Rowan Callick (Asia-Pacific editor)

As China battles to keep its grip on the steering wheel of Asia, the world’s engine of economic growth, a new power is rising rapidly in the region: India.

India, whose law-based, democratic institutions and pluralistic culture are national elements widely shared in the region, has not yet developed an Asian narrative to rival China’s impressive “silk road” suite.

But as China becomes mired in a deepening web of disagreement in the South China Sea, India is starting to emerge as a second potential Asian champion.

This has been underlined during the past week of extraordinary national self-examination and of celebration.

The week began with India’s 1.25 billion citizens receiving a warm letter, published on the front page of ever newspaper: “Friends, this is just the beginning. Our objective is to transform quality of life, infrastructure and services. Together we shall build the India of your dreams.”

It was signed off, “Always in your service, Narendra Modi.”

For Australia, the dream he conjures, is of a vast country becoming our “new China” with an insatiable hunger for our resources including iron ore and especially coal, and for our skills and capital.

The charismatic prime minister has been celebrating over the last few days, his first anniversary in office, widely dubbed India’s “Modiversary.”

Modi has begun to embody the vast nation’s hopes maybe even more than do his all-conquering Asian counterparts, Japan’s Shinzo Abe and China’s Xi Jinping – whose “Chinese dream” has tellingly become his own signature phrase.

Modi is affectionately being dubbed NaMo by India’s fast-expanding mass media – even though he has failed to give a single press conference at home since being elected, preferring to communicate directly through social media and through cleverly staged telegenic events, especially during his international visits.

Few had expected that he would be such an avid traveller, visiting 18 countries including all India’s neighbours and all the world’s major economies.

In most, he has been feted by members of India’s 25 million strong diaspora, as the first national leader to honour them – with his Bharatiya Janata Party (BJP) opening a special office dedicated to “non resident Indians.” Importantly, many retain their right to vote.

He has been portrayed in such visits not as a humble novice but as a proud equal of all he has encountered. He has taken with him around Asia, experts on yoga, underlining India’s “soft power” as the heartland of Buddhism – despite his party’s founding core as an agent of Hindu zeal – and of an enduring pan-Asian culture.

His visit to Australia, including a confident speech to parliament, was the first by an Indian prime minister in 30 years. It made a strong impact, magnified through the presence of Indians who have become the biggest group of skilled migrants, overtaking Chinese in the last two years, with Australia heading towards a million people of Indian background.

To entrench his new position on the global top table, it is essential that Modi ramps up the Indian economy so that it does not only hit the high spots – double-digit economic growth – occasionally, but sustainably.

Already, India has overhauled China as the fastest growing large economy in the world, heading for 7.5 per cent for 2015.

Modi inherited power – or seized it – from a Congress Party that had already moved in this direction, but more tentatively.

Now, his government is unequivocally chasing growth on the East Asia model.

He has changed the political conversation, says influential thinker Amitabh Mattoo, Delhi-based chief executive of the Australia India Institute, from one about government support to one about growth and jobs.

The pent-up hunger for personal as well as national progress has “seized the hour” to the extent that other narratives lack oxygen.

The aspirational Indian of all castes and religions is now pinning her or his hopes on Modi.

Australia and India are careering rapidly towards a free trade agreement by the end of 2015, pledged by the two prime ministers but appearing at first beyond reach.

Modi has kept his government extraordinarily busy issuing ambitious targets, always accompanied by deadlines. He has already begun hauling in his ministers and top bureaucrats to review progress.

Among them, is to “upskill” 500 million people by 2022 – because up to 65 per cent of the population works in agriculture, which contributes just 16 per cent of GDP.

As in the process now tailing away in China, hundreds of millions need to – and increasingly want to – come off the land to find more productive employment in India’s teeming cities.

Australia’s TAFE sector and its universities are being sought to play a key role in this transition.

India needs to attract more investment, and to upgrade its infrastructure to do so, ambitiously seeking to create 100 new “smart cities” of 1 million or so.

Australia’s financial institutions – all the major banks are already there – and infrastructure and logistics consultants and companies can play key roles.

Amitabh Kant is one of the new technocratic leaders who are seeking to realise Modi’s and India’s dreams in a hurry, battling the demographic demons that are seeing China’s population overtaken in the next few years – with 72 per cent of Indians now under 32. If they emerge as young adults without skills or jobs, they become a large looming threat.

Kant is the Secretary of the Department for Industrial Policy and Promotion, one of the new top bureaucrats with whom Modi works directly, and on whom he depends as much as on his variably competent ministerial team.

The Economist’s front cover headlines “India’s one-man band”, showing Modi playing a sitar but burdened with drums, tubas, and a kitchen sink.

His supporters say that while he appears to be in effect his own Foreign Minister and Finance Minister – personally playing the leading role in drafting his two budgets – he is a good listener to those he respects.

And he clearly respects Kant.

Kant told The Australian that his own KPIs include to drive manufacturing – which powered east Asia’s own rise – from 16 per cent of GDP to 25 per cent, helping absorb those marching off the land, where “agriculture needs a second green revolution,” another area where Australia has a role to play.

This industrialisation program is dubbed by Modi “Make In India,” with 25 promising sectors identified.

Already, the first car both designed and manufactured totally in India is coming off the production line – the Kwid, made by Renault-Nissan in Chennai.

India is already famous for its hi-tech skills, and it is rolling out a new nationwide process of providing biologically certified registration of its poorest 850 million people.

This, allied with the access of even India’s poor to smartphones – 950 million mobiles are already in circulation – will enable the government to target welfare directly to individuals rather than as at present through inefficient and economically disruptive subsidy schemes.

E-commerce will help drive new jobs, Kant said, leapfrogging earlier technologies – though also, more challengingly, 21st century industrialisation will employ fewer people, as robotics keeps advancing.

Already, Kant said, foreign direct investment has climbed 56 per cent this year, with new sectors being opened up to international corporations including railways, defence, construction and insurance.

He said: “We need to negotiate a trade deal with Australia,” and stressed the need for coal imports, without which “India will not grow at the record rate it requires, for the three decades it needs.”

Australia’s resource inputs are crucial, he said. And India’s own mining sector is being opened up – “from which Australian players will get huge benefit.”

Kant said: “We want world class mining. This is just one element among the many synergies between India and Australia.”

The gap between ambition and performance remains necessarily wide after just one year of a five-year administration.

But Trade and Investment Minister Andrew Robb has become a believer, investing sufficient faith in positive outcomes to be planning his fourth visit to India in seven months, later in June, to help keep the FTA on its fast track, despite India’s stretched negotiation resources.

A poll for the Times of India, with 35 million daily readers, gave Modi’s government a 66 per cent approval rating. Its own editors went a step further, awarding it 77.5 per cent in their own assessment – headlined “Modi govt gets Distinction in its first year.”

The editors’ highest figure was 9 per cent for “restoring leadership, governance and work culture,” and also for “burnishing India’s image globally.”

To become eligible for such acclaim, Modi has had to clear the decks. The editors also awarded him 9 per cent for “curbing corruption, cronyism and black money.”

He said in a speech celebrating his anniversary: “Hundreds of power circles in Delhi have been demolished.”

The lobbyists and brokers for patronage and promotion who have for decades swarmed around and within Delhi’s rabbit-warren-like public service ministries, have never had it so bad, his supporters boast.

The political opposition isn’t in great shape either.

Rajeen Gowda, head of research for the Congress party is a member of the Upper House whose powers and turnover of members are similar to Australia’s Senate though without the same capacity to block budget items.

He told The Australian: “The magnitude of the Modi victory caught us by surprise. It was a huge shock.”

But now the party is starting to fight back through the Upper House – where Modi is likely to gain control eventually, but not for a few years.

It is holding up the passage of two key pieces of legislation – a new law on land acquisition intended to free up the development process, especially for infrastructure, and the introduction of a GST to cut out residual trade barriers between states, provide them with more assured income and encourage them to compete.

Modi has pursued these bills “on the wrong foot,” Gowda said, operating in a presidential manner and failing to negotiate or to consider the need for Indians at all levels to grant their consent for disturbing change.

“He successfully sold a developmental dream – encouraging people to believe the glory days are already with us – but somewhere a price has to be paid along the way, and that penny is starting to drop.”

Besides the “dream” rhetoric – “over-promising like crazy,” he said, “Modi’s guys do a tremendous amount of trash-talking and mud-throwing. His Defence Minister recently said we have to fight terrorism with terror. Modi has got the whole country in a tizzy.”

Swapan Dasgusta, a ubiquitous commentator close to the prime minister, naturally views the Modiversary differently, as “a moment for people to reflect about whether we’re on the right road.”

Modi “hasn’t shied away from the difficult issues. But he’s not an ideologue, he’s not a Margaret Thatcher flinging copies of Hayeck at her Cabinet colleagues.

“He has felt his way forward. He believes business has in the past been treated with an unfair degree of distrust.”

But Modi takes pains to stay at a public distance from business leaders, even those such as Gautam Adani – with massive coal investment plans in Queensland – whom he has known well for decades. Both come from Gujarat, where Modi cut his political teeth as an action-man chief minister.

Dasgusta said that “India has a fractious, combative political culture,” but crucially Modi retains an inner calm. He doesn’t have much of a life outside his political career. He lives a semi-monastic life as a devout Hindu.

He has a circle of 200-250 people around the country to whom he turns for advice, and with whom he might talk late into the night, sometimes for six or seven hours, said Dasgusta.

But this is not India’s traditional elite. “He has never got on well with old money.”

Modi is however “generally a good listener,” he said, especially plugged in to India’s vast aspirational class and their dreams.
*Rowan Callick visited India as a guest of the Australian high commission.

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Rowan Callick (Asia-Pacific editor)

A typical middle class child in South Korea goes to school from 7.30am to 5.30pm, has a snack, then at least a couple of days a week travels to an after-school college, studies there from 6.30 to 10pm, then starts homework after returning to her or his home.

On Saturdays, they are likely to take piano and possibly art lessons, as well as some further academic tuition.

This arduous regimen applies to many primary school children as well as to most of those at high school.

The rest of the world, including Australia, is increasingly shamed by the test results of north Asian students into vowing to catch up with their stellar performance.

This is of course easier said than done.

And there’s a further question: what is the cost?

Rayoung Kang, aged 28, knows.

An English graduate, she now teaches maths and English at an after-school institution in Seoul.

“Parents are very nervous about their children not doing enough studies,” she says. “So they may send them to more than one extra institution, on top of school.

“It’s a crisis if a child really doesn’t want to study so intensely.”

Kang says she has hardly ever come across a child who only studies at school, even though most school days last 10 hours. Almost all, go to extra tuition classes.

Sometimes private tutors are hired to come into the home – “but usually this happens on the two ends,” she says – “either because the child is reluctant to study, or because they’re especially bright.”

Korea’s celebrity tutors chiefly operate in the home. Parents who hire the, want to minimise public exposure for their children. “It’s where privacy is a priority – for the parents also,” says Kang.

“Mostly, money doesn’t matter to these parents. The tutors they hire, tend to focus on maths and English. They guarantee good results, they come from prestigious universities. They have good communication skills with the students, and have a big reputation.”

A male friend of Kang’s teaches in a private school and also does some tutoring. “A parent offered him $A25,000 a month, only to teach her children, because she didn’t want him helping their potential competitors.

“He rejected the offer although of course the money was good – but maybe next year , he said, he might not have a regular job, and would no longer have such a reputation, since he’d be working for a single family.

“The reputation issue was the most important for him. I understand my friend’s decision, as well as the attitude of the parents, because it’s a very, very competitive world.”

The top tutors get plenty of exposure on cable TV and on the internet, she says, broadcasting their coaching sessions.

Classes delivered by internet might cost about $A120 a session, per child. “And mostly that’s cheaper than paying to go to an institution like mine,” says Kang, “which can cost from $A60 per chapter of a book up to $A600 a month.

“I prefer teaching face to face. Internet teaching is OK but there’s less feedback of course.

“Mostly, students in Korea don’t ask questions anyway.”

She says: “My students usually ask me any questions in the break-times, because of peer pressure which makes it hard for them to admit in sessions that they may not fully understand something.

“I have to watch their faces and read their expressions to assess their comprehension. If they don’t seem to have understood, I’ll repeat the problem or question again. That’s my teaching skill at work.”

Parents, she says, are usually highly concerned about controlling their children’s time, especially invigilating their internet use, and the amount of games they play.

The core focus of both parents and students is on tests.

“The ultimate goal of education is to go to university,” Kang says. “In high school, especially in maths and English classes, there’s no time to discuss any problems or questions the students may have because the syllabus is so full, and there’s big pressure on time efficiency, for both teachers and students. The curriculum is intensive.”

Unfortunately, she says, as students get older, the time available for discussion is reduced. “There’s no time for thinking creatively, or even for solving problems, in high school. They just have to memorise.

“They have to practise a lot, not think a lot. In maths especially, students have to follow the teacher’s instructions exactly. I try to provide some space in English for students to introduce some of their own ideas and skills – though the course still requires considerable vocabulary memorisation.”

She usually has about 30 students in a class. “Their parents are typically really nervous about their children’s future. They are eager for them to go to a prestigious university. Grades are more important than any other issue.

“The parents say their students should win the race, and will do so if they learn more before a subject even starts to be covered in class at high school.”

So the after-school college introduces them to the subjects they are to learn at school.

“In reality, says Kang, “often they just remember they have studied a subject, but don’t understand it 100 per cent.”

The system, she says, can create circular dilemmas, even for students who study a lot and parents who spend heavily on their education. The results are not always there.

“Between kinder and middle school,” she says, “some parents are prepared to think about creativity. They might take their children to a museum or to a foreign country, and allow them sufficient free time to communicate with each other.

“But as time goes by, especially in the last three years of high school, it gets hard to sustain that. They are focused on getting to university. Music, art, PE are part of high school curricula at first – but tend to fall away in the higher years.

“After entering university, the students often follow their own interests, and seek to express their creativity – which has been denied them in the previous few years. They start to follow their passions” – and some, naturally, just a little, freak out.

Only about 10 per cent of aspirant students can get to a university which is perceived as famous – “reaching the sky,” as the Korean phrase goes, gaining a place at Seoul or Korea or Yonsei Universities.

In the past, everything hinged on a single big test – but now school grades are also starting to be considered, as well as their own personal statements and interviews.

Inevitably, students’ parents pay for them to be tutored for such university interviews.

Kang admits: “The sheer volume of hours put in, can drive success. But I think many children simply don’t have enough time to sleep.

“At weekends parents tend to let them sleep in, and they are often so exhausted they will sleep all day. It’s all very stressful. We have a lot of tiger mothers and fathers.”

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Rowan Callick (Asia-Pacific editor)

A local Chinese court has refused to implement a $3.9 million international arbitration award – endorsed by Australia’s High Court – in favour of a Melbourne based wholesaler against a Chinese supplier of faulty air conditioners.

Michael Kwong, the managing director of Castel, which employs 83 people, said this hole in the company’s liquidity has placed expansion plans – including taking on more staff – on hold since the stoush began in 2008.

The notoriety of the case – which was celebrated with the High Court’s verdict as a ground-breaking victory for Australian hopes to establish a global arbitration business here – is causing growing concern in the sector.

Mr Kwong said that he hoped that the free trade agreement with China that is now approaching its final stages of ratification, would help resolve the issue, with costs and interest now pushing the total payable past $6 million.

But Trade and Investment Minister Andrew Robb told The Australian: “I think it would be unfair to link problems that may arise under commercial contracts with free trade agreements.”

Mr Kwong said that his Hong Kong-based business partner was told in 2009 during a visit for discussions with Chinese supplier TCL at its base in Guangdong province: “You will never get your money, because we have taken care of things here in Zhongshan,” the company’s home city of 3 million people, whose local court has refused to implement the award.

The relevant judge in Zhuhai, where TCL is a powerful major employer, has described the issue as “very sensitive.”

Mr Kwong said that “unfortunately, TCL doesn’t have assets in Australia,” so he has no choice but to pursue enforcement in China. “I’ve had to fund everything out of my own pocket, since this issue began in 2008.”

He said that it would be wrong to generalise from this problem, “since we now do very good business with a very honourable Chinese company, Midea.”

Bryan Clark, the director of trade and international affairs at the Australian Chamber of Commerce and Industry, said that “despite the excitement about international trade, with glib remarks about getting legal advice often made as an adjunct, there’s also this dark side to it.

“We’ve certainly seen such cases before. And too often in such cases, legal advice has come from people more familiar with equipment leasing and estate planning. We would never say to someone not to do deals with Chinese companies – but to do so with your eyes open.”

The Chinese corporation, TCL, produces a wide range of electronic products, led by TVs, and signed an exclusive deal with Castel Electronics, a nationwide wholesaler, to sell its airconditioners within Australia.

Castel claimed later that TCL had breached the deal, which provided for recourse through international arbitration – as is typical of such contracts.

After a 10-day hearing, a panel of three arbitrators in Melbourne awarded Castel $3.2m compensation and $700,000 costs, for violation of exclusive distribution rights as well as frequent product failure.

TCL challenged this award through the Australian legal system, making the radical assertion that the entire Australian arbitration system is inconsistent with the national constitution – saying the judiciary alone has the power to determine such disagreements.

Doug Jones, the president of the Australian Centre for International Commercial Arbitration and head of major projects for Clayton Utz, said when the High Court rejected this challenge, that it had found that “arbitration is a consensual process by both parties, and that it is therefore perfectly valid for the Australian parliament to enact this UN modelled law, known as “the New York Convention”.

“This finding places Australia firmly in the camp of countries that practise international commercial arbitration, that are automatically enforced the world over.”

However, although China’s own Supreme Court had directed through Guangdong’s provincial legal system that the international arbitration award must be implemented, this “automatic” enforcement has remained elusive.

Albert Monichino, the president of the Chartered Institute of Arbitrators Australia, said that China has recently introduced a new rule to boost confidence in reliability of contracts, and to protect the country against negative economic and political consequences of failure, that “if local courts are not minded to enforce an arbitration verdict, then the case leapfrogs to the apex court” in Beijing.

Such enforcement, he said, “is not a merit review,” where the facts or legalities can be revisited. “Beijing understands that local courts should not be allowed to soil China’s international reputation” by holding up proceedings.

Investor-State Dispute Settlement mechanisms that Australia has in place with a growing number of countries, including with China through an investment treaty and in the forthcoming FTA, only safeguard investors against discrimination and expropriation, Mr Robb stressed – not traders.

Mr Robb said: “FTAs establish the trade commitments of the countries involved, they do not regulate private contractual arrangements between businesses. Our free trade agreements are about opening new doors for business; they certainly should not be seen as a substitute for businesses doing due diligence to the best of their ability.

“Nor do FTAs determine the conduct of domestic legal proceedings within foreign countries, or for that matter in Australia.”

Luke Nottage, Professor of Comparative and Transnational Business Law at Sydney University, said that the Castel-TCL case is “an example of how international arbitration law and practice in Australia still has a long way to go if we want to compete at all realistically with venues such as Hong Kong and Singapore.”

He said that while “courts in jurisdictions that have adopted the NY Convention generally understand” that their role is chiefly to implement verdicts, “problems can still arise if the courts are corrupt, inefficient, or unfamiliar with international arbitration law and practice.”

A TCL spokesman has said that “TCL supports the principle of international arbitration but the international arbitration clause has been determined by the Chinese courts to be invalid.

“The matter has been considered by the Supreme People’s Court of China and we understand it has been remitted to the Zhongshan Intermediate People’s Court for further consideration.  The matter is still before (that) court.”

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