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Wildcards may trump India–China relations

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In Brief

Commentators have generally assumed that the Obama administration’s wrong-footedness over Modi’s US visa, along with the latter’s pragmatic approach to Chinese investment in Gujarat, has prompted a new tilt by the BJP away from the United States and toward China.


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India would certainly favour a thaw in relations with China so it can get on with the urgent task of developing infrastructure and stoking economic growth, with Chinese investment playing a role in an otherwise etiolated international investment climate.

But in the long term, there are wildcards that could complicate relations between India and China.

Astute observers of Indian security policy in New Delhi will be concerned that China’s friendship is merely a tactical move in the wider strategic game of China’s rise as an East Asian and Pacific power. They would assess that China is adopting the classic divide-and-rule tactic. In other words, once China is truly powerful in East Asia and the Pacific, it will turn its attention to its border and other claims against India from a position of strength. In the meantime, it will keep India happy by doling out investment money.

This realisation may not stop the Modi government attempting to ‘play both ends against the middle’, especially since this approach has been a classic feature of Indian foreign policy for many decades. Under this scenario, India would seek the best deal it can from China, both economically and in terms of a possible border settlement, while attempting to maintain its hedge against a possible difficult rise of China with other major powers such as the US and Japan. But this is a complicated game. And is India’s security policy integrated and sophisticated enough to carry it off?

A second wildcard is Pakistan. The Pakistan–China relationship has until recently appeared to all intents and purposes to be ‘rusted on’. So long as the India–Pakistan relationship remains as troubled as it has been in the years following the Mumbai attacks of November 2008, it will be difficult for India to set aside its differences with Pakistan. And so long as Beijing continues to offer economic and strategic support to Pakistan, the relationship between China and India will be negatively affected.

There are two possibilities for breaking this logjam. India and Pakistan may be able to repair their relationship, thus freeing up space for improved relations between India and China. Or, Beijing may decide that China has more to gain by friendship with India and distance itself from Pakistan.

Although Modi has made an important overture to Pakistan by inviting Prime Minister Nawaz Sharif to his swearing in, essentially the ball will be in Pakistan’s court in terms of any significant rapprochement with India. Certainly, there are those in Pakistan, including perhaps Sharif himself, who would favour such a deal.

But there are other players in Pakistan who are less approving of such an outcome. Extremists in Pakistan such as Lashkar-e-Taiba, the perpetrators of the Mumbai terrorist attacks of 2008, stridently condemned Sharif’s decision to go to New Delhi. The attack on the Indian consulate in Herat on 23 May could also be interpreted as an attempt to derail any rapprochement. Extremists in Pakistan will be working overtime to forestall attempts to improve relations, including through significant terrorist attacks on India.

In order to achieve a meaningful improvement in relations, Pakistan would need to agree to India’s approach, which is to set aside the Kashmir issue while other matters, such as trade, are dealt with first. But Kashmir remains a fundamental commitment for religiously conservative Pakistanis and the army’s attitude to setting the issue aside is unclear. The economy, already struggling at the time Sharif entered office, has not moved ahead since. The moribund energy sector remains paralysed. The country is still wracked by violence and highly divided. What the political leadership wants may prove difficult to deliver.

This raises the possibility that China may choose to trade its relationship with Pakistan for a better one with India.

William Dalrymple maintains that Chinese concern about connections between Uyghur separatists and extremists in Pakistan is already causing Beijing to reconsider its relationship with Pakistan and seek common cause with India against the extremist threat.

A far more likely scenario is that China will seek to pursue friendly relations with both Pakistan and India. Pakistan offers important strategic options in relation to oil and China’s vital sea lanes of communication into the Persian Gulf and future interests in Afghanistan. Friendship with Pakistan provides a possible lever in relation to India and the Chinese border claims, which are significant to its position in Tibet and, increasingly, in terms of competition over water.

For its part, New Delhi may consider that it can put Chinese support for Pakistan aside while it attempts to improve relations with Beijing. But should relations between India and Pakistan again deteriorate, perhaps as a result of a new terrorist attack, China will be forced to choose between the two — just as it chose to support Pakistan in 2008, being one of the very few countries to do so.

The final wildcard is economic relations between the two Asian giants.

What India really needs from a cashed-up China is investment and technical support in infrastructure development. But under the previous government this was limited by strategic considerations, such as the large number of state-owned enterprises investing out of China; ongoing concerns about Chinese investment in strategic sectors like ports, space technology and IT; evidence of serious Chinese cyber-attacks on India; and concern about Chinese investment in sensitive regions like the Indian North East.

Moreover, while bilateral trade has bourgeoned to over US$70 billion, it is overwhelmingly in China’s favour.

India’s response has been not just to limit Chinese investment but also to raise a raft of non-tariff barriers, especially anti-dumping provisions under WTO rules. Modi is close to business and will have an incentive to continue this thrust to limit Chinese economic opportunity and rectify the trade imbalance.

So, the ambiguous, at times troubled India–China relationship will likely continue in that vein. Cooler heads in New Delhi will also no doubt seek to maintain good relations with Washington as a possible hedge against a difficult rise of China.

Finally, there is no saying that China won’t ‘shoot itself in the foot’ when it comes to its activities in East Asia. New Delhi will be watching China’s approach to its friend Vietnam especially carefully, and India is moving increasingly closer to Abe’s Japan. The Modi government will be watching events in East Asia as an indication of how Sino–Indian relations might unfold over the longer term.

Sandy Gordon is a Visiting Fellow at the Asia-Pacific College of Diplomacy, College of Asia & the Pacific, The Australian National University.

A version of this piece first appeared here in South Asia Masala.

3 responses to “Wildcards may trump India–China relations”

  1. Sandy you missed out another wild card, Indo US relations,any major uptick and a perception in Beijing that India has joined the China Containment axis that it perceives is being set up by Washington may muddy waters in many ways

    • This write-up (quoted below) has already appeared in the US press yesterday. Thank you for your kind observation.

      FYI – Latest development
      Senator John McCain who met Mr. Modi in New Delhi yesterday in New Delhi conveyed the keen desire in the U.S. to work with him to revitalize the India-U.S. strategic partnership going forward with full vim and vigor. Mr. Modi said he hoped for his forward looking visit to the U.S. in September this year to take the relationship to a real new level. Mr. Modi has however made it clear that the strategic partnership going forward will be based on common share values and interests of US-India. What is needed is sensitivity to each other’s concerns so that there can be tangible progress across the full spectrum of bilateral relations and a mutually beneficial relationship. It is well known in India that Senator McCain is the father of American Exceptionalism and hegemonic global politics, especially since invasion and occupation of Iraq. Modi has clarified to him that he should not use his visit to impress India on containment policy against mainland China. India is having a separate well streamlined bilateral relations with China which is growing. It is known that Modi being pro business will always work on bilateral relations that are fair and balanced. Mr. Modi added that the success of democratic countries and their cooperation is that they will advance peace, stability and prosperity in the world. He added that there is real concern over the increased threat of terrorism across the world, and reiterated that the fight against terror should be a global priority for humanitarian forces to which Mr. McCain fully agreed and said he agenda is to extend his full support to India.

  2. US and Obama need India now.
    Having just returned from a trip to Hong Kong and Macau and having an opportunity to speak to various (English speaking) Chinese tourists and also a couple of local financial experts, I could gather that the general mindset of the Chinese today is to find new markets globally. They say they see latent potential in Latin America as the N. American economy is on a definite decline. They add that they need to protect their hard earned investment lying in the USA. The best way therefore is to expand in that region (which needs cash) and find interesting avenues for investment., which also means defense deals. This brought in a new perspective and thinking. What should Obama do to contain this expansion. Yes he might have just found a good bait. “Today US need India for economic/strategic and political reasons and this need to be done early. The timing has been just perfect – Barack Obama inviting Modi in September. Because come November, US will be heading to midterm elections. Obama knows well that Republicans will certainly retain control of the House of Representatives. But he also knows that the result of election will be important for him. If on the 36 seats in the senate, Republicans get an upper hand then this could weaken Obama. What he wants to do is the meeting with Modi in September. He and Republicans know well that today India will be a plus point for the US globally. If Obama can clinch the meeting then it means that he can ride well the next 24 months of his term. India needs energy, Obama can pitch in. Get buy in from India to support Obama on a climate change global agenda in 2015 as India is not going to be led by China in the climate change discussions. Modi being pro business, he is going to allow private sector participation in defense. This is the best time for Obama to pitch in or some juicy deals. This will certainly up his ratings, etc. On the security issue in the Indian subcontinent, Obama will do well to keep Modi on his side. This will give him brownie points. So message for Obama is, come September don’t screw up on the meeting with India. ”

    Chinese financial/economic influence today on the US:
    It is well known today that the United States’ debt load has risen substantially in the last 10 years raising concerns about the country’s long-term financial health. A nation’s debt is, after all, the total of bonds that the country has issued. Given the size of the U.S. debt – $17.35 trillion as of year-end 2013 – it should come as no surprise that the largest investors in U.S. Treasuries are other governments and central banks. China, which owned an estimated $1.227 trillion in U.S. Treasuries, is the number-one investor among foreign governments, according to the December 2013 figures released by the U.S. Treasury. This amounts to over 22% of the U.S. debt held overseas and about 7.4% of the United States’ total debt load. Why is China buying Treasuries, this i to help depress the value of its currency (the yuan). A cheaper yuan makes the country’s exports less expensive for foreign buyers, thereby keeping the country’s export-based economy chugging along and now with the focus on Latin America this is much needed. . Consequently, the Chinese economy would suffer as much, if not more than, that of the United States if China were to suddenly stop buying U.S. debt. It’s also important to keep in mind that since China holds such a large position in U.S. debt, the nation has a vested interest in maintaining the health of the Treasury market. Naturally, this provides ample motivation for China to avoid any action that would cause Treasury prices to plunge.
    India Situation (New BJP Government) : As a smooth transition of power took place recently in New Delhi, the political doyens of diplomatic world started contemplating regarding the fate of relationship between the US and India. Today the India-US relations that have caught the imagination of everyone, precisely because the new Prime Minister of India Narendra Modi in the past has been ostracized by the US government after the Gujarat riots of 2002. In the wake of his tremendous victory, it becomes exceedingly important to analyze and interpret the future discourse of this relationship.
    The Obama Administration has moved swiftly to restore some semblance of normalcy in its dealings with Mr. Modi post his euphoric win in India. Modi is a Gujarati businessman and he is unlikely to let past issues affect his policy decisions. The visa issue will now automatically become a non-issue because as Indian prime minister the US will have no option but to engage with him. The US has taken an important first step: President Barack Obama’s invitation to Modi to visit Washington should not be underestimated. This indicates that the US is ready to work with Modi and that it would not let the visa issue cloud bilateral relations. However, the bilateral relationship does not rely on the visa issue alone. There are many areas that can help set things on the right path. Considering the prior BJP administration had very close ties to the United States. In fact, Vajpyaee’s tenure ranks as one of the warmest times in the two nations’ history. Therefore it is more likely that, Modi, recognizing the importance of U.S. trade, security cooperation, and support for a larger Indian role on the international stage, will pick up where Vajpayee left off rather than letting his pride get in the way.
    The pro-business policies of Modi could bring about more U.S. investment in India. The priorities projected by Mode in his speeches suggest helpful movement on matters that have troubled U.S.-India economic ties in the past several years. Modi has talked about ending “tax terrorism.” The party platform promises to rationalize India’s complicated tax regimes and support the introduction of a Goods and Services Tax (GST), which would bring greater predictability to India’s business climate. Moreover, major American companies look to India as a potentially lucrative market and vice versa. Granting private firms to work out their own business and investment relationships will result in benefits for both the countries. U.S. and India should place greater importance on the areas of relationship that have made impressive progress such as Military cooperation, including joint defense exercises, and counter-terrorism efforts.
    Washington will do well for themselves if they reach out to Modi and assure him that while the past cannot be swept under, the future of U.S.-India relations can be bright if managed productively. A Narendra Modi-led government would offer business opportunities for United States-India relations in a big way. India will go ahead and maintain cordial relations with U.S. since Washington does not seek territorial gain from India unlike China and Pakistan. Also, by allying with the US, India stands to gain from a coalition that includes Japan and Australia. For the US as well, India represents a massive market (the Indian Middle Class) for its goods and services. Its middle class is more likely to buy its products than inferior quality, mass-produced Chinese goods. While these market forces will probably force the US to pay more attention to India, a Modi Government, will undoubtedly be seek to develop and enhance its ties with Washington. Most importantly the US India relationship is important not only because it is a relationship that advances the interest of the United States or India, but it is an important relationship because when the world’s largest democracies partner together, the ability to advance and bring global benefit increases by leaps and bounds. Obama cannot stop China from going full speed into Latin America, what he need urgently is a bait (to tell the Republicans) and India fits the bill very well only if he plays his cards well.

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