Did China turn off Mumbai's lights, Beijing's $30 trillion economy plan, and looking ahead to the NPC

Welcome to today's The India China Newsletter.

In this issue, I'll be looking at:

- The big story yesterday on what India described as "state-sponsored" Chinese cyberattacks targeting a range of power installations

- Takeaways from Thursday's call between India's and China's Foreign Ministers, and why normalcy may be some time away

- Are 'demilitarised' buffer zones along the border sustainable, and a long-term solution? 

- Looking ahead to the National People's Congress in China, which kicks off on Friday, and especially the economic agenda likely to be in focus at the NPC

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The New York Times had a story yesterday that got everyone in India talking, reporting how in the midst of last year’s border tensions, Chinese hacking attacks targeted Indian power installations. The story suggested they may have also caused a major outage in Mumbai last year:

Early last summer, Chinese and Indian troops clashed in a surprise border battle in the remote Galwan Valley, bashing each other to death with rocks and clubs.

Four months later and more than 1,500 miles away in Mumbai, India, trains shut down and the stock market closed as the power went out in a city of 20 million people. Hospitals had to switch to emergency generators to keep ventilators running amid a coronavirus outbreak that was among India’s worst.

Now, a new study lends weight to the idea that those two events may well have been connected — as part of a broad Chinese cyber-campaign against India’s power grid, timed to send a message that if India pressed its claims too hard, the lights could go out across the country.

The study shows that as the standoff continued in the Himalayas, taking at least two dozen lives, Chinese malware was flowing into the control systems that manage electric supply across India, along with a high-voltage transmission substation and a coal-fired power plant.

The NYT’s reporting certainly got right the wave of cyberattacks that Indian power installations faced last year, which officials yesterday confirmed and is indeed significant in of itself.

The claim about the Mumbai power outage being caused by the attacks which is central to the story is, however, being debated. Today’s The Hindu has a report that captures how Indian officials at the Power Ministry reacted to the NYT story. The main comment from them, below, is that the cyber attacks caused no real impact:

While the government refused to confirm or deny a New York Times report, based on a U.S. cyber security firm’s claim that the Mumbai power outage in October 2020 was part of a coordinated cyber attack by China, it said it has suffered “no data breach” as a result of the threat.

“There is no impact on any of the functionalities carried out by the Power Sector Operations Corporation (POSOCO) due to the referred threat. No data breach/ data loss has been detected due to these incidents,” the Ministry of Power said in an official statement, which made no direct mention of the Mumbai power outage on October 12, 2020, that lasted several hours.

“Prompt actions are being taken by the Chief Information Security Officers (CISOs) at all these control centres under operation by POSOCO for any incident/advisory received from various agencies like CERT-in, NCIIPC, CERT-Trans etc.,” the statement added.

The full report from the U.S. firm, Recorded Future, can be read here.

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Thursday’s phone call between the foreign ministers of India and China, which I mentioned in last week’s newsletter, was interesting in how differently both sides seem to view the current moment in the relationship and the road to normalcy. I reported for The Hindu this weekend on the main takeaways from the two statements released by New Delhi and Beijing, and how they they differed in the way forward, which you can read here.

The key point in India’s statement is that normalcy hinges on disengagement (not yet completed), de-escalation (that could take an even longer time) and peace and tranquility on the border:

EAM [External Affairs Minister S. Jaishankar] highlighted that both sides had always agreed that maintenance of peace and tranquility in border areas was essential basis for development of bilateral relations. A prolongation of the existing situation was not in the interest of either side. It was, therefore, necessary that the two sides should work towards early resolution of remaining issues. It was necessary to disengage at all friction points in order to contemplate de-escalation of forces in this sector. That alone will lead to the restoration of peace and tranquility and provide conditions for progress of our bilateral relationship.

Chinese Foreign Minister Wang Yi's comments had a rather different emphasis:

Wang Yi noted that what had led to the situation last year at the China-India boundary was clear and that lessons from the past deserve deep contemplation. There has been some wavering and backpedaling in India's China policy, and practical cooperation between the two countries has been affected. This does not serve the interests of either side. Decades of experiences have shown repeatedly that heightening differences does not help solve problems, and that it only erodes the basis of mutual trust.

Wang said that the frontline troops of the two countries have recently completed disengagement in the Pangong Lake areas. The situation on the ground has been noticeably eased. It is imperative for the two sides to cherish the hard-won relaxation, and work together to consolidate the progress, keep up the consultation momentum, further ease the situation, and improve the border management and control mechanisms. The two sides also need to advance the boundary talks to build up mutual trust and realize peace and tranquility in the border areas…

The two sides need to commit to the strategic consensus reached between their leaders, stay on the right path toward mutual trust and cooperation between big neighbours, and never take the wrong path of mutual misgivings and suspicion, still less the path of retrogression. They should handle the boundary question properly to prevent the bilateral relationship from sinking into a negative cycle. While that the two countries have boundary disputes is an objective fact, which should be taken seriously, it is not the whole of China-India relations, and it should be put at a proper place in the overall bilateral relations.

COMMENT: If India’s main grouse has been that China’s border moves had, as Delhi says, ‘profoundly disturbed’ peace and tranquility — a fundamental shared principle that underpinned the relationship — China’s main grouse seems to be that India was not observing another fundamental shared principle, which was shelving/containing differences and working on other areas such as trade and investment. Both are insisting on a return to normalcy, the problem is each has a different idea of what normalcy means. For India, it’s restoring the situation in the border. For China, it is restoring the trade, investment and other areas of the relationship. So there we are.

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Bloomberg reports on the buffer zones on the LAC and asks if they are sustainable:

If the demilitarised areas end up keeping the peace, they could become a model for how India and China deal with a border nearly as long as the one between the US and Mexico.

Nationalism stoked by the fighting has had an economic impact, with Modi’s government banning hundreds of Chinese apps, slowing approvals for Chinese investment and strengthening security ties with the US, Japan and Australia.

Still, while the demilitarised zones are aimed at preventing clashes of the sort that erupted last summer, the competing claims between the two sides remain, officials said. And a previous experiment with creating a demilitarised zone on the border with China has shown that it is not a guarantee of peace.

An 80 sq km patch of pasture land along the southern edge of the Tibetan Plateau and the Indian border state of Uttarakhand was the first to be set aside as no-man’s-land in the 1950s. Yet that has failed to prevent conflict in the area, according to Jayadeva Ranade, a member of India’s National Security Council Advisory Board and head of the New Delhi-based Centre for China Analysis and Strategy. “Uttarakhand border continues to be a hotspot,” he said. “Beijing’s track record of respecting agreements is poor.”

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The Indian Express has a useful explainer on India-China trade in 2020, which remained quite robust. India is still importing large quantities of machinery from China. While imports were down 11%, this is probably more due to a slump in demand than India either diversifying or manufacturing those goods at home:

In 2020, even as relations with Beijing plunged to new lows and New Delhi took steps against Chinese-linked businesses, China reclaimed its position at the top of the list of India’s major trade partners, replacing the United States that had climbed to number 1 in 2019.

Trade between India and China from January to December 2020 stood at $77.67 billion. Though lower than the $85.47 billion traded between the countries in the 2019 calendar year, this figure was still higher than the $75.95 billion traded between India and the US last year.

In the (ongoing) financial year 2020-21, provisional data for the April-December period show China ahead of the US in India trade – $60.63 billion compared to $55.00 billion.

Electrical machinery and equipment, at $17.82 billion, and nuclear reactors, boilers, machinery, and mechanical appliances, at $12.35 billion, continued to top the list of goods imported from China in 2020 — even though the imports of these goods dropped by nearly 11 per cent in the last calendar year compared to one year previously.

Exports of Indian iron and steel to China jumped by a massive 319.14 per cent over 2019, with shipments touching $2.38 billion during January to December 2020. Iron and steel exports to China in 2019 were around $567 million. Export of ores, slag, and ash increased by 62 per cent to $3.48 billion in 2020 from $2.15 billion in 2019.

Overall, exports to China in 2020 were $17.12 billion — around 10.70 per cent higher than in 2019. In the April-December period of the 2020-21 financial year, exports to China were $15.26 billion, up from $12.92 billion in the same period of financial year 2019-20. The increased exports, including those of iron and steel, could be the result of China’s focus on domestic infrastructure projects.

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The National People’s Congress (NPC), China’s legislature, often described as ‘ceremonial’ or ‘rubber-stamp’, two adjectives you’re going to see a lot of in news reports over the next two weeks, begins its annual session on March 5. It’s nevertheless an important political meeting that, leaving aside all the ceremony, serves useful pointers on policy direction. Reuters has an explainer on what’s in store at this session. The annual government work report and military defence budget are two things to always keep out for, and also the 14th five year plan (2021-2025). China last year for the first time scrapped an annual GDP target because of the pandemic.

Damien Ma has a piece I recommend reading in full on another important document, which is a ‘Vision 2035’ long-term plan:

Much of the focus at this year’s upcoming National People’s Congress (NPC) will be on the final 14th Five-Year Plan (FYP). What could fly under the radar is the simultaneous release of China’s 2035 long-range plan, which has been released just once before 25 years ago.  

It is tempting to simply dismiss the 2035 plan as aspirational. But it could turn out to be more consequential because it aims to rearrange the global pecking order that has endured for more than a century: make China the world’s largest economy in 15 years.  

Although this goal was not explicit at all in the draft 2035 plan, implicit in its vision is a doubling of the Chinese economy to roughly $30 trillion (in 2020 US dollars) from 2020-2035. At that point, China would just edge out the United States in aggregate GDP, if assuming US average growth of 2% through 2035.  

Supply chain resilience has been one issue getting a lot of attention this year:

China's Ministry of Industry and Information Technology (MIIT) disclosed Monday that it is "mapping" 41 major industries and its sub-sections with a view to addressing weaknesses and increasing resilience.

The project is conducive in formulating concrete policies to improve weak sections and strengthen industrial chains and supply chains.

China will take the initiative within surging new industries, such as 5G, new energy vehicles (NEV), high-end medical devices, biological medicine and new materials, and maintain the completeness of traditional advantage industry chains, according to Xiao Yaqing, minister of the MIIT.

Further big changes in Hong Kong are also on the cards, changes that could dramatically alter its political system, reports Reuters:

The proposed reform will put further pressure on pro-democracy activists, who are already the subject of a crackdown on dissent, and has ruffled the feathers of some pro-Beijing loyalists, some of whom may find themselves swept aside by a new and ambitious crop of loyalists, the people said.

“It will be an earthquake shaking up local political interests,” said one person briefed on the impending changes.

The measures will be introduced at the annual meeting of the National People’s Congress, China’s rubber-stamp parliament, which starts on Friday, according to media reports.

The plan was signalled last week by senior Chinese official Xia Baolong, who said Beijing would introduce systemic changes to only allow what he called “patriots” to hold public office in Hong Kong.

While the focus at the NPC is usually on matters domestic, there is some unusual attention on India and the border at the moment in the wake of the February 19 announcement by the Chinese military on honours for five soldiers. I reported on two NPC related developments:

—One PLA delegate at the NPC is proposing an expanded drone deployment programme for border areas, revealing shortcomings faced last year. As I note in the piece, while the PLA doesn’t really need the NPC to tell it how to deploy along the borders, the NPC takes up proposals that relate to issues in the public spotlight - this is certainly one of them - to show how the government is addressing them.

— Among the new appointments is that of former PLA General Zhao Zongqi, for long the head of the Western Theater Command, as a vice chair on the NPC foreign affairs committee. If the foreign affairs committee, which can propose bills and thus shape the agenda of foreign policy, is broadly ceremonial (I did warn you about those adjectives!), his appointment is at least telling in that he remains highly regarded for his term overseeing the Western Theater, which included the 2017 Doklam crisis and last year’s border tensions as well.

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Finally, this event tomorrow hosted by the Institute of Chinese Studies, Delhi on India-Taiwan economic ties may be of interest to readers. You may register here.

Thank you for reading this issue!