China & India: The threat of populist nationalism

An exclusive excerpt from former RBI governor Raghuram Rajan's latest book

Continued growth will put pressure on both China and India to liberalise further and become more market-oriented. Almost inevitably, this will make them look more like successful advanced economies, making global engagement and dialogue easier. Much slower growth, though, could lead them in more worrisome directions.

Leaders have an alternative to moving toward a liberal open-access society. And that is to exploit the populist nationalistic fervor that is latent in every society, especially as economic fears grow and disenchantment with the corrupt traditional elite increases. Both China and India have large numbers of people who have left their village community, and have moved to cities in search of work. These large young migrant populations, both tantalised and shocked by city life, and yet to be integrated into solid new communities, are ideal raw material for the populist nationalists’ vision of a cohesive national community. They become especially malleable in times of slow job growth, as they see the incredible opportunities that the better- educated upper-class elite obtain....

In India, the Hindu nationalist movement tries to tap into such people’s desire to anchor themselves in tradition. It also attempts to focus them on grievances that will shape them into a committed following. It exploits the sense among the majority Hindu population that they have bent over backward to appease minorities, especially Muslims. As with all populist nationalist movements, it portrays a glorious if mythical past, where Hindu India shone a beacon for the world to follow, while dismissing the entire period of Muslim rule over large parts of India as an aberration. For the rootless migrant from the village, the movement offers membership in organisations like the Rashtriya Swayamsevak Sangh (RSS).... The truly committed majoritarian Hindu leader, drawn from a young age into the RSS, is usually personally austere — which endears him to those who dislike corruption — and committed to the cause, which makes him ruthless in his methods. They are a serious threat to a liberal tolerant innovative India, especially because they are more single minded than other groups, and thus effective in using their periods in power to infiltrate India’s institutions with their sympathisers.

India faces serious challenges if global markets were to close. As it is, manufacturing exports are becoming more difficult as developed countries automate to compete with cheap labour elsewhere. Some developed countries are making it harder to provide cross-border services, which India has developed a strong presence in. An increase in tariff and nontariff barriers to goods and services will make the export-led path to growth much harder for India. There is a protectionist streak among some Hindu nationalists, fuelled by their business backers (they do have ties to business despite their seeming austerity), which will use the excuse of protectionism elsewhere to make India more protectionist once again. The private sector will then become yet more dependent on government favour. Therefore, the actions of populist nationalists elsewhere can weaken India’s democracy and strengthen its destructive populist nationalism. Democratic, open, tolerant India will be an important, responsible contributor to global governance in the decades to come. Populist nationalism around the world will make this less likely.

Deng’s dictum to China was that to prosper, it should ‘hide [its] capabilities and bide [its] time’. China seems to believe that the time for that dictum is over. As President Xi stated in October 2017, ‘the Chinese nation has gone from standing up, to becoming rich, to becoming strong.’ A great fear in Washington is that China is rapidly becoming able to challenge the United States, not just economically, but also militarily and politically. Hence its concern about the “Made in China 2025” programme, which aims to increase China’s presence in advanced manufacturing industries like aviation, chip manufacturing, robotics, artificial intelligence, and so on. While the United States still has a substantial technological lead in some of these industries, it worries that China will coerce US firms to part with technology and steal any technology it still needs. Similarly, new China-sponsored multilateral financial institutions like the Asian Infrastructure Investment Bank make the United States concerned that China is undercutting existing multilateral institutions that the United States dominates. China’s hard power, as demonstrated by its militarisation of islands in the South China Sea, and its soft power as evidenced by its One Belt, One Road initiative to build out infrastructure connectivity across land and sea from China, causes yet more unease in Washington.

The reality is that…China has to be accommodated, especially in global governance structures. In turn, China also has to recognise global concerns about the means by which it has grown, especially its subsidies to industry and its appropriation of intellectual property.… It also has to assuage its neighbours’ concerns about how their territorial disputes will be resolved, and make clear its intentions about respecting the global rules-based order as its power increases…. That dialogue becomes much harder if China suspects the developed world is ganging up to prevent its natural development as well as if China becomes more repressive politically. Chinese populist nationalism, centered around the Han Chinese population, and driven by a sense that developed countries have historically exploited China with unfair treaties, will be strengthened by acts precipitated by western populist nationalists. China has its own minorities such as the Tibetans and Uyghurs, who have already experienced the oppressive weight of Chinese nationalism. A more virulent populist Chinese nationalism is not a development anyone, inside or outside, will want to see.

(Excerpted with permission)