Defence industry reform in China-India: the difference is not about the “market”

This was published by the National University of Singapore (NUS) in their online journal as a contributing column...

http://lkyspp.nus.edu.sg/cag/publication/china-india-brief/china-india-brief-39

The divergent degrees of accomplishments achieved by the Chinese and Indian Military Industrial Complexes (MICs) is indeed a (yet another!) area of China India comparative studies. This is especially true as both nations have embarked on ambitious transformations of their security architectures.

Richard Bitzinger’s note on the topic published recently is therefore a worthy objective. Unfortunately the conclusions drawn in the note almost completely miss the point.

First the good news. The hypothesis itself is unexceptionable. The Chinese domestic Military Industrial Complex (MIC) has been rather more successful than its Indian counterpart, with a record of operational successes spanning a truly wide array of land, air and sea platforms. The Indian MIC’s record outside of naval ship design and strategic missiles has been extremely variable.

However, that is where the good story ends, and a series of questionable facts and assumptions are used to explain the hypothesis.

To dive straight to the heart of the problem, the biggest issue with the analysis (and therefore the conclusion) is in identifying “statism” and monopoly of Defence Public Sector Undertakings (DPSUs, as they are known in India) as the key reason for the underperformance of the Indian MIC. In comparison, the Chinese MIC’s successes are attributed to “market oriented changes”.

Facts though state a very different story. Far from being “statist”, the Indian defence market has been remarkably “free trade friendly” in its orientation. The government has allowed every global firm willing to sell weapons in India a near equal access to the market, with no positive discrimination in favour of an Indian product. The result has been obvious. For platform after platform, the Indian military has chosen a proven, state-of-the-art, reliable system from a foreign OEM rather than trying out an Indian product that is incipient in its development, less advanced in its features and with potential Quality Control issues.

The example of the HF-24 Marut quoted by Dr Bitzinger is quite illuminating in this regard. It was India’s first attempt at combat aircraft design and manufacture. While it had its issues, most notably an underpowered Orpheus engine, it was also a rugged design (the design team was led by the legendary German aircraft designer, Kurt Tank) that could take considerable battle damage and still survive. When it came to graduating to the next generation of ground attack aircraft though, the Indian Air Force and the government chose to go with a more advanced and proven Anglo-French Sepecat Jaguar rather than invest in an upgrade of the HF-24. It was a full generation later that India started on its next aircraft project (the LCA), by which time all the experience of the HF-24 was lost.

The aircraft instance is actually a conspicuous illustration of the issue. The same story repeats itself across multiple weapon systems – Main Battle Tanks, tactical munitions, trainer aircraft etc. Basically, the Indian defence industry adopted WTO trading principles long before even the Uruguay Round of GATT was initiated!

The contrast with the Chinese MIC couldn’t have been starker. Due to political issues, China’s access to US and European OEMs for military equipment has been sanctioned out of access for most parts. Russia has been a regular supplier, but even there political tensions with Russia has been a constraining feature of the relationship throughout the post WWII history. As a result, the Chinese military has had no option but to depend on domestic manufacture to sustain its force posture. Stretching the aircraft example, the first Chinese attempt at combat aircraft manufacture was the Chengdu J-7, a reverse engineered version of the iconic Russian Mig 21. That effort was quickly followed by multiple generations of iterations (the J-8 series) and today the Chinese MIC is trying to develop stealth aircraft.

In other words, access to global producers, and the willingness of the government to buy, in other words being “market friendly”, ensured that the user (the Indian military) chose the “best” option available, invariably a Russian/European/(of late) American platform. This acted as a deterrent towards development of an Indian MIC. On the other hand, the dire necessity of depending on a domestic MIC has ensured that the user, ie, the Chinese military has incubated decades of “sub standard” products and enabled the Chinese MIC to graduate to developing more cutting edge products today.

As with any hypothesis, a control group analysis is a key element of proving the same. In this case, India’s strategic missile programme is a telling story. Now, ballistic missiles are one area where typically global markets are not available to any country. There are strong international prohibitory treaties like MTCR, which forces most countries to develop its own platforms. India wasn’t an exception, especially after international sanctions on WMD-related technologies post the nuclear test in 1974. And this has been one area where the domestic programme has been a spectacular success, with succeeding generations of ballistic missiles with ever increasing range (from 150 Km Prithvi to 5000 km Agni V), sophistication (from strap-on gyros to MINGS/MEMS-based navigation) and ruggedness (from liquid-fuelled Prithvis to containarised solid-fuelled Agni V). As the user (the Indian Army) did not have a “market” alternative available, it had to make do with basic versions first, and then graduate to more advanced levels s the programmes matured.

The lessons to be drawn therefore are complex. In essence, it involves a change in higher defence management. But it also importantly involves a change in the mindset of the customer, the Indian military, that needs to move on from playing the role of a detached customer to one of a partner looking to incubate domestic industry.

Nuclear weapons - regaining currency of power?

There is an interesting article by Swaminathan Aiyar in TOI today, arguing that nation states will be increasingly acquiring nuclear weapons, citing Ukraine's travails post giving up their own nukes. While Swami Aiyar is often flippant in his analysis, and geostrategy isnt his forte in any case, there is some merit in the argument.

First things first, Russia under Putin and China in the last 6-7 years are putting paid to Tom Friedman's Dell theory of conflict preservation. That is to say, in case that theory had strong legs to stand on in the irst place. Being part of every conceivable European supply chain network hasnt prevented Russia from muscularly intervening in South Ossetia and now Ukraine. Ditto for Taiwan and Vietnam being at the receiving end of China's glowers, despite extensive common economic linkages. In Asia, countries would surely take lessons from the experience of Pakistan and North Korea - nuclear weapons have allowed them to get away with murder and more vis a vis not just vastly superior neighbours, but also the world's only superpower!

Second, the emerging world order is giving rise to new insecurities and potential conflicts. The prime driver of this is America's withdrawal from the middle east. Today, American supercarriers on the Gulf of Hormuz keep Iran at bay from rest of the Arab world, also preserving Saudi hegemony. Shale oil discoveries and the resultant loss of American interest in Saudi Arabia means that Saudis will be tempted to reignite their quest for nukes. It shouldnt be forgotten that the Pakistani nukes were available to Saudis for sale in the past. A Saudi quest will be matched by equal measure with overt Iranian response.

Third, in Asia an assertive China will force East Asia to relook at their options, especially as they fear the impact of an American withdrawal. None of the East Asian states are close to nuclear weapons in any way, though South Korea maybe a little more than a screw driver away.

Last, the possibilities of limited conflicts, of the sort we are seeing in Ukraine, and the sort that India has often feared with Pakistan (since Kargil), opens up newer possibilities. Tactical nuclear weapons (TNWs) might come back into mainstream strategy, as Pakistan has already done. And as India has been seriously thinking about doing.

Chinese in a nutcracker on Ukraine?

One of the most curious developments around the Ukrainian crisis has been the Chinese response to it. The Middle Kingdom is usually quite reticent in joining issues on affairs that it is not directly involved in. But in this case, quite curiously China seemed to be quite vocal in pledging support to Russia. While it abstained in the UN Security Council resolution yesterday, a bit of a blow-back to its usual stance on such issues, the general narratives have been quite supportive of Russia.

Now, Russia and China are not natural allies. Not by a long shot. Besides having fought a border war in 1969, one of the abiding concerns of demographically declining Russia is the vulnerability of its sparsely populated Eastern frontiers to Chinese aggression.

In this case though, China and Russia are joined in being leery of "colour revolutions", ostensibly sponsored by the West. But this is more than just a regime change affair. In the case of Ukraine, the story unfolding is also of one state (Russia) encouraging a region (Crimea) of another state (Ukraine) to break off, citing largely ethnic reasons. For China the principle being established is hugely problematic, as this gives credibility to what China terms as "splitist" tendencies in Tibet and Xinjiang. Both have uncanny parallels to Crimea - regions populated by ethnic minorities (Indic Buddhists in Tibet and Uighur muslims in Xinjiang) claiming to be persecuted by the national majority and state. If Crimea has a right to break-off using a referendum, why shouldnt Tibet? Or Xinjiang?

This is where the red line emerges for China. Much as it dislikes Western sponsorship of colour revolutions, it would be suicidal to side with the Russians in this case.

There is one more, not insignificant issue. Ukraine has been a major supplier to the Chinese defence industrial complex, especially in terms of IP of critical Soviet technologies. Bulk of the aeroengines in new Chinese aircraft, for example trace their origins to Ukrainian assistance.

India has the same issue - it will be difficult to endorse Russian action in Crimea without being set up for uncomfortable questions on Kashmir. Hence, the silence of India on the affair is undertstandable.

But the vocal nature of the Chinese hasnt been, and maybe the nutcracker is creating a bit of a climbdown now. But all around Asia, there would be lessons learnt on the China's behaviour.

Ukraine - plus ça change, plus c'est la même chose

Essentially, more things change more they remain the same! The recent fracas (yes, as of now its still only at the stage of a fracas) in Ukraine re-establishes the old dictums of high power play. A few pointers are in order.

One, Ukraine isnt Finland, though that is precisely the instance that even the great sage, Henry Kissinger gave in his analysis yesterday. Simply put, Finland doesnt have a large minority of ethnic Russians in their midst!

Two, Crimea isnt just another plot of neighbouring land for Russia. Sevastopol is the only warm weather port that Russia has. For a large, and largely landlocked country, access to a warm weather port has been a multi-generation endeavour for Russian rulers starting from Peter the great. It would be quite naive for a modern day Peter (Putin) to give that up.

Three, Western outrage over democracy et al are, to put it mildly, quite irrelevant to the situation. Such outrage rhetoric often gets mistaken for capability or intent for action. But as the Hungarian partisans in 1956, or Alexander Dubcek (of Czechoslovakia) in 1964, or indeed the Chechen rebels in the '90s found out, rhetoric over human rights, democracy etc isnt the same as putting one of the super carriers into the Mediterranean for action!

For the Ukrainians, unfortunately the choice is between rock and a hard place. It can either allow Crimea to be their Sudetenland. Or they can try and evolve a modus vivendi with Russia, with an Alsace-Lorraine type arrangement on Crimea. As Kissinger rightly recognises, the Ukrainians have little history of governing themselves - till 1991 they had been ruled by various assortments of Russian rulers for nearly 500 years. they havent finessed the art of negotiating with a stronger power without breaking into a major confrontation.

It is here that the West needs to help. There is some talk of the US launching a "gas war" against Russia, using its new-found shale reserves. Laughable proposition, given by people unaware of or unwilling to look at the basics of gas economics. Russia supplies gas to Ukraine and rest of Europe through a pipeline (owned by Gazprom!). For the US to supply gas to Europe across the Atlantic would require the same to be transported in large LNG tankers. the price of piped gas is about a third that of shipped gas. the idea of a contest is about the same as an Indian I-League club trying its skills against an EPL club!

Instead of such Quixotic ideas, West can lend its skills in negotiations to the Ukrainians, while maintaining a level of diplomatic pressure on Russia, so that a balanced modus vivendi can be arrived at.

How that can be done, and when - we will see in the next few weeks.

Indo-Japanese engagement - the only pivot of Asia?

Over the last decade, there has been a lot of chatter in the international strategic circles about the so-called Asian pivot in US foreign policy. The shape of that pivot has been imagined at various levels - the Sino-US G2 grouping, the trilaternal Indo-US-Japan or even the quadrilateral Indo-US-Aus-Japan "blocs". However, two developments have put paid to most of the assumptions. One, an increasingly inward looking US posture over the last decade - a lot of people missed the latest round of major cuts in US defence budgets. Two, the rapid rise of China as the second largest politico-military power in the world, importantly someone with no evangelical enthusiasm on its ideology (which means it poses no threat to the American homeland, or even its "near abroad".)

Consequently, rest of Asia has to fend for itself while dealing with an increasingly assertive and aggressive China. Contrary to the propaganda, China has territorial disputes pending with many of its neighbours - Japan, Vietnam, Russia and of course, India. China's enormous trade heft too automatically causes friction with large parts of mercantile Asia (ASEAN).

In this context, the only initiative of heft and context that is emerging is the Indo-Japan engagement. Interestingly, a lot of the heavy lifting in this case has come from Japan. Note the following developments:

1. Shinzo Abe, in his recent visit to India, signed a deal to sell the Japanese US2 amphibious aircraft to India. For those who missed the point, the "pacifist", post-WWII Japan has had a stated policy of not exporting any military hardware. In terms of its impact on changing internal political calculus, this is almost as big as George W Bush breaking the "non proliferation consensus" in US policy during the Indo-US nuclear deal.

2. Last year, while the rupee went on a tailspin on the back of the tapering announcement by the US Fed, the big backstop came in the form of a Japanese currency swap agreement, worth 50 billion dollars. What it meant was that India had access to 50 billion dollars of Japanese reserves in case it wanted to. This, along with a slew of other measures restored stability in the currency. Though India has had to swap a single dollar yet from this arrangement, the impact on sentiment has been decisive, partly responsible for the rupee being the best performing emerging market currency this year!

This is just a start. Obviously, the Shinzo Abe led government (Shinzo Abe's grandfather, enjoyed great relations with Jawaharlal Nehru and India in his time as PM) is investing a lot in the Indian relationship. The reason is simple, India is the only state with the requisite military and economic heft in Asia to be able to be able to be a "swing state" in any face-off with China. All other Asian states are either too small, or too weak (militarily) or too poor or indeed too beholden to China to offer meaningful support in such a vneture.

It would be up to the new government in Delhi to grasp this relationship with both hands and some more, and take it to a new level. Most of the actionables immediately of course, would be internal!