Expert Analyses: India - China: Curtain Raiser on PM Modi’s Visit
STORIES, ANALYSES, EXPERT VIEWS
Prime Minister Narendra Modi is likely to hold a bilateral meeting with Chinese President Xi Jinping on Sunday (31 August) as he makes his first visit to that country in seven years for the Shanghai Cooperation Organisation (SCO) leaders’ summit in Tianjin.
The two sides are seeking to rebuild and stabilise their ties based on the last meeting between Modi and Xi in Kazan in October last year, in the backdrop of US President Donald Trump imposing 50% tariffs on Indian goods over Russian oil purchases.
The meeting with Xi in Tianjin will be Modi’s first on his China trip. A key outcome following Sunday’s meeting, writes Dipanjan Roy Chaudhury (Diplomatic Editor, ET) “could be resumption of direct flights between India and China from September, signalling the continued warming of ties that had turned chilly in 2020 amid border clashes.Talks are also expected to focus on de-escalation along the Line of Actual Control (LAC) in Ladakh and the larger boundary question, besides securing market access for Indian goods for a fair-trade partnership. Chinese investments in nonstrategic Indian sectors through joint ventures is also likely to be discussed.”
India’s trade issues with China
China appears to back India on the 50% US tariff, but India has its own trade issues with China, given the restrictions the latter had imposed on exports of rare earth magnets, fertiliser and other key products, although these are said to have been relaxed since the thaw set in. India doesn’t allow automatic approval of Chinese investments in domestic companies through Press Note 3. While the visit is being described as an effort to reset ties amid the souring of those with the US, Roy Chaudhury states “New Delhi is not keen to rush to transform the relationship overnight but follow a steady path to stabilise it amid several irritants.”
Wang Yi’s preparatory trip: several CBMs
Ahead of Modi’s journey, the Chinese foreign minister had visited India to prepare the ground for the PM’s visit with tangible steps. During Wang Yi’s trip, the two sides announced several confidence building measures (CBMs), including setting up an expert group, working group and general-level mechanisms, to stabilise the Line of Actual Control.
They decided to set up an expert group under the Working Mechanism for Consultation and Coordination on IndiaChina Border Affairs (WMCC) to explore steps on boundary delimitation. A working group will be set up under the WMCC to advance effective border management to maintain peace and tranquillity in border areas. General-level mechanisms will be established in the eastern and middle sectors in addition to that in the western sector. There was bilateral agreement to reopen border trade through points at the three passes of Lipulekh, Shipki La and Nathu La. They also agreed to expedite trade and investment flows through concrete measures.
Wang Yi’s visit also saw the two agreeing on the facilitation of visas to tourists, businesses, media and other visitors in both directions. Also, it was decided to continue and further expand the scale of the Indian pilgrimage to Mount Kailash. The Chinese side has said it will share hydrological information during emergency situations based on humanitarian considerations, officials said.
Xi Jinping's secret letter tests the waters on improving ties
Meanwhile, it is understood Chinese President Xi Jinping wrote a letter to Indian counterpart Droupadi Murmu to test the waters on improving ties. The letter expressed concern about any US deals that would harm China’s interests and named a provincial official who would steer Beijing’s efforts.
Shortly after Xi’s letter to India’s president in March of this year, Beijing published a statement from the Chinese leader celebrating the relationship, describing it as a ‘dragon-elephant tango.’ Soon, his top officials like Vice President Han Zheng were using the same phrase to describe warmer ties between the countries.
The thaw in India-China relations, writes ET Online “carries significant consequences for the US, which had spent decades under successive administrations cultivating New Delhi as a counterbalance to China’s rise. That strategy was disrupted when Trump imposed 50% tariffs on Indian exports over its Russian oil imports, a sudden move that startled Modi’s government.”
Henry Wang, president of the Center for China and Globalization think tank in Beijing, said relations between India and China are in an 'up cycle,’ and as leaders of the Global South, 'they have to really speak to each other. Trump’s tariff war on India has made India realize that they have to maintain some kind of strategic autonomy and strategic independence.’
‘Improvement signs’ are loud but misleading
While there may be a thaw, the two Asian powers are not likely to restore full trust overnight. They have seen each other as rivals for years and friction increased a few months ago when China supplied weapons and intelligence to Pakistan in its recent military dispute with India.
Theory that Trump has induced India and China to improve ties, is false: External Affairs Minister S Jaishankar recently warmed against linking present trends in India-China relations with India’s more recent frustrations vis-à-vis the US. There is a strong degree of truth in this warning writes Sidharth Raimedhi (Fellow at the Council for Strategic and Defense Research - CSDR, a New Delhi-based think tank). “Contrary to the prevailing analysis that Trump has induced India and China to improve and repair ties, the bilateral relationship has shown little to no sign of improvement and arguably has even deteriorated under the calmer surface.”
At present, explains Raimedhi, “the quantum of trends as well as indications of ‘improved’ ties in the bilateral relationship can be divided into four categories. First, a return to diplomatic and economic ‘normalcy’ such as the resumption of flights, religious pilgrimages and border trade. Second, increasing talk of economic convergence amid a gradual return of Chinese investments. Third, growing peace and tranquillity at the border. And finally, strategic/geopolitical convergences in the age of Trump.
“Across all these four domains, ‘improvement signs’ are loud but misleading or chimeral, while ‘deteriorating’ trends are getting more entrenched under the radar.”
The resumption of ‘improvement signs’ “says very little about real improvement in ties. At most, they indicate that the two sides are emerging out of the Galwan impasse—during the early stage of which India sought to downgrade ties and exchanges to signal displeasure and as a form of leverage.
“Hence, the above-listed resumptions mark the end of India’s ‘assertive’ approach toward China post-Galwan and a preference for peace and tranquillity at the border and diplomatic flexibility on the global stage. This does not herald a linear progress toward improvement, but the saturation of a diplomatic approach that was meant to be time-bound in the first place.”
Beijing not interested in a win-win economic relationship: Until recently, writes Raimedhi, “there was a compelling vision of positive and win-win economic cooperation between India and China in both Delhi and Beijing.” Beijing is “not interested in a win-win economic relationship anymore—an implication that India Inc. still has not fully processed. By heightening India’s concerns over supply chain dependencies on China in order to gain leverage over political and diplomatic issues, China has irreversibly securitised the economic relationship. These are not signs of improving relations, but of worsening economic ties based on deepening strategic mistrust."
Peace along the border: Peace and tranquillity at the surface “have not seeped into a more relaxed view of the security dilemma, as Beijing’s strategic infrastructure construction (as well as enhanced military deployments) continues…..” Most notably, “it is hard to identify signs of real improvement over the border issue—which is the most fundamental aspect of the bilateral relationship.”
Strategic and geopolitical: Raimedhi believes India and China do not “share a strategic or geopolitical alignment…..The evidence points in the other direction. China’s nurturing of the China-Pakistan-Bangladesh trilateral is aimed at India. China’s focused and systematic (and increased) beefing up of the Pakistan military suggests an increasing willingness to counter-balance India within South Asia.”
China’s diplomatic support to India on Trump’s tariffs “is not being done out of positive regard or admiration toward India. Beijing logically sees India as the frontline state on the issue of secondary sanctions on Russian energy exports. It makes eminent sense for Beijing to resist Trump via India on this issue. It’s a diplomatic buffer for China, and it also deepens the growing wedge between India and the US. Hence, the short-term appearance of a convergence at the moment suits both Delhi and Beijing. But it is hardly an abiding sign of improved relations."
Hence, Raimedhi believes “the real danger of Trump’s growing salvos against India is not a growing closeness between the Asian giants—an easy misnomer to disregard. Instead, the more realistic danger consists of weakening India’s ability to resist Chinese growing multi-domain coercion over the short to medium term, and with real consequences for the future balance of power in the Indo-Pacific.”
India, China follow different paths of growth
Both these countries, for more than a decade, have had leaders who have enjoyed almost supreme power. Yet, strangely, writes Ishan Bakshi (Opinion Editor, The Indian Express) both these leaders “have been unable or perhaps unwilling to steer their economies in the direction needed. In India, animal spirits remain caged, with a corporate sector that is reluctant to invest, while in China, consumer confidence is near historic lows.”
China’s challenges, writes Bakshi “revolve around over investment and excess capacity, low household consumption and high savings, an ageing population and high debt levels, while India’s problems centre around subdued investment activity, which runs alongside the deepening capital intensity of production, a growing workforce that faces inadequate job opportunities in the non-farm sector, low household savings, high levels of informality and low productivity.”
While addressing these issues is harder than many appreciate, in recent years, “it does seem that the policy focus in both countries has shifted away from prioritising growth. And so, in the absence of deep reforms, China persists with its debt-fuelled investment-export led model of growth, the limits of which are being tested in a world that is either unable or unwilling to absorb its excess capacity, while India, in the face of sluggish manufacturing and investment growth, continues to rely on domestic consumption, fuelled by debt and tax giveaways.”
Choosing China over the US may come at a cost
Udit Misra (Senior Associate Editor, The Indian Express) also believes “there are many reasons why a closer trade partnership with China can be more challenging for India than a closer trade partnership with the US. In other words, if protecting its domestic producers (be it in manufacturing or in other sectors) is the central goal of Indian policymakers then choosing China over the US may be akin to jumping out of the frying pan into the fire.”
Among Misra’s reasons to support his theses are the following:
India’s import dependence on China: India’s trade relations with China are completely in contrast to its trade strength with the US. Against the US, India has enjoyed a trade surplus of over $40 billion. By contrast, India suffers a trade deficit of nearly $100 billion against China. This import dependence has spiked exactly as the political narrative in India suggested that Indians wanted to ban trade with China.
China’s strength in manufacturing: China’s share in global manufacturing presents a contrast with countries such as the US and India. In terms of gross production, China accounts for 35% of the total global output while the US is almost one-third of it at 12% and India is one-twelfth of it at 3%. So, while China is overflowing with manufacturing prowess and capacity, India’s manufacturing is struggling to even outpace farm output. If India stands too close to China, pressures to absorb cheaper Chinese goods may increase.
India’s claim of being the alternative to China: And if India openly sides or even aligns with China, it may severely compromise its claim to be an investment destination for those western businesses that want to de-risk from China.
China is not a natural partner for India: Moreover, despite being the two standout stories of economic resurgence of the past three-four decades, they are still in many ways very different countries with very different societies and completely different ways in which they govern themselves. India for example, has been trying to mould itself into a private sector-led market economy where media is free, rules are transparent, and democracy is uncompromised while in China it is still unclear when the private sector ends and the state begins.
Geopolitical realities: It is no secret that China (on the east) has been a long-time supporter of Pakistan, India’s western neighbour and constant military adversary. Given these geopolitical and domestic realities, building a stable and credible relationship might be easier said than done.
The upshot, writes Misra is that “closer trade ties with China, a country with which India has several strategic conflicts, apart from China being capable of overwhelming the Indian economy (definitely far more than the US) with its export prowess is fraught with challenges.”
