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A New Era in Sino-Indian Relations or Deja-vu All Over Again?

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by June Teufel Dreyer, Ph.D
Published on January 19th, 2008

Indian Prime Minister Manmohan Singh’s mid-January visit to Beijing produced the standard cant of high level diplomatic exchanges, dutifully repeated by the media and several Western analysts.  Singh, who received a red carpet welcome at the Beijing airport, said that bilateral ties were now poised to enter a “vibrant and dynamic phase,” and that India attached high priority to strengthening its relations with China, which was a focal point in its Look East policy. Disputes, said Singh, could be solved in the Asian way of avoiding confrontation while building trust, confidence, and consensus. China and India, echoed India’s minister of trade and industry, were now seen as the engines of economic growth by the rest of the world.  Particularly since the sub-prime mortgage crisis in the United States and other factors engendered fear of an economic recession in the west, investors’ hopes had turned to Asia.

A realization of the win-win aspects of cooperation was, the media announced, replacing the misguided zero-sum game views of the past.  Joint military exercises against terrorism had already taken place in China in the fall, and would move to India in early 2008, thereby enhancing confidence building between the two sides. Hence, a framework to manage disputes along the sensitive and contested border had been created. The Indian side reassured its Chinese counterparts that India would never agree to be part of an ‘axis of democracy’ that aims at restraining the PRC’s rising power.

Opportunities existed for expanding trade as well. India could buy facilities that the People’s Republic of China (PRC) constructed for the 2008 Olympics for re-use when India hosts the Commonwealth Games. Beijing expressed appreciation for India’s support for China’s demands for concessions in the World Trade Organization, and agreed to back India’s stand on disclosure at the Convention on Biological Diversity and on trade related aspects of intellectual property rights (TRIPS).

‘Chindia’, a concept advanced by prominent Indian economist Jairam Ramesh, now seemed more plausible to a number of analysts.  In a theory much ridiculed when he first announced it, Ramesh posited that the complementary nature of the two economies, when added to their projected growth potential over the next twenty years, made them obvious partners and the fulcrum around which a new prosperity sphere could revolve. China, Ramesh pointed out, is stronger in hardware while India’s strength is in software.  China is stronger in commercial markets, while India excels in financial markets.

Some supportive evidence for Ramesh’s theory can be found.  In the short space of five years, Sino-Indian trade has expanded from $ 5 billion to $38.7 billion in 2007; it is projected to reach $60 billion by 2010.  During Singh’s visit, pacts of cooperation were signed on poverty alleviation, and between the two countries’ railway ministries and economic planning bodies. Together, China and India contain over a third of the world’s population: united, they have the potential to be a powerful global force.

Somewhat more cautious analyses congratulated the two sides for “prudently compartmentalizing” the issues between them, or for “placing them on the back burner.”  The implication is that problems that have been compartmentalized and put on the back burner are out of sight, though that is scarcely the case here. The rapid growth in trade has been accompanied by an equally rapid growth in a trade surplus that is in the PRC’s favor---up from $4 billion in 2006 to almost $9 billion in 2007. Embarrassingly for many Indians, even statues of Ganesh, India’s iconic elephant god, are now imported from China.

One reason for the large trade gap is that the PRC’s exports are mostly value-added manufactured goods, while most of India’s are bulk commodities such as iron ore. Indians have complained that the PRC gains unfair advantages from its undervalued currency, and also from protectionism that affects India’s high end exports such as pharmaceuticals and information technology. Notwithstanding the two countries’ vaunted support for one another on TRIPS, Indian leaders have called for stronger Chinese action to reduce non-tariff barriers and provide better protection for intellectual property rights.  Although it can be argued that it makes good economic sense to change China’s cheap manufactured goods for Indian expertise in computer software and services, widespread counterfeiting, protectionism, and its undervalued currency gives the PRC an unfair advantage.

Moreover, there are questions as to how complementary the two countries’ economies actually are. The PRC’s service sector has been growing rapidly, and is poised to match or overtake India’s within a decade. India’s manufacturing sector has grown rapidly in the same time period. With its well developed domestic auto industry, India looks nervously at the progress China is making to develop inexpensive cars for export on a massive scale.

As each side is aware, it cannot be assumed that the impressive growth rates that China and India have turned in over recent years---on the order of 11 percent for the PRC and 9 percent for India--- will continue unabated. Population growth, environmental pollution, and domestic political unrest, among other factors, could cause economic slowdowns or even recessions. A more immediate concern is the availability of affordable energy, which has literally fueled the economic growth of both China and India. Here the two are rivals, generating a certain amount of friction. For example, in fall 2007, to Delhi’s annoyance, the attempts of the Gas Authority of India Limited (GAIL) and other Indian companies to tap oil and gas in Burma were thwarted by Chinese pressure on Burmese authorities.

Military security issues also continued, expressions of mutual and esteem and comity notwithstanding. Chinese intrusions into Bhutan were reported throughout the fall, due to differences of opinion between the two countries on where the border lies.

There were reports that troops of the People’s Liberation Army (PLA) were massing near Tawang, a small town in what India claims as its province of Arunachal Pradesh. During Prime Minister Singh’s visit, the Chinese side urged that Tawang, a pilgrimage site for Tibetans, be ceded. Singh demurred, arguing that areas with settled populations be excluded from any exchanges of territory.  India also objects to the substantial PLA presence in Tibet, which includes missile emplacements, feeling that it is the obvious target thereof. According to a Japanese news report in fall 2007, India has been conducting secret talks with Mongolia to enhance the capabilities of the existing electronic surveillance equipment it maintains there in order to monitor the PRC’s military development.

Each side continues to build up its military. While China does not publicly specify the purpose of its defense expenditures, India, with its free press, is less circumspect. A recent discussion of the search to purchase six new submarines in the country’s leading paper, The Times of India, explicitly mentioned that Pakistan and China had been “progressively adding muscle to their underwater arms.” Indian defense analysts have also been concerned with Chinese investment in the Pakistani port of Gwadar, which provides China with a strategic foothold in the Arabian Sea and the Indian Ocean.  A more benign explanation is that the U.S., having established bases in Central, South, and West Asian countries after the 9/11 terrorist attacks on its soil, had thereby significantly enhanced its ability to cut off Chinese supplies of oil.  A foothold at Gwadar would enable the Chinese navy, which despite significant improvements to its capabilities, is not yet a true blue-water navy, to circumvent this putative pincer.  For more than a decade, Indian defense analysts have been similarly concerned with the strategic implications of Chinese investment in Burmese ports that face the Andaman Sea and Indian Ocean.

Singh’s concessions to China of a route for Great Wall, a cargo airline, to fly to Mumbai and Chennai and broadcast rights into India for state-run China Central Television were not reciprocated. For more obvious reasons, Beijing also reacted coolly to his offer of civilian nuclear cooperation.  Singh’s motive is believed to be to thwart Chinese opposition to his country’s nuclear cooperation with the United States.  India has thus far refused to sign the Nuclear Non-Proliferation Treaty, to the annoyance of the PRC as well as many other countries.  Moreover, although in the past Beijing had indicated its willingness to support India’s bid for a permanent seat on the United Nations Security Council, it expressed no enthusiasm for the move during the two sides’ discussions.

In sum, while Prime Minister Singh’s trip to Beijing may be said to have improved the atmospherics of relations between the two countries, none of the substantive issues between them has actually been solved. Problems that have been compartmentalized can burst open; those that have been put on the back burner may nonetheless boil over.  Much needs to be accomplished before it can be said that Sino-Indian relations have actually improved. Behind the façade of soothing clichés, the rivalry between the two continues.

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