China outwits the EU; Farmers vs the Indian Government

🥂 Dear 2021, the bar is low. Please clear it. xx

Good morning and Happy New Year! A warm welcome to our 68 new subscribers.

Someone wise once said kids don't make New Year's resolutions, they just wake up and live - that's why they're happy.

We’ve always responded that kids don't drink, which means they don't need the arbitrary start of a new year to resolve to drink less. But in 2021:

So instead we raise a glass of whatever’s left after the holiday period and say do whatever the hell you got to do to get through.

This week in intriguing international happenings:

🤝What's really going on behind the EU-China investment agreement?

👩‍🌾 Huge protests by farmers in India are a real problem for Prime Minister Modi.

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🤝What's really going on with the EU and China?

You can be excused for missing that the EU and China finalised an investment agreement last week. Cheeky buggers snuck it through on New Year's Eve while we were all drinking in our living rooms.

Broadly, the EU-China Comprehensive Agreement on Investment (the CAI) addresses 'non-tariff barriers' to accessing the Chinese market. That sounds boring and mostly is - think of them as the practical things that make doing business difficult.

For example, the CAI aims to prohibit forced transfers of intellectual property and removes the current requirement to have a local joint venture partner in China.

The CAI still needs political sign off, but the European Commission has already listed the benefits of the deal and says:

The CAI will ensure that EU investors achieve better access to a fast growing 1.4 billion consumer market, and that they compete on a better level playing field in China.

China’s market is always just out of reach

Since the 80’s, most of the world has thought that if China was given time and forgiven its considerable indiscretions (eg. Tiananmen Square), then:

  1. China really would liberalise, democratise, and open up its markets and…

  2. Access to the huge Chinese market would be a big win for foreign companies.

Unfortunately, shoulder pads weren’t the only mistake the West made in the 80s. Most countries now understand that Xi Jinping's China will never democratise because it would be political suicide. And while ‘opening up’ could still be theoretically true, it's not going to happen.

But up until recently, China could still say the right things and the world would naively or lazily choose to believe it. That narrative has broken, and China knows it.

China's nightmare scenario

With Trump gone (or is he? 😂), China's biggest foreign policy risk now is the return of a US that builds alliances and consensus on issues that would be bad for China, for example human rights, debt diplomacy, maritime expansion, and exporting illiberal models of governance.

With all the grim focus of a Londoner rushing to get one last takeaway pint before a new Tier 5(!) lockdown yesterday, China hurriedly concluded the CAI before Biden took office. China's nightmare scenario is a Biden Administration that tries to form the EU, India, Japan, the UK, Canada, Australia, and others into a loose group aimed at pressuring China.

How might we expect China to respond?

Like any good strategist, China breaks a big problem down into smaller problems, or in this case, problematic countries. It engages these countries countries one by one, until it has a network of 'leverage-able relationships' that it can use to keep those countries from organising against it.

China doesn't need countries to like or agree with them, just to not actively oppose its behaviour. Enter the CAI.

Your guide to fishing for geopolitical leverage

  1. 🦟 Bait the hook

With great fanfare, senior European politicians and executives will be invited to participate in glamourous CAI events. China will encourage public commitments to invest in China and support 'opening up'.

  1. 🐟 Hook a big fish

Initially, these investments will run smoothly and baijiu will flow. Businesses will close deals, politicians will tout their visionary leadership, and CEOs will incorporate future profits into company projections. Economic development in Europe will increasingly be viewed as dependent on access to China.

  1. 🎣 Keep the fish on the hook

Slowly, investment approvals will start to be delayed and reports of IP theft or worse will begin to emerge. Senior Chinese leadership will blame local officials for the problems. If China is happy with Europe, fuhgeddaboudit. If China isn’t happy, things might get worse.

In our new world, everything is a transaction

If western democracies continue to organise themselves around their ideals, values, and the rule of law, there will be tension with China. Try as we all might to rage against the dying of the globalist light, it is inevitable.

The first step in managing future issues is to be clear-eyed about the present:

  • The CAI is a transaction - it offers possible access to Chinese markets in exchange for not challenging future Chinese behaviour.

Given the EU claims it…

promotes and defends the universality and indivisibility of all human rights in our partner countries

…future silence on challenges to those values feels like a steep price to pay for chimerical market access. Sure it still needs to be signed, and there’s a chance the deal falls apart at the last hurdle, but we think that’s unlikely.

Zoom out

As a result, the EU will find itself increasingly caught between the US and China. None of this is to say China is unique in seeking leverage over those it disagrees with. China, like every country, has a vision of the world that it seeks to spread. That's just geopolitics 101.

All we're saying is that we should all be very sceptical of CEOs, trade ministers, and other interested parties when they exalt agreements like the CAI as ‘huge wins’ for liberalising trade and investment around the world.

After all, insanity is doing the same thing over and over again and expecting different results.

👩🏽‍🌾 An Indian standoff: the farmers vs the government

Recently asked if we were following India’s news, we replied, ‘of course’. One of us thought we were discussing ‘Indian Matchmaking’ (a guilty pleasure binge👌). The other s̶t̶a̶r̶t̶e̶d̶ ̶t̶a̶l̶k̶i̶n̶g̶ ̶a̶b̶o̶u̶t̶ ̶t̶h̶e̶ ̶c̶r̶i̶c̶k̶e̶t̶ was actually on top of the news, and mentioned the historic standoff between India’s farmers and its government.

Over the past few months, tens of thousands of Indian farmers (and unions) have protested around the country against three laws intended to reform India’s outdated agricultural sector. The laws were passed by both houses of the Indian Parliament in September 2020, apparently without much consultation with the farmers.

Talks to change these laws remain deadlocked after 7 rounds(!), with the next round slated for later this week. The issue has increasingly attracted international attention, including from Canadian Prime Minister Trudeau, who was quickly told to butt out (and perhaps quietly reminded of his dress-up faux-pas).

Farming in India: a quick snapshot

  • 📈 Economists say these policies have discouraged private participation, created a market of middlemen, resulted in poor storage infrastructure, tightened exports, and restricted India’s market. The industry is mismanaged and wasteful.

  • 🌾 Farming has been a key issue for Prime Minister Modi, who has many rural supporters. The industry’s been on the decline for years due to low productivity and lack of modernisation, with increasingly smaller plot sizes and incomes for farmers.

A ‘watershed’ moment for Indian agriculture

Talks of agricultural reform have been in the works for decades. But it’s been hard to get all states on board. It’s been even harder to convince the farmers’ unions, whose members have benefitted from agricultural subsidies and tax perks.

The new laws aim to loosen India’s rules around the sale, pricing, and storage of farm produce. Their goals are to open up India’s agricultural sector to private investors and global markets by:

  1. Giving farmers and traders more freedom to buy/sell produce, including via e-trading.

  2. Empowering farmers to deal directly with farm services such as processors, wholesalers, exporters, and large retailers.

  3. Deregulating government control of production, storage, and sales.

In sum, the new laws let corporations and private buyers strike deals with farmers directly, and let farmers set their own prices. Basically moving to a market-driven model.

So, what’s the controversy?

Though the government claims the laws help the farmers, many have labelled them as ‘anti-farmer’ or ‘death warrants’. There are several grievances:

  • Farmers mistrust market reforms and big business, which they see as unfair and potentially exploitative.

  • The laws are piecemeal and won’t be consistently enforced under India’s decentralised government.

  • Many Indian farmers have farms smaller than three acres in size, and they fear corporate takeovers of their plots.

  • New laws make enforcement of contractual obligations and dispute resolution harder for farmers.

Zoom out

Prime Minister Modi is no stranger to protests, having seen off the citizenship law protest in 2019 by rallying Hindu-nationalist sentiment. But the latest protests are different: they’re not driven by politics or religion.

Instead, the protests are driven by Modi’s base of rural supporters, who are angry that he failed to consult them in ramming through the laws. Adding fuel to the fire, some of Modi’s ministers have labelled the protesters as ‘anti-national leftists’.

In the face of the rising Covid-19 cases and economic recession, Modi may be forced to give up concessions to the farmers to save face and keep the ship steady. He might have avoided this by heeding the words of Ghandi:

You cannot achieve durable reform by becoming impatient.

➕ Extra Intrigue

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