act together with regional connectivity. Projects in Maldives, Bangladesh and Bhutan are being executed speedily and nearing completion.    

Post pandemic, global supply chains could shift away from China because of its handling of the pandemic, aggressive behavior in its neighbourhood and because of what it is doing in Hong Kong and Xinjiang. How exactly this will play out cannot be predicted today, but there are enough indicators that it will not be business as usual with China. Countries like India, Vietnam and others will vie for economic opportunities as they become available. China’s decline will be their gain. The geopolitical implications will be profound and will be felt in all corners of the world.

After the US, the UK has banned Huawei from its 5G rollout. Apart from American pressure on the UK, there are genuine concerns about how Chinese companies handle data. Chinese scientists and students are also facing the heat in US. Two geostrategic focal points are emerging. One in South Pacific and the other in the gulf region. Whatever happens at these points will have consequences elsewhere. 

A subtle but significant shift in how the world views China is that in its public addresses the US has distanced China from the CCP and President Xi Jinping is now being addressed as the Chairman of the CCP. Another indication of this changing view is that Russia has put off the sale of the S-400 missile defence system citing Chinese theft of technology. China also claimed the Russian city of Vladivostok as its own. As a consequence, India has asked Russia to play a more active role in the East and South China Seas.   

The last time a big upheaval of this scale took place, it was due to World War II. This time too, a global catastrophe (read pandemic) threatens to do the same. The situation is going to be fluid for some time to come and political commentators and economists are going to be hard pressed to make any predictions. One thing has become very clear. The geo-economic pendulum may be swinging to a different position in the near future.