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VOLUME I–02 / 18 SEPTEMBER 2014
on
INDIA & CHINA:
A NEW CHAPTER?
EVERY CHANGE BEGINS WITH ACTION. AND EVERY ACTION, SPRINGS FROM THOUGHTS.
Recognizing the power of ideas, Ananta Aspen Centre presents the “Fireside Chat”— a bi-weekly interview series with
eminent thought-leaders on issues of significance. Our endeavour is to showcase intimate and frank insights of people who
matter on current socio-political developments.
Hope you find the “Fireside Chat” of interest. We value your feedback and comments.
Mr. Jayadeva Ranade
President, Centre for China Analysis
and Strategy (India)
Dr. Srikanth Kondapalli
Professor, Centre for East Asian
Studies, School of International
Studies, Jawaharlal Nehru
University (India)
Ms. Haiyan Wang
Co-Author, ‘Getting China and India
Right’ and Managing Partner, China
India Institute (U.S.)
Modi-Jinping meeting: Expanding the bilateral canvas
Ranade: The Chinese President’s visit to India is certainly important. The visit will allow Modi and Xi Jinping to assess each other
and discuss outstanding issues frankly. Prime Minister Modi should clarify to Beijing, the concerns of the Modi government.
Wang: Jinping’s visit holds the promise of transforming the China-India relationship from one based largely on trade to one
also based heavily on investments, especially in infrastructure. I believe that the starting moves will be agreements between the
two sides regarding the development of industrial clusters designed specifically for Chinese companies. These industrial
clusters would include single window clearance facilities, needed infrastructure and conveniences of daily life such as Chinese
schools and restaurants. I fully anticipate concrete agreements regarding at least two industrial clusters, one of which would be
in Gujarat. The industrial clusters would then serve as platforms for manufacturing investments by companies such as
Shanghai Electric and China CNR.
Kondapalli: In my view, territorial disputes will not change overnight. I do not think that Jinping and Modiwill come out
with a magic wand during the meeting and say this is the Line of Actual Control between the two countries. That is not going
to happen. On trade, India’s grouse is that there is a huge trade imbalance. China is not opening up its markets for Indian
software and pharma. Will Jinping open up the market to Indian goods? I don’t think so. If China does not open up the market
by 2015-2016, itwill get the market economy status anyway under the WTO rulings. China simply has to buy time now to avoid
opening up its markets.There is also a regional security concern. For instance, China has concerns on India-U.S.-Japan relations.
India has concerns on China-Pakistan ties, but these will come out in oblique terms and not in an explicit manner.
Scaling-up ties: Emerging opportunities…
Kondapalli: The Dialogue process between the foreign ministries of the two countries is an area where cooperation can be
enhanced. There is also the speculation that in Gandhinagar and Pune, China will establish special manufacturing zones, from
where products will be exported everywhere. This could be another area of cooperation. India and China could also work
towards setting up a joint venture export company that caters to a third market.
Wang: There are mainly three main areas, in my view: first, movement towards a resolution of the border disagreements;
second, significant multi-billion dollar investments by Chinese companies into India; third, elimination of barriers to the
ability of Indian IT companies to serve Chinese SOEs. The start has to be in all sectors that come under the heading of
infrastructure. Once that gets going, we can expect Chinese investments in other sectors such as automotive manufacturing,
real estate and textiles. By 2025, it’s very likely that we’ll see many Chinese companies manufacturing in India for exports back
to China. By then, India could also start exporting agricultural products such as corn, wheat and beef to China.
Ranade: The key areasfor cooperation are transportation infrastructure like high-speed railway, upgrading of the railway system
(except for signalling and other computer based operating systems which should be procured from elsewhere), road and flyover
construction, and commercial housing construction. The establishment of Special Industrial Parks for Chinese companies from
re-export might be allowed will be an attractive inducement. It will need to be ensured, though, that Chinese workers are not
brought for working on these projects thereby denying jobs to Indian labour and running the risk of a community of illegal
Chinese migrants settling in India as they have in Africa, the CARs and Russia.
Trust deficit: A core challenge
Wang: The biggest challenge is lack of mutual understanding. Business leaders as well as citizens in both countries have a very
poor understanding of the culture and economy of the other country. The second major challenge pertains to geopolitical
tensions arising from unresolved border issues and India’s defense cooperation with Japan, US, Australia, and countries in
Southeast Asia. The third major challenge is the growing trade imbalance, which appears neither sustainable nor scalable.
Ranade: Yes, there is a huge trust deficit between the two countries. Continuing intrusions along the entire length of the
border with India and nibbling away of its territory heightens distrust, as does China’s collaboration with Pakistan in the areas
of nuclear and missile technology and construction activities in the Gilgit-Baltistan region. China’s activities in Nepal and
Bhutan, especially in areas immediately across the border like Lumbini in Nepal, are other factors that cause concern.
Resolving the border dispute: Why is it so important?
Wang: The border dispute – while serious – has not been a barrier over the last 15 years. Thus, I don’t see it becoming a barrier
over the next 15 years either. Of course, a resolution of the border disputes would go a very long way towards making the
China-India relationship truly harmonious. Such a resolution would require a compromise by both sides, with both of them to
make the current line of actual control after proper demarcation the formal border between the two countries.
Ranade: India needs to look at the border issue from the perspective of the Chinese leadership. They have spelt out on various
occasions that China’s “core national issues” are paramount and these include issues of sovereignty and territorial claims.
Unless the outstanding territorial disputes with China are sorted out, they will cast a shadow on India-China relations and, as
stated by Beijing, will take priority over all other issues. A realistic workable solution is for both sides to arrive at an executive
decision to accept the current Line of Actual Control (LAC) as a de facto arrangement, or temporary border, till such time as it
is formally ratified. That should be promptly followed up by cessation of intrusions. The use of missiles or nuclear weapons,
even tactical nuclear battlefield weapons, will alter the situation. The development of the Agni-V, expected within a year, will
remedy this imbalance and level the field for negotiations.
Kondapalli: The border dispute affects the bilateral relations because there is no mutually agreed line. If you look at maps of
India and China, both differ. So if border disputes are not resolved, or if the PLA or the Indian Army does something during
the visit, this will lead to a huge problem. At the same time, the borders are relatively tranquil. While the governments are
spending money in infrastructure projects etc., there is no major mobilisation. So, territorial disputes are a problem, but there
is no clear or present danger.
Helming India-China ties: Modi’s role….
Kondapalli: Overall, there is continuity in foreign policy in India, regardless of the leadership at the top. Modi is a sharp
person. He has had four visits to China. He is obsessed with development. So, he will try to restructure foreign policy towards
economic development. The difference between Modi and Dr. Manmohan Singh could be in terms of speed and scale, but
there will be continuity.
Ranade: Prime Minister Modi has a strong popular and political mandate and is, therefore, in a position to take bold
initiatives. Similarly, President Jinping has today emerged as one of the strongest leaders China has seen since Mao Zedong and
has also demonstrated a capacity for taking bold measures. Jinping has identified the economy as an area he can tap to expand
China’s international influence. Modi will hence have to shape a policy whereby India takes advantage of Beijing’s desire to
invest vast amounts of funds in a market capable of absorbing these funds and providing returns--which today is only India. By
attracting Chinese investments, Modi can give a huge boost to India’s economy and address the issue of job creation, but he has
to be careful that in the process he does not allow Chinese funds to overwhelm the Indian economy, cripple India’s strategic
industry, or permit creation of a pro-China lobby in India’s business and industry circles which will, in turn, pressure
politicians to compromise Indian national interests.
Wang: First, Modi understands China well from his four visits there. He also succeeded in attracting bulk of Chinese FDI into
India to Gujarat, the state where he was chief minister. Second, he is almost certain to start redressing India’s infrastructure
weaknesses. This will open up significant investment opportunities for Chinese companies. Third, Modi is a shrewd negotiator.
Thus, he will play China, Japan and the US against each other to get the best deals from all of them.
India-Japan-U.S. tango: Walking the tightrope with China…
Wang: Modi has an excellent relationship with China, Japan, Australia as well as every country in Southeast Asia. I believe that
he will also have a very successful visit to the US later this month. As a shrewd negotiator, he will leverage this multitude of
suitors to get the best deal from everybody. This is not a zero-sum game.
Kondapalli: Modi is looking at China primarily for the manufacturing sector, infrastructure projects, and multilateral
cooperation such as in the BRICS. Overall, Modi is concerned with economic aspects. Hence, he is allocating spaces to China
and Japan in those slots. Moreover, as a nationalistic leader, he is concerned with sovereignty and territorial integrity. With
Japan, there is no historical baggage, but with China, there are issues.
Ranade: India must seek to improve and enhance ties with the US and Japan. Both these countries are sources of vital capital,
technology and global influence for India. India should additionally accelerate and step up economic relations with Taiwan
(with which China has extensive economic and people-to-people ties), South Korea, Vietnam, Singapore and Australia. India’s
‘Look East’ policy is designed to promote beneficial economic relationships along with implicit security guarantees. That will
be the case till there is a substantive, verified improvement in India-China relations.
New Delhi’s tryst with Beijing: The China-Pakistan factor…
Ranade: China’s relations with Pakistan, described by Beijing as “all-weather” and enduring, have been nurtured by both sides
for over four decades. There is a strong anti-India component to the Sino-Pak relationship as evidenced by, for example, China’s
sales of missiles and missile technology to Pakistan; brokering of the ‘missile-for-nuclear technology’ deal between Pakistan and
North Korea; explicit stance on the Indo-US Civil Nuclear Agreement and refusal to accept India as a Permanent Member of the
UNSC with full rights. However, the deteriorating security situation in Pakistan is now of evident serious concern to Beijing.
There will be an effort by Beijing to assist Pakistan, especially the Army, from preventing further deterioration in the situation
and here its interests will converge with those of the US.
Wang: China has already demonstrated, over the last 10-15 years, that it regards the relationship with India as strategically
more important than that with Pakistan. Interestingly, this stance helps to keep the relationship between India and Pakistan
from deteriorating further.
Kondapalli: The bottomline is Chinese investments in Pakistan, and China’s nuclear cooperation with Pakistan. New Delhi
will be concerned if there is any improvement between China and Pakistan in these two aspects.
Climate Change cooperation: An opportunity?
Kondapalli: At Copenhagen, Durban and Doha, we have seen India-China coordinating actively in this realm. Environment
Ministers of both nations have exchanged thoughts about climate change cooperation very frequently in the past. Both realise
that developed countries have been imposing unrealistic targets of emission cuts, which are affecting basic industrialisation
issues in developing countries. However, India is noticing that China is developing a tie-up with developed countries on
climate change issues. While China announced a 20% cut on emissions, which New Delhi also accepted as part of Copenhagen
pact, I think China is making more concessions to the West on this to be a part of TPP and other trade liberalisation
institutions.
Wang: Chinese and Indian citizens are the ones who suffer the most if their governments and companies turn a blind eye to
environmental degradation. It's time for China and India to stop seeing themselves as on the opposite side of the table from
the developed economies on this issue. They need to make environmental protection as one of the most important domestic
priorities. The same applies to pushing as hard as possible on frontiers such as renewable energy and more efficient utilisation
of energy.
Ranade: Personally, I don’t feel there is potential for cooperation as India is nowhere near as large a polluter as China. The
cooperation between the two a few years ago was a one-time effort where too Beijing came away with benefits. India will do
better to go it alone in international negotiations and secure the best advantages for itself. Where India and China can
cooperate in this sector, however, is from the procurement from China of low-cost equipment of international quality
indigenously developed by it.
(Excerpts from interviews taken by Samarth Pathak, Program Officer, Ananta Aspen Centre.)