The news is in: Pakistan has just been taken over

China’s strategy of economic colonisation of its regional neighbours has just been laid bare

Gwadar Port in Balochistan … in southern Pakistan, rather

… A restaurant owner is visited by representatives of a certain organisation that wishes to invest in his business. This is an offer he cannot refuse. Soon the “investors” are there every day, walking out sides of meat and crates of wine and liquor through the back door while the owner frets and worries about his vanishing profits. Eventually, when there is nothing left to take, the investors burn down the premises for the insurance money. Hence the old joke: “Sorry to hear about the fire, Lenny.” “Shh! Tomorrow.”

Well, it appears a “restaurant” that we might call “The Taste of Lahore”, or something similar, perhaps “The Karachi Grill” or “Memories of Rawalpindi”, has just been invested in by a certain powerful organisation. Let’s see whether anything is being walked out the back door, and whether there are any suspicious jerry cans of gasoline stacked in the alley out back.

We all know by now about China’s charitable and selfless “Belt and Road Intitiative” (BRI), the Silk Road du jour that is to unite the eastern side of the globe in prosperity and economic brotherhood. Apparently it’s a $10 trillion too-hot-to-miss opportunity (“The $10 Trillion Investment Plan to Integrate the Eurasian Supercontinent”).

Who could afford to turn it down?

Certainly not the Pakistanis, or should I say certain Pakistanis. I’ve written before about the generous Chi-Coms (I use this term purposely to exclude ordinary Chinese citizens suffering at the hands of their one-party State). The Chi-Coms are apparently interested only in amity, and are happy to advance huge sums of money to their regional neighbours, enabling them to complete major infrastructure projects that will allow these countries to share in the forthcoming bonanza of wealth the BRI promises. But it seems (gasp!) that the Chi-Coms are also happy (beaming, nodding) to place their neighbours deep in debt at ruinous rates of interest and scandalously unequal terms of trade.

But that’s just me being negative, I’m sure. Or at least I thought it was until last week, when the actual terms of China’s development investment in the massive Gwadar port were published. Or perhaps one should rather say that the details were at last wrenched from the reluctant grasp of the politicians and bureaucrats of “The Taste of Lahore” who had secretly agreed them with the Chi-Coms.

It apparently led to uproar in the toothless Pakistani parliament.

The “China Overseas Port Holding Company” (COPHC—but the good old Communist Party of China, or CPC, to you and me) will take a massive 91% share in gross revenues from Gwadar port, in southern Pakistan (soon to be in independent Balochistan, but let’s not go there just now …). It will also take 85% from the surrounding “free zone,” under a 40-year deal finalized by Pakistani authorities (those certain Pakistanis), reveals F M Shakil writing in the Asia Times. And why not, since if the port wasn’t there, neither would  the economic development in the surrounding area, correcto?

Of course it would be indelicate to ask the related question: that if Pakistan had not allowed in the Chinese, there would be no Gwadar port and a much skinnier BRI, so why not a fairer split more nearly approaching 50/50? Ah—not with this kind of organisation, remember?

The problem for Pakistan was that it grabbed—sorry, accepted—$16 bilion in loans from the Chi-Coms to develop the port, as part of the (total $56 billion Chi-Com-funded) China-Pakistan Economic Corridor (CPEC), the northern section of which runs illegally through Indian territory and is pretty much doomed long-term—but let’s not go there just now …

Being suddenly so fabulously deep in debt to the Chinese, and with a shrinking, terrorist-led “economy”, Pakistan was in a pretty weak bargaining position, which is maybe why in addition to giving up 90% of the profits from Gwadar, Pakistan is also paying a 16% coupon on those $16 billions. That’s some mighty expensive credit card, right there.

Minister for Maritime Affairs Mir Hasil Bizenjo, speaking in the Pakistan Senate, described, or finally came clean about, how the Chi-Coms will operate the port for the next forty years. It’s called a build-operate-transfer (BOT) agreement. Basically it makes Gwador and its environs a patch of Chinese sovereign territory in south Pakistan. Then, when all the plant is worked out and in need of overhaul and renewal four decades down the road, at last authority and financial responsibility will revert to Pakistan. If Pakistan can afford it … and if not, I daresay some typically generous terms will be on offer from the Chi-Coms once again.

It’s just beautiful—if you are Chinese; if you’re Pakistani, not so much.

Senate chairman Raza Rabbani finally “bowed to pressure from lawmakers and directed the Senate Standing Committee on CEPC to look into whether Pakistan’s national interests are undermined by financial obligations entered into via the agreement with China,” says Shakil. I wonder if they’ll find anything. Presumably the signatories to the Chi-Com deal are all, already, perfectly well rewarded and protected.

One also wonders whether under-the-table deals such as this one are being replicated in other needy neighbour territories where the Chi-Coms can walk in shaking wads of “free” (i.e. ruinously expensive) cash around. Think of all those ports, airports and railroads that countries of Asia will be on the hook for in this enormous move of industral/political colonisation and invasion.

Incidentally, Vladimir Putin is looking kindly on an offer by the Chi-Coms to “invest” in Russian roads. In this case I wouldn’t be worried that the Chinese are going to come out on top. Putin must surely be wondering what they could do if Russia sooner or later reneges on the terms of the deal. Will the Chi-Coms come and take their roads back? They would no doubt be welcome to try, heh heh.

Meanwhile in benighted Pakistan, whose future (what with Trump in the Whitehouse) looks daily more cadaverous, it also turns out that the COPHC has been granted immunity from income and sales taxes relating to Gwador for 20 years, and double that time period for “imports of equipment, material, plant, appliances and accessories for port and special economic zone.”

It really is nothing less than a licence for the Chinese to print money at Pakistan’s expense. Poor Pakistan. Actually, no: it’s hard to have any sympathy, to be honest.

Western “liberals” still not getting Modi’s demonetization move.

If you didn’t laugh at their cognitive dissonance … you’d laugh anyway

Cognitive dissonance is the gap between reality and what you would prefer reality to be. That gap gets filled with error and blindness when you can’t face up to what’s actually happening in the world. It’s thinking wishfully, with an edge of psychotic unreason. The Trump hysteria among Clinton Democrats and others in the USA (what Scott Adams calls “Trump Derangement Syndrome”) derives from an unwillingness to accept that their candidate was poisonously unpopular, lost the election, and that this is really for real.

The Leftish Naked Capitalism website, usually excellent on many matters, has been simply appalling in its coverage of India under Modi, and this I also put down to cognitive dissonance. It uncritically prints articles by notorious Congress Party frontmen inaccurate in details and wholly ideological in content.

Western stooges of Indian fake-liberal media and politico types have aligned their Gandhi-Clinton attitudes and agreed to mutually support each other for many years. Now they are both in agony and for its part Naked Capitalism is acting out its part in the nihilistic, post-modern identity politics activism that condemned Modi sight unseen as Adolf Hitler (it’s always Hitler with these dreary people). I wrote a book showing how stupidly wrong that assumption was and I’ve already spent enough time on it.

But this latest idiocy—endorsed by a writer who is normally very good—deserves some scorn (coming right up). I guess this is what happens when you have a fixed point of view, and then you simply apply it to an area you know only scantily, so that you’re ignorant of even very basic facts and end up looking like a fool.

I regard myself as a Liberal in the classic tradition, in favour of individual rights, liberty and free trade; or as Matt Ridley excellently reformulated it in a recent essay, a free-market anti-capitalist. But it’s revealing to find I have nothing in common with these Modi-hating liars who see themselves somehow as liberals, too.

It’s difficult to know where to start with how the Western media has traduced the so-called demonetization in India. I guess facts are the best way to go, unfashionable though that seems to be with the know-alls who hate Modi’s government.

A factual recap, for God’s sake

In November 2016 the 500- and 1000-rupee banknotes were abruptly withdrawn from circulation in India. This created queues at banks, and other inconveniences, but no major economic troubles ensued. I’ve written before about how the prices of groceries in the chowks didn’t go up at all, so supply chains were clearly not disrupted—India’s poor know how to cope, and they were behind Modi all the way. His popularity actually increased during the period.

The ordinary people supported Modi because he had prepared the ground by ensuring that 300 million (and counting) poor Indians had been given online bank accounts so they wouldn’t have to depend on cash—nor any longer on the vulture-like chit-wallahs who would “look after” their banknotes for extortionate fees.

The withdrawal of the notes was prepared in secrecy. Why? Because Modi wanted to help the ordinary Indians and India’s economy, and penalise the two parties guilty of abuse and corruption: rich Indians who profited from bribery and mostly kept their “black money” in cash (typically piles and stacks of 1000-rupee notes), and the Islamic forgers in Pakistan who were trying to undermine the Indian economy by flooding it with fake 500- and 1000-rupee notes. Surprise was vital.

The false way all this was reported was that Modi was doing away with the notes and trying to take India to a cashless, therefore authoritarian system. (In the West that’s apparently a brilliant move for democracy,  the same journalists say, but never mind …)

In fact, from the his very first announcement on the subject, Modi had explained carefully and slowly, for the hard to understand (journalists), that the old 500-rupee note and the old-1000 rupee note would very quickly be replaced by new ones, and in addition an entirely new 2000-rupee note would be minted to take account of the larger values of cash Indians were enjoying carrying around these days. I’ve put a photo of the new note at the head of this piece so you can see I am not making all this up. In simple terms: Modi was not demonetizing anything.

Did everybody get that? Not journalists, apparently. Endless articles appeared decrying the “chaos” and the failed experiment in a cashless economy. The Indian government had pledged (yes they had) to have cash levels back to normal quite soon and aimed at a January-February dateline for it. I think they got about 90% of the way there by the end of January. Now in India everything is back to normal, with two important exceptions: the beneficiaries of years of bribery winked at by Congress governments are  a lot poorer because their cash became worthless overnight, and the Indian poor are a lot happier with their lot and with Modi. Oh, and a happy by-product is that the Pakistanis have been badly hurt by it too because they cannot forge the new notes.

I know I’m banging my head against a brick wall with all this. To return to the piss-poor article at Naked Capitalism, the idiotic headline was “India’s Demonetization Experiment Fails to Demonetize: Cash Comes Full Circle”. Well, that’s what was supposed to happen all along. I don’t think that anything will ever get through the thick skulls of such fools, so why bother? And yet somehow one must point out lies, I suppose. It goes on:

Demonetization in India has been a debacle, and there is no end to the problems that it has created currently in sight. The best that can be said about it is that it might deter political leaders in other countries think long and hard before initiating similarly ill-conceived, premature efforts to try and nudge transactions away from cash and toward cashless payment systems.

All I can do is refer you back to the colourful photo of that brand-new 2000-rupee note.

“Reform, Perform, Transform”

Meanwhile, in defiance of the fake-liberal gloomsters, India’s economy marches ever upwards and its business-friendly environment continues to improve. A happier headline a few weeks ago related to how India has moved up in the ease-of-doing-business rankings since Modi was elected prime minister.

India’s old ranking, one week after Modi took office in 2014, was a pathetic 142nd, almost like some corrupt third-world state … Since then, it’s just been announced, India has rocketed 42 places to sit at 100, and that it is one of the ten most improved economies, especially in the areas of Resolving Insolvency (136 to 103), Paying Taxes (172 to 119 ), Getting Credit (44 to 29), Enforcing Contracts (172 to 164), Protecting Minority Investors (13 to 4) and Construction Permits (185 to 181).

It ranked higher than China in three of those categories.

Suck it up, Naked Capitalism.

 

Indian futures part 1: Britain and India

It could be the start of a beautiful friendship …

A few days ago, despite the best efforts of the London Underground system, I had a very interesting meeting with one of the most successful British-Indian businessmen of our time, whose identity I shall withhold. He arrived in the UK several decades ago without any capital, and indeed without even much of the English language. He has succeeded in becoming one of the country’s foremost entrepreneurs, with a personal worth in the hundreds of millions of pounds – although he wears it lightly and is open and friendly in person, without any airs or grandiosity. It’s a fact that he is legendary in his sector for being a considerate and kindly employer, and his staff turnover rate is legendarily low. He told me he loves the UK because it’s a place where anybody can come and have a go at making themselves a success, knowing the odds are not stacked against them if they work hard enough.

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What is this ‘demonetisation’ of which you speak?

Let’s cut through all the meretricious nonsense being written about the radical financial and fiscal reform Modi has unleashed.

‘India’s Prime Minister Has Singlehandedly Crushed The Economy With His Reckless Cash Ban’ runs the headline of one of the latest articles condemning the so-called ‘demonetisation’ unleashed by Modi in India. ‘Modi is quickly solidifying his place as one of monetary history’s biggest idiots’ it adds, before going on to display even more staggering ignorance and error than many of the other hundreds of similar articles on this subject have done.

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New RBI boss Urjit Patel – just like the old boss?

Will the RBI’s new governor be a stalwart and hold the line against inflation as Rajan did?

In three days’ time Urjit Patel will take up his post as the Reserve Bank of India’s new governor. He was previously deputy governor, and his promotion – which had been mooted as influenced by Modi’s old-boys network (Urjit is a Gujurati Patel) – is probably no such thing, as Patel is the eighth deputy governor to be promoted to boss of the RBI. It is a tradition.

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No need to be negative – GST: India’s new goods and services tax

India’s imminent Goods and Services Tax (GST) will at last release the brakes of the Indian economy as everywhere else slumps into negativity

This does have to do with India’s GST, so please bear with me for a couple or three paragraphs.

Retail and commercial banks make money on the spread – the difference between the rate at which they charge interest on credit extended (money out – assets) and the rate at which they pay interest on deposits (money in – liabilities). Therein lies the problem with zero or negative interest-rate policies (NIRP, ZIRP) currently decreed by central banks. A bank cannot offer any interest to depositors if – because of ZIRP – its loans are paying anaemic income. Even if a bank receives, say, 2% on credit extended, it will not cover its costs – let alone make enough profits to survive in a competitive market – unless it offers -1% or less on deposits. Many banks, even Deutsche Bank, are already on the point of expiration and this regime will only make financial euthanasia across the industry the norm.

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Raghuram Rajan “resigns”

India may well regret seeing off a sober money-man if it now lets slip the dogs of boom

This weekend saw the announcement by Indian central bank chief (and former IMF director) Raghuram Rajan that he would not take up a second period where, appointed by the previous Congress administration, he has been in post since 2013. Instead, Rajan will return to the University of Chicago’s Booth School of Business. There he is Distinguished Service Professor of Finance, and has been on an extended sabbatical that has seen him steady and even turn around India’s economic situation.

At least that is what some say. Others, such as deadly loose cannon Subramanian Swamy, who campaigned for his removal, accuse Rajan of hobbling India and indulging in egotistical grandstanding, to the government’s and the nation’s detriment.

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One million jobs a month

India’s massive and growing workforce represents either nightmare or dream scenario, depending on your outlook

Twelve million young people arrive on India’s job market every year; relentlessly, one million extra souls each month are looking to find work. There are two extreme ways of viewing this situation: either it’s an intractable disaster caused by massive overpopulation that is going to lead to starvation and economic meltdown, or it is the most blessed economic benefit that any country has ever experienced.

Because of its social structure – with large families and an agricultural basis, even now – a good proportion of India’s ceaselessly emergent workforce is simply absorbed into the fabric of the existing economy. The school-leaver will go to the field or behind the counter of the family business. That is not to say such a situation is economically efficient or ideal, or that it is best for a majority of the new workers, whose potential may be wasted in such unambitious occupations, adding only marginally to or even dividing the fortunes of family and country.

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On Vijay Mallya and committing gross acts of journalism

Business hero Vijay Mallya broke his dignified silence to speak to the FT.

As I write, Kingfisher airlines and beer boss, or rather ex boss, Vijay Mallya, is holed up in his ugly oversized Barratt home just around the corner from me here in North London; indeed so close that I can almost smell his distinctive scent of privilege, greed and egomania – traits characterised by a better writer than me as ‘sociopathic’.

India, which is owed 9000 crore rupees (nearly a billion pounds sterling, or £935,394,495 to be precise) by that genius of business – who is certainly not a corrupt gangster and thief despite what it might say in the arrest warrants – has tried to persuade the UK to deport Mallya back to his home country from whence he scarpered or made himself scarce on March 2, one whole day before his creditors were able to have his passport impounded.

But the UK demurred: ‘Sorry old chaps, but this Vijay fellow hasn’t actually committed any crimes on British soil so we’re afraid our hands are tied. Love to help if we could and all that. You might try extraditing him. We probably wouldn’t actually raise an objection if you went that route. Probably …’

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That ‘7/10 businesses go broke’ statistic …

Everybody quotes it, but can it be true?

Regarding the cynicism expressed about India by Peter Ziehan (see previous post), I was pondering the real-life probabilities of India actually making economic progress beyond the mean of its previous performance. The so-called ‘Hindu rate of growth’ of barely above 1% – often the historical norm under the socialist state planning of the classic Congress/Gandhi-dynasty years –hopefully has disappeared forever. A better rate was jump-started back in the 1990s by the PV Narasimha Rao administration, and then continued by the BJP until they were ousted in 2004. By 2013 Congress had managed to put the brakes back on, but India is now pootling along at +7% growth per annum according to GDP. Granted, GDP’s a terrible measurement as it only counts economic activity, not profitability or productivity. But India’s is the best rate in a bad neighbourhood – the neighbourhood being this planet right now.

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