China and India: Competitors or Collaborators?

Manmohan Singh

Shahid Javed Burki

Introduction

It has now become a cliché to talk about China and India as the rising giants in the global economy. As  President Barack Obama famously observed during his state visit to India in November 2010, ‘India was not rising; it had already risen.’ A similar statement was made of China a decade ago. Combined, the two countries carry close to 40 per cent of the world’s population.  They  account  for  almost  10  per  cent  of  global  production.  This  year,  both countries  saw  their  GDP  grow  nearly  10  per  cent;  this  rise  accounts  for  the  greatest contribution to global output.

What is interesting is that the two countries have taken very different routes to attain their present state of development. The result of the different paths taken by China and India are two very different economic  structures and possibly two very different economic futures. Given  these  differences,  will  the  countries  become  competitors  or  collaborators  in  the evolving global economic and political systems? A historical  comparison to today’s China and India could be made with France and England of the late eighteenth and early nineteenth century – two sets of countries both rising in economic prosperity and linked by geographical proximity. The question remains of whether China and India create a bond or take the route of France and England, creating decades of hostility.

One complication for China and India may be that they share a long border, parts of which are still contested. That said, it is more than likely that the two Asian giants will work with each  other  to  their  mutual  advantage  rather  than  become  hostile  neighbours.  It  seems extremely unlikely that the border disputes will not be resolved diplomatically and, therefore, not re-enacting the military actions of 1962.

Economic Transformations of China and India

China began its journey towards rapid economic growth and modernisation in 1976 when the mantle of  leadership moved from the shoulders of Mao Zedong, the founder of modern China, to Deng Xiaoping, the country’s builder. India’s rise started a decade and half later in

1991, under the stewardship of Dr Manmohan Singh, the country’s current Prime Minister and then Finance Minister.

The process of economic change began in both countries during periods of great crises. In China the crisis was political. An ailing Mao became erratic in his tactics for establishing his successor.  He  had  attempted  to  influence  his  succession  by  sending  a  number  of  his competitors, including Deng Xiaoping, into domestic exile. Deng bided his time and after a struggle with the group that came to be called the ‘gang of four’ which included Mao’s wife. Deng later  emerged as the undisputed leader of post-Mao China. For India the crisis was economic as the country faced a severe BoP crisis that led to the pledging of gold to obtain finance which would keep its international payments current. It was clear to the managers of the Indian economy that the old model of excessive control by the state over the processes of production had not worked. It had established what had come to be called the ‘license raj’ which  kept  a  tight  control  over  private  investments,  permitting  only  those  that  were considered to be socially desirable. The result was what Indian economists themselves had called the ‘Hindu rate of growth’ – increase in the rate of GDP of about 3 to 3.5 per cent – not enough to deal with the growing problem of poverty. The slight opening in the market that was allowed in the mid-1980s by the Congress Party government headed by Narashima Rao had put an enormous amount of pressure on external accounts.  With the opening, imports picked up while exports remained stagnant.

There are a number of other similarities between the two countries in addition to the origin of periods  of  development  in  deep  crises.  Both  countries  are  modernising  rapidly,  India somewhat more narrowly than China where the process of change is much broader in scope. Both are seeing enormous growth in the sizes of their urban populations. Both are becoming integrated in the global economy, again China more rapidly and more thoroughly than India.

Differences between China and India

Apart from the similarities noted above, there are a number of differences in the way the two countries are being managed. India is a well functioning democracy that over the years has been able to give voice to its diverse citizenry and provided enough space within the political system not to have those with grievances to  adopt approaches outside the constitutions to express their frustration. The political system in China is centrally managed with little space allotted to those who are aggrieved and would like to express their views. This is certainly the case if these views markedly differ from those held by the ruling Communist Party. A vibrant print and electronic media in India is fully representative of its boisterous democracy. In the decentralised  Indian  political  system,  a  variety  of  political  parties  hold  power  in  the constituent states. In China, the centre and the provinces are governed by the same party – the Communist Party.

The structures of the two economies differ. In spite of rapid development of the economy and the modernisation of a number of sectors, India remains a largely rural and agrarian-based economy. On the other hand, manufacturing is a large sector for China. China relies much more on external trade to find  markets for its rapidly developing industrial base. In India, output of the economy is much more oriented towards meeting domestic demand. There is no international  pressure  on  India  to  stimulate  its  domestic  demand  for  feeding  economic growth.  Such  a pressure has  been  exerted  on  China for  years. Many in  the West  –  in particular in the US – believe that the global economic imbalances can only be corrected if China moves its growth strategy from export expansion to domestic demand promotion, and in the process appreciates its currency.

The Process of Development in the Two Countries

How did the two countries reach their present economic situations? For both it happened in two phases.

In China, there was emphasis on human resource development and achieving food self- sufficiency during the Mao period from 1949 to 1976. During this time the country was able to achieve universal primary education and universal primary health coverage. It also brought out its women from near-servitude. The second phase from 1979 to 2011 saw China become the  workshop  for  the  global  economy  moving  from  the  production  of  labour-intensive manufacturing to technologically sophisticated goods.

India’s two phases were from 1947 to 1991 and from 1991 to the present. In the first phase, it put the state on the commanding heights of the economy in order to invest in heavy industries for the public sector. In the second phase, it pulled the state back and allowed more freedom to the private sector. India now gives the state a much less significant role than it did during the period of the ‘license raj’. That is not to say that the state has pulled back entirely. For instance, foreign direct investment is still allowed in a limited extent in some sectors. In retail trade,  for instance, multi-brand stores  are not  allowed to be established.  Investments in finance and insurance are also subject to strict state scrutiny and control.

On the external side, China has a policy of working with its neighbours to develop a regional economic  system,  making them less reliant on the markets in the West. It is correct in assuming that those markets, given the serious demographic transitions they are experiencing, have only a very limited capacity for expansion. The expansion that will take place will be in non-tradables such as healthcare. India, on the other hand, remains indifferent towards much of its immediate neighbourhood, preferring to leap-frog over them  and reach out to the rapidly  transforming  economies  of  East  Asia.  China  has  used  the  large  programme  of domestic demand stimulation to deal with the Great Recession of 2008-09 by connecting

itself with its neighbours by building a modern transport infrastructure.

Devising a more China-India-Centric System of Global Economic Management

With these differences in history and endowments, the two countries will have to work hard to work together.  One way of doing this will be to create a G2 between them based on developing common positions on international economic issues. During his first official visit to  Asia  in  November  2009,  US  President  Barack  Obama  indicated  his  support  for  the establishment of a new political order for the management of  the global economy. A G2 made up of the US and China would be at the apex of the system followed by the G20 that is made up of seven industrial countries, 12 large emerging economies and the European Union. Most of the large policy initiatives would be the responsibility of the US and China, while India would be relegated to the second tier. The Chinese did not show much enthusiasm for the proposal. It was for this reason that President Obama began to court India a year later when he visited that country.

On the other hand, a G2 arrangement involving China and India may better serve their separate and mutual interests. They could also begin to gather under one umbrella the various regional economic and trading arrangements that have proliferated in the last few decades. They should develop a common approach in gaining access to the global resources that both are deficient in. In other words, the idea should be to stress the commonality rather than allow other large global powers to put an accent on the perceived differences  between the Asian powers.

Burmese Generals ‘Hate China’, Says India

Burma’s hermetic military rulers detest their strongest ally, China, according to an Indian official quoted in a leaked US diplomatic cable.

Washington’s Consul General in India, Peter Kaesthner, also explains in the cable that India feels its position on Burma is compromised by persistent US pressure to be more vocal about rights and democracy.

India, which does not want to be castigated for engaging the Burmese generals, has often rued external pressure. Delhi’s position is that engagement will be more productive than the condemnation of the junta expressed by the majority of western democracies.

The cable dates from 2007, and documents a conversation between Kaesthner and Mohan Kumar, the joint secretary of India’s Ministry of External Affairs.

“The more the US presses India to bring Burma before the UN Security Council, [Kumar] said, the more the Burmese tell India to ‘go to hell’,” Kaesthner wrote.

Furthermore, if India engages the generals, then Burma will be able to loosen China’s grip on the country.

“Burmese officials have told Kumar that they ‘hate’ the Chinese and would prefer not to cooperate with China, but do so because they feel Beijing is more reliable than New Delhi”.

No elaboration is given on how India would promote democracy in Burma, were it to be closer to the ruling junta. But, tellingly, the cable reveals that economic objectives in its relations with its eastern neighbour remain key.

While India has sought to increase investments in Burma over the past two decades, particularly in the energy sector, Kumar reportedly told Kaesthner that, “We’re getting screwed on gas”.

“India is not getting any gas contracts from Burma, nor is it getting the transit rights it seeks which would open a bridge to East Asia,” Kaesthner wrote.

This raises an important, but often overlooked, Indian imperative: that whilst China seeks a strategic gateway to the Indian Ocean via Burma, India in turn would seek to use the pariah as its own access point to the growing eastern economies.

It also perhaps alludes to an Indian understanding of US imperatives that look to counter China’s influence in the region.

Moreover, while references to the promotion of democracy arise frequently in the cable, it also makes mention of Bangladesh, Sri Lanka and Pakistan, countries where China’s influence is growing and where both India and the US are keen to stem this.

Since the cable was sent in 2007, India has seemingly moved beyond the unidimensional level of cooperation over counterinsurgency on the troubled border to eye with increasing fervour Burma’s vast natural gas capacity.

Delhi has gained a stake in the Shwe gas project and has come closer to developing some of Burma’s hydropower potential, whilst bilateral trade has also increased significantly.

Tension between India and China has been a recurrent theme since the two nations fought a short war in 1962 over their disputed, ill-defined Himalayan border. The tensions persist to this day with Chinese claims for the Indian state of Arunachal Pradesh.

Despite trade between the two nations expanding rapidly before a recent visit to Delhi by Chinese Premiere Wen Jiabao, Beijing has described the bilateral relationship as “very fragile”.

 

US The Peg, India High In China’s Foreign Policy Deliberations

After a surge in aggressive, sometimes bordering on threatening foreign policy over the last two years, the Chinese leaders have realised that their perceived unchallengeable comprehensive national strength (CNP) could also be fragile.

Although the second largest economy in the world on national GDP, China still figures at 104 in per capita GDP terms. It is the largest exporter in the world, but depends almost exclusively on imported raw material to produce goods. Its galloping economic growth is dependent on energy, on import of oil and gas. Can China use military power to ensure foreign inputs? Absolutely not, though some in the Chinese hierarchy, especially the military, thought so.

It is not an encirclement policy engineered by US President Barack Obama that has caused consternation among China’s neighbours in the Asia – Pacific Region (APR). It was China’s aggressive posture and gun- boat diplomacy. In fact, Barack Obama went out on a limb to court friendship with China from the beginning of his presidential term. But Beijing apparently read it as weakness, given USA’s financial problems. What they missed was how could the USA spend hundreds of billions of dollars in Afghanistan and Iraq? This basic point was missed by those in Beijing who were heady with the wine of self-perceived power.

It’s time to do some serious introspection in China over the country’s growing hard line and ‘fist in your face’ international behaviour. Differences within the top hierarchy are visible, with many foreign policy experts openly disagreeing with their Party’s and government’s stated line. The most important is the disagreement with China’s appeasing and protective policy towards a belligerent North Korea threaten the stability of East Asia.

The official China Daily (Dec. 27, 2010) published an extract from a report “2010: Regional Security Change and China’s Strategic Response” prepared by China’s top think tank, the Chinese Academy of Social Sciences (CASS) Institute of Asia – Pacific Studies which reflects a new thinking. The report was obviously prepared at the instance of the Foreign Ministry and the Communist Party, and the extract was published to give only a glimpse at a new trend in China’s thinking in the making.

Briefly, accepting the United States as the fulcrum of global exchanges and balance of power, the extract identified four factors that have changed China’s security environment, and advised five fronts on which China should tighten its regional security management – (i) It admitted that the US remained the bellwether with its “ flying grease “ security structure, (ii) the US – Japan and US – South Korea (ROK) alliances as the second US security chain, (iii) the US relationship with Australia, Thailand and the Philippines as the third, and (iv) ties between US and Vietnam, Indonesia and India as the fourth.

Lately, there has been an open acceptance of India as a power to contend with, but with strategic care. The Liaowang (Outlook Weekly) in December wrote India was a power that could not be ignored by the international system given its economy, demography, culture and military; its status in the post-economic crisis era was pronounced; its relationship with major powers appeared getting better as the year came to an end.

The Liaowang commentary was among other official media reports which were a mix of sobriety and sarcasm, just before Premier Wen Jiabao’s visit to India. Under the circumstances, Premier Wen was at his classical Chinese best trying to warm relations with India, but not giving an inch. He interacted with school children, emphasized trade and economic relations, and suggested some recent Chinese policies towards India could be adjusted. But he also faced an Indian government very different from his last visit. India insisted on reciprocity, making no concessions on “its core interests”, even indicating that New Delhi could change its support to China’s core interests if Beijing continued to abuse those of India’s, especially on Kashmir. Wen proposed that the “stapled visa” issue could be resolved by officials of both sides. Unfortunately, India accepted it. In negotiations, both sides have to give. But why should India give, and what, on an issue unilaterally created by China.

The CASS report assessed that India’s growing relationship with the US was an issue to address seriously, that even beyond India’s developing relations with Japan, Vietnam and other countries, it was the US ingredient through which China must pay special attention to India’s diplomacy in 2011.

China has been looking at India through the narrow focus of the growing India-US relations following the India-US peaceful nuclear deal of 2008. It senses that this single deal had over turned China’s strategy to constrict India within South Asia, as this had spurred India-US military and high technology exchanges, and cooperation in strategic affairs.

The US was seen as promoting India in the ASEAN, and was more concerned over the May 2006 Trans-Pacific Strategic Economic Partnership Agreement (TPPA), now joined and pushed by the US. The TPPA started with Brunei, Chile, New Zealand and Singapore, known as the P-4, and was joined by five others – Australia, Malaysia, Peru, United States and Vietnam. Others likely to join the TPPA soon one Japan and South Korea who are in consultation, and India was an eminent candidate for the same.

China views the TPPA as another US vehicle in the region to assert the primacy of its security and economic interests, and render the ASEAN + 3 (China, Japan and South Korea) mechanism as almost redundant.

The CASS thinking cannot yet fully comprehend why the US suddenly hurried back to impose its position in the region, complicating China’s relationship with its neighbours. It was highly perturbed with the leadership of the US, Japan and South Korea declined to join the China proposed six-party (North Korea, China, South Korea, Japan, the US and Russia) talks to calm down the tension in North East Asia, after North Korea sank a South Korean naval ship in March this year, and the shelling of a South Korean island in November.

The report says that China’s most vulnerable security environment lies in North East Asia, but the published extract of the CASS report does not seem to recognize that it was China’s protection to the Pyongyang regime that allowed it to configure its nuclear weapons and delivery systems and threaten its neighbours.

China has its own concerns which the unpublished portion of the CASS report would certainly have discussed with some suggestions. One, the Chinese top leadership fears that if North Korea collapses the two Koreas will unite with South Korean domination. An influx of North Korean refugees in such a scenario would not be a major problem for China. What would threaten China’s security in such a scenario would be a nuclear Korea under US and Japanese influence. Even more threatening would be the repercussion of the collapse of the North Korean communist regime on the Chinese Communist Party (CCP) which is already under some strain from within the country. The collapse of the CCP is visualised as the collapse of China – at least by the party leaders.

Although the collapse of the CCP cannot be visualised in the near future, the dissidence among activists including retired senior elders of the party does raise concerns for the current leadership. Collapse of the CCP will bring about consequences that are unimaginable. Therefore, North East Asia is China’s weak link.

China, however, was making a mistake by strategising that India was riding on USA’s shoulder to contain it. This is neither in India’s strategic interest nor in its economic interest. The two countries could make Asia’s destiny if such perception and mistrust were removed. At the same time, India has its own interests. China has been all over India’s neighbourhood strategically, militarily and economically to counter India. This is very visible currently not only in Pakistan, but in Nepal and Sri Lanka, with some setbacks in Bangladesh after a change in government in that country.

India must strongly pursue its interests in the ASEAN as a group and individually, similarly in North East Asia, and examine joining the TPPA. China cannot take umbrage. This is the reality of a globalised world, as India and China were also cooperating in certain international fora. Beijing should make some very serious introspection about India – partner, friendly cooperation, or antagonism. Till now China has shown little to encourage trust from India.

(The author is an eminent China analyst with many years of experience. He can be reached at grouchohart@yahoo.com)

 

Bihar Elections: Another turning point in country's political history

Saeed Naqvi
29 November 2010

Bihar’s much derided electorate has administered a resounding double-fisted punch on the chin of exactly the sort of politics which breeds 2G spectrum, Adarsh and CWG. Chief Minister Nitish Kumar of Janata Dal (United) party has also demolished caste and emerged as 21st century India’s model leader.

It was smart anticipation on the part of Congress President Sonia Gandhi to walk briskly towards the cameras and, avoiding the Bihar debacle, rattle off the list of corrective measures against those of her party or coalition partners caught with their hand in the till. She contrasted this against BJP’s triple summersault on Yedyurappa and his scams in Karanatka. In her brief performance there were shades of Indira Gandhi who, when cornered, generally lashed out.

Holding onto Nitish Kumar’s waist coat, the BJP has exceeded all expectations in Bihar. They could have basked in that glory a little longer. Instead of partying in Patna, they yoked themselves to Yedurappa in Bangalore, because, by some accounts, he threatened to split the local BJP and deny the party the support of every single Lingayat Muth in Karnataka.

Nitish Kumar, of course, has made history by universally acclaimed good governance and brilliant politics. Once it became clear that the minorities had totally given up on the Congress particularly after the Ayodhya Judgement, the expectation was that the Muslim vote would habitually drift towards Lalu Prasad Yadav.

That the Muslims turned to Nitish Kumar despite his alliance with the BJP could well be another turning point in the country’s political history. This confirms the extent of Muslim exasperation with the Congress. Nitish Kumar harnessed this disgust deftly by coming across as a firm leader who could keep the BJP on a tight leash. In other words, he could moderate the BJP.

No BJP leaders, who are anathema to the minorities, were allowed to campaign. Then there was the record of five years free of communalism, years of development, roads, schools, uniforms, gender equality, 11 percent growth, a general ambience of welfare. The compelling attractiveness of development, dwarfing caste and religion, places Nitish Kumar as the tallest leader today.

The BJP worked with the diligence of ants.

Taking full advantage of Nitish Kumar’s secular efficiency, under his attractive, overarching canopy, the BJP cadres moved (rather like “Birnam wood” coming to “Dunsinane Hill” in Macbeth) and clinched their 91 seats varying their flight and spin imperceptibly from constituency to constituency. A dedicated cadre in the alliance must have helped Nitish Kumar too to clock 115 seats.

What Nitish Kumar has on his hands now is a first rate political situation. The BJP was never expected to come so close to the JDU in numbers. Together, they now have a record four fifth of a House of 243. It is a paradox of politics that Nitish would have had an easier five years with a simple majority plus 20 seats. Why? Because friction is built into the present numerical equation between the JDU and the BJP.

A pity Lalu Prasad Yadav of the Rashtriya Janata Dal is walking into the sunset. He was an amusing figure in a country bereft of political humour. Also, he probably had outlived his utility at a time when Mandal is a fading memory. Some credit must also go to him: the caste churning he inaugurated prepared the ground for Nitish Kumar to aim for a new social equilibrium. This must not mislead folks from believing that we have moved into a post caste era. Far from it.

In the two by elections in UP, Mulayam Singh Yadav’s Samajwadi Party trounced the Congress. Apparently in the October Panchayat elections, the Congress suffered reverses in its citadels of Rae Bareli and Amethi. The spin being given is that the Panchayat elections were on non-party lines and Mayawati was now buying up the winners. Does it sound plausible at all?

The election season has truly begun. Elections to State Assemblies in Tamil Nadu, Pondicherry, Assam, West Bengal and Kerala stare a debilitated Congress in the face in March and, a year later in UP and then the ultimate Kurukshetra, the General Election in 2014.

Congress rules alone or as UPA in eleven states. So do the BJP and its NDA incarnation, as in Bihar for instance. There are as many States where the Chief Ministers come from stables other than BJP or Congress.

Neither the Congress nor the BJP leadership at the Centre inspires. One of the shackles on the Congress is the party’s almost servile inability to spell out whether the Youth Surge, with Rahul Gandhi in the vanguard, is real or ephemeral. Does anybody in the party dare speak out that “Ekla chalo (go it alone)” in Bihar or UP is an unrealistic slogan?

(Saeed Naqvi is a Distinguished Fellow with Observer Research Foundation)