The World this Week

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The World this Week
China's Economic Recovery, India-China Disengagement, India-Iran Chabahar Challenge and the UK's Huawei ban

  GP Team

The World This Week # 76, 18 July 2020, Vol 2 No 29

Harini Madhusudan, Teshu Singh, Poornima B, Sourina Bej & Rashmi BR

Post-COVID Economic Recovery: China registers first with 3.2 per cent in the second quarter 
What happened?
China reported an economic recovery in the second quarter (April-June 2020) with economic growth at 3.2 per cent. As one of the first countries to reopen its economy after battling the effects of the pandemic, China becomes the first to record positive economic growth in the second quarter of 2020.
In February 2020, the numbers had fallen by 6.8 per cent of GDP. Industrial production and retail were the two sectors that contributed to the growth. The Chinese economy had reported a 6.8 per cent shrink in GDP in the first quarter.  

This positive growth indicates that China has avoided a technical recession and has exceeded the expectations that were placed on its economy, indicating a V-Shape recovery. Bloomberg forecast had predicted a 2.4 per cent GDP growth rate for China in the second quarter.

What is the background?
First, the disruption in China's plans for 2020 and the impact of  pandemic. China had announced that it would have a growth rate of 6 per cent for 2020, with a focus on increasing jobs and remapping its supply chains, aiming at recovery from the impact of the trade dispute with the US. But the COVID-19 outbreak led to the shut down of manufacturing, factories, and businesses, leading to a record 6.8 per cent fall in the GDP in the first quarter of 2020. 

Second, retail sales and domestic consumption are yet to improve. Though the early signs of recession have been avoided, the growth in the industrial output and domestic demands are not even. The industrial production was mainly in the mining, gauge manufacturing and utilities, and consumption fell by 1.8 per cent. Fixed asset investments in China fell by 3.1 per cent, and the unemployment numbers are at 5.7 per cent, down from 6.2 per cent in February. The service sector, capital investments, retail sales, and manufacturing output are still negative.

The uneven growth is a sign of restorative growth, and a majority of the improvement would still depend on how the global economy recovers. 

What does it mean?
The improvement of the Chinese economy is a good sign for post-pandemic recovery. Exports, manufacturing, jobs, and domestic consumption will continue to be important markers of recovery in the third and fourth quarters of 2020. Almost all of China's key trading partners are seen struggling to reopen their economies or are seen imposing restrictions on them. Moreover, because the Chinese economy depends on its labor-intensive exports, a large part of the recovery will depend on the supply and demand at the global level.

India and China into the fourth round: Dialogues, Agreements and Challenges of Disengagement 
What happened?  
On 14 July 2020, Commanders from the Indian and Chinese militaries held a 14-hour long meeting at Chushul for the fourth round of talks to facilitate the ongoing disengagement at the India-China border. The talks were consistent with the agreement reach between the two Special Representatives of India and China held on 5 July 2020. Reportedly, although both the sides insisted on complete disengagement during the talks Chinese side was adamant that they would not back off from Finger 4.
What is the background? 
First, the agreements from the past and the India- China relationship. India and China share a border of 3,844 km and are divided by the Line of Actual Control (LAC). There is no consensus on both the side on the LAC, each side has its views and hence regular transgressions take place. The 15 June violent face-off took place is a violation of the agreement that the two sides had reached in 1993, 1996, 2013 that facilitated maintaining peace and tranquillity on the LAC. In 1996 both sides agreed not to use firearms in the volatile area. It is the deadliest stand-off in the last forty years and violates all the agreements reach until now.

Second, the multiple attempts at dousing the situation. At the Galwan Valley, as the Indian and Chinese troops were in the process of disengagement another face-off took place.  The Chinese troops with iron clubs bristling with spikes hit the Indian soldiers. In the clash, 20 Indian army personnel and number of Chinese soldiers were killed. The Chinese government has not confirmed the number of causalities yet. As a follow up to the deteriorating situation at the LAC, the Special Representative from both the sides had a telephonic conversation on 5 July 2020 and agreed on a "complete disengagement" of the troops" along LAC and "de-escalation" from the border area restoring peace and tranquillity. They insisted on a phased and stepwise de-escalation in the border areas. 

Third, taking forward the "complete disengagement". The troops from both sides have moved back by 2 km each at the patrolling point 15 and the patrol point 17. This has created a buffer zone in the region. The buffer zone is a temporary arrangement and calls for a short-term suspension of patrols by both sides to ensure that situation does not blow out of proportion leading to clashes as it happened on 15 June. The patrolling will start once the disengagement is complete. 

What does it mean? 
At the 16th meeting of the Working Mechanism for Consultation and Coordination on India-China Border Affairs (WMCC) on 10 July, the Ministry of External Affairs reiterated that two Special Representatives and Senior Commanders would meet soon to discuss steps to ensure "complete disengagement" and "de-escalation" in a timely manner. Amid the disengagement process, on 16 July 2020, the MEA has reiterated India and China have agreed on complete disengagement of troops along the LAC and de-escalation from border areas, and there is no change in India's position on the LAC, indicating that the channels for negotiations remain open with no change in status quo.

India and Iran: The Chabahar rail link issue exposes the bilateral challenges
What happened?
The Hindu on 14 July reported the following: "Four years after India and Iran signed an agreement to construct a rail line from Chabahar port to Zahedan, along the border with Afghanistan, the Iranian government has decided to proceed with the construction on its own, citing delays from the Indian side in funding and starting the project."

Later, a deputy of Ports and Maritime Organization of Iran - Farhad was quoted to have stated the report as false, as there was no deal between India and Iran and railway link. According to him: "...Iran has not inked any deal with India regarding the Chabahar-Zahedan railway...Iran has only signed two agreements with Indians for investment in Chabahar: one is related to the port's machinery and equipment, and the second is related to India's investment to the tune of $150 million."

The official spokesperson of India, responding to a question on the subject on 16 July stated: "IRCON was appointed by Government of India to assess the feasibility of the project. It was working with CDTIC, an Iranian company under their Ministry of Railways in that regard. IRCON has completed the site inspection and review of the feasibility report. Detailed discussions were thereafter held on other relevant aspects of the project, which had to take into account the financial challenges that Iran was facing. In December 2019, these issues were reviewed in detail at the 19th India-Iran Joint Commission Meeting in Tehran. The Iranian side was to nominate an authorized entity to finalize outstanding technical and financial issues. This is still awaited."

What is the background?
First, Chabahar port as India's gateway to Central Asia. Chabahar, Iran's only deep-sea port open India's route to reach the Central Asian Republics (CAR) and Afghanistan. Inaugurated in 2017, this port is located strategically close to the China-Pakistan Gwadar port. The Chabahar rail link is part of the connectivity project to reach Afghanistan and further to the CAR. The rail track is proposed to be laid between Chabahar and Zahedan, extending to a distance of 628 km. From Zahedan, the goods will be transported to Zaranj in Afghanistan and then to Central Asia. The railway line will hold 34 stations and is speculated to facilitate the shipment of 2.8 million tonnes of freight every year. 

Second, India has been eyeing to clinch the contract of the Farzad-B gas field since 2009. The ONGC Videsh Limited was part of initial exploration in the gas field. After the discovery stage, the negotiations to proceed with the exploration was halted owing to US' sanctions on Iran and inhibitions from both the Indian and Iranian sides. In 2008, a joint venture of ONGC, OIL, and IOC explored the field and estimated 21.7 trillion cubic feet of natural gas reserves. Nevertheless, last week, the head of the National Iranian Oil Company announced the award of the contract to develop the gas field to a local operator.  
What does it mean?
First, China- Iran relations will follow a course of its own.  China has been strengthening its hold recently in Iranian projects of late. More so, larger elbow room has been provided by the United States for Tehran and Beijing to build their relations based on a convergence of interest and threat perceptions. If the strategic deal between both the states, which is currently under the scrutiny of the Iranian Parliament (Majlis), sees the light of the day and China delivers its pledge of such handsome funding, Iran may latch on to China for its infrastructure projects, furthering itself away from India. 

Second, the impact of US pressure on India- Iran relations will cost India, dearly. Subsequent US sanctions on Iran have heavily impeded negotiations between New Delhi and Tehran on important infrastructure plans including the Chabahar rail project. Additionally, India's hesitation to purchase oil from Iran may block its strategic aspirations Iran, Afghanistan, and Central Asia. The rail-road will act as a transit corridor for India to cruise into Afghanistan and the CAR and as the project is slipping out of India's hand, Ne Delhi needs some rethinking of its priorities and strategies. 

Third, there is a diplomatic challenge to India. New Delhi has to ensure that the Iran-China relations do not impact India-Iran partnerships. Is Iran losing confidence in India as a reliable partner? Is it playing the Chabahar card to send strategic signals to New Delhi that it has found a better partner in China? The way things have rolled out now, it is clear that China's gain has transcended into India's space.

UK's 5G Plans: In a volte-face, Britain bans Huawei
What happened? 
On 14 July, the UK banned the Chinese telecom company Huawei from future investments in the mobile infrastructure in the country. Under Britain's new 5G roll-out plan, the country's mobile network operators will now not be able to buy any new Huawei equipment for their 5G infrastructure after the end of this year. Also, all existing equipment supplied by Huawei will be gradually removed from Britain's 5G infrastructure by 2027. This announcement overturns a previous decision in January 2020 to allow Huawei up to a 35 per cent share in the non-sensitive parts of Britain's 5G mobile networks, which was made amid the Trump administration's pressure to block Huawei in major telecoms markets. 

Welcoming Britain's decision, the US Secretary of State, Mike Pompeo said that Britain joins a growing list of countries who are standing up for their national security by prohibiting the use of "untrusted, high-risk vendors."

What is the background? 
First, the privacy of data leading the reasons for a ban. The immediate reason to ban Huawei is undoubtedly the rising insecurities over data protection and privacy. However, Britain's decision follows the larger rhetoric that the Western democratic countries have been setting, which is putting up a front against the technological and data monopoly by China. In recent months, the British government has faced not only pressure from its political quarters but also one of its strongest ally, the US. The concern that has driven this pressure has been that of the national security risk posed by Huawei's equipment that could possibly allow Beijing to spy on the Western countries. This particular concern joins the recent measures taken by countries like South Korea to Australia in slapping fines on TikTok for mishandling data of its users. 

Second, this delays the UK's own path towards 5G. The decision to ban comes at two pivotal points in Britain's political and economic history. First, economically, Britain is uncovering its plan to roll out a 5G. And moving away from Huawei definitely makes it an uphill task for the existing fiber broadband operators to look for different infrastructure. Second, this economic decision is politically motivated as Prime Minister Boris Johnson has been responding to pressures from his own party. The government suffered the biggest defeat in March when 38 Conservative MPs voted against the government in favour of an amendment to end the use of Huawei. Johnson will have to look out for replacing existing Huawei equipment which would either mean looking at Europe or the US. The post-Brexit trade deal is in doldrums, thus making techno-economic negotiations all the more difficult for Britain. 

Third, China's tough response to the ban. Huawei responded to Britain's ban by calling it "bad news for anyone in the UK with a mobile phone" but also threatened that this would "move Britain into the digital slow lane, push up bills and deepen the digital divide." It is important to note that the UK revenues are less than one per cent of Huawei's global revenue, but Western Europe also serves as the leading technological ground where the 5G infrastructure could be implemented. The ban is a strategic and political statement that marks a continuation in the tension between China and the West.  

What does it mean? 
First, after the UK's ban, it is likely that pressure will mount on Germany and France who are also pondering on its legislation against Huawei. It will be interesting to wait and see whether these countries adopt a similar strategy like Britain, look to the US for equipment or try and balance the rhetoric from the region. 

Second, as a growing critic of China and increasingly becoming a mouthpiece of the US, Europe will need to consider how banning Huawei is going to prevent China's technological advances. The Western democracies, from medical supplies to household amenities, have been economically dependent on China. The question of data protection can be better handled with strong domestic legislation which will in turn nose tight the investing companies as well. 

Trump administration to reduce US troops in South Korea
The US has planned to reduce the size of its troops in South Korea. The Pentagon has reviewed the deployment of the troops, in the wake of Trump's demand from Seoul to pay for the maintenance. This is one of the cases where Trump has repeatedly asked its American allies to significantly bear the cost for troop deployment, else leading to downsizing at strategic areas. 
Record spike in single-day COVID-19 cases in the US
The United States recorded 77000 COVID-19 cases, the highest single-day spike so far. The country is worst affected, both in terms of the number of cases and fatalities. New York, California, Texas and Florida are worst-hit states. Health officials have warned that an even greater number of cases could be recorded on a daily basis if the administration does not take immediate steps to curtail the spread. 
UN at 75: ECOSOC dialogue on multilateralism
Commemorating the 75th year anniversary of the United Nations, The Economic and Social Council (ECOSOC) held a virtual dialogue on "Multilateralism after COVID-19: What kind of UN do we need at the 75th anniversary?". Speaking at the dialogue, PM Modi put forward the need to reform the UN and make multilateralism more representative. He also spoke in length about the steps India is taking, to deal with the pandemic. 
Pressure mounts on Mali's President, as demand for his resignation peaks
Mali's opposition has demanded President Ibrahim Boubacar Keita's resignation in the wake of the economic crisis and continuing armed conflict. The efforts of the Economic Community of West African States (ECOWAS) and international mediators were channelized towards diffusing the crisis, but the demand for resignation remained unchanged. The 5 June Movement insisted upon a "republican transition", after dissolving the current Parliament. 
Azerbaijan accuses Armenia of targeting its strategic infrastructure
Armenian troops have recently targeted Azerbaijan's key infrastructure. Armenia violated the ceasefire in Tovuz, the only connecting route to Turkey and the west, resulting in the deaths of twelve soldiers and one civilian. Azerbaijan's lawmakers are of the opinion that Baku-Ankara joint energy and transportation lines have come under the Armenian target and can pose severe challenges. They also criticized Armenia's move to target civilian settlements extensively.

EU Leaders Agree on half-a-trillion Euros for economic recovery funds
After intense two day discussions on the plan for the stimulus package for the member nations affected by the pandemic, the 27 member delegation is said to have compromised to 500 billion euros. After failing to come to an agreement on 17 July 2020, on the proposed 780 billion euros, the leaders are said to have agreed to 500 billion euros as a cushion against the first hit of the crisis.
About the Authors
Harini Madhusudan, and Rashmi BR are PhD scholars at School of Conflict and Security Studies, NIAS. Sourina Bej is a Project Associate at NIAS. Teshu Singh is a Research Fellow at Vivekananda International Foundation. Poornima B is a postgraduate student with the Department of Geopolitics and International Relations, MAHE. 

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