Wednesday,
9 Reflect
China gains more than India from an FTA with Asean simply because it is a much larger exporter of goods than we are.
India’s gain, for the moment, is mostly in the diplomatic and strategic domain
SREERAM
CHAULIA
WITH two gigantic Free Trade
Agreements (FTAs) entering into
effect on New Year’s Day—China-
Asean and India-Asean—Asia’s
economic interlinking has taken
off. Asia has for long been divided
into self-contained sub-regions
like South Asia, West Asia,
Central Asia, Southeast Asia and
EastAsia.Barringtheinstitution
of the East Asia Summit (EAS),
there was no formal pan-Asian or
continental project that tied key
Asianstatesintoanetworkof mu-
tuallybeneficialrelations.
Now, Asean’s two path-break-
ingFTAswithAsia’ssecond(soon
to be first) largest economy, Chi-
na, and third largest economy, In-
dia,enmeshthefortunesof South
Asia, Southeast Asia and East
Asia into a mosaic. Together with
the currency swap agreements
among South Korea, Japan and
China, these FTAs signal a defi-
niteturntowardsAsiancountries
viewing each other as valuable
partners, markets and investors.
For decades, the target of
SONAM
SETHI
STATISTICS from the World
Health Organisation’s latest re-
port (2009) reveal that India con-
tinues to perform poorly on
health indicators. For example,
the infant mortality rate in India
is 57 per 1,000 live births, which
for countries like China and Sri
Lanka is 20 and 11 per 1,000 live
births, respectively. The Indian
maternal mortality ratio (MMR)
is 450 per 1,00,000 live births and
this is despite the focus on MMR
under the National Rural Health
EAVESDROPPER
New Year tales-I
This New Year season was pretty
patchy for the government
departments that typically see a lot of
‘action’. As explanation, an official in
one of these departments pointed to
an interesting impact of the
meltdown: it has shortened the
queues in the visitors’ lobbies of
ministers. This trend was also
evident in the alacrity with which
some of the officials called in the
hacks in the morning, unlike
most years.
New Year tales-II
Delhi’s blinding fog extracts a
higher cost than just harrying
passengers. Planes are having to wait
for a long while after landing to find a
parking slot, such is the congestion
that builds up. DGCA rules require
pilots to keep engines running until
they have reached their parking spot.
At least one pilot estimated that he
had burnt some 26 tonnes of aviation
fuel while waiting. Imagine the cost,
and the huge carbon footprint!
New Year tales-III
The 300-odd delegates that have
come to the Capital to participate in
the 20th Conference of Speakers and
Presiding Officers of Commonwealth
nations are being treated to five-star
hospitality, never mind the
government’s austerity drive. The
budget for creating a temporary
setup for the delegates to have lunch
has apparently run into eight digits!
Free trading Asia
reference for Asia’s leading
economies was the West. The
credit card-swiping American
consumer and high-paying
Western client firms were the
end points for most exporters of
goods and services in Asia. But
the financial meltdown since 2008
has reconfigured these horizons
and brought home the imperative
for Asian producers to diversify
theirexportmarkets.
The Asean-China FTA is
driven by this logic. While
negotiations on constructing this
pact between China and 10 Asean
membershadbeeninitiatedasfar
back as 2002, they were stalled by
legitimate fears in Southeast
Asian countries about being
swamped by massively sub-
sidised Chinese products. But
the great crash of 2008, followed
by the Chinese government’s
massive stimulus spending pack-
age, made Southeast Asia realise
that its exporters had a huge
market next door.
Cambodiaillustratesthisshift.
Despite being an old ally of
Beijing, Phnom Penh nursed
justified apprehensions about be-
coming commercially disadvan-
taged if it had to dismantle tariffs
on agricultural commodities.
Thailand’s farm sector too object-
ed to predatory Chinese agricul-
tural exports of garlic, lychees,
oranges and apples capturing the
domesticmarketviatheFTA.
But the financial crisis over-
Government health initiatives will yield much better results if they are evaluated independently and in context
Mission. The figures for China
and Sri Lanka are 45 and 58 per
1,00,000 live births, respectively.
With no dearth of government
initiatives to ensure better health
for all, the natural question that
arises is why are these initiatives
notachievingthetarget?
The main reason why health
programmes are unable to
achieve the desired outcome is
our ‘one size fits all’ approach.
Given the social, religious, politi-
calandculturaldiversityinIndia,
centrally sponsored health pro-
grammes unfold differently in
different states. Therefore, the
programmes should be designed
inawaythattheyareself-adaptive
to the needs of the states. Howev-
er, some generic characteristics
of a successful programme can
indeedbescaledupandreplicated
acrossstates.Todothat,oneneeds
to identify the generic from the
specific aspects that makes a
Bubbles threaten as China shakes off bank crisis
LIU
MINGKANG
THEworstof thecrisisseemsto
beover.Whenwelookbackat
2009,encouragingsignsof
economicrecoveryare
emerginginbothdevelopedand
developingmarkets.Yet,when
welookahead,uncertainties
andchallengesloomlargeon
manyfronts.
Signssuggestingrecovery
includeapick-upinglobal
manufacturing,thegradual
reboundinworldtrade,aslower
paceof joblossesinsome
advancedeconomies,andthe
resurgenceof stronger
domesticdemandinanumberof
developingmarkets.Still,there
aresomeimportantobstaclesto
ameaningfulrecovery.
First,progressisstillfairly
unevenacrossmanyregionsand
industries.Second,the
resurgenceof growthismainly
accountedforbygovernments’
‘quantitativeeasing’policies,
unconventionalfiscalstimulus,
ROHNIT PHORE
rode these naysayers because of
sudden loss of Western markets
for Southeast Asian exporters.
Cambodia’s commerce minister
toldXinhuaontheeveof theFTA’s
operationalisation last week that
his country “has a lot of agricul-
tural products to export and right
now China may have more money
than the US to buy the goods”.
Asean’s other less advanced
economies are also expecting an
infusion of Chinese investment
under the aegis of the FTA, which
would help build their manufac-
One size doesn’t fit all
programme successful. It is here
that we need a thorough impact
evaluation of such programmes.
Impact evaluations provide
quantitativeevidencethatclearly
shows what works and what does
not. A well-designed impact eval-
uation must identify the reasons
behind success and failure of
such programmes, keeping in
mind the target group and the
specific context. Quantification
serves two purposes. It can assist
policymakers in taking informed
decisions about the effective
allocation of scarce resources
and it can clearly identify the
portions that are scaleable and
replicable.
Impactevaluationsinvolvethe
use of experimental designs in
which two groups are randomly
selected so that they are the same
in every respect except that one
has been a part of the programme
and the other has not. Such stud-
andfirms’inventoryrebuilding.
Theimpactof suchdriving
forceswillinevitablytaperoff in
2010.Third,theglobalfinancial
marketsremainvulnerableto
variousshocksandthe
subsequentlossof confidence,
asexemplifiedbytherecent
Dubaidebtcrisis.Finally,many
governmentsareunder
tremendouspressuretoremain
solventinthefaceof
unprecedented,highlevels
of publicdebt.
Tomany,Chinastandsout
amongthebrightestspotsinthe
globalrecovery.TheChinese
economymaywellhaveended
2009withmorethan8%gross
domesticproductgrowth.
Importshavegainedasdomestic
demandremainsstrong.After
pricedeclines,bothcapitaland
propertymarketsareona
dynamicrebound.Asthe
backboneof thecountry’s
financialindustry,banksare
alsooftenapplaudedforcapital
strengthandassetquality,as
wellastheirabilitytoavoida
worldwideliquidityshock.
Evenwiththisrosypicture,
challengesareeverpresentin
China.Economicgrowthhas
largelybeenfuelledby
governmentstimulus,inthe
formof surginginfrastructure
investmentandamassive
increaseinbanklending,nota
turingbases.
Southeast Asia’s search for
alternative sources of capital
and markets in the wake of the
depressed condition of Western
economies was a catalyst for the
FTA to finally sail through.
Asean’s Secretary General
clearly indicated this was the
case by remarking that the FTA,
which covers a total population of
1.9billionwithacombinedGDPof
$6trillion,would“helpeconomies
recoverfromthefinancialcrisis”.
In comparison to the China-
FE-IDF PERSPECTIVES
ies establish whether there is a
causal chain of events between
a programme and observed out-
comes. Thus, in order to attribute
observed changes to a health pro-
gramme, one must understand
what changes would have oc-
curred in the absence of the pro-
gramme.Inprinciple,conducting
suchexperimentsisonlypossible
if abaselinesurveyisdonesothat
the system for measuring impact
is in place from the start of the
programme. One then needs to
‘construct’ a control group that
hopefully matches the target
group in all respects other than
participating in the programme.
The role an impact evaluation
canplaycanbeexplainedthrough
the recently rolled out National
Health Insurance Programme or
the Rashtriya Swasthya Bima
Yojana(RSBY)bythegovernment
of India. The programme offers
medical insurance of Rs 30,000 to
turnaroundinexports,or
‘organic’consumerdemand.In
thefirst10monthsof 2009,banks
pumpedalmost9trillionyuan
($1.32trillion)intotheeconomy,
markingaYoYincreaseof 34%.
Withthestrongreboundin
realestateandstockmarkets,
structuralbubblesalsothreaten
toemerge.Beyondourborders,
China’smainexportmarkets
remainweak.Although
consumerspendinghaspicked
upsomeeconomicslack,China’s
underdevelopedsocial-welfare
systemstillrestrainsdomestic
demandfrombecomingamajor
partof China’sgrowthstory.
Afterthe1997Asianfinancial
meltdown,China’sleadership
decidedtooverhaulChina’s
bankingsystembytaking
resolutemeasurestofoster
banks’capitalstrength,
provisioningcapacity,
corporategovernanceand
riskmanagement.These
effortsledtoasubstantial
improvementintheresilienceof
individuallendersandthe
bankingsectoratlarge.
Whenthelatestfinancial
crisishitChina,99%of banks’
assetswereheldbylenderswell
abovethemandatorycapital-
adequacyratio,withlittle
exposuretooverseastoxic
assets.Suchasolidpositionhas
enabledChinesebankstopump
Asean FTA, the India-Asean FTA
encompasses a market of around
1.8billionpeoplewithacombined
GDP of over $2 trillion. Only
Malaysia, Thailand and Singa-
porewillimplementtheFTAwith
India in the first phase, making it
a smaller venture as compared to
the megalithic China-Asean pact
that could eventually surpass the
European Union and give Nafta a
runforitsmoney.
The reasons for the India-
Asean FTA being a poor cousin of
the China-Asean agreement are
all households below the poverty
line (BPL). The ultimate goal of
the scheme is to provide financial
protection to the BPL households
against unforeseen expenditure
on medical illnesses. It is impor-
tant to evaluate the programme
because the initial analysis of the
baseline data of the below and
above poverty line households
presents a rather curious fact.
From the baseline data of house-
holds surveyed in Delhi, it ap-
pears that prior to RSBY there
was no gap in the health-seeking
behaviour of both men and
women in the BPL families while
more men than women were
seeking healthcare in the above
poverty line (APL) families.
Does this mean that when people
have increased financial access,
gender bias in accessing health-
careincreases?
UndertheRSBY,withinthegiv-
en rate of the packages, a single
liquidityintotheeconomywhen
manyothercountrieswere
sufferingfromacreditcrunch.
Clearly,banksplayeda
crucialroleinachievingChina’s
economicgoalsin2009.In2010,
theywillcontinuetobe
importantinservingthemacro-
economicgoalsof stabilising
growth,stimulating
consumptionandoptimising
theeconomicstructure.Evenif
aggressivelendingstrainsthe
banks’capital,individual
lendersandtheindustryasa
wholearenowmorethan
adequatelycapitalised.
Onethingwehavelearned
fromthepastisthatweneedto
obvious. India is not a major
manufacturer or exporter of
goods on the scale of China and
it enters into this exchange
with Asean with a great deal of
trepidation about being out-
classed by Southeast Asia’s Tiger
Cub exporters.
A senior Indian official famil-
iarwiththeFTAnegotiationswas
quotedinthemediaassayingthat,
“Asean will gain substantially
from the market access and
Asean’s exports to India will
increase substantially, but our
exports will be modest”. Indian
producers of tea, coffee, fish,
coconut, cashew and spices are
especially nervous that they
wouldbedrownedbycompetition
from Malaysian, Thai and Singa-
porean exports.
While China looks set to re-
verse its negative trade balance
with Asean via its FTA, India
could end up exacerbating its
negative trade balance with
Asean through its FTA. Interest-
ingly, Indian exporters of fruits,
vegetables and grains are not
only on the defensive about New
Delhi’s pact with Asean but also
over Beijing’s FTA with Asean,
whichisbeyondtheircontrol.
In the latter case, Indian pro-
ducers had been hoping to make
some inroads into the Chinese
market and will now face an
unwelcome scenario of 10-12%
Chinese tariffs on Indian goods
while their Asean substitutes
hospitalisation cannot consume
the entire amount of Rs 30,000. It
is, therefore, expected that the
benefits will be shared within
the entire family. However, if the
RSBYistreatingmoremalesthan
females, then this will be a reason
for concern and the programme
will have to be fine-tuned. It is to
be evaluated if this pattern is
uniform across all states or is it
specific only to Delhi, to identify
the generic from the specific
aspects so that the programme
can be fine-tuned accordingly.
Observations like this, which
may prevent scalability, would
arise only when the evaluation is
impartial,objectiveandfreefrom
perverseincentives.
A good evaluation is one in
which the evaluator is different
from the implementing agent so
that the assessment is not biased.
Ideally,thedemandforevaluating
their programmes should come
buildstrongbuffersinthe
bankingsystemtocovercapital,
liquidityandprovisioning.For
thispurpose,wehaveadheredto
sometraditionallimitsand
approachesforprudential
regulation.Theselimitsand
approachesmaylookbasicor
simple,buttheyhaveprovento
beeffectiveincarryingbanks
throughturbulence.
Asregulators,wealsofeel
obligedtoscrutiniseeconomic
developmentsandactpromptly
inresponse.Whenovercapacity
wasdetectedincertain
industriesorregions,weissued
directivestoalertbankstothe
potentialrisksassociatedwith
January 6, 2010
enjoy minimal 0.1% duties.
WhydidIndiapressaheadwith
its FTA with Asean despite this
economic sting? The reason is
geo-strategic. Several Southeast
Asiancountriesarewaryof being
Shanghaied into a Chinese
dominion that leaves them at the
mercy of the renminbi and the
Chinese People’s Liberation
Army. Against the backdrop of a
declining US, Southeast Asia
needs a counter-balance to the
Chineseempire.
Indiaknowsthisandismaking
a strategic investment in this sub-
regiontoprojectitsownambition
of beinganequaltoChinathatcan
offset Beijing in its own backyard
justasChinacutsandthrustsinto
South Asia. The India-Asean FTA
is a strategic reassurance whose
diplomatic gains outweigh the
economic costs. In fact, even the
China-AseanFTAhasunderlying
political underpinnings because
Beijing seeks through trade to as-
suage wary Southeast Asia about
China’s so-called peaceful rise.
The irony of both the FTAs is
that they are likely to integrate
Asia economically without miti-
gating the predestined strategic
competition between China and
India. Peace in Asia remains a
chimera but business hardly
needstowaitforit.
The author is associate professor
of world politics at the OP Jindal
GlobalUniversity
from the policymakers. The re-
searchers should respond to
this demand by informing them
about the research that is already
available, as well as commit to
carrying out research that will
help the policymakers fine-tune
theirprogrammes.
With an objective evaluation
framework in place, one can
create an environment where
policymakers, practitioners and
researchers come together to
exchange information. This
interaction will go a long way in
helping programmes achieve
their goals and in turn improve
the health indicators. Too many
new programmes have been an-
nouncedlately.Onlyaftertheyare
evaluated objectively should it be
decided whether they should be
continued, scale up or scrapped.
Theauthorisfellow,India
DevelopmentFoundation
relevantprojectfinancing.
Similarly,whenwefoundbank
loanswerechannelledintothe
propertyorstockmarketsfor
speculativetrading,westepped
intostopthat.
Inthemeantime,banksare
encouragedtodirecttheir
lendingtoboostconsumer
spending,supportrural
developmentandqualified
SMEs,improvehealthcareand
thesocialsecuritysystem,and
facilitatepollutionreduction
andenergysaving.
Someof theseareuncharted
waterstobanks,butmanyhave
provedsuccessfulinturning
once-ignoredmarketsinto
goldmineswhilekeepingrisks
undercontrol.Theseeffortswill
accumulateintoapotentdriving
forcetoenablebalancedand
sustainableeconomicgrowth.
Inretrospect,China’s
economyandfinancialindustry
haveweatheredthestormwellin
thepasttwoyears.Itwasn’t
throughluck,butbylearning
fromthepast.Criticsoftensay
theonlythinghumanslearn
fromhistoryisthathumans
don’tlearnfromhistory.Itis
timetomakeachange.
Theauthorischairmanof the
ChinaBankingRegulatory
Commission
Bloomberg