The Indian Economy Blog

August 21, 2007

IHT – India as Japan’s Client State

Filed under: China,Media & Economics,Miscellaneous,Trade — Pragmatic @ 12:16 am

Daniel Altman in his IHT blog opines

Not so long ago, there were only two countries that collected client states around the world: the United States and the Soviet Union. These days, it seems like anyone with some economic clout can join in the fun. China has Sudan, Venezuela has Bolivia, and now Japan has India.

It is a preposterous claim to make, especially since his contention is based on an IHT article previewing Japanese PM Abe’s visit to India. The article, incidentally, focuses on India and Japan coming together to thwart the threat from China’s economic growth. I searched the piece with a fine toothcomb but could find nothing to justify Daniel’s assertion that

But for now, the Japanese government is happy to underwrite India’s growth, in return for a share of spoils.

Which sharing of spoils is he talking about? The $100 billion DMIC infrastructure project or the Toyota – Kirloskar and Maruti-Suzuki partnerships. It is about two free nations engaging economically in a globalised world. India is a vibrant democratic country with a burgeoning economy, not Sudan or Bolivia, to be patronised by Japan when

Japan’s trade with India was about $6.5 billion in 2006, the Indian government said this week, about four percent of Japan’s trade with China….In 2006, Japan invested just $515 million in India.

The anger has subsided now but I am terribly disappointed to read such uncouth and half-baked opinions pullulated under the IHT logo.

UpdateThe Acorn has a more nuanced and less concupiscent take on the subject.

24 Comments »

  1. [...] Those fretting about such things as ‘independence of India’s foreign policy’ and ’strategic autonomy’ in the context of the India-US nuclear deal are looking in the wrong place. Writing on his blog at the International Herald-Tribune (via IEB), Daniel Altman declares that India is Japan’s client state. Much like Sudan is to China. [...]

    Pingback by The Acorn » Who’s Japan’s client? — August 21, 2007 @ 11:08 am

  2. First of all, it is not reportage or news; it is a blog post. And there is a limit to how seriously one should take it.

    Secondly, ‘spoils’ from an infrastructure project? Japan should be so lucky! Altman will also live to see, won’t he?

    And does $100B make someone a ‘client’, one could agree or disagree depending on how one frames the big game.

    I can see why it makes you cross, but ignoring is better. Let him retry… :-)

    Comment by Shefaly — August 21, 2007 @ 12:30 pm

  3. Shefaly,

    Almost exactly 222 years go Thomas Jefferson wrote this to John Jay:

    “I think it to our interest to punish the first insult; because an insult unpunished is the parent of many others.”

    Of course, “insult” and “punishment” are to be used in a different sense, but in essence, Jefferson’s advice makes sense. It’s even borne out by modern game theory.

    Comment by Nitin — August 21, 2007 @ 12:55 pm

  4. Seeing Nitin quote Jefferson, I ought to have quoted Mark Twain, that so aptly describes Daniel Altman:

    “I am not one of those who in expressing opinions confine themselves to facts.”

    Comment by Pragmatic — August 21, 2007 @ 1:49 pm

  5. recently I was reading jagdish Bhagwati’s India in transition where he argues along the smae lines that Japan can help India i na big way. Now this book was written in 1992 and except this all other predictions have come true.
    Secondly Japn has hleped India in subtle ways – remember sagar Kanya – first oil rig used to strike oil in bombay highs. Japn never funded ineffiienct steel plants like russia did but they wer biggest donor to India till a few years back and after WW2 and India’s independence they wrote off al the loan owned by Subash Babu’s rag tag army.

    Comment by Anshul — August 21, 2007 @ 5:53 pm

  6. @ Nitin: It is entirely possible to perceive an insult where none is intended.

    And since you bring up game theory: it can be safely assumed that an infrastructure deal between India and Japan is (a) a co-operative game set up between (b) two rational players seeking (c) mutual interdependence. Which of these is an insulting assumption to India? Co-operation? Rationality? Mutuality in search of deferred economic gain (catalysed by better infrastructure)?

    As for quotations, you can choose between Molière, who said, “A wise man is superior to any insults which can be put upon him, and the best reply to unseemly behaviour is patience and moderation”, or one American author, who said “If you can’t ignore an insult, top it; if you can’t top it, laugh it off; and if you can’t laugh it off, it’s probably deserved.”

    The trouble with rising to every bait is that one stands an awful lot of time standing up… :-)

    Comment by Shefaly — August 21, 2007 @ 6:33 pm

  7. Should have been ‘one spends…’ instead of ‘one stands…’

    Comment by Shefaly — August 21, 2007 @ 6:35 pm

  8. Shefaly,

    The mention of game theory was in relation to leaving insults unpunished. Tit-for-tat is a winning strategy in repetitive games.

    As for what I find insulting—”client state”. I find the analogy to Sudan distasteful, because it is inaccurate.

    As for whether or not insult is intended or not it makes ample sense to make clear that it has been felt. It’s not for me to fathom what goes in a person’s mind when he throws an insult at me. In any case, between being perceived as wise and not being subject to insults, I prefer the latter.

    Of course, I will not criticise your right to respond as you see fit.

    Comment by Nitin — August 22, 2007 @ 7:42 am

  9. Why not treating this as just one of the diverse opinions? To say this as an insult or feel humiliated is very hard to understand because there are so many real issues to think about. As a major nation like India, citizens have to move on from past experiences or sentiments and view different opinions with confidence.

    Comment by thecupgr — August 22, 2007 @ 8:49 am

  10. Why not treating this as just one of the diverse opinions?

    Sure. And why not treat the response as one of the diverse opinions too? It should work both ways, no?

    Comment by Nitin — August 22, 2007 @ 10:31 am

  11. “just one of the diverse opinions”

    thecupgr, that’s right – there is no single truth even if they’re not based on well known facts. May be Altman is not an economist – his writeup seems to bare it out – and probably didn’t even publish it on IHT blog. Just a diverse opinion.

    Comment by Chandra — August 22, 2007 @ 11:33 am

  12. @ Nitin: It was not clear from your earlier note that you meant the game between Altman and Indians! Silly me. I did not know such an adversarial, clearly non-cooperative game was on.

    Thanks for sharing your view. I can understand it and have no problems with your saying it, even if I do not agree with it (paraphrasing Voltaire a bit).

    Comment by Shefaly — August 22, 2007 @ 12:46 pm

  13. I think being an economy Blog, we need to look at opinions expressed in international press and blogsphere in an objective manner keeping sentiments out of this. Interpreting this as a humiliating insult etc, i believe is taking it a bit too far and giving Altman a bit too much credit.

    About Japanese investments in India, as many have already commented, it is not just a question of economics involved here. Of course there are considerations about the political scenario, there are japanese business interests involved, there are considerations of participating in a growing economy etc etc. I reside in Vietnam and we here see a huge inflow of Japanese funds as ODA’s and other infrastructure projects like infotech parks, airports, seaports etc. Of course in return we see japanese businesses opening up offices in Vietnam and also many japanese companies directly participating in these infrastructure projects as contrat builders, operators etc. In fact japanese companies enjoy many benefits in this environment. This also can be interpreted as a political counter-balance to China which is Vietnam’s neighbour. It can only be interpreted as a byproduct of the current global political and economic situation.

    I personally dont see the point of commenting on this Altman’s article considering the fact that we have situations like Middle east (not just Iraq) due to the dynamics of oil economics. Compared to that, Japan investing 100 Bn in return of a share in the spoils doesnt even merit to be discussed. And i guess Pragmatic needs to be pragmatic here, i think any chap with a decent head reading Altman’s article would be able to see through his comments.

    Comment by Renjith — August 22, 2007 @ 2:00 pm

  14. Renjith:

    The aim was to have “any chap with a decent head” read Altman’s article and see through his comments. I am not too sure that perceptions really don’t matter, but we are all human. Some will be wise enough to ignore; some not so wise (like me) will rise to the bait in indignation. To each his own…

    I agree that we have eventually ended up giving Altman more credit than he actually deserves. I stand guilty on that count.

    Comment by Pragmatic — August 22, 2007 @ 4:24 pm

  15. @ Pragmatic: You are normally rather cool-headed so it was a surprise to some of us, to me for sure. :-)

    As for giving him credit, I think it is worth practising with such bait to build our own argumentative and analytical strengths, a bit like doing weight-training with slightly larger weights each time to shore up one’s physical strength. Getting emotional does not change anyone’s perceptions; if anything, it shows us all up as cry-babies, which I hope we are not.

    Comment by Shefaly — August 22, 2007 @ 5:15 pm

  16. Two nations engaging in economic cooperation can only result in greater good. There is an essential inter-connectedness to all human existence and world trade/ investment flows are only another set of mechanisms that encourage and facilitate a positive exchange of ideas, technology and culture. To see it as anything else is short-sighted. Sure, when an economically powerful nation deals with a smaller, impoverished one, it does seem like one is at a disadvantage. Still, India is LARGE, it is a functioning democracy- these count for a lot. So it seems very unlikely that we’ll strike very bad bargains in the long run. Altman just has his thinking wrong.

    Comment by little Ram — August 22, 2007 @ 6:46 pm

  17. Renjith, like your post. Some additional observations:

    Japan’s decision to investing in India actually is a direct response to several important trends in international politics and economics. Japan, as a major economic power, has been trying to show its influence and the everyone seems to have taken a notice.

    First, six-party talks for North Korea disarmment may have exposed Japan’s weakness in influencing the meeting agenda. Japan may have felt that it did not have any leverage to contribute anything to the agreements.

    Second, on-going US-China senior level talks may have worried Japan for its role between US and China. US, as the sole superpower, has been trying hard to bring China into its order framework and may hope China can play a bigger role for safeguarding the regional peace and stability. Japan may not like such US-China senior level talks.

    Third, Japan may have reservations to recent US-India nuclear pact because Japan may feel that they were left out. Remember that Japan has the best civil nuclear technologies and a Japanese company currently controls Westinghouse. There are big commercial benefits in stake.

    For US, the willingness to share energy technologies with China and India may have strategic considerations behind. US is trying to build a collaboration framework in order to avoid future energy conflicts, which shows that US places future world peace as a high priority. Unfortunately for Japan, they may have felt being left out, both politically and commercially.

    So Japan responded with the infrastructure investment in order to be relevent in India, and also in the middle east.

    Japan’s move actually is a repeat of history. When US re-established its relationship with China in 1970s, at the time, Japan also felt left out and then responded agressively in China market. For example, Japan invested heavily in China’s steel indutry at that time.

    It must be a very tough decision for Japan because they have no other leaverages and other choices in India market. Their real goal now is probably not to contain China, but to let world, particularly US and China, know that Japan is still a big player in international politics.

    For India, the expectation can be like this: money will be well spent and Japanese politics will be skillfully ignored.

    Comment by thecupgr — August 23, 2007 @ 6:20 am

  18. thecupgr, I have been following the Japanese PM’s visit in the press as it has huge repercussions for Indian manufacturing. You have pointed out something which I also found very interesting – Japanese civil nuclear technology.

    One of the Japanese delegates mentioned that the US has lost the edge in this area to Japan and France. Toshiba is the company that now owns Westinghouse. The other players are Mitsubishi Heavy Industries and Hitachi. But I do remember reading elsewhere of the problems of Japanese nuclear facilities – with fatal mishaps causing facilities to be mothballed.

    The $5 billion Monju facility using fast breeder technology was to be the centre piece but was plagued with problems like leakage of sodium coolant. Granted that it was back in 1995 but it would be nice to know if the technology is now stable because back then the impression was that it was too complicated to be commercialized.

    I mention this because Indian players like Tata Power, Reliance Energy and NTPC are looking to get involved with technology transfer deals. Others waiting in the wings are companies like Lanco, GVK and GMR from Andhra Pradesh, Torrent from Gujarat, and CESC from West Bengal.

    LOL on the Altman issue of India being a Japan client state. I would like to side with pragmatic on this. Altman needs to be kicked in the nuts for a stupid comparison.

    Comment by Nikhil Nayak — August 23, 2007 @ 12:44 pm

  19. Shefaly: Thanks for the kind words.

    little Ram/ thecupgr/ Nikhil : Thanks for bringing newer insights and adding value to the topic.

    Comment by Pragmatic — August 23, 2007 @ 12:53 pm

  20. This one is beyond anyone’s imagination:

    Abe praises Indians who backed Japan in WWII

    http://asia.news.yahoo.com/070823/afp/070823071657asiapacificnews.html

    A slap on the face to US and WWII alliance? US congress just passed a resolution for Japan to apologize for its atrocities to women during WWII.

    Comment by thecupgr — August 24, 2007 @ 7:57 am

  21. Nikhil, some additional comments:

    Japan’s proposal to form a broader asia arc to counter China is actually a de-facto self-demotion of Japan’s status in asia and can be considered as Japan’s acknowledgement of China’s superpower status (although China may not accept). There is no another explaination to this proposal because Japan is the biggest economy in asia and it has US as its major supporter, so why Japan has to form such an arc to counter China? Where is Japan’s national confidence?

    However, consequences for Japan’s agressive move actually have no immediate impact to China, but only cause harm to US’s (may be India’s too) national intrests. At the time when Unites States try to get Afganistan situation stabilized and Pakistan at a political mess, Japan’s move may have major impact to Russian and Parkistan and will make US to work much harder for getting those countries to listen and have some focus. If you add Iran and North Korea in the mix, so how much explaining work Japan has generated for Unites States in order to calm down the region’s worries? Plus, any thing related to WWII responsibility denial is not positve to both Japan and India around the globe.

    Comment by thecupgr — August 26, 2007 @ 9:54 am

  22. thecupgr, since you bring up China I was in an interesting conversation with some friends last night over China’s amazing support to Indian businesses. Here are some tidbits of the conversation:

    Many Chinese are not aware that we were at war and treat Indians with great hospitality which many would be hard pressed to offer in return. This was a very pleasant surprise to me.

    The guys described the Chinese as very humble and genuinely interested in attracting Indians to setup shop in China. One Indian franchise went over with a plan to setup 150 outlets in a year – they ended up with around 4000 in 2006.

    It costs about Rs 1.5 lakhs to pay for medical school in China and at the moment there are about 3000 students from Andhra Pradesh studying there. Many universities teach in English curriculum. The students are only encouraged to learn Chinese to interact with the local patients etc.

    Chinese is not very hard to learn to speak according to one in our group and many Indians can speak it well enough. Meanwhile many Chinese children have learnt to speak good English.

    Recently the head honcho of one of the IT majors visited one of the provinces to explore business options. He was welcomed at the airport by the head of the local government – significant because that state has business volume comparable to the size of the Indian economy. He was taken to his hotel to freshen up while the delegation waited in the lobby.

    When discussions began, he was invited to setup shop to which the IT company chief hesitated at the investment to be made in land/buildings and even if they built one where was the supporting infrastructure. The state chief nodded at an aide to clear enough land and agreed to provide infrastructure (land, buildings, furnishing, roads, etc) as desired – next question. What about the time needed to train the people asked the IT chief? The officials cleared payment of one years salaries on the spot … I have no idea what has come of this but this is what is out there for some Indian businesses.

    There are negatives some of which are poor “soft” infrastructures – legal structures for example. China is way ahead in hard infrastructure (ports, roads, buildings etc) but severely lacks soft infrastructure.

    The building in which the restaurant we were in was built using cement from China. Price of Rs 140 per bag including duties. I am told Indian cement costs approx Rs 220. The same building owner is building a hotel with all raw materials including furnishings right down to to plates and silverware coming in from China.

    I am just throwing this out there in reference to the Japanese attempt to create their “Asia arc”.

    Comment by Nikhil Nayak — August 30, 2007 @ 3:12 pm

  23. Nikhil, you brought out a very interesting topic on Chinese attitude to India busineses. What you said that most Chinese have very limited knowledge on that China and India were at war in 1960s. That’s basically true. There are actually quite some online discussions in Chinese websites on why China essentially left that part of the history out of the school text (which lead to a situation that most Chinese youth have favorable impression on India).

    From Chinese history and culture, 30 years was generally regarded as a very important time window for looking changes of society and human activities (including relationships between nations). There is a very well known phrase in Chinese literature to express such a belief: “Thirty years for the river east, and (next)thirty years for the river west”. What this means that major changes will occur every thirty years, so get used to it and always be ready to move on. If you looked at China’s relations with other major nations, you can tell such observations are not far off except with India:

    WWII with Japan, ended 1940s, and re-established relationship in 1970s. Now Japan is China top trading partner.

    Korea war with US, ended 1950s, and re-established relationship in 1970s. Also establsihed ties with South Korea in 1980s. Both US and SKorea are China’s major trading partners.

    Border conflicts with USSR, happened 1960s, re-establihsed relationship at 1990s, now both in Shanghai Organization.

    Border war with Vietnam, happened late 1970s, re-established relationship in late 1990s. Current Vietnam Premier graduated from a Chinese university after the war.

    All these nations are now China’s major trading partners and most Chinese people have very faint memories about these wars except to Japan because Japan’s denial of responsibility. Even for Japan, China gave up its ritht for Japan to pay the war damages.

    Form this board and other boards, it seems that India as a nation and India elite have not moved on from 1960s and it vividly shows from the emotions expressed from responses whenever the China comes to the text. We are not sure this is a culture issue, but if yes, the situation will continue for a very long time.

    But as this poster pointed out earlier, big nations like India must have confidence in response to various opinions and even sometime hostile environments, and citizens also must be ready to move on from the past experiences. In international politics, one can not avoid major nations even the relatioship is not in the desired shape.

    Comment by thecupgr — September 1, 2007 @ 9:09 am

  24. [...] This concerns a post made by International Herald Tribune columnist, Daniel Altman, on his blog, about India and Japan. IEB bloggers Pragmatic and Shefaly have already blogged about it, here and here. [...]

    Pingback by The Indian Economy Blog » The much-discussed IHT post — September 9, 2007 @ 1:14 am

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