India's prime minister, Narendra Modi, and China's president, Xi Jinping, in Delhi. Graham Crouch / Bloomberg
India's prime minister, Narendra Modi, and China's president, Xi Jinping, in Delhi. Graham Crouch / Bloomberg
India's prime minister, Narendra Modi, and China's president, Xi Jinping, in Delhi. Graham Crouch / Bloomberg
India's prime minister, Narendra Modi, and China's president, Xi Jinping, in Delhi. Graham Crouch / Bloomberg

China ramps up regional tensions to outflank Modi


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A tense standoff between Indian and Chinese troops on the frigid peaks of western Himalayas has become the symbol of Narendra Modi’s failed effort to reset his country’s relationship with China. The military tensions prompted the Indian army chief to announce cancellation of a scheduled visit to Bhutan on a day the Chinese defence ministry quoted Xi Jinping as advising his military to be ready to win a “regional war”.

Mr Modi has gone out of his way to befriend China. His first bilateral meeting with an important head of state was with Mr Xi on the sidelines of a summit in Brazil. Indeed, Mr Modi postponed his own Japan trip so that he met Mr Xi first. Not only that, Mr Modi became India’s first prime minister to receive a foreign leader outside the Indian capital – that too on his own birthday.

So when Mr Xi, dressed in a Nehru jacket, toasted the birthday of his host at a private dinner in Gujarat earlier this month, it highlighted the Indian leader’s determination to build a cooperative relationship with a country that India sees as its primary strategic competitor.

Such was Mr Modi’s courtship that Mr Xi quoted him as saying “India and China are two bodies in one spirit”.

But the diplomatic love-fest quickly turned into diplomatic discomfiture, and may well overshadow Mr Modi’s current US tour, as news trickled in about a major border incursion by Chinese soldiers in India’s Ladakh region.

While Mr Modi was publicly espousing “inch toward miles” as the motto of India-China cooperation, the People’s Liberation Army (PLA) of China was implementing that call through a fresh action on the ground.

Even more galling for Mr Modi was the fact that the latest incursion came to epitomise Mr Xi’s birthday gift for him.

China has used virtually every high-level visit to drive home such a message. For example, China carried out its most-powerful nuclear test in 1992 during the first-ever state visit of an Indian president. In 2003, when prime minister Atal Bihari Vajpayee was in Beijing, a PLA patrol intruded 14 kilometres into India’s northeastern state of Arunachal Pradesh and abducted a 10-member Indian security team.

When Chinese leaders have visited India, their trips have coincided with PLA provocations along the long, disputed Himalayan frontier, including cross-border forays. For instance, Li Keqiang’s visit last year followed a deep PLA encroachment into Ladakh, seemingly intended to convey China’s anger over India’s belated efforts to fortify its border defences.

The message that China seeks to deliver through such provocations is that if India does not behave, it seriously risks being taught a lesson in the style of 1962, when Chinese troops routed the Indian army in the Sino-Indian conflict.

Yet such is the game that Beijing plays that it has used its official media and think tanks to charge India with intentionally ramping up border tensions during Mr Xi’s visit to exert pressure on China.

Mr Modi thought he could co-opt China, with its $4 trillion foreign-exchange reserves, as a partner in India’s development and, in the process, ease the Himalayan border tensions and territorial disputes. But in Chinese strategy, political and economic elements are closely integrated.

This was demonstrated by China rattling its sabres while its president was paying a state visit to India. That China chose to stage a major intrusion and get into a dangerous, even if localised, military standoff with India while Mr Xi was holding talks with Mr Modi attests to the PLA’s growing political muscle.

Even without considering the border incursion, Mr Xi’s visit was rich in symbolism but underwhelming in substance. Mr Xi’s $20 billion investment promise is like honey presented on a sharp knife: partaking it will cut India’s interests, including by giving China greater leeway to dump more goods in the Indian market and rake in larger profits.

China’s exports to India currently are far greater in value than its imports. Yet China’s total investment in India is only slightly over 1 per cent of its yearly trade surplus with it at present.

India must calibrate China’s market access to progress on resolving political and territorial disputes, or else China will further strengthen its economic leverage while continuing to mount military pressure.

The plain fact is that after the setback to Mr Modi’s efforts to befriend Beijing, his China policy needs to be infused with greater realism. To be sure, Mr Modi was so jolted by the “birthday gift” that Mr Xi brought with him that he spoke up forthrightly, saying it won’t be possible for the two countries to collaborate meaningfully without peace.

A key challenge for Mr Modi is to counter Chinese border incursions, which have escalated significantly over the past seven years. The intrusions reflect a posture of aggressive deterrence.

The only counter to aggressive deterrence is “offensive defence”. But India still clings to defensive defence, deploying border police as its first line of defence against regular PLA troops. The result is that India continues to get blindsided by repeated Chinese incursions. It is time for India to reappraise its Himalayan defences, or else its posture of “defensive defence” will continue to spring nasty surprises.

Brahma Chellaney is a geostrategist and the author of Water: Asia’s New Battleground, the winner of the 2012 Bernard Schwartz Award

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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