Chinese President Xi Jinping and Indian Prime Minister Narendra Modi visit the Vaan Irai Kal, or Krishna's Butterball, in Mamallapuram on October 11. Photo: PTI
Opinion
Opinion
by Patrick Mendis and Joey Wang
Opinion
by Patrick Mendis and Joey Wang
Why India and China need to stay friends: it’s all about the economy
New Delhi wants to cut its trade deficit with China, gain access to its markets and lure manufacturers to set up in India
Beijing, meanwhile, wants India to join the RCEP free-trade agreement and use Huawei’s 5G technology, while being mindful of China-Pakistan Economic Corridor tensions
Border tensions between China and Bhutan in 2017 left Indian and Chinese troops facing off on the Doklam Plateau for 70 days. The crisis led Chinese President Xi Jinping and Indian Prime Minister Narendra Modi to institutionalise their informal summits to avoid a repeat of such confrontations.
The two nuclear powers met for an informal summit in April last year in Wuhan, where Xi said: “Conducting great cooperation by our two great countries can generate worldwide influence”, adding that he hoped the meeting would “usher in a new chapter of China-India relations”. Yet Indian and Chinese troops again faced off in eastern Ladakh on September 11 this year, underscoring the volatility of the region.
To move beyond the situation, Indian and Chinese army officers met on October 1 at the Bumla border for National Day celebrations hosted by China. It is no wonder that India and China have been described as “frenemies”, given the complexity of their relationship.
These periodic confrontations notwithstanding, Beijing and New Delhi recognise the need to address the real and exigent issues in their countries: the economy and economic development. It is in both their interests to get their relationship back on track.
Meeting in Mamallapuram for their second informal summit, on October 11 and 12, Xi told Modi, in a refrain from Wuhan, that China and India – both important engines of world economic growth – should be good neighbours and friends. He added that they should “enhance dovetailing of the two countries’ development strategies” to build a “manufacturing partnership”.
Indian Prime Minister Narendra Modi and Chinese President Xi Jinping at their first informal summit in Wuhan, China, last year. Photo: Xinhua
Trade was a focal point of discussion. India, whose US$53.6 billion trade deficit with China is nearly a third of its total, wants greater access to the Chinese markets of generic pharmaceuticals and IT services, and an easing of China’s non-tariff barriers.
The deficit fell by US$10 billion last year, but possibly only through the rerouting of Chinese exports through Hong Kong or Vietnam. A decrease in exports from China correlated with a sharp rise in exports of the same products from Hong Kong and Vietnam during that period.
China would like India to join the Regional Comprehensive Economic Partnership (RCEP), an agreement hard for India to dismiss as it is Asia’s most significant free-trade agreement. But India has consistently felt on the losing end of free-trade deals with both Asean and other RCEP countries. With China the elephant in the room, the fear is that the onslaught of imports will only worsen.
Moreover, it is impossible to decouple trade and economic issues from the larger geopolitical implications. India’s decision in August to revoke the partial autonomy of Muslim-majority Jammu and Kashmir – a move that riled Pakistan, which claims the whole of Kashmir, as does India – was a likely consequence of the China-Pakistan Economic Corridor being constructed through the region.
The project, the largest under China’s Belt and Road Initiative, will connect China’s western Xinjiang region to Pakistan’s Gwadar port.
China, which traditionally supports Pakistan in the Kashmir dispute, was concerned until India maintained that the move did not “change the status quo on the Sino-Indian border”, which allowed China to declare Kashmir a bilateral dispute between India and Pakistan. Still, India’s move, as well as Pakistan’s debt issue, is likely to slow the economic corridor project.
China needs to carefully cultivate its relationship not just with India but also Sri Lanka. Given that 37 African countries and the African Union have signed up to belt and road projects, and that China is dependent on the Middle East for its energy, it needs to ensure open and secure sea lines in both the Bay of Bengal and the Indian Ocean.
Meanwhile, New Delhi may be able to exploit US-China trade tensions to persuade manufacturers in China to shift production to India. Major sectors that make good candidates would be pharmaceuticals, chemicals and engineering.
According to the India Brand Equity Foundation, India’s pharmaceutical sector already supplies over 50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per cent of all medicine in Britain.
Foxconn, the world’s largest contract manufacturer of electronics, including Apple products, has already shifted some of its manufacturing to India to “diversify their manufacturing supply chain away from excessive reliance on Chinese production”, according to Rajiv Biswas, Asia-Pacific chief economist at IHS Markit.
The biggest challenges for India are land laws, labour regulations and access to “proper roads and ports, as well as ensuring that power is available”, he said.
When it comes to 5G, India is stuck between the US and China. China has asked India not to block Huawei from bidding on India’s 5G mobile infrastructure businesses, warning of “reverse sanctions” on Indian companies doing business in China.
Meanwhile, the US has warned India about the possible consequences of intelligence sharing if India decides to adopt Huawei’s 5G technology. But with tangibles of US$100 billion in bilateral trade this year, against the intangibles of intelligence sharing, India may ultimately be forced to swallow a bitter pill and go with Huawei.
Dr Patrick Mendis is distinguished visiting professor of global affairs at the National Chengchi University of Taiwan and a senior fellow of the Taiwan Centre for Security Studies in Taipei. Joey Wang is a defence analyst in the United States. Both are alumni of the Harvard Kennedy School of Government
