Power Struggles
Everybody is talking about spats between the United States and China, but I am more worried about India’s reaction to China’s growth. I have posted before about trade fights between the two, but things seem to be taking on more of an edge.
Several years ago India stepped up construction of new power plants, recognizing the needs of a growing economy and trying to alleviate tenuous electricity supplies. The plan was to increase electricity production 60% between 2007 and 2012. India did not have the domestic capacity to build all those power plants and, not liking the higher prices of other builders, they awarded many of the new contracts to Chinese firms. As a result, China is building about 25% of India’s new power capacity. Thousands of skilled Chinese workers and engineers have fanned out across the subcontinent and Indian imports of Chinese power generation equipment has surged. So New Delhi is having second thoughts.
The Wall Street Journal reports that India’s Central Electricity Authority has decreed that Indian equipment will be purchased for all future power plants built by government-controlled utilities. New Delhi is said to be considering new taxes on imports from China and has warned power companies to stock up on spare parts for their Chinese-origin equipment. And India has tightened visa requirements for foreign workers, forcing some 3,000 workers back to China last fall. That wasn’t enough, so in December 2009 it was decided that no more than 1% of the workers on a power project can be foreign nationals (or forty people, whichever is less). Predictably, all these restrictions have drastically slowed progress on the new power plants and has caused consternation in Beijing. The Indian government says it is only trying to give India’s power generation equipment manufacturers time to build up their own production capacity. Hmmm … could this be protectionism?
China has given India something else to think about with its expansion into ports in South Asia, says the New York Times. Not since the fleets of Zheng He has the Indian ocean seen so much Chinese maritime activity. This time China is building ports, not just visiting them and trading. New ports are being built by Chinese companies at Hambantota in Sri Lanka, Chittagong in Bangladesh, Kyaukpyu in Myanmar and Gwadar in Pakistan. China says the new ports are part of a strategy to pursue new business in a growing region, but India sees it as a potential threat to India’s security and economy, giving China bases to cover India’s shipping routes. It’s an expensive strategy for China. Hambantota alone is said to cost $1 billion. Interestingly, Sri Lanka approached India first about taking on the project, but New Delhi turned them down.
Both China and India say their intentions are peaceful, but they keep getting in each others’ way as they grow. China has downplayed conflict with India, but India has been more aggressive in taking trade actions against China and its own neighbors, driving the latter towards closer ties with China. There is a price for ticking off one’s neighbors.
Coming between India and China?
The United States may be an unlikely beneficiary. Sikorsky Aircraft may win up to $12 billion in Indian defense procurements in the next eight years. They already have enough business to warrant investment in a plant in India to build Black Hawk helicopters on the spot. The Indian military has ordered 16 Black Hawks and another twenty will be leased to the Indian coast guard.
