A new era of engagement for China and India

Neeta Lal says signs of closer ties between China and India since Modi's election victory may finally start to ease border and trade-deficit tensions between the two Asian giants

PUBLISHED : Friday, 13 June, 2014, 4:29pm
UPDATED : Saturday, 14 June, 2014, 5:54am

Signalling a new effervescence in bilateral ties, Foreign Minister Wang Yi, who spent two days in India this week as a special envoy of President Xi Jinping, described the country's newly elected prime minister, Narendra Modi, as "an old friend of China" and one whose new government has injected "vitality into an ancient civilisation".

Beijing's decision to send a special envoy to New Delhi - also the first foreign minister to visit India - only two weeks after India's Hindu nationalist Bharatiya Janata Party stormed to power, is widely being interpreted by policy pundits as a "good augury".

When Modi took over the prime ministerial mantle on May 26, the first world leader to phone him was Li Keqiang . The Chinese premier expressed a desire to form a "robust partnership" with India and Modi replied that China was "always a priority in India's foreign policy".

The reinforcement of bilateral priorities between the two Asian giants - who fought a bloody Himalayan war in 1962 - marks a propitious beginning to a new paradigm of bilateral engagement. The agenda is being carried forth with Wang's visit and will be further reinforced with Xi's sojourn to India later this year, as well as his meeting with Modi at next month's BRICS conference in Brazil.

Yet the question occupying the strategic community is whether this newfound traction in ties will translate into a better relationship. There's no doubt that China will pose both a big economic opportunity as well as a strategic challenge to India's new administration; with rapidly altering geopolitical equations in Asia, dealing with the dragon will require a nimble-footed approach that was missing in the previous Congress-led coalition government.

However, some of the foreign policy starchiness may be leavened by the many areas of convergences. Both India and China are developing economies eager to improve the lot of their combined 2.6 billion people. Over the next decade, China will be home to the world's largest elderly population while India will require jobs for the world's largest workforce; these complementarities offer scope for both nations to work in synergy.

China also has a vast underused manufacturing capacity, plus capital surpluses in need of new markets. With Western economies remaining skittish, India - with its 1.25 billion people and bubbling entrepreneurial energy - offers China's investors mouthwatering opportunities.

Also, China is seeking greater economic cooperation with India on the Bangladesh-China-India-Myanmar corridor and the New Silk Route programme. In a recent interview, China's ambassador to India said Beijing could help accelerate India's economic take-off by focusing on the key areas of manufacturing, roads, railways and industrial parks, which can also form the bedrock for two-way trade ties.

Modi enjoys a degree of leverage that he can use to his advantage. He visited China three times as the chief minister of the western state of Gujarat. In 2011, he signed a US$67.6 million memorandum of understanding with a Chinese company producing transformers.

While remaining tight-lipped about the contours of his foreign policy, Modi has hinted at a focus on economics. This will introduce the other big challenge for Delhi's new regime - the bilateral trade imbalance. Though two-way trade figures are expected to touch US$100 billion next year, there's a US$40 billion trade imbalance skewed in China's favour, which rankles India. This inequity has often overshadowed trade negotiations.

However, policy pundits believe that a pro-business Modi may be able to address this asymmetry by urging China to create a beneficial environment for Indian investors. Improving access to more Chinese markets, especially in the sectors of pharmaceuticals and agricultural products, will go down well with Indian businesses.

Another Himalayan challenge for Modi, no doubt, will be the settlement of the protracted border dispute that has haunted both countries since the 1962 war.

Tensions along the Indo-China 3,500-kilometre border between the world's two most populous countries continue to simmer and strain ties. Therefore, even as it raises its level of engagement with Beijing, the Modi-led government is ramping up border infrastructure in the north and plans to fast-track the modernisation of the armed forces - both areas left unaddressed by the previous government.

The nationalist BJP is also keen to ratchet up military spending to push forward with the buying and deployment of a vast array of new weapons and weapon systems along the border. A proposal that allows 100 per cent equity holding by foreign investors in India's defence industry is also in the pipeline.

This is not unexpected, considering Modi is seen as a far more assertive leader than Manmohan Singh. On his campaign trail on a February visit to India's far eastern state of Arunachal Pradesh, a region claimed by China, Modi called on Beijing to end its expansionist aims. "I swear in the name of the soil that I will protect this country," Modi thundered at a state rally. "No power on earth can snatch away Arunachal Pradesh. The world does not welcome the mindset of expansion in today's times. China will also have to leave behind its mindset of expansion."

Also interesting to consider while reviewing Sino-Indian ties is the Japan dynamic. The visit of Japan's emperor and empress last December and Japanese Prime Minister Shinzo Abe (who has known Modi for 10 years) as the chief guest at the Indian Republic Day celebrations this year are indicative of Delhi's deepening ties with Tokyo. With both China and Japan competing for India's attention in trade, Delhi is in an enviable position to push for deals that best serve national interests.

Antagonising Beijing while befriending Tokyo is not on Modi's agenda, however. For this reason alone, he has eschewed visiting Japan on his first visit abroad despite his long-standing friendship with Abe. Such a gesture would not have gone down well with Beijing.

Modi has instead decided to visit Bhutan as his first destination, which also meshes well with his agenda to prioritise regional friendships.

A yawning trade deficit, and a festering border dispute have for decades defined the larger narrative of Sino-Indian ties. It's time both countries infused fresh momentum in their bilateral outreach.

A foreign policy premised on an enhanced and balanced economic engagement, along with some out-of-the-box and bold thinking, can be a game changer - not only for both the Asian giants; they may even jump-start an Asian revolution.

Neeta Lal is a New Delhi-based senior journalist