23 October 2014

India’s Defence Procurement Procedure: Assessing the Case for Review and Reforms

October 17, 2014

Given that “Buy & Make” with Transfer of Technology (ToT) is the principal category of capital acquisitions relied upon under India’s Defence Procurement Procedure (DPP) for encouraging domestic manufacturing of foreign-origin equipment1, one intuitively expects the DPP to contain a robust set of contractual provisions outlining MoD’s intellectual property rights (IPRs) in technologies being received by Indian Production Agencies (IPAs). On the contrary, as analysed in this note, a quick reading of the DPP reveals that there may be very little guidance of use to procurement professionals on the subject: a situation that is quite different from international best practices such as EU and US’s exhaustive guidance on government’s IPRs in defence acquisitions2 and in procurement of R&D and innovation.3

Management of IPRs, whether in procurement-cum-manufacturing contracts such as “Buy & Make”, or public-funded R&D-cum-productionisation contracts such as “Make” cases, or licensing of DRDO-developed technologies for that matter, has remained one of the relatively unaddressed areas in the DPP. In fact, DRDO practices in technology-licensing have been rather unique, with perhaps the only known case in the world where transfer of IPRs in public-funded technology was effected to a foreign entity without insisting on domestic manufacturing in India4: a practice that appears to be vastly different from the principles approved by the Government of India (GoI) in The Protection and Utilisation of Public Funded Intellectual Property Bill5 and guidelines6 issued by the Ministry of Science & Technology on the subject. In contrast, the US Government (USG) places strong restrictions on foreign transfer of technologies through instruments such as theInternational Traffic in Arms Regulation (ITAR), while also requiring preferential consideration for its small businesses and for domestic manufacturing in case of USG-funded R&D programmes7: a framework that has been increasingly finding mention in EU proposals on account of its obvious public policy advantages8.

This short note accordingly outlines some of the key aspects of the DPP that may need quick course correction, in order that some of the new international defence cooperation initiatives for co-development and co-production of defence equipment being progressed by GoI for implementing the new “Make In India” vision can achieve quick traction, while simultaneously ensuring that the MoD, including the Indian defence industry, can obtain their fair share of reciprocal benefits from these emerging partnerships.

IPRs in ToT as Offsets

ToTis also recognised as a permissible method for discharging offset obligations by foreign vendors in the revised defence offset guidelines (“RDO Guidelines”) of 2012, where in order to be eligible, ToT to (non-Government) Indian enterprises needs to come with “no license fee” and “no restrictions on domestic production, sale or export” stipulations9. However, there is no clarity on, inter alia, the following important legal aspects of the ToT arrangements: (i) whetherother-than-license fees or charges can be levied by a foreign vendor on the Indian recipient, either directly or indirectly, in the form of running royalty payments, goodwill charges, lump-sum capital charges, counter-purchase requirements for equipment or training etc., in which case the restriction on “no license fees” could easily be rendered dysfunctional; (ii) whether foreign manufacturing by Indian recipient(s) can be restricted by the transferor, in which case commercial and operational flexibility of the Indian recipient can take a major hit; (iii) whether MoD as an offset contracting party has any IPRs in the technologies being transferred to Indian entities; and (iv) whether the Indian entity receiving ToT in the first instance can subsequently transfer the same to another Indian entity. By way of comparison, offset program guidelines of the Republic of South Korea stipulate ToT to be free from any charges, and vest proprietary rights/ licenses in ToT, including the right to sub-license, with the Korean Government10, even if the instant possession thereof is with a domestic (Korean) offset partner.

The RDO Guidelines also permit ToT to government institutions to be eligible for discharge of offset obligations11, but quite unlike the provision on ToT to non-government Indian enterprises, the relevant sub-clause does not contain any bare guidance on restrictions vis-à-vis license fees and domestic manufacturing, sales or exports, or on any other government IPRs for that matter. In the case of technology acquisition by DRDO for discharge of offset obligations, the relevant guidelines12 are once again silent on the minimum government-purpose rights that need to be offered by the foreign vendor for claims with a multiplier of one. In addition, while the RDO Guidelines allow higher multipliers to be claimed in cases of technology acquisition by the DRDO depending upon permissions for production and/ or exports13, the relevant sub-clause contains no guidance on legal and commercial terms and conditions, including rights and limitations thereon, in respect of possibilities for further transfer of these technologies by DRDO to Indian production/ exporting entities: an issue that is obviously important given that DRDO is an R&D agency and not a production or exporting entity. In the absence of clear language, RDO Guidelines could therefore lead to a situation where a foreign vendor could claim higher multipliers even while DRDO’s ability to sub-license “acquired” technologies could remain restricted, curtailing the latter’s ability to actually practice the technology under transfer.

ToT and IPRs under Buy & Make

Returning to Buy & Make, it is interesting to note that while the DPP defines “technologies” for transfer under this category, namely, technologies for: (i) repair and overhaul; (ii) production from Completely Knocked Down (CKD)/ Semi Knocked Down (SKD) kits; and (iii) production from raw material and component level (IM kits)14; the phrase “Transfer of Technology” itself is left undefined in terms of minimum IPRs to be acquired by MoD/ IPAs, even while devoting an entire Appendix15 of the standard RFP to transfer of technology. Similarly, in the case of ToT for Maintenance Infrastructure in “Buy (Global)” cases, while the DPP defines the scope of technologies as one for maintenance to an Indian entity which would be responsible for providing base repairs and spares for the entire life cycle of the equipment16, the issue as to what IPRs need to vest with the IPA or with MoD is left largely unaddressed, just as “global rights” (another phrase left undefined) of an IPA17 are left at the absolute discretion of the seller18.

In addition, while “Buy & Make with ToT” creates the impression that complete ToT is obtained by MoD/ IPA for all items and assemblies, a closer look at the DPP shows this perception could be misplaced. For instance, the procedures leave complete discretion with a foreign vendor to deny design/ engineering documentation and manufacturing documentation for items it may choose to classify as Category-5 items19, while also denying such documentation for items it may classifyunder Categories 3 and 420. What this implies is that a vendor is at complete liberty to deny requisite documentation for a very significant numbers of items in proportion to the contracted value of final products, given that most large foreign vendors are integrators rather than in-house manufacturers. In addition, the DPP appears to erroneously classify engineering documentation for Category-2 items as “complete” ToT even though manufacturing documentation is not provided to MoD in such cases21, quite unlike Category-1 items where both engineering and manufacturing documentation are mandatorily required to be made available to an IPA22.


By Manoj Joshi

There should be some things clear about the Kashmir issue.

However convinced we may be of our case, the international community views the state of Jammu & Kashmir to be disputed territory. We need not repeat the long and sorry story of how this came about, but as of now, that is the situation. Having said that, we need to also spell out the corollary of that point – that there is nothing the international community, including the United Nations, can do to resolve the problem. Only India and Pakistan can do so, through direct negotiations. .

So, Jammu & Kashmir does constitute an important aspect of our relationship with Pakistan. Though not officially articulated, the Indian solution to the problem has been a partition of the state along the existing Line of Control.

Pakistan’s stand varies. There was a time when it said that J&K ought to be part of Pakistan, then it began to say that all it wanted was the right of self-determination for the people of the state.

But its actions in the parts of the state it occupies indicate that the goal remains the assimilation of the state into the Islamic Republic of Pakistan. Islamabad now knows that there is nothing it can do to wrest the state from Indian hands by force. It has tried war twice, and continued to fight a covert war for the past quarter century using jihadi proxies and backing Kashmiri separatists.

But getting Pakistan to end the conflict has been a difficult task, because Kashmir means many things to them.

At one level, it is a cause that unites everyone in that country – the jihadis, the army and the civilian elite. At another, it provides it a means to maintain a hostile posture towards India, something necessary for its current sense of national identity.

Remarkably, the two countries achieved a measure of convergence towards a solution in the period 2004- 2008. Worked in a back-channel, the idea was to work towards a special status of the state, without altering the current boundaries as set by the 1972 Line of Control.

The Indian perspective was that the state’s river waters are already committed to Pakistan under the Indus Waters Treaty of 1960, so having Pakistan involved in watershed management would not be such an affront to Indian sovereignty. Likewise there could be areas like tourism which the two sides could work out together. However – and contrary to claims on the Pakistan side – there were no commitments made on joint governance or political management. That is because a vast gulf separates the basic outlook of the Indian and Pakistani political systems.

The two sides did manage to open up the LoC to enable trade and the movement of people back and forth. But beyond that, the project came unstuck.

Afghanistan’s Political Transition


Asia Report N°26016 Oct 2014


Ashraf Ghani was inaugurated as president of Afghanistan on 29 September, under difficult circumstances. He inherited a government that is running out of money and losing ground to a rising insurgency. His ability to confront those problems and other challenges as foreign troops withdraw will be shaped by the aftermath of the political contest that brought him to power. Forming a national unity government with his election rival Abdullah Abdullah presents opportunities to stabilise the transition, preventing further erosion of state cohesiveness. Yet, it also poses risks, particularly of factionalism within Kabul, which could undermine urgently needed reforms. Given the international role in developing the agreements that have created this new partnership, and the absence of mechanisms to resolve internal differences, the international community should serve as a guarantor of Kabul’s new political order and, if necessary, mediate any serious disputes that arise.

Political transitions in Afghanistan have always been fraught. The transfer of power in 2014 may yet prove the most peaceful handover of leadership in the country’s history, despite the tensions that emerged in the process. Hamid Karzai now stands as the only Afghan leader to have voluntarily surrendered his office, and his legacy will be further strengthened if he uses his considerable influence to make the next administration a success and refrains from trying to control the new president.

Karzai’s departure was mandated by the constitution, but a genuine contest to replace him was never guaranteed. In 2013 and early 2014, Western diplomats pushed their Afghan counterparts to ensure the election would go ahead as planned and Afghan elites engaged in a vigorous struggle over the rules and authorities that would govern the process. The absence of a dominant candidate led to colourful campaigns ahead of the 5 April first round, and all the major slates included candidates from a diverse mix of ethnicities, tribes and political factions – which meant that the first round did not place significant stress on the traditional fault lines of Afghan society. Urban areas enjoyed a celebratory mood after the apparently successful first round, which encouraged observers to overlook signs of fraud.

The second round became far more divisive as ethnic Pashtuns and Uzbeks rallied in large numbers around the Pashtun candidate Ghani and his Uzbek running mate Abdul Rashid Dostum; at the same time, Abdullah’s ticket became identified mainly with ethnic Tajiks and some powerful Hazara factions. These divisions were aggravated by a perception in the Abdullah camp that Karzai, a Pashtun himself, threw the resources of the presidency behind Ghani before the 14 June run-off. Abdullah’s supporters threatened violent action after preliminary results showed Ghani winning, which prompted urgent international mediation, and a 12 July deal to audit all of the votes and give the losing party a role in a unity government.

Following the New Silk Road

Following the New Silk Road
Image Credit: REUTERS/China Daily
Experts are skeptical of the future of what is essentially America’s exit strategy for Afghanistan.
By Erica Marat
October 22, 2014

With this year’s withdrawal of U.S. and NATO troops from Afghanistan, the future of regional security in Central Asia remains uncertain. To fill the void of a departing military presence, the Obama administration developed the New Silk Road initiativeas its exit strategy. The initiative is designed to maintain regional security by linking Central and South Asian countries through trade.

Afghanistan and its neighboring Central Asian countries generally support establishing trade links across borders. However, the countries have differing views on what they think the impact a Western-created policy will have on the region.

Those who support the strategy consider it a reasonable way to forge economic links among major regional actors. They presume that a bolstered regional economy will foster security after the departure of Western troops from Afghanistan.

Several projects have already found monetary and strategic backing in the New Silk Road initiative. For example, the Central Asia-South Asia electricity transmission project (CASA-1000) received $15 million from the United States to build transcontinental power grid lines. The lines will transmit power from the Pakistani electrical market to Kyrgyzstan and Tajikistan. There is also talk of a Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. Both the Asian Development Bank and the World Bank have promised support for these two projects. Finally, Afghan border checkpoints are proposed to better facilitate trade between Pakistan and Central Asia via Afghanistan.

With a few exceptions, however, experts from Central Asia, Afghanistan, the United States, and Europe who were interviewed on the prospects of the New Silk Road initiative are skeptical. The survey was conducted with the support of the Hollings Center for International Dialogue.

Experts focus on different factors when analyzing the policy, depending on their country of origin.

Critics argue that the New Silk Road unnecessarily “geopoliticizes” what should be a standard trade policy. The policy is designed to deliberately exclude Russia, Iran, and China. It signals that the United States “has some sort of master plan or master idea behind pushing” regional projects that were in place before the New Silk Road was even introduced, says Alexander Cooley, professor of political science at Barnard College.

Pakistan: The North Waziristan Operations: Some Observations


Paper No. 5807 Dated 20-Oct-2014

By Dr. S.Chandrasekharan

With the visit of Nawaz Sharif along with his Army Chief to Miramshah on 9th October, it is said that operation Zarb-e-Azb is almost coming to an end. The PM was informed that 80 percent of the area has been cleared.

Top military commanders claimed that the militants who had run away will not be allowed to regroup and return to the NWA. ( North Waziristan Agency)

Figures as provided by Pak Army:

With no independent ones available, the official sources claim that over 1000 terrorists were killed while the army’s casualties are said to be 86. Other official figures given out were that 88 hideouts and 15 IED factories of the terrorists were destroyed with over 23 tons of explosives and scores of weapons confiscated in the ground sweep carried out by the troops.

In the absence of any major confrontation by the fleeing militants, the casualty figures of 88 deaths of Pak Security Foces appear to be high but it is claimed that these were the result of roadside bombs and snipers.

What has been hidden from the public was the enormous civilian casualties that must have mounted to thousands when the initial operations were carried out mainly by aerial bombing and strafing by Helicopter Gunships. The ground sweep operations formally began almost a fortnight after incessant bombardment from the air.

Another figure that is not being mentioned is that a million civilians have been displaced from the area and many of them moved over to Bannu and nearby areas but there are reports to indicate that most of them had crossed over to the neighbouring provinces in Afghanistan.

Counter-Terrorism: Loose Nukes In Pakistan

October 13, 2014: Pakistan is being accused by many Pakistanis of trying to cover up the participation of navy personnel in a recent al Qaeda attempt to hijack a frigate. This all began on September 6 when ten members of the new AQIS (Al Qaeda in the Indian Subcontinent) attacked a Karachi naval base and were repulsed after a six hour gun battle. Three attackers were killed and seven arrested. One of the defenders was killed. The attackers came via small boats and at first were believed to have bribed some of the naval security personnel to assist them in getting on board the Pakistani frigate docked there. The gun battle on the ship did minimal damage (mostly bullet holes). Interrogation of those arrested led to raids that seized weapons, ammo and explosives as well as documents. It was also eventually found that some of the attackers thought they were going after an American warship tied up at dockside in the base. But that was a Pakistani frigate and there were no American warships in the base. ISIL responded by mocking al Qaeda for being inept and getting ten Moslems killed or captured because of a stupid mistake. ISIL, it turned out, was misinformed. 

Further investigation found that three of the attackers, including one of those killed, were junior naval officers. Actually one was a former naval officer, having been dismissed from the navy in May for his outspoken support of Islamic terrorism. That man, Owais Jakhrani, was killed. He was also the son of a senior police commander in Karachi and had recruited two of the other attackers who were junior officers still on duty. The plan was apparently to hijack the frigate and use it to attack an American warship currently off the coast. Taking a frigate out to sea requires more than four people, even if all four are trained sailors. So the question is; who else was in on this plot and how many of them were sailors at the naval base? If the investigators have found out anything they have not gone public and the famously paranoid Pakistani media is speculating about Islamic terrorist networks within the navy. 

Some speculation blames the United States and the CIA, or Israel, or Britain. That’s normal, but the September 6 attack on the frigate was real as was the participation of three navy officers. At least eight additional naval personnel have been arrested, apparently because they had been in touch with the three Islamic terrorist naval officers. It is also known that three higher ranking naval officers (lieutenant commanders) were arrested two days later as they attempted to flee the country. 

Military officials complain, off the record, that the military has no procedure to keep track of military personnel who are dismissed for Islamic terrorist activity or sympathies and some of these men are increasingly being caught, often when their bodies are identified, participating in Islamic terrorist attacks. All this is worrisome for many Westerners, and a growing number of Pakistanis and Indians because the Pakistani military has control of Pakistani nuclear weapons. The Pakistani government always insisted that its nukes were well guarded, but after this latest incident there are more doubts.


Afghanistan has not been a safe and stable country for several decades, and its security conditions have deteriorated gravely after the first American and NATO troops set foot into its cities. The U.S. war on Afghanistan, which was launched by former President George W. Bush with the purported aim of eradicating terrorism from the country, has so far failed to realize the dream of ultimately defeating the Taliban and Al-Qaeda insurgents.

Despite all the failures and setbacks that Afghanistan has experienced over the recent years, especially following the 2001 U.S. invasion of the country, and notwithstanding the widespread economic insufficiency and corruption that have taken over Afghanistan, it can be felt that the landlocked nation is gradually coming to a point where its path toward stability and prosperity looks smoother and more convenient. One of the most important events in the contemporary history of Afghanistan was the third presidential election that was held on April 5, followed by a runoff round on June 14.

An independent economist and political named Ashraf Ghani Ahmadzai emerged victorious after the runoff round was held, despite the fact that at the beginning, his main opponent Abdullah Abdullah of the National Coalition of Afghanistan contested the results. However, he finally conceded defeat and accepted to work with Ashraf Ghani in a government of national unity.

In the first days of assuming office, President Ashraf Ghani Ahmadzai, who is seen by some political analysts as having pro-Western political attitudes, signed a Bilateral Security Agreement with the U.S. government that would allow Washington to maintain troops in the country following the 2014 deadline for the withdrawal of its entire forces.

To discuss such issues as the establishment of the new government of President Ahmadzai, the appointment of Abdullah Abdullah as Prime Minister by President Ashraf Ghani, the future of talks between Afghanistan and the Taliban representatives, the Bilateral Security Agreement with the United States, drug trafficking and poppy cultivation in Afghanistan, Iran Review conducted an exclusive interview with Prof. Najibullah Lafraie.

Mr. Lafraie was the Foreign Minister of Afghanistan between 1992 and 1996 under President Burhanuddin Rabbani and is currently a professor of political science at the University of Otago, New Zealand.

The following is the text of the interview.

Q: What’s your assessment of the election of Ahsraf Ghani Ahmadzai as the President of Afghanistan? He is a prominent economist, and as the founder of the Institute for State Effectiveness, is seen as an expert with great knowledge on the economic recovery of failed states. Will Mr. Ahmadzai be able to improve Afghanistan’s economic status and address the problems it has been facing since the beginning of the war in 2001?

A: There is no doubt about Mr. Ashraf Ghani’s expertise and great knowledge on “failed states”. It seems to me, though, that he looks at the phenomenon from a Western point of view, and that may not be good enough to solve Afghanistan’s economic problems. We should not forget that he is one of the architects of the current free market economy in Afghanistan, which has led to an unprecedented level of inequality. There may be some superficial improvements, but I strongly doubt that that would raise the standard of living of vast majority of the people.

Q: In the new coalition government of Afghanistan, Dr. Abdullah Abdullah will be serving as the Prime Minister under President Ashraf Ghani Ahmadzadi. Once you were the Foreign Minister, Dr. Abdullah was also serving as the spokesman for the Defense Ministry of the Islamic State of Afghanistan. How much are you familiar with his personality and ideology? Can he get along with Mr. Ahmadzai? There’s no doubt that he is an important figure and freedom fighter in the contemporary history of Afghanistan. What’s your viewpoint regarding his power sharing deal with President Ahmadzai?

A: Of course I know Dr. Abdullah personally, and I believe he is a very talented individual. I still remember the trip that we had together to some Central Asian republics after the fall of Herat to the Taliban. He was in Herat at that time, and I was impressed with the eloquence that he explained the situation in our meetings – and also his mastery of the English language, despite the fact that he had not lived in an English-speaking environment. He was very close to Ahmad Shah Massoud, both in the fighting front against the Red Army and after the liberation of Kabul; so one expects that he would have acquired some of his attributes. I’m not sure, however, that Massoud would have approved the close relations that he has developed with the Americans. That relationship, as well as his and Ashraf Ghani’s desire to maintain elite unity, would mean that the two would be able to establish a working relationship. I don’t expect that to be very smooth, though. Behind the scene there may be many quarrels, which may negatively affect the effectiveness of the government; but I think they will try to uphold the façade of unity.

US persuaded Pakistan to support Taliban chief Mullah Omar, reveals Hamid Mir

India TV News Desk [ Updated 19 Oct 2014, 17:50:38 ]

New Delhi: Noted Pakistani TV journalist Hamid Mir has revealed that it was senior US official Robin Raphel, who, in 1995, persuaded the then Pakistan Prime Minister Benazir Bhutto to support Taliban chief Mullah Omar in Afghanistan.

Hamid Mir was speaking at Idea Exchange with Indian Express in News Delhi.

The Pakistani journalist, who has interviewed Mullah Omar once and Al Qaeda chief Osama bin Laden thrice in the past described how US persuaded Benazir Bhutto.

"The Taliban movement emerged in Afghanistan in 1994. In 1995, I was travelling with the then PM Benazir Bhutto to the US. Bhutto met ambassador Robin Raphel in New York. We came to know that Raphel asked Bhutto to announce her support to the Afghan Taliban.

"It was very disturbing. I wrote a column from New York that here is the first elected woman PM in the whole Muslim world, the Afghan Taliban are imposing a ban on girls' education, and she had been sked by Robin Raphel, another woman, to announce her support for the Afghan Taliban.

"When we were coming from New York, the PM called me on the plane and said, 'You are criticising me'. I said, 'Yes, this is democracy. I don't like Taliban and you are supporting Taliban at the behest of raphel'. So she asked her Interior Minister to brief me why the taliban are good for Pakistan.

"After a few days, the Interior Minister organised a briefing for me and Nursat Javed, a colleague, and explained that we were using the taliban as the "pipeline police".

Divergent Trajectories, the Bomb, and Kashmir

11 OCTOBER 2014 

President Barack Obama talks with Prime Minister Narendra Modi of India during their bilateral meeting in the Oval Office, Sept. 30, 2014. (Official White House Photo by Pete Souza)

The recent trips to the United States by Prime Ministers Nawaz Sharif and Narendra Modi provide ample evidence of India’s and Pakistan’s divergent trajectories. Nawaz arrived with no fanfare, a known commodity in familiar trouble back home. He delivered a lackluster speech at the U.N. General Assembly notable only for dwelling on Kashmir, which has always been a harmful issue for Pakistan. Nawaz met with Vice President Biden in New York along with a few foreign leaders (at their request), and then left for home, where he faces unrelenting political opposition.

Modi arrived in New York as an ambitious, contentious, and intriguing figure with an electoral mandate to revive India’s fortunes. He spoke proudly in Hindi, promised much with few specifics, and met with a rapturous crowd of Indian-Americans at Madison Square Garden. Then on to the White House, long meetings with President Obama, and a fancy dinner during which the guest of honor fasted.

Love him or hate him, Modi is a charismatic leader who has everyone’s attention. Pakistan has previously been led by a charismatic leader, Zulfikar Ali Bhutto, who disappointed badly. Nawaz does not need charisma – he needs to rouse himself to lead, or step aside to let his most capable Party members do their best to reverse the country’s decline. If he is incapable of both, Pakistan could find itself with another charismatic figure unable to govern effectively. One of Nawaz’s primary tormentors has withdrawn his parliamentarians rather than offering new legislative initiatives. The other calls for a revolution.

Modi offers hope to his electorate and to the Indian diaspora. Nawaz’s record does not engender hope. Modi and Obama signed off on a vision statement. Nawaz has always lacked vision. He builds motorways, but to his credit, he is doing more to improve power generation than the previous, lackluster civilian government. The U.S.-India joint statement was suffused with promises. U.S.-Pakistan relations can do without lofty promises, since the past is littered with them. It will suffice if both Pakistan and the United States can work in tandem through the difficult security dilemmas they have co-created.

Dynastic politics aren’t limited to South Asia, as is evident by the Clintons and the Bushes. But dynastic politics have had extremely punishing effects on the subcontinent, hollowing out major political parties and saddling Pakistan and India with ill-functioning governments. Democratic elections do not offer opportunities for new starts when the two primary choices are both family-run political enterprises. While Pakistan struggles with this dilemma, India enjoys the promise of renewal because one of its two national parties is not beholden to a dynastic franchise.

Modi’s government, by all appearances, is a one-man show. Other performances of this kind on the subcontinent have not ended well. Some leaders with electoral mandates fail for lack of ambition, as Nawaz is now doing. Others fail by overreaching badly enough for political rivals to recover. In Modi’s case, there will be dynamism whether he succeeds or fails.

Larry Summers explains why the world is too optimistic about China’s economic future

October 15, 2014

Summers (left) and then- Chinese premier Wen Jiabao in 2010.(Reuters/Feng Li) 

Imagine you’re a doctor and someone hands you the chart of a 60-year-old man, asking you to predict the patient’s health for the next decade. The guy is a probiotic-eating marathon runner and his cholesterol numbers look great. Still, your prediction will likely give more weight to the average health outcomes of sexagenarians than to the patient’s pristine individual health.

But when it comes to predicting China’s medium- and long-term growth, economists are chucking that wisdom out the window, argue former US Treasury secretary Larry Summers and Harvard University professor Lant Pritchett in a new National Bureau of Economic Research paper (registration required).

As a result, they say, even the more cautious economic forecasts for China are overestimating the country’s growth prospects. Summer and Pritchett’s calculations, using global historical trends, suggest China will grow an average of only 3.9% a year for the next two decades. And though it’s certainly possible China will defy historical trends, they argue that looming changes to its authoritarian system increase the likelihood of an even sharper slowdown.

The clock is ticking

Looking at the predictive power of averages, it certainly seems like China’s time is up. While many countries have experienced what Summers and Pritchett call “episodes of super-rapid growth”—meaning, above 6% a year for at least eight years—they have typically lasted no longer than nine years. China, however, “already holds the distinction of being the only instance, quite possibly in the history of mankind, but certainly in the data” to sustain super-rapid growth for more than 33 years, they write. The country’s streak now stands at 36 years, including the time since the study’s data set ended. Even when you consider “episodes of rapid growth”—meaning GDP growth of more than than 4%—China still takes the crown, beating Singapore’s 30 years at 4.2% growth and Indonesia’s 29 years at 4.7%.

It’s hard to know what drives such periods of unusually high growth, say Summers and Pritchett, because these factors are so rare. Even when economists are able to identify what’s spurring economies, quantifying them in a way that accurately forecasts future super-rapid growth is next to impossible. Yet that doesn’t stop us from believing that our theories do explain China and other countries’ strangely robust growth—and they’ll therefore be able to accurately predict an impending reversal of fortunes.

Of course, this seldom happens. In addition to our failure to anticipate the global financial crisis, we also misjudged the Soviet Union’s economic outlook. And in an example particularly germane to China, in the late 1980s, economists tended to believe that Japan’s industrial policy, high investment levels, and financial repression were propelling its growth. “A decade later, the conventional wisdom held nearly the opposite views,” note Summers and Pritchett.

Want To Know What It's Like To Be Blown Up By A Chinese Missile? Ask This Ship.


Zhenjiang Hit! 

The Zhenjiang is hit by an inert Chinese anti-ship cruise missile. Note that in addition to the destroyed bridge superstructure, the hull around the bridge has also been warped by the impact, suggesting a large missile. 

SARGuy at China Defense Forum

The PLAN has recently given a retired ship a temporary second lease on life, by turning it into a target for anti-ship missiles. The former Zhenjiang (hull number 514) is a Type 053H guided missile frigate. Built in the 1970s and 1980s, the Type 053 class was China's first indigenous frigates, being loosely based on the Soviet Riga class. The Zhenjiang was built in 1978 in Shanghai, and decommissioned in 2013. At 1,700 tons in displacement, the Zhenjiang was armed with two 100mm cannons and six SY-1 heavy anti-ship missiles for anti-surface warfare, though the gun turrets were removed in 2013 upon its conversion into a target practice ship. This class of ship has notably also seen some of the remaining 053 frigates converted into maritime law enforcement vessels that have appeared in disputed waters with China's neighbors. 

USS America Wreck 

The Kitty Hawk class USS America supercarrier was sunk in 2005 as part of a study to investigate the impact of battle damage of torpedoes, bombs and missiles on a supercarrier. The USS America was attacked for four weeks, before the US Navy finally scuttled her. 

MHibbs at Wikimapia

It is standard practice for navies to use retired ships as target hulks, both to test new weapons as well as understand how to improve the cobalt resiliency and damage control of the ships. The USS America aircraft carrier, for instance, was sunk in 2005 off the North Carolina coast after being hit with missiles and torpedoes in a live fire exercise meant to understand the combat resiliency of a large warship. 

From the photo, we can see that the Zhenjiang is still afloat, but took a hit that would have been quite damaging in a real scenario. Its bridge has been completely imploded by the impact of an antiship missile. Judging from the apparent lack of heavy smoke, scorch marks or flames indicating a heavy fire, it seems that the anti-ship missile did not have a live warhead, so the damage done to the ship was the result of kinetic energy from the missile's mass. The apparent lack of burning missile propellant suggests that the Zhenjiang was probably hit at a far range, when most of the missile's propellant had been expended. 

China: Sharpening Swords for War?

October 16, 2014 

From a realist’s geopolitical perspective, the United States needs to keep eyes on global hot spots with concentrations of power that could adversely affect American national interests. Of the three geographic centers of global power today, two are engulfed in war while the third is on the war’s precipice. In Europe, Russia has returned to its quest for global power with its steely paramilitary and military disembowelment of Ukraine. Moscow’s aggression now looms over other states in Europe, especially the Baltic states and Poland. In the Middle East, the Islamic State has lurched onto the international scene with a bloody rampage that has torn apart Syria and Iraq. The Islamic State looks ready is to expand and spill more blood along the borders of Jordan and Turkey and in Kurdish areas in Iraq, notwithstanding the American and international coalition air campaign against the jihadists.

In Asia, China has not yet shed any blood in war. But a read of Robert Haddick’s new book Fire on the Water: China, America, and the Future of the Pacificpainstakingly shows through his level-headed, scholarly, and realist analysis that Beijing is sharpening its swords for war while Washington is distracted by chaos elsewhere. Haddick rightly judges that the United States “acting as an outside balancer, has played the central role in East Asia’s security, a responsibility that has boosted the prosperity of all. But just like Europe a century ago, it is doubtful that Asia, left on its own, could shape a stable balance of power in the face of China’s dramatic rise.”

Haddick is deliberate and measured and “calls it as he sees it,” which is a tone to be welcomed in the often ideological debates on China’s future in international security. Nevertheless, with his formidable political-military expertise Haddick makes a damning case that China is wielding astute diplomacy and building-up its military forces to exploit weaknesses in American military force projection capabilities into the Asian theater. China has diplomatically labored to settle numerous land disputes with neighbors. As Haddick tallies the diplomatic score, “Since 1998 China settled eleven lingering land border disputes with six of its neighbors, steps that removed security friction from potential overland threats.” China’s $400 billion deal to buy gas from Russia signed in May 2014 and its economic development agreements signed with India in September 2014 bolster Haddick’s assessment that Beijing is shoring-up relations with land border states.

Settling border disputes allows Beijing to turn and focus its geopolitical attention to the sea. China is using a paramilitary maritime force to place footholds on disputed islands and assert hegemony in the East and South China Seas. Haddick observes a disturbing contrast in behavior. While China has settled land disputes, “it has accelerated its demands for its maritime claims in the East and South China Seas.” China is playing a shrewd “salami tactics” game with assertive actions that taken in isolation fall short of cause for war, but collectively and over time significantly expand Chinese influence and coercion in Asia.

China couples its paramilitary maritime operations with a substantial build-up of military power for deterring and attacking American carrier battle groups. Haddick’s book details that the Chinese are growing land-based and space-based systems for detecting and targeting American battle groups, as well as building surface ships and attack submarines for firing anti-ship cruise missiles. All of these Chinese naval capabilities are designed to push American naval access beyond some 2,000 km from China’s coastline. 

Chinese military capabilities to deny the United States the ability to operate fixed-wing aircraft add to the formidable threats to American forces in the region. As Haddick judges, “China’s Flanker fighter-bombers present a particular challenge to the United States and its allies because of their relatively long combat radius. The Flanker variants have an unrefueled combat radius of at least 1,500 kilometers. Five of the six U.S. air bases in the western Pacific (two in South Korea, three in Japan) lie within the combat radius of China’s Flankers.” China’s increasingly sophisticated and thickening air defenses, moreover, significantly increases the potential costs for American aircraft to hold at risk military assets on the Chinese mainland.

The Chinese are unconstrained in building-up their ballistic and cruise missile capabilities as the United States is by the Intermediate Nuclear Forces (INF) Treaty. Washington and Moscow signed the INF Treaty that bans land-based missiles with ranges between 500 and 5,500 km. China is churning out ballistic missiles and cruise missiles to increasingly hold at risk regional airbases that host American short-range fighters. This is a particularly unnerving situation for the United States because Russia has been violating the terms of the INF Treaty by testing prohibited cruise missiles.

America Must Face Up to the China Challenge

October 17, 2014

There are four harsh realities regarding China's rise with which America must soon come to terms. 

Regular readers of the National Interest enjoy a rich flow of essays debating the consequences of China’s return as a great power and how U.S. policy makers should respond to the challenge China’s rise will create for U.S. interests in the Asia-Pacific region and around the world.

But elsewhere in Washington’s corridors of power and across the country, the subject of China’s rise, its implications for U.S. and regional security, and how U.S. foreign policy should adjust to this development is commonly treated like the proverbial elephant in the room, clearly present, but not clearly discussed.

U.S. policy makers and the American public must face up to the fact that China’s return as a great power is inevitably creating a contest that will likely evolve into the most consequential and taxing security challenge the United States will face in the decades ahead. It will be the most consequential because the stability and prosperity of the Asia-Pacific region is of paramount importance to America’s economy, its standard of living, its future prosperity and its own role as a global power. It will be the most taxing, because China will have at its disposal far more resources than the Soviet Union ever dreamed of having. The Cold War security competition demanded much of the United States; the China challenge will demand as least as much, if not more. The China challenge is the elephant in most rooms in Washington perhaps because the magnitude of the challenge is so unsettling to policy makers and planners.

Nevertheless, U.S. policy makers and America’s political system will inevitably have to face up to the China challenge. Indeed, there are four harsh realities with which America must soon come to terms.

First, the next American president and his or her advisers will need to face up to the fact that a policy of forbearance toward China has now been tried and has failed. Forbearance has been a bipartisan policy. In 2005, former deputy secretary of state Robert Zoellick politely asked China to be a “responsible stakeholder” in the international system, with the hope and expectation that China would see its interests best fulfilled by cooperating with the existing international system. Kurt Campbell, the assistant secretary of state for Asia during Barack Obama’s first term, argued for a policy of conciliation in order to avoid the “Thucydides Trap,” the tragic clashing of great powers that has littered so much of world history. It was defensible to have tried forbearance first. However, China’s response since 2008 to forbearance has been clear: more assertiveness, more salami-slicing and an acceleration of its military modernization. Part of the deal of trying forbearance first must include a willingness to admit when it has run its course. The next set of U.S. policy makers will have to acknowledge the end of forbearance as a useful China policy.

Second, U.S. military commanders and planners have to face the fact that their traditional operational concept in the Western Pacific—a reliance on short-range aircraft and firepower operating from heretofore (but no longer) secure, large and concentrated forward bases and naval task forces on Asia’s immediate periphery—can no longer work now that China is fully exploitingthe missile and sensor revolution. Recent attempts to compensate for China’s growing missile inventories by stationing even more vulnerable short-range forces in the theater only compounds the danger by creating the incentives for both sides to strike first during a crisis. The U.S. military needs to break with operational and procurement habits built up over seven decades—not an easy thing to do.

Third, Congress and the military industrial base must face up to the adjustments that come with rebuilding U.S. military forces around long-range, rather than short-range aircraft, more submarines and fewer large surface ships, and the need for a portfolio of theater-range missiles for all the services, an idea now largely absent from the program of record. Congress and the contractors will not look kindly on the large and disruptive changes to procurement policy for which the China challenge now calls. But with an open mind, adaptation need not be painful.

For example, as part of its cost and risk management, the new U.S. Air Force Long-Range Strike Bomber program uses already-proven subcomponents. One possibility going forward could be the cockpit and combat systems from the F-35. With the bomber’s use of such components, there is no reason, for instance, why Lockheed-Martin and its network of suppliers should suffer if the F-35 program subsequently gets trimmed. This should especially be the case when the new bomber aircraft can be used for so many other missions besides traditional strike (as explained here). In this view, the Pentagon could use far more than the eighty to 100 Long-Range Strike airframes currently contemplated.

For the Navy, cutting back on the future construction of vulnerable surface ships can and should be offset by a much larger submarine fleet. The Navy’s goal of forty-eight attack subs is far too few, especially when surface ships will have to back away in the Western Pacific due to China’s extensive and growinganti-ship missile threat. Thus, with the need for a much-larger-than-planned submarine fleet (including more of the large Trident replacement submarine hull, which can be used for a wide variety of missions beyond the sea-based nuclear deterrent), there should be plenty of work ahead for U.S. shipyards after they adapt to this demand. The Congress and the contractors have to face up to change, but should view this as an opportunity, rather than a problem to be opposed on Capitol Hill.

Interpreting Russian foreign Policy and Islam


Karina Fayzullina
Last Updated: : Sunday 28 September 2014 13:35 Mecca


The perceived growth of political Islam and Islamist extremism throughout the world has recently led to a rethinking of foreign policy in many Western countries. Intensifying upheaval caused by terrorism from Nigeria to Yemen, and from Afghanistan to Iraq, has placed Muslims, Islam and political Islam in the political spotlight. This is a rising trend everywhere; Russia is no exception. Like elsewhere else in the world, Islam is at the forefront of thinking prevalent in Russian foreign policy-making. There is one difference, however. Negative stereotypes of Islam found in Europe and the US are less visible in both politics and the media. As argued here, Islam is integrated as part of national identity in Russian politics. How does the practice of foreign policy reflect this standard?


The image of Russia in the world is rarely associated with Islam and Islamic identity, in general. While Orthodox Christianity is the country’s predominant confession, not many know that Russia is home to as many as 14 million Muslims of various ethnic backgrounds. However, there is no recent census to verify this figure.

Historically, Islam has not been instituted in Russia in a deliberate fashion as a conceptual part of national identity until the breakup of the USSR more than two decades ago. Stark secularism of the former Soviets prevented any religion from evolving either within or without the official political framework. Thus the role of traditional creeds of the diverse ethnicities and peoples included in the former Soviet Union remained understated for decades. It is only recently that Islam in Russia has found itself less ‘chained’ by the restrictions that had previously shackled it for centuries, before and during the founding of the former Soviet Union.

This government policy trend has turned out to be really encouraging. Russian leaders and politicians repeatedly stress the significance of Islam as integral to the political fabric of statehood, historically and in the contemporary era.

For instance, President Putin generally does not shy away from expression of religious sentiment and support, in general, and is forthright in his respect for Islam. He states the following:

‘…Islam is rightly claimed an inalienable part of today’s religious, social and cultural life of Russia. Its traditions are based on eternal values of goodness, mercy and justice…’(1)

The policy of the 2000s along with the government policy to improve Russia’s image in the Muslim world, seems to have yielded encouraging results in terms of Russia’s overall standing. In terms of mass consciousness, Russia is seeking to present itself in the image of a friendly country to Islam and Muslims. That is, it is cultivating the image of an alternative to the belligerence of the US Neoconservative voices (‘Neocons’), who constantly set themselves against the Muslim world with persistent yet fruitless attempts to spread Western political values such as through democracy promotion. Russia does not have a similar policy, and does not follow in the footsteps of the former Soviet Union in terms of seeking to spread communism.

Why the Putin Peace Plan Is Working


"If the current peace process has shown anything, it is that Russia remains Ukraine’s only indispensable partner for stability and prosperity."
October 22, 2014

Despite extraordinary obstacles, the Minsk accords, more appropriately known as the Putin peace plan, are actually working. Just when it seemed that continuing violations might lead Ukrainian president Petro Poroshenko to abandon the ceasefire, as he had once before, he doubled down with a slew of laws and personnel changes that indicate just how seriously he is now committed to negotiating a resolution to the conflict in eastern Ukraine.

It was not always so. Poroshenko ran for office in May on a platform of negotiated peace, but once in office, he found little support for negotiations among his key supporters. The head of parliament, the prime minister, the minister of interior, even his own national-security team all favored expanding the “anti-terrorist operation” begun by his predecessor in April. With U.S. backing and military advisors, Poroshenko quickly became convinced that military victory could be attained in a matter of “hours.”

Initially, the operation to pacify eastern Ukraine was marred by troop defections, lack of equipment and poor coordination. By the middle of the summer, however, Ukrainian forces seemed to have turned the corner and were pushing the rebels back on all fronts. Then, in late August, the unthinkable happened—Ukrainian troops suffered a disastrous defeat in the town of Ilovaisk. 

The exact details of what went wrong have not been made public. According to Semen Semenchenko—the commander of the volunteer “Donbas” battalion that led the assault on Ilovaisk—after having taken the city center, Ukrainian forces were surrounded by the rebels and totally cut off. Russian media sources suggest that as many as 7,000 Ukrainian soldiers were trapped, along with several hundreds of military vehicles.

Semenchenko claims that the Ukrainian military lost over 1,000 men in that battle, a claim disputed by Ukrainian defense minister Valeriy Heletey, who says that only 107 Ukrainian soldiers died. Ukraine’s General Prosecutor, by contrast, says that “no fewer” than two hundred soldiers lost their lives, and several Ukrainian newspapers reported that fatalities numbered in the hundreds. Only a personal plea by President Putin to allow the besieged Ukrainian soldiers a “humanitarian corridor” to leave prevented even more casualties. Both Heletey and the head of the General Staff were forced to resign.

Iraq's Third-Largest Military Base Is In Danger Of Falling To ISIS

OCT 17, 2014

From a photo collection released by ISIS, showing the group's presence in Ramadi, the provincial capital of Anbar.

ISIS is laying siege to Iraq's third-largest military installation, where Iraqi Security Forces (ISF) warn that they are ravaged psychologically and on the brink of being overrun, Susannah George reports for McClatchy DC.

The Ain Asad Air Base, located within Iraq's western Anbar Province, is under attack from ISIS and will likely fall if the ISF forces defending it outside don't receive some kind of outside help.

Soldiers report that they are running low on supplies and that morale has collapsed as the US and coalition troops are providing essentially no support to the installation.

"It's not possible to get in any supplies by land," an unidentified ISF soldier toldMcClatchy. "Forces in the base are almost collapsed psychologically and scared. I cannot say for how long we can hold the base."

The Big Cost of Success: The Rise and Ultimate Fall of ISIS

October 18, 2014 

"The strategy that once propelled ISIS to the heights of success will become the source of its downfall."

In the last year, ISIS has expanded its influence in Syria and Iraq with shocking ferocity and speed. In its rampage, the organization has wrested town after town from a seemingly paralyzed Iraqi military. Worse, ISIS has coupled its military successes with remarkably adept propaganda. It has pumped its extremist ideology into the dark corners of the Internet, even as it broadcasts calculated brutality in order to strike fear into the hearts of its enemies. And in late June, it declared the establishment of a new caliphate and installed ISIS leader Abu Bakr al-Baghdadi as its caliph. In just one short year, the Islamic State has become a jihadist colossus.

But this colossus has clay feet. From the start, the Islamic State’s strategy has contained the seeds of its own undoing. ISIS was able to leverage the scale of its ambition—its goal of establishing a caliphate—into publicity, financing and recruits. Although it achieved stunning military victories with these resources,it has now provoked American intervention. ISIS will no longer be able to seize new cities or, indeed, continue holding much of the territory it currently controls in the face of American airpower backed up by local partners. And absent the ability to expand or even retain its territory, ISIS will lose one of the primary engines of its rise: its ambition to statehood.

In short, the Islamic State has painted itself into a corner. The strategy that once propelled ISIS to the heights of success will become the source of its downfall.

The Cost of Statehood

In many respects, the Islamic State differs from traditional extremist groups. It aspires to be more than just a shadowy jihadist network—it wants to rule. In large part, it has succeeded. Depending on the metric used, it now reigns over millions of people and controls tens of thousands of square miles (some say more than the entire United Kingdom). This success has resulted in part from its statehood-oriented strategy. The Islamic State sent shockwaves throughout the jihadist community when it declared its caliphate. Since then, its profile has skyrocketed, opening the door to additional fighters and financing.

But statehood comes at a price. By creating a caliphate, ISIS has also created a new vulnerability for itself: it has become governor of a territory encompassing millions. Its statehood has brought it fame, funding and foreign fighters, but it has also established fixed assets that the United States and its allies can easily hold at risk. It is hard for the United States to pin down shifting and elusive people-based networks like Al Qaeda; it is much easier to target the infrastructure and operations of a territorial government. More importantly, ISIS has tied its internal legitimacy to territory. Without a state, the Islamic State is nothing—or at least nothing that would separate it from the run-of-the-mill jihadist groups and entitle it to greater publicity and resources. In order for the Islamic State to remain influential, then, it must retain its control over vast tracts of Syria and Iraq.

This objective is becoming increasingly difficult in the face of the coalition’s campaign. The American strategy is premised on loosening ISIS’s grip on its territorial conquests, so it is aimed at striking the State’s Achilles’ heel. As ISIS hemorrhages territory, it will lose far more than its access to resources—it will lose the legitimacy that supported its rise in the first place. And as its caliphate shrinks, its fighters will be increasingly disillusioned and incentivized to desert, rather than find themselves exposed to advancing forces without any territory on which to fall back.

As a result, the Islamic State is far more fragile than many commentators believe. It is a dangerous opponent, but it has built its power base on pillars of sand.

American Airpower and the End of ISIS’ Conquests

The Islamic State has expanded its territorial control through the jihadist equivalent of blitzkrieg: its fighters raced from one town to the next, catching Iraqi unit after Iraqi unit off-balance as ISIS continued to carve out ever-greater swaths of the country for its new caliphate. This strategy has served ISIS well, but only because the Islamic State has faced little opposition to its rapid advances across the desert.

The introduction of American airpower inverts ISIS’ odds, however, because the United States will be able to easily destroy any ISIS forces caught out in the open. Unlike, say, the jungles of Vietnam, the deserts of the Middle East leave mechanized forces totally exposed to aerial bombardment. Indeed, the Iraqi Army found itself caught in an analogous position during the First Gulf War. The result was a military catastrophe that culminated in the notorious “Highway of Death” when American forces decimated Saddam Hussein’s retreating ranks as they drove north out of Kuwait. Likewise, ISIS will face considerable—if not insurmountable—difficulties in any attempt to conquer new territory through the use of conventional mechanized forces.

To be sure, American airpower does not work in a vacuum: it requires reliable intelligence about the location of potential targets. The United States can gather some of this information remotely, but in order to launch a truly devastating aerial campaign, it also needs direct, on-the-ground sources.