Should financial markets take note of Chinese bids to bully the Free World?


By Ajay Bodke

Despite troops pullback from a few border areas with India that witnessed eyeball-to-eyeball confrontation in Ladakh, the Chinese government has sent out an unambiguous signal to the world’s most populous democracy, warning it of dire consequences if it aligns closely with the western democracies led by the US. The warning came through an opinion piece, titled India can change course for the better with China’ in its mouthpiece Global Times on July 8, 2020.

The commentary is full of condescension and mocks at India and Prime Minister Narendra Modi. It is dismissive of India’s lack of hard power vis-a-vis what it describes as PM Modi’s attempts to strut on the world stage as a global leader.

Even the Congress party’s past policies have been savagely criticized, with China speaking disparagingly about Pandit Nehru’s ‘disastrous’ Forward Policy attracting swift punishment from China and Indira Gandhi’s Monroe-like Indira doctrine creating trouble in India’s neighborhood.

Enough hints have been dropped to make India aware of its puny economy compared with China and the humiliation inflicted due to its ‘adventurism’ in 1962 along with a not-so-veiled threat of a similar outcome if India continues to oppose Chinese interests.

The tone is disparaging, admonishing and threatening. India cannot let its guard down.

The authoritarian Communist regime in China believes in a strict hierarchical order, with the Middle Kingdom at the top, and expects other countries, including India, to unquestionably accept this ‘new reality’ by fast learning to kowtow and accept Chinese suzerainty.

With presidential polls just a few months away; an election-focused America is rapidly descending into health-related chaos due to the Covid-19 pandemic amid rising racial tensions.

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A revanchanist China has rapidly overcome the health crisis with its brutal handling of the pandemic that originated at Wuhan. The severity of the pandemic was deliberately downplayed by the regime to silence any domestic criticism of its leadership’s initial botched attempts to control it. Amidst this initial ham-handed response, the regime ended up allowing the pandemic’s rapid global spread.

It has since indulged in a bellicose attempt to control the narrative and smother any criticism of its leadership’s failure to intimate the world immediately about the severity of the pandemic that has caused hundreds of thousands of deaths, wreaked havoc with the global economy, led to tens of millions of job losses and pushed many countries into an economic abyss.

China’s mandarins are fiercely attacking the US that has finally woken up to China’s decades-old conspiracy to denude it of its intellectual property by employing threat, inducement and coercion towards the US corporates, citizens and universities. What is riling China no end is US’s refusal to allow unfair trade practices and strictly monitor its mercantilist economic policies underpinned by its currency manipulation over the decades.

America has stood as a vanguard of liberty by trying to deter China’s unbridled expansionist designs on land and in the sea and has countered its relentless intimidation against its neighbours in the Southeast Asia, especially the littoral states around the South China Sea, which China has claimed in its entirety rejecting a ruling by a UN tribunal.

Other theatres of China’s intimidation include East Asia around the Senkaku islands of Japan, propping up of the despotic North Korean regime that it influences to ratchet up tensions against democracies aligned with the west, namely South Korea and Japan whenever Beijing desires; increasingly posing threats to forcibly annex democratic, independent Republic of Taiwan; unleash policies to terrorise ethnic Tibetans and Uyghurs in their Chinese-occupied homelands with the ultimate aim of destroying their culture, traditions, religion and forcibly pushing them in a cauldron of Han supremacy.

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By unilaterally approving a draconian law that would curtail free speech and accord wide-ranging powers to the Communist regime to terrorise, arrest and sentence ordinary citizens of Hong Kong to long imprisonments, China has effectively gone back on its ‘One country, Two systems’ obligation given to the international community for Hong Kong. China has since unleashed a torrent of criticism against the UK, which has led global condemnation of Beijing’s treachery and thrown open a lifeline to 3 million Hong Kong residents who hold British national overseas (BNO) passports.

Canada has got into China’s firing line after its refusal to be browbeaten into releasing Meng Wanzhou, CFO of controversial Chinese telecom major Huawei, who was arrested on the request of the US on charges of violating sanctions against Iran through subsidiary companies.

Huawei is accused of being a front for spying by the malign Communist regime. China has since arrested two Canadian citizens on sham charges and is using them as bargaining chips to arm-twist the Canadian government to secure release of Meng Wanzhou. Punitive economic measures have been unleashed against Canada and pressure groups have been activated in Canada’s democratic polity and open society to exert influence on their government.

The latest victim of China’s malefic gaze has been Australia, which had simply demanded an open, transparent inquiry into the origins of Covid-19 pandemic. Open threats to economically cripple its economy have been followed up with the erection of massive non-tariff barriers, leading to stoppage of exports of many commodities from that country.

Although financial markets and money flows are ideologically agnostic, with investment managers usually flocking to markets that offer higher returns, these tectonic shifts in geopolitical developments will start to weigh heavily in the decision making process of global asset allocators from the Free World.

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(Ajay Bodke is CEO and Chief Portfolio Manager (PMS) at Prabhudas Lilladher Securities. Views are his own)





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