February 19, 2010

Chinese checkers

It is seductive, the notion that while China may be a tiger that started roaring long ago and is well ahead of India in the global economic and superpower stakes, India is the lumbering elephant that is equally unstoppable and will emerge as a worthy challenger to Chinese economic, military and political supremacy sooner rather than later. We in shipping are prone to think that we can extend this wishful thinking into our industry almost as a corollary. In my opinion, these delusions of grandeur are rosy spectacles that blind the Indian maritime industries to the fact that the Chinese are light years ahead of us in every arena- and are drawing further ahead rapidly. The centre of the maritime universe may be shifting east from the west, sure, but the east here is China, not India.

Take shipbuilding. China has a declared and clear vision: to dominate global shipbuilding by 2015. That, folks, is just five years away. The Chinese government has said recently that it will support the shipbuilding industry in reaching this objective, but it actually started doing so quietly and systematically a while ago. While Western banks were hamstrung by the fallout of their recent sins and scared witless about lending to an industry they perceived as high risk, the cash rich Chinese government was encouraging its banks to lend to Chinese shipyards. Not just that, these banks have lent billions of dollars to struggling Western shipping companies in the last couple of years and are still doing so. In effect, this uniquely well planned ‘end to end solution’ leapfrogs China into a very influential position in the big league: Chinese supported shipyards building ships for Chinese supported ship owners mean that Chinese humungous cash reserves are used productively for the country’s direct benefit and create jobs and business opportunities to boot. And, incidentally, is just what they need to be the dominant player in shipbuilding in double quick time. Forget India, I do not see Western countries being able to compete with China here; for one, they don’t have the money.

The Chinese plan is coldly logical. Support shipbuilding when the industry is down in the dumps; pump in money in a domestic capital intensive industry when nobody in the world wants to support their own. Support customers: fund them, even. When the trend reverses, you have a robust industry that will be well positioned to prosper on the back of increased order books. Do this on a large scale and you have a huge entry barrier in place to deter any competition.

Of course, the Indian government professes support for its own shipbuilding industry, but this support, as is usual in anything to do with shipping, is thin on the ground. Private shipyards may be doing reasonably well, but they are doing so by Indian standards, not Chinese ones. Public sector enterprise Hindustan Shipyard was taken over by the Defence Ministry recently; the Government is planning to dilute its stake in the Cochin shipyard (besides SCI and DCI, the Dredging Corporation of India) ‘next fiscal’ (it is always jam tomorrow in India, never jam today) ; plans have been mooted to build one shipyard each on both the East and West coasts, and the Indian Cabinet gave an ‘in principle approval for the setting up of a new shipyard of international standards’ more than a month ago.

Unfortunately, shipyards cannot be built on principle approvals alone or we would have had a lot of them by now. They require political and economic support. India, let’s face it, does not have the will, money and foresight to do this. We make grandiose plans that are too far into the future. We execute badly. We talk of being a global presence in shipbuilding in ten or fifteen years: the Chinese plan to dominate the world in five.

Another elephant in the bedroom that nobody wants to see is that China’s dominance in shipbuilding will not be a one off thing: China plans to control other elements of maritime trade and shipping as well. Remember how the impact on commodity prices in general and freight rates in particular was felt a few months ago when demand for raw material temporarily spiked in that country? In a remarkably similar ‘end to end plan’ in line with the shipbuilding one, China is buying or developing natural resources across the world, including in Africa, Papua New Guinea, Australia and Indonesia. Coupled with an increasing domestic tonnage, the day is not too far off when Chinese raw material will be carried from Chinese companies located around the world on Chinese ships to China for domestic consumption and industry. (In addition, for my sanguine friends in shipmanning, these Chinese ships will have Chinese crews on board, not Indian.) Call it hegemony or monopoly, but it sure heralds domination.

Some people will say, quite logically, that there are other factors at play here that nobody completely understands, and some of these may well queer the pitch. Primary amongst these are the huge Chinese dollar reserves. Many see these as either unproductive money or a huge bubble waiting to burst. My sense is that China is using this money, or part of it, to quietly extend its dominance across the world and in the region. As for its reserves, one consequence of this is that it controls the value of the US dollar today. I do not see the currency bubble, even if it exists, making a substantial difference to the Chinese planned domination of shipping, and I sure don’t see India positioned to take advantage of any upheaval in the global maritime industry on account of any Chinese bubble bursting. In any case, China would be stronger even with a dollar collapse and resultant chaos: its reserves may lose substantial value, but again, I don’t see any other country waiting in the sidelines to take China’s place, and the upheaval may well herald the final nail in US superpower status when the US sees the dollar going down the drain.

On another note, recent announcements by Beijing and the EU’s Naval force off Somalia (EUNAVFOR) are particular interesting, and, to me, are part of the same well thought out and executed plan. China wants to build a permanent naval facility to support ships on antipiracy missions in the Gulf of Aden; it also wants to lead antipiracy missions off Somalia. EUNAVFOR Commander Real Admiral Peter Hudson welcomes this involvement: as if he has a choice. From India’s perspective, however, the encirclement of this country, with existing or planned Chinese facilities in Myanmar, Pakistan and Sri Lanka and pressure on the Indian Himalayan and North Eastern areas, will then be complete. Incidentally, China will also be next door to the oil rich Middle East, not to speak of straddling shipping lanes that carry all of India’s trade and much of the world’s oil.

So what does India do? Well, for one, it holds war games (‘Milan’) in the Bay of Bengal along with a dozen other countries but is quick to pacify prickly China, saying that it does not want to be a regional headmaster or be part of any multinational maritime security axis seeking to contain China. That statement, to me, is just plain stupid: there is no need to declare intent to an adversary, even if one is lying. Either you are not taken seriously or you are taken for a fool.

Even leaving aside the questions on national security and geopolitics, let us look at commercial shipping instead. Can the Indian shipping industry find a way to compete with the relentless march of their Chinese compatriots? Given the cohesion in the Chinese effort, can Indian shipbuilding even hope to come close in the race for domination? Can our mercantile banks fund our (not to speak of foreign) tonnage half as effectively? Will our government extend unstinting and deep pocket support to our industry? Do we have the calibre and depth of entrepreneurial spirit in our maritime industries to force these changes?

I am afraid the short answer to all these questions is no. The best case scenario I see for Indian commercial shipping is a collaboration with the Chinese where we play second fiddle- or very likely even third or fourth.

Of course, the worst case scenario is anybody’s call.