CHENNAI

쑺8 www.businessline.in/opinion EDITORIAL THE HINDU ● BUSINESS LINE

TUESDAY, SEPTEMBER 15, 2009

VOL. 16 NO. 256 TUESDAY, SEPTEMBER 15, 2009

How real is China’s revival?
Safe landing
E The massive pumping in of money, which fuelled the revival,
conomists in China are billion Yuan, down from 1.5 trillion
growing worried about in June, has led some economists to
the country’s current pat-
tern of growth and debat-
is now creating bubbles in China’s stock and property suggest Beijing was heeding their
advice and beginning to become

T
he resolution of the stand-off
between Jet Airways manage-
ment and its pilots can at best
be described as a truce rather
than a victory for either party.
As is often the case in such high profile indus-
trial relations disputes, the agreement that
led to the airline resuming normal operations
is a more nuanced depiction of a complex
state of affairs between the airline manage-
ment and the pilots rather than a signal victo-
ry or defeat for either party. Both have
certainly yielded some ground from their
maximalist positions enunciated earlier.
Equally, it is fair to say that the apparent
climbdown is in reality a signal of their re-
solve to take up the core issue at another time
and in another setting of their choosing.
The dismissed pilots have been taken back
and to that extent the airline pilots have got
what they wanted. However, the fact is that
the management never really had any dis-
ciplinary issue against the dismissed pilots
save their active role in the formation of a
trade union. Once the pilots relented on go-
ing through with the legal formalities linked
to the registration of their guild as a trade
union, it was easy for the management to
agree to take them back. The National Avia-
tion Guild is far from disbanded which
means that pilots continue to possess a col-
lective forum to air their grievances; willy-
nilly, the management has conceded the
principle of col-
lective bargain- 쑺 The country
ing and needs a more
consensual deci- innovative
sion making.
The Industrial approach to
Disputes Act has industrial
from time to time relations than
provided ample
evidence that it the mechanistic
neither promotes framework
industrial har- offered by the
mony nor re-
sponsible
present law.
behaviour by warring parties to the dispute.
For the management there is enough in it
that can be employed as a filibustering tactic.
As for the unions, if they choose to ignore the
injunctions under law, the legal process can
do little to prevent them. In the event, the
country needs an innovative approach to in-
dustrial relations than a mechanistic frame-
work offered by the present law.
Managements needs to shed their somewhat
prickly attitude to any attempt by the em-
ployees to organise themselves under a struc-
ture for their collective benefit. The history
of the trade union movement and collective
bargaining in the organised sector suggests
that managements have to deal with any re-
presentative body of employees irrespective
of its legal status. Refusing to recognise its
existence or choosing to deal with only such
of those that enjoy a legal status only runs the
risk of inviting aggressive industrial action.
For a service industry such as aviation which
does not have the luxury of operating with an
inventory of finished goods, the consequenc-
es can only be adverse over the long term.
쑺 LETTERS
Recovery indicators investment by the private
sector is not picking up. It
ing a very fundamental question:
how real has China’s revival been?
When China announced in July the
country had recorded close to eight
per cent growth for the second quar-
ter of this year in the middle of the
worst downturn the country has
faced in decades, the news was
widely read by the media as China
conquering the recession.
In a year when many of the
world’s major economies will con-
tract, China is on course to meet its
target of 8 per cent growth, a fact
that has led many to suggest the
country’s revival may lead the rest of
the world out of the economic
gloom.
PROPPED UP GROWTH
But here in China, contrastingly, the
reaction to the country’s recent
growth figures has been far less cele-
bratory. Economists are pointing
out with increasing anxiety that the
7.9 per cent growth was only made
possible by record Government
lending and massive investment in
infrastructure which compressed
three years’ worth of projects into
nine months.
Now, nine months after China’s
$586-billion stimulus plan went into
action, many economists here say
this success may have come at wor-
rying long-term costs.
It is becoming increasingly evi-
dent that the massive pumping in of
money, which fuelled the revival, is
now creating ominous bubbles in
China’s stock and property markets.
The first half of this year saw lending
on a scale never before seen in histo-
ry: in six months, bank lending reac-
hed a huge 7.4 trillion Yuan (about
$1.1 trillion).
“If you pump in that much money,
and it has been pretty indiscrimi-
nate, two or three years down there
is potential for massive hidden bad
debt in the system,” says Mr Tom
Miller, an economist with the Beij-
ing-based Dragonomics research
firm. “This is clearly not sustainable
in the mid term and long term.”
SPECULATION BUBBLE
Fears of many of those loans going
bad are growing, as evinced by the
wild fluctuations seen in the Shang-
hai stock market in recent weeks.
There is confusion among investors
on a very fundamental question:
how real has China’s revival been?
Analysts say as much as 20 per
cent of the new lending sanctioned
by the Government this year went
straight to the stock market, fuelling
a speculation bubble of the kind Chi-
na has never seen before. The
Shanghai stock market showed a re-
Australian dream turns sour
for Indian students
쑺 Indian students see education in Australia
as a passport to permanent residency there
and tend to overlook vital information about
the quality of private education providers
and the nature of jobs that such an
education fetches.
Vidya S. Sharma
markets. The motivation for Beijing’s short-term focus is
clearly political with the 60th anniversary celebration
just round the corner, says ANANTH KRISHNAN .
Beijing’s responding to the crisis by pumping money into the economy to create jobs may have
worsened the country’s over-capacity problem.
markable 70 per cent rise in 2009,
but growing concerns have seen it
plummet this month by 20 per cent.
The property market too has been
soaring with new lending, and trans-
actions are already back at pre-
downturn 2007 levels. “There is just
so much liquidity in the system,” Mr
Miller says. “There are signs of a
bubble, but we just don’t know if
we’ve reached there yet.”
EXPORT COLLAPSE
China’s policymakers faced a clear
choice in crafting the country’s re-
sponse to the downturn: addressing
short-term employment concerns or
tackling the long-term question of
moving towards an alternative pat-
tern of growth that is less export-
reliant.
The last year has seen the closing
down of more than 100,000 facto-
ries whose life-blood was the export
demand from the US and Europe.
Exports are now down by more than
20 per cent from last year, and the
collapse of export-driven industries
has seen an estimated 20 million mi-
grant workers lose their jobs and
head home.
Beijing’s focus so far has been to
address this employment crisis and
prevent the spread of unrest, with
the People’s Republic of China pre-
A vast majority of the students are
paring to mark its 60th anniversary
in October. The Government re-
sponded to the crisis by pumping in
money into the economy to create
jobs, but its response, some say, has
made an already growing over-ca-
pacity problem worse. “The prob-
lem is that loose monetary policy is
exacerbating the imbalance that
China needs to work through, since
most of the expansion is being di-
rected at investment in expanding
current and future capacity,” argues
Beijing-based economist Mr Mi-
chael Pettis.
“But this comes at the cost… of
constraining the future growth in
domestic consumption. Without
rapid future consumption growth …
I just don’t see how China can sup-
port rapid GDP growth once the
huge fiscal push becomes unsustain-
able and runs out of steam.”
SHORT-TERMIST
Economists say it is too early to say
what the long-term impact of the
country’s current growth focus will
be, but the general consensus is the
current revival more reflects a
short-term papering-over-the-
cracks rather than a sustainable so-
lution to the fundamental problems
facing China’s economy. The re-
sponse so far, if anything, has taken
supply, get jobs and live in Australia
for two years. The students are keen
to be offered an admission to a
course in any institution represent-
ed by any Indian agent. They see the
course fee not as a cost of acquiring
education leading to better career
prospects, but as the cost of PR in
Australia.
They believe they are buying PR
virtually at no cost: while studying
the country in the opposite direction
of solving its problems.
As a recent report by the McKin-
sey Global Institute on China’s
growth patterns argues, the govern-
ment’s response, while “highly suc-
cessful in restoring short-term
growth,” has risked “aggravating
structural distortions” that made
China’s export-reliant economy so
vulnerable to external shocks in the
first place.
NO POLICY CHANGE
These concerns have led economists
to call on the government to slow
things down, but there are no signs
that Beijing has any intention of do-
ing so with the National Day cele-
brations looming. Premier Wen
Jiabao has frequently declared in re-
cent weeks China will “unswerving-
ly” stick with its current loose
monetary policy and emphasis on
addressing the employment prob-
lem.
Government economists have de-
fended the policy by saying they ex-
pect exports from the West to revive
sometime next year – an expectation
many economists doubt, saying a re-
turn to pre-downturn export levels
would take at least three to four
years.
A drop in lending in July to 356
concerned over the pattern of
growth. But others say the fall in
lending was purely cyclical with
most loans usually issued in the first
half of the year and there will likely
be no change in the government’s
focus for the time being.
“For a moment, if the government
were to choose between managing
the asset bubble and consolidating
the economic recovery, the govern-
ment would definitely choose the
latter one while making compromis-
es with the bubbles,” Mr Jerry Lou, a
Hong Kong-based strategist at Mor-
gan Stanley said recently. Mr Lou
said the government would likely
carry on with its loose monetary pol-
icy, despite the fears of bubbles, at
least until the middle of next year.
HOME CONSUMPTION
Echoing what most economists have
argued, the McKinsey report says
China, in the long-term, will have to
drive the economy more from do-
mestic consumption rather than its
current export-led growth. Doing
so, however, would require substan-
tial structural changes that will re-
quire painful short-term costs. To
begin with, China would require
massive investment in healthcare
reform, given that healthcare costs
are the biggest drain on private
spending. The report forecast that
China could realistically hope to in-
crease private consumption’s share
of the GDP only “if policy makers
depart from the current develop-
ment paradigm and embrace new
policies.”
But in the last 12 months, there
have been no signs to suggest such a
shift is imminent. Much of the mon-
ey released by the stimulus plan has,
in fact, found its way to state-owned
industrial enterprises, which are, for
the first time since China’s opening
up, now growing at the expense of
private companies. Employment in
China’s famously inefficient state-
owned companies has increased in
the past year by 250,000. Between
1992 and 2007, employment in the
public sector fell from 45 million to
17.5 million.
The motivation for Beijing’s
short-term focus is clearly political.
With the 60th anniversary celebra-
tion looming, Beijing “does not want
to spoil the party,” as Mr Miller puts
it. The last thing Beijing wants, on
the eve of its grand celebration, is
tens of thousands of angry laid-off
migrant workers landing up at the
city’s doorsteps. But what happens
once the celebrations are over is
anybody’s guess.
(blfeedback@thehindu.co.in)

This refers to your
editorial “Nursing the
recovery” (Business Line,
September 10). India is on
recovery path, given the
economic indicators —
surge in manufacturing
output, growth in service
sector — which have been
reasonably good during first
quarter of this financial
year. There is an increase in
business confidence levels,
manifested in the quantum
jump in the Sensex and the
Nifty after March 2009.
Good first quarter results
and the likelihood of the
trend continuing for the
second quarter too are
giving an impetus to the
stock market. However, the
primary factor in the
recovery process is headline
inflation that may raise its
ugly head again in the
coming months following
the poor monsoon and
supply constraints. To
prevent this, the
government has already
initiated steps for import of
sugar to meet the festive
demand and also to contain
spiralling open market
prices.
Another stumbling block
is that, despite low interest
rates and a favourable
investment climate,
Letters to the editor and contributions can be sent
by e-mail to: bleditor@thehindu.co.in
seems the element of risk is
still haunting corporates,
holding them back from
venturing into major
investments in a big way.
Deals that should have been
concluded earlier are still in
finalisation stage and
corporates are cautious not
to block funds in new
ventures.
Consumer spending
should also go up to
maintain robust growth.
Further, consecutive decline
in exports for 10 months in a
row should be arrested and
the new FTP has rightly
addressed some of the
irksome factors contributing
to low exports.
In the coming months,
both the Government and
the RBI should engage in
fighting inflation and ensure
that the growth witnessed in
the first quarter is
maintained. The central
bank should support the
government’s efforts by
continuing to maintain low
interest rates to sustain the
recovery process.
Given such support, it
should be possible to
surpass the rather low
estimates made by the IMF
and Unctad.
K.N.V.S. Subrahmanyam
Hyderabad
U
ntil the mid-1990s, Indi-
an students in Australia
came mostly for post-
graduate studies to uni-
versities considered at par with their
counterparts in the US and the UK.
There were no private education
providers (PEPs).
Their studies were funded
through various scholarships, such
as Commonwealth, University-
based scholarships, etc. They were
chosen purely on academic merit
from an international field. The con-
cept that a student could buy a uni-
versity place by paying full-fees for a
course did not exist
Today, about 99.9 per cent of the
Indian students are full-fee paying
students. This sector is estimated to
be worth A$15 billion ($12b) to the
Australian economy, though other
estimates put this figure at A$6 -8
billion. For the year commencing
March 2009, the sector grew by 21.4
per cent over the last year. This
growth largely came from China and
India (70,000 and 60,000 students
respectively). The Indian students
total about 100,000.
PEPS, INDIAN AGENTS
Only a small percentage of them are
in universities in courses leading to a
degree. About 70 per cent of these
students attend courses offered by
PEPs.
The PEPs generally offer courses
in trades (e.g., cooking, waiting ta-
bles, hair-dressing, etc.) where qual-
ified personnel are deemed to be in
short supply by the Australian Go-
vernment. These short-duration
courses last about six months.
from Punjab, Haryana and Greater
Delhi. Many, especially those from
villages or provincial towns, are not
proficient in English. They first do
courses in the English language be-
fore being admitted to other courses.
The PEPs recruit Indian students
through their network of agents.
The latter work on a success fee ba-
sis (as high as 30 per cent of what a
student pays as annual fee) and are
not above misleading prospective
students to clinch a sale.
The Australian of April 15, 2009
reported the case of Indian student
Tanaya Das returning to Bangalore
because she was misled by an agent
working for the University of Tech-
nology, Sydney, regarding the cost of
living and finding a part-time job.
Another prospective Indian stu-
dent was shown pictures of the Flin-
ders Street Railway station when he
asked his agent what his college
looked like. Such media reports are
not uncommon.
A FAUSTIAN PACT
A Faustian pact seems to exist be-
tween the Indian students, the edu-
cation agents, the PEPs (those
where the Indian students go to are
mostly run by Australians of Indian
origin) and the Australian
Government.
The students find Australia a very
attractive destination for obvious
reasons. Seeking education is not
their primary purpose. They come
here because Australia’s points-
based, non-discriminatory, immi-
gration system allows them to be- UNETHICAL AGENTS
come permanent residents (PR) This puts the focus on another party
after they qualify in trades in short involved in this nexus: a small group
they would earn enough money not
only to support themselves, but also
pay for course fee.
Trade qualifications gained from a
government-owned college are
highly valued because the colleges
must have minimum level of facil-
ities for every course per certain
number of students (e.g., a commer-
cial quality kitchen and a restaurant
for students doing cookery/ chef/
waitering courses, etc.).
These courses are of a longer du-
ration too. The chef’s course lasts
three years. Besides completing the
school units, a student chef must
work 3-4 days a week full time at a
restaurant/hotel kitchen to master
his trade.
SUB-STANDARD FACILITIES
PEPs do not feel bound by such con-
straints. The Australian Broadcast-
ing Corporation (ABC) recently
reported that one PEP had admitted
five times more students than al-
lowed.
Another offered cookery courses
but did not have a kitchen. Yet an-
other entrepreneur who started off
with a small PEP now owns a large
number of PEPs with no corre-
sponding increase in teaching staff,
facilities, etc.
So, generally, the education of-
fered by PEPs is sub-standard. Indi-
an students often fail to gain
employment in their respective
trades because the employers feel
they lack the necessary skills.
Many Indian students in Australia seem to be caught in the nexus
between the education agents, private education providers and even
the Australian authorities. —
of unethical immigration agents
(mostly Australians of Indian ori-
gin). The students go to them as they
find them helpful in fulfilling their
PR requirements. For example, a
student doing a cookery course is
required to do 900 hours of paid/
voluntary experience to obtain his
cookery certificate.
An ABC journalist recorded one
such unethical agent offering to get
such a certificate for a few thousand
dollars. The agent in question has
now been barred. It also shows some
restaurant-owners are also on the
take.
Consequently, these students end
up continuing to work as kitchen
hands or stacking shelves in super-
markets or work as tellers/cleaners
at petrol stations and supermarkets,
taxi-drivers and in fruit and vegeta-
ble shops, etc. In other words, they
do unskilled low-paying jobs.
The Australian Government, an-
other party in the Faustian pact,
benefits as the export education sec-
tor employs a large number of peo-
ple; students help it earn a large
amount of foreign currency annual-
ly; and Australia attracts healthy,
hard-working young workers who
have paid for their education on a
permanent basis if they succeed in
gaining a PR. An Indian student
seeking education here to improve
his career prospects would greatly
benefit if before making a decision
he investigates fully the reputation
of the institution, for example, by
contacting a student previously sent
here by the same education agent,
especially if it is a PEP and his em-
ployability on completing the course
as well as the possibility of getting a
part-time job while studying.
He should also ascertain the living
costs so that he is not forced to live in
dilapidated houses and crowded
conditions in rundown suburbs, ve-
ry often in the company of drug us-
ers with a tendency to steal or mug
people to pay for their habit.
The Indian Government could
further help them by regulating the
Indian agents, requesting the Aus-
tralian Government to monitor
PEPs more closely, and persuading
the Australian authorities to provide
affordable student accommodation.
(The Melbourne-based author specialises
in organising inter-country joint ventures
between Australian and Asian companies.)

CH-X