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October 2014 Volume XVIII, No. 12 www.asianaffairs.in Managing Editor Pablo Sat-Bhambra Editors David Watts Shyam Bhatia Features Editor Tom Deegan Assistant Editors Linda Lloyd MISSION ACCOMPLISHED: Indian satellite Mangalyaan Paul Hamilton 5 makes history by entering Mars' orbit on its maiden voyage Production Incharge Deepti Sharma 5 Mars Orbiter Mission 33 Arab/Muslim world Asian Affairs Ltd. Mangalyaan: the near impossible Competing caliphates will 196 Church Rd, Northolt, made possible weaken radical Islam Middlesex, UB5 5AE, UK J S Pereira George Friedman 6 Islamic State 36 Chinese economy Direct descendants and radical China will not be the next Japan Editorial offices in London, New Delhi, departures Andrew Leung Hong Kong, Kenya, Australia, Canada, David Watts Brussels, Geneva, USA 9 Pakistan 38 Culture & politics UK Office A coup for sense over street politics Taking the stage and taking a 34, South Molton Street Shyam Bhatia stand Linda Lloyd London W1K 5RG Sino-Indian relations Tel: (+44) 020 7409 5113 12 Bruising duality of Modi-Xi summit 41 Kashmir Fax: (+44) 020 7409 5114 Inder Malhotra Let's not colour the question Email: [email protected]; with communalism [email protected] 14 War on terror Kuldip Nayar Diverse angles on the militant India Office menace 42 South Asia 5-E, 2nd Floor, Rani Jhansi Road G Parthasarathy India on jihadist radar Shyam Bhatia Jhandewalan Extn, New Delhi-110055 17 Interview at Faiz Mela Pakistan and the poet Pakistan Copyright asianaffairs 2014, all rights Dr William Crawley 44 reserved. No part of this publication may be Sharif's stay of execution reproduced without the express consent of the 22 Parliamentary debate on J & K Rahimullah Yusufzai publisher No role for the West David Watts 47 Western jihadists asianaffairs is printed and published by Deadlier than the male? Asian Affairs Ltd. 24 Israel-Palestine conflict Rupert Fisher Time for Israel to put its money 196 Church Rd, Northolt, where its mouth is Middlesex, UB5 5AE, UK 49 Indo-Pak geopolitics Sir Peter Luff Sikhism in the seventies: a call Editorial contributions to asianaffairs are to arms 26 Israel-Palestine conflict Sarabjit Singh welcome. The editor reserves the right to edit When will the world wake up to the text. The views expressed in asianaffairs Israel's war? are not necessarily those of the publisher 52 Environment matters Tom Deegan The beauty of doing a lot with a ISSN:1366-3623 31 Interview little Colonel Bob Stewart talks IS and Asgar Boo asianaffairs is available at the following annual subscription rates: ethics, and says he believes Sunnis and Shias can work UK £23.50 together to overcome a common Europe and Eire £27.50 enemy Asia, USA and Africa £36.50 Shyam Bhatia Australasia £39.00 Pictures: AFP 2 Editorial Page 33 article: Stratfor 3 Letters 55 News Nuggets Chinese economy ago. Since then, the market has been characterised by massive pent-up demand supported by continuing China will not be the next Japan income growth, urbanisation, the rise of smaller families and an exploding Although China's economic growth may have stalled lately, Andrew Leung, an middle class. international and independent China specialist based in Hong Kong, predicts that this does Shadow banking and a wobbling not spell decline for the Asian giant. banking sector? The answer lies in the following perspectives. Firstly, China's big four over 100,000 from the same period banks are amongst the world's top ten last year. He asserts that China cannot largest by banking assets. The vast rely on loose credit to lift its economy, majority of China's banking assets are and that Beijing would continue to state-owned, backed by a colossal roll out modest 'targeted' measures to foreign exchange reserve of $4 shore up growth. trillion. They are also far less So, what is going on? Would China leveraged than Western banks. With reforms in place, the RMB is likely to become the world's most in 2014 presage a repeat of Japan's Secondly, shadow banking is a traded currency 'lost decades' as claimed by some universal phenomenon, the outcome analysts?1 of modern-day credit creation outside convertibility of the RMB as an for SE Asia, China and India 2014 — The worries are primarily three- the formal banking system. According 5 international reserve currency . Beyond the Middle Income Trap, the fold: the risks of a housing bubble, a 4 to data from J P Morgan , measuring OCED finds that China's economy possible shadow banking crisis and Ability to deliver a new model of financial intermediaries as a will slow from 7.7 per cent in 2012 to questionable ability to deliver a new sustainable growth percentage of bank assets, China's 7.5 per cent by 2018. The report model of sustainable growth. Following the 60-point decisions of shadow banking exposure (some 30 suggests that under a best-case per cent) ranks below average (50 per the Communist Party Third Plenum in A housing bubble? scenario, China should be able to cent) among 20 jurisdictions at the end November 2013, there is little doubt The first major difference of China's transit beyond the middle-income of 2012. The US and Netherlands had that the Xi leadership really wanted housing market is that traditionally, trap by 2026, a little later than the largest shadow banking systems at fundamental reforms. The question is the gearing (on average about 50 per Malaysia (2020) but ahead of 170 per cent and 150 per cent to what extent these reforms may cent) is very low by international Thailand (2031), Indonesia (2042), respectively, while South Africa and deliver a substantially transformed comparison2. According to findings of Philippines (2051), Vietnam (2058) Mexico had the largest among China by 2020. GROWTH FACTOR: Li Keqiang points out that the Chinese economy and India (2059). Beijing has recently the Institute of Real Estate Studies, emerging-market countries, at 66 per still created 9.7 million new jobs in the first eight months of 2014 Does China's economic slow-down stated that a medium-term average Tsinghua University (2007-10), the cent and 56 per cent respectively. ratio of housing prices to disposable herald long-term decline? growth rate of about 7 per cent is Thirdly, Beijing is well aware of the China's decades of labour-and- raft of ominous data on drop in January-July as banks grow income varies below 13 per cent for aimed for. risks of shadow banking and is resource-intensive breakneck growth China's economy in August more cautious in anticipation of eight major Chinese cities except A applying the brakes across the board. has accumulated a mountain of An Asian century in the making? has sent alarm bells ringing Beijing (18 per cent) and Shenzhen further price declines. And last but not least, China's shadow problems ranging from growing Per capita income measurements do (22 per cent). A 30 per cent drop in across the globe. Government Industrial output rose only 6.9 per banking has arisen primarily because inequality, corruption, ecological not do justice to the economic weight price would translate into only 3 per stimulus doesn't seem to be working. cent in August from a year earlier — the of 'financial repression'. Under this degradation, lowering capital of large economies with huge cent negative equity. In an article Overcapacity remains evident. An lowest since 2008 — compared with current system, the state extracts productivity, and other hurdles of the populations. According to the World overwrought housing market seems to expectations for 8.8 per cent, slowing 'China's property market is no bubble' surplus savings through suppressed Bank, China's economy is likely to 3 middle-income trap, which many persist. Shadow banking continues to sharply from 9.0 per cent in July. in the Wall Street Journal , Yukon bank deposit rates. Lending goes developing countries will have to overtake that of the United States this loom large, an albatross round the Some analysts believe annual Huang, Senior Associate at the mostly to large state-owned overcome to transit to a higher- year in purchasing power parity neck of a seemingly fragile banking economic growth may be sliding C a r n e g i e E n d o w m e n t f o r enterprises. This has spawned a income economy. China has terms. The Economist estimates that and financial system weighed down towards 7 per cent in the third quarter, International Peace and a former plethora of higher-interest-bearing repeatedly affirmed that she is in for a with slower growth rates, China's by rising debts. casting doubt on the government's country director for the World Bank in wealth management products outside slower, more equitable, more economy will become the world's China's power generation declined full-year target of 7.5 per cent. Experts China, shows that the graph of bank balance sheets. The resultant balanced, more innovative, higher- largest by 2021. Be that as it may, for the first time in four years, falling reckon output growth of around 9 per construction and real estate value- investments give rise to dubious quality, and more sustainable growth. should China succeed in overcoming 2.2 per cent in August from a year cent would be needed to attain such a added as a percentage of GDP (1981- projects infested with corruption. But the question is how much slower, the middle-income trap by 2026, her earlier, while growth in sales of most goal. 2012) only rises moderately between These multi-faceted problems are as a growth rate much higher than economy by then will have grown housing-related goods slowed.