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India takes its tussle with China to the high seas



After 20 Indian soldiers were killed in a skirmish with Chinese troops along the Himalayan border this summer, New Delhi quietly dispatched a frontline warship on an unusual voyage to the South China Sea.

Little was revealed publicly about the vessel or its mission. But Indian security analysts saw its unexpected presence in the heavily disputed waters as a clear warning to Beijing, which has made vast maritime claims there.

“The message was: Don’t mess in my backyard or otherwise I’ll mess in your backyard,” said Nitin Pai, director of the Takshashila Institution, a Bangalore-based think-tank.

The incident highlights how India’s Himalayan border tensions with China could have big repercussions thousands of kilometres away in the seas of Asia. New Delhi is shedding its reticence to unleash India’s maritime power and strengthen it security partnerships as it seeks to counter what is considers Chinese aggressions on its land border.

Last week, India invited Australia to join the US and Japan in the annual trilateral Malabar naval exercises in the Indian Ocean, a move seen by security analysts — including in Beijing — as a first step towards forging a strategic alliance to curb Chinese expansionism in the Indo-Pacific.

Although the four countries, collectively known as “the Quad”, are ostensibly focused on maritime concerns, New Delhi hopes its new partnerships will strengthen its hand in the border stand-off, which multiple rounds of high-level talks have failed to defuse.

“The security of the Himalayas lies east of the Malaccas,” Mr Pai said, referring to the narrow strait linking the Indian and Pacific oceans. “If you can’t solve the problem in the theatre you have, you have to enlarge the theatre.”

Abhijit Singh, a former naval officer and head of the maritime policy initiative at the Observer Research Foundation, said: “There are many ways India can signal to China it is not happy with the Chinese approach to resolving our boundary problem. One ways is . . . [to] raise the temperature at sea.”

However, Liu Zongyi, a South Asia specialist at the Shanghai Institutes for International Studies, wrote that India’s decision to “dance closely with Washington’s war waltz” in the Indo-Pacific was risky.

F/A-18 Hornet fighter jets and E-2D Hawkeye plane on the US aircraft carrier John C Stennis during the Malabar military exercise, with the US, Japan and India participating, in June 2016
India hopes the Quad naval exercise will help it in its stand-off in the Himalayas © Nobuhiro Kubo/Reuters

“This is an obvious step to create a mini version of Nato in India,” he wrote of the Malabar exercises in the Global Times, China’s nationalist tabloid. “The formation of the military alliance in the Indian Ocean will inevitably stimulate other countries to take counter measures. Chances for military confrontations will intensify.”

India is outgunned by China’s navy, which boasts more sailors and weapons platforms such as guided missile destroyers, aircraft carriers and submarines. China is expanding its naval capacities far faster than India, too.

But retired naval commodore Uday Bhaskar said India still had a significant geographical advantage over China, given its location in the Indian Ocean, through which most of China’s energy supplies pass.

“Geography favours India,” said Mr Bhaskar, who is now director of the Society for Policy Studies, a think-tank. “Even with relatively modest capabilities, given India’s peninsula location, its like having a permanent aircraft carrier.”

A coterie of Indian strategists has long urged New Delhi’s navy to be assertive, including in the volatile South China Sea, as part of a long-term strategy to check Chinese power.

But India’s past Congress governments were reluctant to provoke China while Prime Minister Narendra Modi had also courted President Xi Jinping, seeking Chinese investment.

However, Beijing’s development of a network of Indian Ocean ports, including in Sri Lanka, Pakistan and Djibouti, created unease in New Delhi because of their potential military use. So, too, did China’s plans for a deepwater port in India’s neighbour Myanmar.

 “China’s presence in the Indian Ocean to our east and west is changing our perceptions of maritime security like nothing since the Europeans arrived at the end 15th century,” said Ashok Malik, policy adviser in India’s foreign ministry.

Analysts said it was the violence in the Himalayas that led New Delhi to shift from a defensive strategic posture towards greater maritime assertiveness after concluding that its relationship with China was fundamentally adversarial.

An Indian army soldier keeps guard on top of his vehicle as their convoy moves on the Srinagar-Ladakh highway at Gagangeer, northeast of Srinagar, Indian-controlled Kashmir
Multiple rounds of high-level talks have failed to ease tension on the Himalayan border © Mukhtar Khan/AP

“India is becoming more realistic,” said Mr Bhaskar. “Earlier, India was trying very hard to appease China.”

What form India’s maritime strategy will take is still being fiercely debated. Some hawks advocate responding to Beijing’s pressure by obstructing Chinese shipping. But Indian strategists are divided on such an approach, given the risks of affecting third countries and inadvertently creating a backlash.

India is planning to strengthen maritime infrastructure in its Andaman and Nicobar Islands, as well as building a $1.3bn deepwater port on Great Nicobar island. It is also strengthening defence co-operation with Washington, its old cold war nemesis.

An American P-8 Poseidon long-range maritime patrol aircraft refuelled at an Indian base in the Andaman and Nicobar Islands for the first time last month, and on Tuesday the two countries signed an agreement expanding military satellite information sharing.

While Indian and Chinese troops look set for a protracted stand-off through Ladakh’s brutal winter, analysts said the Indian Ocean and other Asian waters could well emerge as the more active theatre for Asia’s rival powers.

“It makes sense for India to be part of a multinational coalition countering China in the South China Sea,” said Mr Pai. “Apart from it being in India’s geopolitical interest to needle China, what China has done there is completely illegal.”

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Emerging Markets

Central banks seek out riskier assets for reserves in yield drought




Central bankers who manage foreign currency reserves have been turning to new — and riskier — investments to compensate for the global collapse in bond yields ushered in by the pandemic, according to a new survey.

The annual poll of 78 reserve managers with a combined $6.4tn of assets found that the reduction in yields has presented the greatest challenge to these investors over the past year. For many, it has driven a shift into new asset classes including corporate bonds, emerging market bonds and equities.

Reserve managers are typically among the world’s most risk-averse investors, but they enjoy huge clout thanks to the more than $12tn they manage, according to the most recent IMF figures. This cash, accumulated by central banks to keep their currencies steady or to protect them in times of crisis, is generally parked in safe assets such as short-term government debt.

However, the survey carried out by Central Banking Publications suggests the pressure of low returns is forcing some to take on greater risk to preserve their capital. Bond yields around the world plummeted to record lows last year as central banks slashed interest rates and launched huge debt-buying programmes to combat the fallout from the pandemic. Although yields have since rebounded, they remain very low by historical standards.

Just over half of respondents to the survey said they were considering investing in new asset classes, while 44 per cent said they might add new currencies to their holdings. According to the IMF, 59 per cent of the world’s $12.7tn of foreign exchange reserves is held in US dollars, with most of the rest in euros, yen or sterling.

The survey also found that 42 per cent were considering inflation-linked bonds and 23 per cent were looking at adding to their holdings of gold.

Another reserve manager from the Americas said they had increased holdings of Chinese bonds, inflation-linked bonds and gold, adding “we are always willing to look into opportunities to make our reserves more efficient in terms of risk/ return”.

Central banks, like many investors, have been struggling with falling bond yields for the past decade, resulting in a global “hunt for yield” that has buoyed riskier assets. Many of the safest bonds offer negative returns once inflation is taken into account, while in Japan and the eurozone negative nominal yields are also commonplace.

The survey highlights “the challenge of capital preservation faced by the large number of reserve managers who hold predominantly short duration portfolios in highly rated government securities”, said Bernard Altschuler, head of central bank coverage at HSBC.

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Israel conflict rattles rapprochement with Arab countries




When the United Arab Emirates shocked the Arab world by normalising relations with Israel it said the move would help ease the protracted Arab-Israeli conflict. But nine months later, the wealthy Gulf state finds itself in a difficult position as its newest ally bombards the impoverished Palestinian territory of Gaza.

Israeli war planes and artillery have been pounding Gaza while Hamas, the group that controls the territory, has fired rockets into Israel. On Sunday morning, death toll in Gaza stood at 181, including 83 women and children, local health officials said.

Ten people have died inside Israel, including two children, local medics have said.

While almost a third of Arab countries now have relations with Israel, this week’s bloodshed shows that diplomatic ties ushered in by last year’s so-called Abraham Accords have given them little leverage and done nothing to ease the root cause of the protracted crisis — the Jewish state’s conflict with the Palestinians.

“They [the UAE] are clearly in a very difficult position. On one hand, the UAE’s interests with Israel are long term and strategic, so ideally their relations should be resilient to shocks,” said Cinzia Bianco, a visiting fellow at the European Council on Foreign Relations. “At the same time, the UAE obviously claimed that the Abraham Accords would give them leverage to also support the Palestinians and rein in Israel’s aggressions against them.”

So far, Israel has rejected all international efforts pushing for a ceasefire. But Bianco said Abu Dhabi could still deploy diplomatic leverage to pressure the Jewish state to limit the scale of its retaliation. Such intervention, however, could jeopardise progress on joint projects of strategic value to the UAE, she added. 

Recent collaborations include plans for Emirati and Israeli defence manufacturers to develop a system to counter drones.

The normalisation of relations between Israel and the UAE under the Abraham Accords was quickly followed by similar moves from Bahrain, Sudan and Morocco, that marked a radical departure from the established Arab stance towards the Jewish state.

The Arab position before the accords was that they would recognise Israel only if there was a just settlement with the Palestinians that led to the creation of a viable Palestinian state. The transactional deals brokered by the Trump administration, which pursued an overtly pro-Israel stance, left the Palestinians feeling isolated and betrayed. Critics said Arab states had given up a bargaining tool and gained little in return, warning the moves would be exploited by more militant Palestinian factions.

Like other members of the Arab League, the UAE endorsed an appeal on Tuesday to the International Criminal Court to “investigate war crimes and crimes against humanity” committed by Israel against the Palestinians.

“The UAE stands with the rights of Palestinians, for the end of the Israeli occupation and with a two-state solution with an independent Palestinian state with East Jerusalem as its capital,” said Anwar Gargash, diplomatic adviser to the UAE president, this week. “This is a historic and principled position that does not budge.”

The UAE foreign ministry was last month quick to condemn Israeli plans to evict Palestinians from their homes on land claimed by Israeli settlers. And when clashes broke out between armed Israeli police and rock-throwing Palestinian youths, the UAE urged Israeli authorities to reduce tensions.

The UAE’s clear public stance has given cover for Emiratis and residents in the autocratic state to condemn Israeli actions and express support for the Palestinians, after any local anger at the earlier decision to normalise relations was suppressed at the time. Apart from a fringe of Emirati online activists who have sided with Israel, most social media reaction — even from some ministers — has been pro-Palestinian.

“Normalisation [of relations] is irreversible but it is very difficult to defend and even talk about in these circumstances,” said Abdulkhaleq Abdulla, a Dubai-based political science professor.

After the UAE signed its accord, there was speculation about whether Saudi Arabia, Israel’s main prize, would follow suit. Like Abu Dhabi, Riyadh has been covertly co-operating with Israel on intelligence and security matters as they share the goal of countering Iran.

But this week’s Israeli assault on Gaza makes that appear ever more remote. Saudi foreign minister Prince Faisal bin Farhan on Sunday said the kingdom “categorically rejects the Israeli violations against Palestinians”, while calling for an immediate ceasefire. 

In Morocco, which established relations with the Jewish state in October in return for US recognition of Moroccan sovereignty over the disputed territory of Western Sahara, the foreign ministry said it was watching events “with deep concern”.

In 2014, during the last major war between Israel and Hamas, thousands of protesters, including government ministers, took to the streets across Rabat, the capital. This time Moroccan police dispersed a small pro-Palestinian protest in the city this week. The newly formed Morocco-Israel Business Council was also reported to have postponed a virtual meeting aimed at encouraging Moroccan investment in Israel.

Public sentiment in the Arab world remained strongly pro-Palestinian, said HA Hellyer, senior associate fellow at the Carnegie Endowment for International Peace. “The absence of protests isn’t an absence of the desire to protest but an absence of permission to protest.”

Restrictions on freedom of speech across the region made it harder to gauge the extent of public anger, Hellyer said, but social media and the extensive coverage on mainstream television showed the “Palestinian question” was still close to Arabs’ hearts.

“Almost half of the messages I received on Thursday for the religious festival marking the end of Ramadan, show pictures of the Dome of the Rock in Jerusalem,” he added.

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Chilean voters prepare to elect country’s constitutional legislators




Chile will this weekend vote in the legislators who will draw up its new constitution, with the country’s centre-right government facing a battle to maintain its grip on power ahead of a presidential election in November.

Gubernatorial, mayoral and municipal polls that were postponed because of the pandemic will also take place on Saturday and Sunday, alongside the election to populate the constitutional assembly.

Chile has not been spared the coronavirus second wave that has hit Latin America despite it having the highest vaccination rates in the region. Confirmed infections reached their highest ever level last month, although numbers have since declined.

“Chile is doing several historic and unprecedented things at the same time . . . in the middle of the economic and health crisis brought on by Covid-19,” said Robert Funk, a political scientist.

The most important vote will select members of the constituent assembly charged with rewriting the constitution drawn up during the 1973-90 dictatorship of General Augusto Pinochet — which most Chileans regard as illegitimate.

Nearly four-fifths of voters opted in favour of reforming the constitution in a referendum in November.

“These elections will probably define Chile’s institutional course over the coming decades,” said Gloria de la Fuente of Chile’s transparency council. “The vote will have a profound effect on Chile’s political system and civil society . . . electing the authorities to bring the country’s agenda forward.”

Yet turnover is predicted to be lower than the referendum. Some 58 per cent of Chileans who took part in a recent Ipsos poll said they were less likely to vote due to the pandemic, while less than half knew they would be voting for four different positions.

Chile has in recent decades become one of Latin America’s wealthiest nations, even if the deep inequality that sparked widespread social unrest in 2019 is far from resolved.

The low approval ratings for President Sebastián Piñera since those demonstrations have been exacerbated by defeats for his government in Congress, notably over pensions reform.

While the leftwing coalition that dominated Chile for most of the past 30 years has disintegrated since Piñera returned to power in 2018, his unpopularity could allow the left and centre-left to secure the two-thirds majority in the constituent assembly required to pass each article of the new document.

“If the right gets more than 30 per cent [in the assembly], it will be a tremendous victory,” said Lucia Dammert, a sociologist at the University of Santiago.

Despite the relative success of its vaccine rollout, Chile has been hard hit by the coronavirus crisis. Last summer’s peak of a weekly average of 352 daily cases per million was surpassed last month, reaching 383. Cases have since fallen back to about 280 cases per million.

However, Piñera’s government has been able to offer more generous Covid-related subsidies than most other countries in the region.

A feature of this weekend’s polls has been the emergence of independent candidates, Dammert said. Yet although the traditional parties had been badly wounded by the political turmoil, it would be “an uphill battle” for the independents to gain recognition, she said.

There are also wild cards such as Pablo Maltes — husband of Pamela Jiles, a populist presidential hopeful — who is running for governor of the metropolitan region of the capital Santiago.

“If Maltes wins, then there’s definitely something going on with Jiles,” said Funk, as it would suggest she was a strong contender for the presidency.

Jiles, who has championed measures to withdraw funds from Chile’s vaunted private pension system, is one of a number of presidential hopefuls, with no single candidate on the right or left enjoying a clear lead.

Electoral reform under the previous leftwing government of Michelle Bachelet that increased proportional representation means Chileans will for the first time also elect regional governors in a country where power has traditionally resided firmly in Santiago. The elections will also renew nearly a third of local authorities.

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