And so these men of Hindustan

Disputed loud and long,

Each in his own opinion
Exceeding stiff and strong,
Though each was partly in the right
And all were in the wrong.
- John Godfrey Saxe (1816-1887)
MG FSI

09/17/16

Predicting the future.

MG FSI

09/17/16

China: A Net Assessment

3
MOHAN GURUSWAMY
WITH MILITARY AND SECURITY INPUTS FROM
BRIG. ARUN SAHGAL (RETD.)

MG FSI

09/17/16

How the world stacks up in 2015.

4

MG FSI

09/17/16

IMF Projections for China & India PPP GDPs

5

MG FSI

Year

China

India

2020

$29 trillion

$13 trillion

2030

$46 trillion

$22 trillion

2040

$71 trillion

$35 trillion

2050

$103 trillion

$55 trillion

2060

$145 trillion

$82 trillion

09/17/16

MG FSI

09/17/16

Chinas GDP growth 1980-2011

& growth forecasts for 2012-2030.

MG FSI

09/17/16

The coming economic transition.

transition (GDP PPP)

MG FSI

09/17/16

The coming economic order.

MG FSI

09/17/16

Chinas population projections.

10

MG FSI

2010:

1,330,141,000

2020:

1,384,545,000

2030:

1,391,491,000

2040:

1,358,519,000

2050:

1,303,723,000

09/17/16

What happened to Japan.

MG FSI

11

09/17/16

Age & Population structure 2000-35

MG FSI

12

09/17/16

Losing workers to education.

13

Sustained low fertility means that the number of young workers will
decline more sharply than projected. In 2010, there were 116m people
aged 20 to 24; by 2020 the number will fall by 20% to 94m.
But the actual number of workers will be considerably lower than
94m, thanks to rising participation in higher education.
Annual higher-education enrollments tripled from 2.2m to 6.6m in
2001-10, while the number of college students (mostly aged 18 to 21)
rose from 5.6m to 22.3m.
The size of the young population aged 20-24 will only be 67m by
2030, less than 60% of the figure in 2010.

MG FSI

09/17/16

An aging country.
14

As the share of young people falls and the share of elderly people rises,
Chinese society will age - rapidly.
China already has 180m people aged over 60, and this is set to reach
around 240m by 2020 and 360m by 2030. These are minimum
numbers, which will only increase with rising life expectancy. Less
certain are how fertility rates will affect the population age structure.
Should Chinas currently low fertility of 1.4 children per couple be
sustained, the population share of people aged over 60 could reach
20% by 2020 and 27% by 2030.
Using the more conservative international definition of elderly
people aged 65 plusone in five Chinese citizens will be elderly by
2030.
MG FSI

09/17/16

Workforce projections.

MG FSI

15

09/17/16

Ratio of working to non-working age population,

China & India

MG FSI

16

09/17/16

Indias late surge!

MG FSI

17

09/17/16

No more business as usual.

18

Fiscal imperatives brought about by demographic changes are also set

to change the political landscape.
Over the next 20 years, the ratio of workers to retirees will
drop precipitously from roughly 5:1 today to just 2:1. Such a
drastic change implies that the tax burden for each workingage person must rise by more than 150%, assuming that the
government maintains its current level of tax income.
In addition, mounting expenditure on social entitlementsespecially
pensions and health carewill put the CPC in a difficult position. If
the government demands that taxpayers pay more, the public will
demand better scrutiny of how their dollars are collected and spent.

MG FSI

09/17/16

Is China now following in Japans footsteps?

Japan, South Korea and Taiwan all grew close to 9%
annually for about two decades and then started to
slow.
Many think that Chinas fate will be like that of Japan,
which crashed and slowed down in the 1990s and has
yet to boom again.
But the more realistic scenario is Japan in the 1970s,
when the original Asian tigers growth slowed from
9% to about 6%.

MG FSI

19

09/17/16

The importance of being China.

MG FSI

20

09/17/16

The importance of exports to Chinas growth.

21

MG FSI

09/17/16

Why the USA is so important to Asia?

MG FSI

22

09/17/16

The smallest bite of the Apple!

23

Each iPad sold in America adds

$275, the total production cost, to
America's trade deficit with China,
yet the value of the actual work
performed in China accounts for
only $10.
Using
these
numbers,
The
Economist estimates that iPads
accounted for around $4 billion of
America's reported trade deficit with
China in 2011; but if China's exports
were measured on a value-added
basis, the deficit was only $150m.

MG FSI

09/17/16

The present realities of India vs. China till 2035.

Growing economic asymmetries.
Growing military asymmetries.
Gaps expected to start closing only around 2035-40
Is this a period of vulnerability?
Will China be tempted to teach a lesson?
Is it in Indias interest to get too cozy with the USA?
China, Japan, ASEAN & USA great trading partners.

Economically integrated.
India is least integrated with any region.
India is the only country with a long un-demarcated land
border with China, and major territorial disputes.

MG FSI

24

09/17/16

Satellite view of Aksai Chin.

MG FSI

25

09/17/16

Arunachal Pradesh or Lower Tibet?

MG FSI

26

09/17/16

PLAAF airbases in Tibet, Xinjiang & Yunnan

MG FSI

27

09/17/16

Some distances from PLA AFBs to IAF AFBs

28

Tezpur 325 kms

Gauhati 355 kms
Bagdogra 381 kms
Jorhat 430 kms
Chabua 455 kms

MG FSI

09/17/16

Major ethnic groups in Xinjiang.

MG FSI

29

09/17/16

Ethnically divided Xinjiang.

MG FSI

30

09/17/16

Post Dalai Lama Tibetan scenarios.

New spiritual head -Karmapa. A minor Dalai Lama

incarnate.
The role of Lobsang Sangay. Increasing militancy among

youth.
A Chinese Dalai Lama. Two of them. Legitimacy battle.
Tibetan protests in Western capitals. Unrest in Tibet.
Tibetan community in India becomes militant.
MG FSI

31

09/17/16

The geo-strategic importance of the Indian Ocean.

32

The sea lanes in the Indian Ocean are considered among

the most strategically important in the world.
According to the Journal of the Indian Ocean Region,
more than 80 percent of the worlds seaborne trade in oil
transits through Indian Ocean choke points.
With 40 percent passing through the Strait of Hormuz,
35 percent through the Strait of Malacca
and 8 percent through the Bab el-Mandab Strait.
MG FSI

09/17/16

Chinas crude oil imports in 2015 by source.

MG FSI

33

09/17/16

Oil is now the basis of about half the

World GDP of over $85 trillion.
Oil is now the single most important driver of world economics,
politics and technology.
The rise in importance was due to the invention of the internal
combustion engine, huge expansion of private and public
transportation and the rise in commercial aviation.
And the importance of petroleum to industrial organic
chemistry, particularly the synthesis of plastics, fertilizers,
solvents, adhesives and pesticides.
Mohan Guruswamy FSI

34

march 20, 2015

A vivid graphic of oil shipping volumes.

MG FSI

35

09/17/16

Why the odd man out needs the status quo?

MG FSI

36

09/17/16

WHAT DO THE CHINESE THINK OF INDIA? - 1

Apart from a palpable awe of the USA, it is near impossible to know
what the Chinese are thinking about anything. Even Chinese
commentators are unable to do so or commit themselves to any
sense of it. The only way to probably understand what they are
thinking is analyze their questions. These conclusions emerge out of
an analysis of questions and comments recorded by groups of
scholars over a period of time.
1.Indians are noisy and disorganized. CWG, Infrastructure, dirty
surroundings etc.etc.
2.Highly excitable. Post 26/11 reactions. Depsang la and LOC
incidents.
3.Indians lack community values. Lack strong nationalist values.
4.Indias economy will never be able to reach Chinese growth levels,
nor will it be able to compete with Chinese industry.
5.Indians are neither innovative or industrious.
MG FSI

37

09/17/16

WHAT THE CHINESE THINK OF INDIA?- 2

6. India will not become a US ally. It has a certain notion
about itself. It also believes that the Indian
bureaucratic/military elite is inherently hostile to it.
7. China does not believe that Indias interest in Afghanistan
is benign. It subscribes to the Pakistani notion.
8. China does not believe that India will support the Tibetans
beyond a point.
9. China does not believe that India will have a leader or
arrive at a consensus in the foreseeable future, who/which
can accept a border compromise, even on a standstill basis.
10. China does not believe that India will ever repudiate the
McMahon Line and settle for a new alignment even if it is the
same as where the LAC is now.

MG FSI

38

09/17/16

Five Economic scenarios: PPP GDPs China & India in 2025.

MG FSI

39

09/17/16

Some Future Drivers and Outcomes

Demographic Comparison
Chinese population peaks in 2016.
Begins to decline. Aged cohort
increases . GDP growth slows.

Or one child policy reversed. Growth

continues, but at a slower pace. Ageing
delayed .

Economic Growth Differential

Growth reduces to 7 % . Domestic
consumption increased. Reforms
passed.

Or growth reduces to 5% or less.

Reforms not passed. Exports decline,
as wages increase.

Political Internal Dynamics

Reformists regain strength.
Resumption of decentralization trend;
rebalancing strategy prioritizing nonstate and foreign capital. Nonantagonistic approach to West/Japan.
MG FSI

Or leftist faction entrenches itself.

Reforms pursued to strengthen state
sector. Provinces emasculated.
Centralized/great power foreign policy.

40

09/17/16

Post Dalai Lama Tibet

Differences on Post-Dalai
Lama Tibet is escalated by
China owing to internal
disturbances in Tibet. Forces
inducted into Tibet. Border
becomes active.

Or differences exist on Dalai

Lamas successor. Situation
does not escalate. Tibet
restive but peaceful.

US China Power
Differential
US industrial strength spurts
owing to energy exports. GDP
growth is 3.5%. US becomes
MG FSI
41
stronger. China does not

Or US industrial strength
does not increase. Chinese
growth continues at 7%.
09/17/16
Overtakes US in 2025.

Geographical Expansion South

China establishes corridors through Laos
to Thailand and through Pakistan and
Iran to Arabian sea. Builds pipelines to
Myanmar. Nepal and Sri Lanka come
under Chinese influence.

Or establishes limited corridors

southwards. Relies on SLOCs.

Political Reform and Civil Society

Civil Society agitates for political reform
and multi party candidates during
elections. Communist Party challenged.

Or civil society agitates only for

economic reform. Is satisfied with
Communist Party primacy. No
internal instability.

SinoIndian industrial detente

Indian leadership post 2019 elections
Or China not invited to participate in
invites China to participate in Indian
Indian growth. Relations remain
infrastructure such as high speed rail
frosty.
network. Huge investments flow & political
relationship thaws.
MG FSI

42

09/17/16

India - China Military Balance

China increases military expenditure.
R&D projects deliver results. 5th
generation aircraft. Chinese military and
air superiority of China in Tibet becomes
overwhelming. Three carrier battle
groups in operation

Or Chinas military expenditure

continues at present rate. Fewer
R&D projects are successful.
Continues import from Russia.
Carrier aircraft not successful. Only
two carrier battle groups with
doubtful air capability.

Sino Indian Maritime Balance in

the Indian Ocean
Deployable Chinese forces in Indian
Ocean, taken as 20% Chinese naval
strength, amounts to 3 destroyers 8
frigates, 2 nuclear attack submarines.
Indian forces remains superior on the
surface owing to carrier and land based
aviation. Vulnerable to nuclear attack
submarines.
MG FSI

43

Or Chinese Navy increases due to

massive building program. 20%
deployable forces amount to one
carrier battle group, 6 destroyers
and 14 frigates with 4 nuclear attack
submarines. Still balance decidedly
in Chinese favor.

09/17/16

Aerospace Technology
Breakthrough
China achieves breakthrough
in both military aircraft and
space technology. Deploys full
range of military aircraft and
satellites including ASAT, low
earth crisis and ELINT
satellites.

MG FSI

Or China just successfully

manufactures a civil aircraft
for passenger and military
use. No other technological
breakthrough. ELINT satellite
and ASAT capability.

44

09/17/16

The three possible futures.

Scenarios outline three possible futures emerging from

driver outcomes;
Strong and assertive China.
China mired in internal contradictions on account of
politico economic transition gone awry.
Steadily growing China vs. growing India.
Scenarios define outline of possible futures that impact
Indian security.
Ostensibly there are no manifest reasons for conflict.
Chinese great power ambitions could be a catalyst - if it
believes geo-strategic balance shifting against it.
Similarly Peripheral Security an important issue attempts
to undermine could result in strong Chinese reaction.
MG FSI

45

09/17/16

Scenario 1: Fragile China

This scenario outlines Chinese future marked by

declining economic growth; political economic

transition gone awry.
Leads to large scale economic, social and ethnic
consequences.
Scenario marked by declining growth of exports,
internal demand slowing leading to weak
consumption, declining household incomes.
Internal party rumblings emerge between liberal
economic and pro-social reform lobbies.

MG FSI

46

09/17/16

Scenario 1: Fragile China (contd.)

Inner party factionalism intensifies.
By 2020 these tensions begin to sharpen

growing frustration and disenchantment within

CPC.
Draw down in economy, declining incomes and
hinterland vs coastal divide sharpen societal
tensions.
Large scale unemployment & floating population
creates a new underclass, angry and frustrated.
Large scale unrest. Flows on to streets as state
tries to curb violence with repression. Clamp down
on social media exacerbates societal tensions.
MG FSI

47

09/17/16

Scenario 1: Fragile China (contd.)

Unrest spreads to ethnically sensitive Tibet and

Xinjiang exacerbated by induction of radicalized Af

Pak elements. Number of underground movements
spurt.
Post 2020 period is marked by large scale attacks on
Chinese garrisons, fiber optic networks, and blowing
up of gas pipelines, railways etc. Incensed state
apparatus ruthlessly cracks down.
Loud protests erupt in India. PLA leadership accuses
India of inciting Tibetans, decides to escalate border
tensions. Result is heightened stand.
MG FSI

48

09/17/16

Scenario 1: Fragile China (contd.)

Simultaneous tensions erupt along the Myanmar border

with Kachin and Wa groups attacking Chinese pipelines &

highway projects.
Major standoff between Vietnam and China in South China
Sea. US wars China not to exacerbate tensions. Japan sets
up installations on Senkaku and intimidates China on EEZ.
Beleaguered leadership see these as an attempt by inimical
interests to restrain and contain China.
Internal party acrimony allows ruling faction to whip up
anti-India hysteria, leads to border clashes and tensions.
India responds by resolute posturing.
Chinese leadership concerned about internal troubles,
happy to externalize tensions, secure in belief of ability to
manage escalation.

MG FSI

49

09/17/16

Scenario 2: Steady China

& Meandering India
Eclectic scenario, set in post 2020, whose pathways signify situation of
drift with profound impact on external geo-political environment.
Defining parameters:
SinoAmerican competition continues for primacy in AsiaPacific.
Both attempting to exert influence in Asian core zone of power play.
US tightens up on trade deficits with China, pushing mfg. to Vietnam,
Indonesia and India.
In terms of military balance China is catching up; US military and
technological power remains at least two generations ahead.
Japan is beginning to assert itself; radical departure from existing
pacifist security mindset. More tensions with N Korea & China.
Competition for energy is becoming intensified, with China cornering
majority oil and gas resources in Asia and Africa. America is indifferent
toward Middle East oil.
MG FSI

50

09/17/16

Scenario 2: Steady China

& Meandering India (contd.)
AfPak region continues to smolder. Pakistan grapples

prospects of incremental state failure, no change in military

mindset about Kashmir, anti India stance or strategic depth.
Radical Islamic shadows shifting to Central Asia - emerging
as new center of Al Qaeda activities.
Russia becoming more assertive player seeking to partner
China to balance US dominance in AsiaPacific.
China perceives Indian economic interests and growing
military relations with US inimical to its interests.
A heady mix of Sino-Pak collusion supported by Indian
insurgent groups creating tough situations in J&K & NE.
Chinese make major gains in Nepal, Sri Lanka, Myanmar
and IOR littorals.
MG FSI

51

09/17/16

Scenario 2: Steady China

& Meandering India (contd.)
India too economically sturdy but indecisive, unable to

assertively configure strategic power, to meet Chinese

challenge.
Increasing internal security contradictions and challenges.
Leadership remains internally focused.
In prevailing mood, defence reforms losing steam, minimal
restructuring to drive new technologies and doctrines. Little
modernization and transformation.
Lopsided strategic planning and acquisition process not
conducive to addressing obsolesce. All major projects are
behind schedule
By 2018 single SSBN & SSN is in service. MRCA project is
delayed. FGFA not yet on horizon.
MG FSI

52

09/17/16

Scenario 2: Steady China

& Meandering India (contd.)
Indian Army remains heavily committed in counter

insurgency operations, its modernization too is behind

schedule.
Strategic road development program along Eastern and
Western borders makes little progress. Mountain strike
corps is mired in controversy over structures &
organization.
In terms of attributes of military capability, only
marginal at best 20% improvement. Services remain
fragmented by continuing turf battles.
An uncertain India with steadily declining strategic
configuration of power. Competition with China
becoming increasingly asymmetric.
A period of grave strategic vulnerability prevails.
MG FSI

53

09/17/16

Scenario 3: Sino-centric Asia

This scenario is built around China continuing to

grow at a sustained 7 8 %. By 2025 Chinese real

GDP crosses $15 trillion.
Commensurate increase in its defence budget around $450-500 billion backed by robust
indigenous defence industrial base.
China has completed Phase II of its modernization
and is in position to field RMA based net centric
force over critical theatres.
Upgraded its strategic forces by induction of JL-2
SLBM and DF-41 ICBM both with MIRV capability.
Large asymmetry has developed between China and
India in both conventional and strategic capability.
MG FSI

54

09/17/16

Scenario 3: Sino-centric Asia (contd.)

These developments come in the backdrop of

relative decline of American economic power.

Still a dominant military power but with
reduced propensity to use force.
US remains engaged in Asia coalescing regional
allies to put up united front.
Aware that US had lost stomach to contain
China, they balance relations with China
carefully hedging economic and security
policies.
Its sphere of influence encompass SE, East and
Central Asia. Inducing ASEAN and Korea to
bandwagon rather than balance Chinese power.
MG FSI

55

09/17/16

Scenario 3: Sino-centric Asia (contd.)

India too grows at robust 7-9 %. Real GDP grows to $ 8

trillion. Share of global trade increasing.

Military capability grows as defence budget touches $ 150
billion.
Number of current programs in pipeline have fructified
including induction of five squadrons of MRCA, two
SSBNs , two SSNs and indigenous carrier. FGFA induction.
Mountain strike corps is operational. Infrastructure in
Ladakh is finally upgraded. An armored brigade located in
Ladakh.
India had made substantial upgradation of its C4ISR,
providing near real time look and lock capability both
over TAR and IOR. It also fields a rudimentary GPS.
Successfully tested ASAT and ASBM weapons.
Indigenous defence industrial base begins to develop.
MG FSI

56

09/17/16

Scenario 3: Sino-centric Asia (contd.)

With both countries growing, availability of energy

resources becomes decisive.

By 2024, China energy import dependency increases.
Perceived vulnerability of SLOCs rising. Availability
issues too becoming critical. Forces PLAN to step out
into IOR.
China acquires repair and refueling facilities in Gwadar
and Hambantota (?), and establishes earth stations.
Facilities on East African coast. Kisimayu or Socotra or
Comoros?
China clearly upgrading its presence and deployments in
IOR, even as Indian Navy remained dominant force.
In late 2024 Myanmar, Bangladesh, Sri Lankan, Pakistan
and Chinese navies carried out joint exercises in Bay of
Bengal.
MG FSI

57

09/17/16

Scenario 3: Sino-centric Asia (contd.)

Period marked by major Chinese inroads in Nepal

where it is involved in upgrading both

communications & defence infrastructure. Military
training team also located. Friendship treaty?
Similar influence was noticeable in Bangladesh and
Myanmar, where China has developed an energy
hub at Sitwe.
Sino Pak relations marked by greater bonhomie.
China providing HN9 AD systems, J10s and
access to Beidou navigation system.
These were in addition to infrastructural projects
being undertaken in Northern areas including
economic corridor from Xinjiang to Makran.
Rumblings had once again started in Tibet and
Xinjiang. PLA and Central Leadership is worried?
MG FSI

58

09/17/16

Consequences : Fragile China

Unrest increases in China. Visible on social
media.
China actively censors internet.
Reasserts dominance over ASEAN over South
China Sea dispute.
Raises stakes against Japan over territorial
dispute. Increases patrols in South China Sea.
Enhances force strengths in Xinjiang & Tibet.
Task group visits Karachi.

MG FSI

59

09/17/16

Consequences of Fragile China

Chinese President makes provocative speech against
foreign interference in Chinese core interests in Tibet.
China tests anti-carrier ballistic missile at sea.
Increases offensive patrolling on Tibet border.
Begins a major Air-Land exercise in Southern China.
Leadership visits Pakistan to reiterate military and
economic aid.
MG FSI

60

09/17/16

Consequences of Steady China

& Meandering India
China commences series production of military aircraft
and heavy lift helicopters
Retrofits long range cruise missiles in naval vessels.
Lays keel for 3rd aircraft carrier (2020).
Increases investments in Africa for minerals and oil.
Deploys one Brigade of 2nd Arty corps with conventional
missiles in Tibet.
Conducts naval exercise with Pakistan Navy in Arabian
sea, including nuclear submarines.
MG FSI

61

09/17/16

Consequences of Sino-centric Asia

China overtakes US in GDP by 2025. Has defence
budget of $ 450 billion.
Is primary trade partner of all SE Asian and Central
Asian countries.
Operates 3 carrier battle groups and 10 SSNs. Has
finished testing JL2 from Jin Class submarines.
Has 3 air cavalry divisions and 4 para divisions.
Cumulative lift of one corps by air assets . One air cavalry
division with Chengdu Theatre Command.
Dominates South China Sea with CVBGs.
MG FSI

62

09/17/16

Consequences of Sino-centric Asia

Is primary user of Indian ocean SLOCs.

Operates one CVBG in Indian Ocean part of the year.
Conducts naval exercises in Indian ocean with South
Africa, Kenya, Saudi Arabia, Pakistan, Bangladesh &
Indonesia.
Matches Indian Navy in Indian Ocean.
Entire Pakistan, Bangladesh & Myanmar naval
hardware is Chinese. Leases one SSN to Pakistan.
Tibet living standards superior to India. Very little
unrest.
Chinese Taikonaut does moon walk. Has strong
anti-satellite capability. Launches foreign satellites.
Holds debt of all declining European nations.
MG FSI

63

09/17/16

PRC: Three Principles for the management of

political-military crises.
Do not attack unless attacked. Never attack others without

provocation, but once attacked, do not fail to return the blow. It also
implies a stress on reciprocity and symmetry in evaluating when and
how to escalate.
Do not fight decisive actions unless sure of victory. Never fight without
certainty of success, unless failing to fight would likely present a worse
outcome. This conveys the selective and political approach to the use of
force and other forms of escalation.
Be pragmatic and aware of the limited nature of objectives and
strength. With a strong power, set appropriate objectives; do not exceed
capabilities. Know when to stop, when to counter, and when to bring the
crisis to a close. Stop once the goals are attained; rethink if you cannot
obtain your objectives.
MG FSI

64

09/17/16

Deductions
A prolonged and sustained Sino-Indian war with a political
decision enforced by the military is unlikely in next 20 years.
However a short sharp conflict with limited aims and duration
is quite possible following escalation of border incidents leading to a teaching a lessonconflict.
1.Tensions arising out of Tibetan turmoil post Dalai Lama and a
messy succession.
2. A general teaching lesson conflict by a rising China against
an aspiring India, to underscore its world power status.
3.To reassert Chinese maritime power in the Indian Ocean to
protect its SLOCs.
MG FSI

65

09/17/16

Policy Recommendations
1.Make a strategic national decision to maintain an
indigenous asymmetric capability against China on the
border and the Indian ocean. Build capacity for swift,
decisive and even disproportionate escalation.
2. In pursuit of that decision create national industrial
capacity, with or without foreign collaboration, for following
urgently
medium lift aircraft
heavy lift helicopters
nuclear attack submarines
precision attack long range cruise missiles
fighter aircraft
MG FSI

66

09/17/16

Policy Recommendations.
Acquire military hardware to preserve military asymmetric
edge on Tibetan-Xinjiang border and the Indian Ocean.
Assure asymmetric response.
Strategic decision to escalate to an offensive trade war
against Chinese SLOCs in case attacked on the Tibetan
border. Obtain US acquiescence for trade war in IOR if
forced to escalate.
Preserve air superiority edge on Tibetan border by further
acquisitions.
Develop credible nuclear deterrence.
MG FSI

67

09/17/16

Jai Hind!

MG FSI

68

09/17/16