If any good can be seen coming out of Doklam in 2017, where, for 70 days, Indian and Chinese troops faced off on the Doklam Plateau, it is that it has led Chinese President Xi Jinping and Indian Prime Minister Narendra Modi to institutionalize their informal summits to avoid a repeat performance of these types of confrontations. The Sino-Indian border conflict has been ongoing for nearly 70 years, with its origins predating both an independent India and the existence of Communist China.
The two nuclear powers met for an informal summit in April 2018 in Wuhan, where Xi remarked that “Conducting great cooperation by our two great countries can generate worldwide influence,” and 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, 2019, underscoring the volatility of this region.
In an attempt to move beyond their mutual enmity, Indian and Chinese army officers met on October 1 of this year at Bum La to celebrate Chinese National Day hosted by Beijing. It is no wonder that India and China has been described as “frenemies,” given the complexity of their relationship.
These periodic confrontations notwithstanding, China and India both recognize the need to address the real and exigent issues in their respective countries; that is, their economies and economic development. Therefore, it is of mutual interest for these informal summits and military-military meetings to incrementally get their relationship back on track.
Geo-economics Trumps Geopolitics
Meeting in the seaside town of Mamallapuram in India for their second informal summit on October 11 and 12, Xi remarked, in a refrain from Wuhan, that China and India should be “good neighbors, good friends,” as both countries are “important engines of the world economic growth.” By building on that theme, they indicated that the two countries should “enhance dovetailing of the two countries’ development strategies” to build a “manufacturing partnership.”
One key focal point of the discussions was the issue of trade, where India has a $53 billion trade deficit with China, which accounts for nearly a third of its entire trade deficit. India has for some time sought greater access to Chinese markets, such as generic pharmaceuticals, IT services, and the easing of China’s non-tariff barriers, which it believes has been the cause of its trade deficit. And while India’s trade deficit with China purportedly fell by $10 billion in FY2019, there are indications that this decrease has been masked by rerouting the exports through Hong Kong, or Vietnam where, due to lax rules of origin, a decrease in exports from China correlated with a sharp rise in export of the same products from Hong Kong and Vietnam during the same period.
China would like India to join the Regional Comprehensive Economic Partnership (RCEP); an agreement that is hard for India to dismiss, as it is Asia’s most significant Free Trade Agreement (FTA). But India has felt that it has consistently been on the losing end of FTAs both with the ASEAN nations and the other RCEP countries. With an elephant such as China in the room, the fear is that the onslaught of imports will only worsen.
Is it All about Pakistan and Sri Lanka?
In the larger picture, however, it is simply impossible to decouple trade and economic issues from the larger geopolitical implications. Not least is the August revocation of Article 370 of the Indian Constitution, which “split the state of Jammu and Kashmir into two union territories, Jammu-Kashmir and Ladakh.” This move was likely a consequence of the China-Pakistan Economic Corridor (CPEC) being constructed through the region under Indian control. CPEC is the largest of China’s Belt and Road Initiative (BRI) projects and is expected to connect China’s western Xinjiang region to Pakistan’s port in Gwadar.
While China supported Pakistan, its major concerns were put to rest when India informed China unequivocally that this did not “change the status quo on the Sino-Indian border,” which allowed China to declare Kashmir to be a bilateral dispute between India and Pakistan. India’s move, as well as Pakistan’s current debt issue, will now likely slow the CPEC project.
China will also need to carefully manage its relationship with India, as well as neighboring Sri Lanka. Given its energy dependence on resources from the Middle East, as well as the 37 African countries and the African Union now signed up to the BRI, China will need to ensure the security of the Sea Lines of Communication (SLOC) both in the Bay of Bengal as well as the Indian Ocean region.
Windfalls of Sino-American Trade War
While the current US-China trade war continues, India may be able to exploit this conflict by luring manufacturers currently based in China, and shifting production to India. Major sectors that make good candidates would be pharmaceuticals, chemicals, and engineering. According to the India Brand Equity Foundation (IBEF), the Indian 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 UK.”
Foxconn, the largest electronics manufacturer in the world, and maker of Apple products, has already shifted some of its manufacturing to India in order to “diversify their manufacturing supply chain away from excessive reliance on Chinese production,” according to Rajiv Biswas, the IHS Markit Asia Pacific Chief Economist. The biggest challenges for India are land laws, labor regulations, and a robust infrastructure to ensure access to “proper roads and ports, as well as ensuring that power is available.”
India’s technical infrastructure will be particularly problematic with respect to 5G technology, as it basically pits the US against China in its adoption, with India stuck in the middle. China has asked India not to block Huawei from bidding on 5G mobile infrastructure business in India, 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 the tangibles of $100 billion in bilateral trade this year, against the intangibles of intelligence sharing, will leave India with some very difficult choices.